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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 2000
Commission File Number: 0-14815
PROGRESS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2413363
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4 Sentry Parkway - Suite 200
P. O. Box 3036
Blue Bell, Pennsylvania 19422-0764
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 825-8800
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Securities registered pursuant to Section 12(b) of the Act: Non applicable
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
-----------------------------
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____________
The aggregate market value of the voting stock, held by non-affiliates of the
Registrant as a group, was $39,240,118 as of March 5, 2001, based upon the
closing price of $7.625 per share of the Registrant's common stock on March 5,
2001 as reported by The Nasdaq Stock Market(SM).
As of March 5, 2001, there were 5,688,895 issued and outstanding shares of the
Registrant's Common Stock.
Documents Incorporated By Reference:
(1) Portions of the definitive proxy statement for the 2001 Annual Meeting
of Shareholders are incorporated into Part III, Items 10 through 13 of
this Form 10-K.
PROGRESS FINANCIAL CORPORATION
Table of Contents
PART I
Page
Item 1. Business.................................................................................. 3
Item 2. Properties................................................................................ 9
Item 3. Legal Proceedings......................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders....................................... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ............ 10
Item 6. Selected Consolidated Financial Data...................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 12
Item 7A. Quantitative and Qualitative Disclosure about Market Risk................................. 23
Item 8. Financial Statements and Supplementary Data............................................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 50
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 50
Item 11. Executive Compensation.................................................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 50
Item 13. Certain Relationships and Related Transactions............................................ 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 51
Signatures................................................................................ 53
2
PART I
Item 1. Business
General
Progress Financial Corporation (the "Company"), headquartered in Blue
Bell, Pennsylvania, is a diversified financial services company incorporated
under the laws of the State of Delaware. The Company owns all of the outstanding
stock of Progress Bank (the "Bank"), a federally chartered savings bank. The
Company is a registered unitary thrift holding company and is authorized as a
Delaware corporation to engage in any activity permitted by the Delaware General
Corporation Law and federal law and regulation. The holding company structure
permits the Company to expand the size and scope of the financial services
offered beyond those that the Bank is permitted to offer.
The Company's current business strategy is to operate as a diversified
financial services company providing a full range of banking services with an
emphasis on commercial business loans and leases to small- and medium-sized
businesses, commercial real estate loans, and to a lesser scope, residential
construction and consumer lending, funded primarily by customer deposits. As a
complement to this core business, the Company has expanded its business
activities to include: real estate advisory; insurance and financial planning;
asset management, managing funds which provide subordinated debt financing and
equity funding primarily to technology companies in the Mid-Atlantic region; and
communications and telemarketing, which provide a steady source of fee income.
Banking. The Bank conducts its business through ten full-service banking
offices located in Montgomery County, one full-service banking office in Bucks
County, one full-service banking office in Delaware County, two full-service
banking offices in Chester County and two full-service banking offices in
Philadelphia County, in southeastern Pennsylvania.
Historically, the principal business of the Company consisted of
attracting deposits from the general public through the Bank's branch office
network and using such deposits to originate loans secured by first mortgage
liens on existing single-family residential, multi-family residential and
commercial real estate as well as to originate construction loans. Beginning in
1995, the Company's emphasis shifted to commercial business, commercial real
estate, construction lending and equipment leasing, with a focus on providing
such banking services to small- and medium-sized businesses, including companies
in the technology sector.
The Company also invests in mortgage-backed securities, including
securities which are insured or guaranteed by the U.S. Government and agencies
thereof, and other similar investments permitted by applicable laws and
regulations. In addition, the Bank is periodically involved in real estate
development and related activities, through its subsidiaries, primarily to
facilitate the completion and sale of certain property held as real estate
owned.
Commercial Business Lending. The Bank's commercial business lending area, which
excludes TechBanc, provides customized loan, deposit and investment products, as
well as cash management services to small- and middle-market businesses. Through
the Bank, the Company originates secured or unsecured loans for commercial,
corporate, business and agricultural purposes, which include the issuance of
letters of credit.
As a result of acquisitions of small- and medium-sized financial
institutions by large bank holding companies in southeastern Pennsylvania in
recent years, a growing number of small- and middle-market commercial customers
have sought the full range of commercial banking services that the Bank offers
due to the personalized service the Bank provides. The Company believes it has
an opportunity to expand further its commercial lending relationships and
increase its commercial deposits due to the willingness to tailor its products
to the small- and middle-market businesses. In addition, this consolidation has
resulted in the availability of experienced commercial lenders.
In recent years, the Bank has increased significantly its commercial
business lending. The Bank's commercial business lending portfolio increased to
$113.4 million at December 31, 2000 from $71.5 million at December 31, 1999.
Most commercial business loan customers are small- to middle-market businesses
located in the Bank's primary market area. Generally, commercial business loans
are between $100,000 and $2.5 million; however, the largest commercial business
loan at December 31, 2000 was $3.9 million. During 2000, the Bank launched
eBusiness Banking, a device that makes commercial cash management products
available on-line. Several eBusiness Banking access packages are available to
coordinate with the different types of business checking accounts. The Bank has
also enhanced its commercial banking by allocating resources to specialized
areas of commercial lending including Private Banking, Government Guaranteed
Lending and Asset-based Lending.
3
Private Banking offers a wide range of banking and investment services
to high net worth individuals and small businesses. During 2000, its second
year, Private Banking expanded to include its first de-centralized office in the
Bank's Chestnut Hill branch. At December 31, 2000, Private Banking had $15.6
million in commercial business loans.
Government Guaranteed Lending started in January 2000. While various
governmental guaranteed programs are implemented to give our clients the desired
solution to their financial challenges, the most prevalent is the Small Business
Administration ("SBA") loan program. Under the SBA loan program, the Bank was
granted Certified Lender status in March 2000 and gained Preferred Lending
Program ("PLP") status in October 2000, reflecting the high level of activity in
the program after only nine months in operation. The PLP designation, reserved
for the most active and knowledgeable lenders, streamlines the lending process
by allowing the Bank to underwrite SBA loans independently and grant credit
approval without prior SBA review. At December 31, 2000 Government Guaranteed
Lending had $4.7 million ($7.7 million gross of $3.0 million in participations
sold) in commercial business loans.
TechBanc. The Bank established the Specialized Lending Division in 1996, in
order to provide customized financial services to companies in the technology,
healthcare and insurance industries. In 2000 the Specialized Lending Division
was renamed TechBanc. TechBanc primarily focuses on lending to technology-based
companies in the greater Philadelphia geographic area from Princeton, New Jersey
to Richmond, Virginia and west to Harrisburg, Pennsylvania. The division seeks
to develop relationships with emerging technology-based companies which have
already received initial venture capital and have annual revenues of at least
$1.0 million. TechBanc is comprised of senior lending officers with experience
in the emerging business markets and operates out of its office in Blue Bell,
Pennsylvania; and expanded in 2001 to New Jersey opening an office in the
Princeton area. The New Jersey Technology Council named TechBanc its "preferred
provider." This designation gives TechBanc the exclusive marketing rights to the
membership of that organization, a status the Bank has retained with the Eastern
Technology Council of Greater Philadelphia since 1998.
Generally, TechBanc loans are originated with a balance of between
$100,000 and $5.0 million. At December 31, 2000, the Bank had approximately 160
commercial business loans with an aggregate balance of $62.6 million outstanding
originated through TechBanc; the largest TechBanc loan was $7.5 million of which
$3.8 million was participated to other financial institutions. Customer assets
(including deposits in checking, certificates of deposits and sweep accounts)
under TechBanc management reached $206 million during 2000.
In addition to providing financing, the Company often obtains an equity
position in the borrower in the form of warrants to purchase common stock of the
borrower. At December 31, 2000, the Company held warrants to purchase common
stock of 43 companies that are customers of TechBanc. The Company generally
recognizes client warrant income on such investments when such common stock is
publicly traded and any applicable restriction or lock-up period on the sale of
the warrants or the common stock expires. There can be no assurance that the
common stock of any of these companies will become publicly traded or that the
common stock will trade at or above the warrant exercise price. As an incentive,
10% to 15% of any proceeds realized from the warrants during each six-month
period beginning in January and July is contributed to an incentive pool to be
paid to employees of TechBanc. The incentive pool is reduced by a portion of the
charge-offs the Bank has realized from loans in the TechBanc portfolio during
such six-month period.
The following is a brief description of the only company in which the
Company held warrants at December 31, 2000 for which the underlying common stock
was publicly traded:
Ravisent Technologies, Inc. ("Ravisent") is a DVD hardware and software
company located in Malvern, Pennsylvania. The Company holds warrants to
purchase 50,000 shares of Ravisent common stock with an exercise price
of $3.56 per share and an expiration of seven years from the date of
issue. Ravisent went public at an initial offering price of $12.00 per
share of common stock on July 16, 1999. The trading of this stock, like
many Internet companies, is very volatile. Upon exercise of the
warrant, the Company would be prohibited, under General Rule 144 of the
Securities Act of 1933, from selling or otherwise disposing of the
stock acquired for a period of 12 months.
Commercial Real Estate Lending. The Bank originates mortgage loans secured by
multi-family residential and commercial real estate. Commercial real estate
loans originated by the Bank are primarily secured by office buildings, retail
stores, warehouses and general-purpose industrial space. Commercial real estate
loans also include multi-family residential loans, substantially all of which
are secured by apartment buildings. Significant portions of such loans are
secured by owner-occupied properties and relate to borrowers that have an
existing banking relationship with the Bank. Commercial Real Estate Lending
continued to expand through the Bank's Real Estate Capital Markets Lending
Program which enables the Bank to provide its real estate clients with
non-recourse, long-term, fixed-rate permanent financing for all types of income
properties.
4
At December 31, 2000, the Bank's commercial real estate loan portfolio
consisted of approximately 300 loans with an aggregate principal balance of
approximately $178.9 million and the Bank's largest commercial real estate loan
customer had an outstanding balance of $12.9 million which includes
participations with other financial institutions of $9.7 million. Although terms
vary, commercial real estate loans secured by existing properties generally have
maturities of ten years or less and interest rates which adjust every one, three
or five years in accordance with a designated index.
At December 31, 2000, substantially all of the Bank's commercial real
estate loan portfolio was secured by properties located within its primary
market area. Loan-to-value ratios on the Bank's commercial real estate loans are
limited to 80% or lower, except in certain limited circumstances. In addition,
as part of the criteria for underwriting permanent commercial real estate loans,
the Bank generally imposes a debt service coverage ratio (the ratio of net cash
from operations before payment of debt service to debt service) of at least
1.2x. It is also the Bank's general policy to obtain personal guarantees of its
commercial real estate loans from the principals of the borrower.
Commercial real estate lending is generally considered to involve a
higher degree of risk than single-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers. In addition, the payment experience on loans
secured by income-producing properties is typically dependent on the successful
operation of the related real estate project and thus may be subject to a
greater extent to adverse conditions in the real estate market or in the economy
generally. The Bank generally attempts to offset the risks associated with
commercial real estate lending by, among other things, lending primarily in its
market area, periodically inspecting each property, using conservative
loan-to-value ratios in the underwriting process and obtaining financial
statements and rent rolls from all commercial and multi-family borrowers on at
least an annual basis.
The Company also conducts commercial mortgage banking and brokerage
services through Progress Realty Advisors, Inc. ("PRA"), a subsidiary of the
Bank. PRA was formed as a complement to the Bank's commercial lending activities
in order to provide lending services for borrowers where borrowing needs are not
consistent with the Bank's lending operations due to, among other things, the
amount of financing required, geographic location of the borrower, recourse
provisions and business/banking relationships. PRA specializes in originating,
underwriting and closing commercial real estate financing for residential,
multi-family and commercial properties for other financial institutions,
insurance and finance companies for a fee.
Construction Lending. Through the Bank, the Company also offers both residential
construction loans and, to a lesser extent, commercial construction loans. At
December 31, 2000, the Company's construction loan portfolio consisted of
approximately 75 loans with an aggregate principal balance of approximately
$60.2 million and the Company's largest construction loan had an outstanding
balance of $9.2 million, of which $4.6 million was participated to other
financial institutions.
Construction loans generally offer higher yields and afford the Company
the opportunity to increase the interest rate sensitivity of its loan portfolio.
Construction financing is generally considered to involve a higher degree of
risk of loss than long-term financing on improved, owner-occupied real estate.
Risk of loss on a construction loan is dependent in large part upon the accuracy
of the initial estimate of the property's value at completion of construction or
development, the estimated cost (including interest) of construction and the
financial strength of the borrower. During the construction phase, a number of
factors could result in delays and cost overruns. If the estimate of
construction costs proves to be inaccurate, the Company may be required to
advance funds beyond the amount originally committed to permit completion of the
development. If the estimate of value proves to be inaccurate, the Company may
be confronted, at or prior to the maturity of the loan, with a project having a
value which is insufficient to assure full repayment, in which case the Company
would have to rely upon the borrower's financial ability.
The Company generally attempts to address the additional risks
associated with construction lending by, among other things, lending primarily
in its market area, periodically inspecting each property during the
construction period, using conservative loan-to-value ratios in the underwriting
process and generally requiring personal guarantees. At December 31, 2000, all
of the Company's construction loans were secured by properties located within
the Company's primary market area. In addition, residential construction loans
are generally made for 75% or less of the appraised value of the property upon
completion. For owner-occupied construction/permanent loans, the Bank will lend
up to 80% of the lesser of the full appraised value or the land plus costs.
Moreover, the Company does not originate loans for the construction of
speculative (or unsold) residential properties. Prior to making a commitment to
fund a construction loan, the Company requires both an appraisal of the property
by independent appraisers approved by the Board of Directors and a study of the
feasibility of the proposed project.
5
Construction loans, including land loans, generally have maturities of
12 to 24 months (up to three years in the case of land loans). Interest rates on
construction loans generally adjust in accordance with a designated index.
Advances are generally made to cover actual construction costs, and generally
include a reserve for paying the stated interest due on the loan during the life
of the loan. Loan proceeds are disbursed as inspections of construction progress
warrants and as pre-construction sale and leasing requirements generally imposed
by the Company are met.
Consumer Lending. Subject to restrictions contained in applicable federal laws
and regulations, the Bank is authorized to make loans for a wide variety of
personal or consumer purposes. At December 31, 2000 the Bank's consumer loan
portfolio consisted of approximately 1,970 loans with an aggregate outstanding
balance of $37.2 million.
The Bank has been emphasizing a variety of consumer loans in recent
years in order to provide a full range of financial services to its customers
and because such loans generally have shorter terms and higher interest rates
than traditional first mortgage loans. The consumer loans offered by the Bank
include home equity loans and lines of credit, deposit account secured loans and
loans that are secured by personal property, including automobiles.
Home equity loans are originated by the Bank for up to 90% of the
appraised value, less the amount of any existing prior liens on the property.
The Bank also offers home equity lines of credit in amounts up to 90% of the
appraised value, less the amount of any existing prior liens. Home equity loans
have a maximum term of 15 years, and the interest rate is dependent upon the
term of the loan. The Bank secures the loan with a mortgage on the property
(generally a second mortgage) and will originate the loan even if another
institution holds the first mortgage.
Consumer loans generally have shorter terms and higher interest rates
than mortgage loans but generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. In addition, consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
adversely effected by job loss, divorce, illness and personal bankruptcy. In
most cases, any repossessed collateral for a defaulted consumer loan will not
provide an adequate source of repayment of the outstanding loan balance. The
Company believes that the generally higher yields earned on consumer loans
compensate for the increased credit risk associated with such loans and that
consumer loans are important to its efforts to increase rate sensitivity,
shorten the average maturity of its loan portfolio and provide a full range of
services to its customers.
Equipment Leasing. As part of the strategy to be a full-service commercial
lender, the Company provides diversified equipment leasing services to small-
and middle-market business companies. At December 31, 2000, the Company's lease
financing portfolio consisted of approximately 3,320 leases with an outstanding
balance of $56.2 million. In December 2000, the Company sold its Maryland-based
leasing division that resulted in the sale of $31.0 million of lease financing
receivables.
Equipment lease financing is provided through the Bank's subsidiary,
Progress Leasing Company ("PLC"). located in Blue Bell, Pennsylvania. The
Company provides lease financing throughout the mid-Atlantic region with a
current concentration on Pennsylvania, New York, New Jersey, Maryland and
Virginia. The Company provides leasing either directly to the business customer
or through regional vendor sponsored programs.
The Company provides lease financing for a wide variety of business
equipment, including computer systems, telephone systems, furniture, landscaping
and construction equipment, medical equipment, dry cleaning equipment and
graphic systems equipment.
For some of the Company's leases, the Company may retain the leased
property upon expiration of the lease based on the residual value. In the event
that the residual value is less than provided for in the lease, the Company may
have a loss related to the disposition of such property. However, because a
majority of the Company's leases are bought out or extended at the end of their
terms, the Company has not experienced any material losses in aggregate residual
values to date.
Private Equity Fund Management. Progress Capital Management, Inc. ("PCM"), a
subsidiary of the Company, manages Ben Franklin/Progress Capital Fund, L.P.
("Ben Franklin"), a $9.1 million fund which commenced operations in December
1997 and provides subordinated debt financing to early-stage Mid-Atlantic based
technology companies with innovative products and an existing revenue stream. In
addition, Ben Franklin generally receives warrants to purchase equity of the
borrowers in connection with such lending. PCM also manages the newly formed
NewSpring Ventures, L.P. ("NewSpring") which provides growth capital for
emerging companies. NewSpring is funded by $30.2 million in private placements
of institutional and individual investors and, as a licensed Small Business
Investment Company,
6
funded by $60.4 million in leveraged participating securities for a total fund
amount of $90.6 million. NewSpring primarily invests in mid-Atlantic companies
with significant growth potential, proven management and strategic competitive
advantage. PCM earns fees for managing Ben Franklin and NewSpring.
Insurance/Wealth Management. In January 1999, the Company's subsidiary Progress
Financial Resources, Inc. ("PFR") commenced operations. PFR, a Delaware
corporation, is headquartered in Philadelphia, Pennsylvania, and sells
investment and insurance products, employee benefits and financial planning
services to individuals and businesses. PFR offers securities and insurance
products, primarily but not exclusively, through AXA Advisors, LLC (New York,
New York).
Other Activities. Progress Capital, Inc. ("PCI"), a subsidiary of the Company,
was formed in 1996 and is the corporate general partner of Ben Franklin and
hold's the Company's equity interest in Ben Franklin and NewSpring. PCI also
invests in middle market companies that are prospects or customers of the
Company and companies who have demonstrated a superior track record in their
area of expertise.
In February 1998, the Company formed Progress Development Corp ("PDC"),
to invest in a joint venture partnership, Progress Development I LP, which
acquired an interest in NewSeasons Assisted Living Communities ("NewSeasons")
with Independence Blue Cross. NewSeasons owns, acquires, develops and operates
assisted living residences for the elderly. In addition to owning an equity
interest in NewSeasons, Progress Development I LP will provide fee based
development, construction management and financial services to NewSeasons and
other investors.
In January 2000, the Company acquired KMR Management, Inc. ("KMR"), a
Pennsylvania based corporation. KMR specializes in corporate turnaround and
crisis management consulting for commercial clients. Working primarily for
companies with up to $50 million in sales, KMR takes an active role in
short-term management of its clients' businesses. It also provides expert
testimony in court proceedings and when needed, asset liquidation services.
Financial Information by Business Segment
The Company has four principal activities: Banking, Equipment Leasing,
Private Equity Fund Management and Insurance/Wealth Management. Emerging
operating segments not directly related to the four principal activities and
that do not currently meet the quantitative thresholds of a reportable segment
are aggregated under Other Segments. Intercompany business transactions, the
parent company and other non-operating segments are aggregated under Corporate.
The measurement of the performance of these business segments is based on the
Company's current management structure and is not necessarily comparable with
similar information for any other financial institution. The information
presented is also not necessarily indicative of each segments' financial
condition and results of operations if they were independent entities. The
following selected financial information by business segment is presented in
thousands of dollars:
Private Insurance/
Equipment Equity Fund Wealth Other
Banking Leasing Management Management Segments Corporate Total
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Assets at:
December 31, 2000 $842,901 $54,886 $ 114 $1,640 $1,176 $13,532 $914,249
December 31, 1999 662,130 85,159 272 989 -- 20,391 768,941
Revenues for the year ended:
December 31, 2000 33,376 9,058 2,230 4,566 1,058 1,107 51,395
December 31, 1999 29,849 5,799 699 2,645 -- 5,337 44,329
December 31, 1998 25,269 4,881 202 -- -- 172 30,524
Income from continuing operations before cumulative effect of accounting change for the year ended:
December 31, 2000 4,531 2,088 349 52 (85) (1,278) 5,657
December 31, 1999 4,259 112 126 (189) -- 1,724 6,032
December 31, 1998 4,702 1,199 80 -- -- (1,066) 4,915
7
Competition
The Company faces strong competition both in attracting deposits and
making loans. As a provider of a wide range of financial services, the Company
competes with national and state banks, savings and loan associations,
securities dealers, brokers, mortgage bankers, finance and insurance companies,
and other financial service companies. The ability of the Company to attract and
retain deposits depends on its ability to generally provide a rate of return,
liquidity and risk comparable to that offered by competing investment
opportunities. The Company competes for loans principally through the interest
rates and loan fees it charges and the efficiency and quality of services it
provides borrowers.
REGULATION AND SUPERVISION
General
The Company, as a unitary thrift holding company, is subject to
comprehensive examination, supervision and regulation by the Office of Thrift
Supervision ("OTS"). As a subsidiary of a unitary thrift holding company, the
Bank is subject to certain restrictions in its dealings with the Company and
affiliates thereof. Three of the Company's non-banking subsidiaries (KMR, PCM
and PDC) are subject to the laws of the Commonwealth of Pennsylvania. PCI and
PFR are Delaware corporations.
The Bank
Lending Restrictions
As a federally chartered savings bank, the Bank is subject to certain
lending restrictions. Commercial business loans are limited to 20% of the Bank's
assets; there is no limitation on the guaranteed portion of Small Business
Association ("SBA") commercial loans. Mortgage loans secured by non-residential
properties are limited to four times the Bank's risk-based capital. Consumer
loans are subject to a limitation of 35% of the Bank's assets. Under federal
regulations financing leases are either considered loans, in which case are
accordingly classified as and aggregated with commercial, consumer or
agricultural loans based upon the underlying collateral or personal property, or
as operating leases which are subject to a separate 10% of assets limitation.
The Company's financing leases are considered operating leases and are subject
to the 10% limitation. At December 31, 2000, the Bank was in compliance with all
loan limitations.
The Bank is also limited, under federal regulation, in the amount it
can lend to one borrower. At December 31, 2000, the Bank's loans-to-one-borrower
limit was approximately $9.8 million. The Bank was in compliance with this
limitation at December 31, 2000.
Insurance of Deposits
The Bank's deposits are insured by the Savings Association Insurance
Fund ("SAIF") to a maximum of $100,000 for each depositor. The Federal Deposit
Insurance Corporation ("FDIC") requires an annual audit by independent
accountants and may also examine the Bank.
Federal law requires that the FDIC maintain the reserve level of each
of the SAIF and the Bank Insurance Fund ("BIF") at 1.25% of insured deposits.
The BIF reached this level during 1995. Deposit insurance premiums in 2000
averaged 2.07 cents per $100 of deposits compared to an average 5.925 cents per
$100 of deposits in 1999 and 6.22 cents per $100 of deposits in 1998. Deposit
insurance is payable on a quarterly basis.
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 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.
8
The Bank only complied with this test for 8 out 12 months during 2000;
at December 31, 2000, approximately 62.35% of the Bank's assets were invested in
qualified thrift investments. Consequently, the Bank is prohibited from making
any new investments or engaging in any new activities not allowed for both
national bank and a savings association, establishing any new branch office
unless allowable for a national bank, and paying dividends unless allowable for
a national bank. Unless the Bank requalifies as a QTL within the three-year
period ended December 31, 2003, it must not retain any investment or engage in
any activity not allowed for both a national bank and a savings association.
Until the Bank regains QTL status, the Company is subject to the restrictions
applicable to multiple savings and loan holding companies. If the Bank fails to
regain QTL status by December 31, 2001, the Company will be required to register
as and be deemed to be a bank holding company, thus, subject to all provisions
of the Bank Holding Company Act of 1956, Section 8 of the Federal Deposit
Insurance Act, and other statues applicable to bank holding companies.
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan Bank of Pittsburgh
("FHLB"), which administers the home financing credit function and serves as a
source of liquidity for member savings associations and commercial banks within
its assigned region. It makes loans to members (i.e., advances) in accordance
with policies and procedures established by its Board of Directors. As of
December 31, 2000, the Bank's advances from the FHLB amounted to $127.0 million.
As a member, the Bank is required to purchase and maintain stock in the
FHLB in an amount equal to the greater of 1% of its mortgage related assets or
.3% of total assets. At December 31, 2000, the Bank had $6.4 million in FHLB
stock, which was in compliance with this requirement.
Federal Limitations on Transactions with Affiliates
Transactions between savings associations and any affiliate are
governed by Section 23A and 23B of the Federal Reserve Act. In addition to the
restrictions imposed, no savings association may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies, or (ii) purchase or
invest in any stocks, bonds, debentures, notes, or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the savings
association.
In addition, Section 12 CRF-215 (Regulation O) of the Code of Federal
Regulations places restrictions on loans by savings associations to executive
officers, directors, and principal shareholders of the Company and the Bank. At
December 31, 2000, the Bank was in compliance with this regulation.
Employees
As of December 31, 2000, the Company had a total of 298 full-time
equivalent employees. Employment at the Company's individual subsidiaries was as
follows: The Bank and its subsidiaries PLC and PRA had 254 full-time equivalent
employees; PFR had 29 full-time equivalent employees; PCM had 8 full-time
equivalent employees; and KMR had 3 full-time equivalent employees.
Item 2. Properties
The Company's and the Bank's executive offices are located at 4 Sentry
Parkway, Suite 200, Blue Bell, Pennsylvania. The Bank conducts business from
sixteen Pennsylvania branch offices in Bridgeport, Plymouth Meeting, East
Norriton, Chestnut Hill, Conshohocken, Glenside, King of Prussia, Lansdale,
Norristown, Jeffersonville, Paoli, Lionville, Southampton, Trappe, Rosemont and
the Andorra community of Philadelphia; three of which are owned and thirteen are
leased. PLC conducts equipment-leasing business in leased facilities in Blue
Bell, PA. PRA has leased locations in Blue Bell, PA; Richmond, VA; Woodbridge,
NJ; Chesapeake, VA; and Raleigh, NC. KMR has lease office space in Willow Grove,
PA. PFR leases its location in Philadelphia, PA and leases office space in Blue
Bell, PA and Northfield, NJ. PCM leases office space in Conshohocken, PA.
9
Item 3. 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 4. Submissions of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Progress Financial Corporation's common stock is traded on The Nasdaq
Stock MarketSM under the symbol "PFNC." At December 31, 2000 the Company had
approximately 2,800 holders of record.
Payment of cash dividends is subject to regulatory restrictions as
described in Note 18 of Notes to Consolidated Financial Statements. The Company
paid cash dividends on a quarterly basis totaling $.21 per share during 2000 and
$.17 per share during 1999.
The following table sets forth the high and low closing prices, trading
volumes and cash dividends per share paid for the periods described. Prior
periods have been restated to reflect the 5% stock dividend distributed to
shareholders on August 31, 2000.
2000 1999
---------------------------------------------------- ---------------------------------------------------
Low High Volume Dividends Low High Volume Dividends
-------------- ------------ ------------ ----------- -------------- ------------- ----------- ----------
First Quarter $10 107/256 $12 67/256 1,299,000 $.05 $10 113/128 $14 51/128 1,088,000 $.04
Second Quarter 10 15/128 11 27/32 933,000 .05 12 237/256 15 165/256 1,031,000 .04
Third Quarter 11 3/16 12 79/128 657,000 .05 12 5/256 14 11/32 597,000 .04
Fourth Quarter 7 1/8 10 3/4 861,000 .06 11 35/64 12 79/128 1,011,000 .05
10
Item 6. Selected Consolidated Financial Data
Tabular information is presented in thousands of dollars except for share and per share data. This data should be read in
conjunction with the Notes to Consolidated Financial Statements.
December 31, 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Financial Condition
Investment and mortgage-backed securities:
Available for sale $205,166 $149,518 $164,368 $ 50,913 $ 46,200
Held to maturity 41,940 34,309 12,401 53,472 49,271
Loans and leases, net 535,712 497,738 394,246 339,903 265,968
Loans held for sale -- -- 25,250 373 599
Real estate owned, net 1,750 66 -- 380 2,150
Total assets 914,249 768,941 648,198 508,919 401,010
Deposits 617,543 521,439 408,162 344,322 306,248
Borrowings and subordinated debt 194,360 162,767 167,416 84,247 63,403
Capital securities 20,232 14,451 14,431 14,400 --
Shareholders' equity 50,160 47,809 41,554 25,362 20,594
Results of Operations
Interest income $ 67,028 $ 52,174 $ 45,329 $ 36,497 $ 30,114
Interest expense 35,175 25,432 22,450 17,894 15,820
Net interest income 31,853 26,742 22,879 18,603 14,294
Provision for loan and lease losses 4,416 3,548 959 1,509 781
Net interest income after provision for loan and lease
losses 27,437 23,194 21,920 17,094 13,513
Non-interest income 19,542 17,587 7,645 5,950 5,100
Non-interest expense 38,306 31,648 21,834 17,332 16,466
Income from continuing operations before income taxes
and cumulative effect of accounting change 8,673 9,133 7,731 5,712 2,147
Tax expense (benefit) 3,016 3,101 2,816 2,230 804
Income from continuing operations before cumulative
effect of accounting change 5,657 6,032 4,915 3,482 1,343
Cumulative effect of accounting change, net of tax
benefit -- -- (46) -- --
Income from continuing operations 5,657 6,032 4,869 3,482 1,343
Gain on sale of discontinued operations, net of tax 1,519 -- -- -- --
Income from discontinued operations, net of tax 123 639 111 (15) --
Net income 7,299 6,671 4,980 3,467 1,343
Per Share Data
Basic income from continuing operations per common share
before cumulative effect of accounting change $ .98 $ 1.04 $ .92 $ .74 $ .29
Diluted income from continuing operations per common
share before cumulative effect of accounting change .95 .99 .84 .68 .28
Basic net income per common share 1.26 1.15 .93 .74 .29
Diluted net income per common share 1.22 1.10 .85 .68 .28
Dividends .21 .17 .12 .08 .03
Book value 8.82 8.26 7.45 5.35 4.46
Operating Data
Return on average assets .88% .98% .89% .80% .36%*
Return on average shareholders' equity 15.16 15.47 13.78 15.22 6.83*
Average shareholders' equity to average assets 5.78 6.33 6.42 5.23 5.24
Allowance for loan and lease losses to total loans and
leases 1.36 1.18 1.06 1.12 1.39
Non-performing assets as a percentage of total assets .63 .75 .57 .50 .96
Interest rate spread 3.50 3.63 3.66 3.98 3.66
Net interest margin 4.17 4.24 4.32 4.58 4.06
Dividends declared as a percent of net income per share 17.21 15.45 14.12 11.76 10.71
Branch Data
Number of full service branches 16 14 11 10 10
*Excluding the 1996 one-time SAIF assessment, return on average assets was .68% and return on average equity was 12.92%.
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Progress Financial Corporation (the "Company") is a unitary thrift
holding company that has six primary subsidiaries: Progress Bank (the "Bank"),
Progress Capital, Inc. ("PCI"), KMR Management, Inc. ("KMR"), Progress
Development Corp. ("PDC"), Progress Financial Resources, Inc. ("PFR") and
Progress Capital Management, Inc. ("PCM"). The Bank's primary operating
subsidiaries are Progress Leasing Company ("PLC") and Progress Realty Advisors,
Inc. ("PRA").
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. Certain
reclassifications have been made to prior years' data throughout the following
discussion and analysis for comparability with 2000 data.
When used in filings by the Company with the Securities and Exchange
Commission, in the Company's press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result", "are expected to",
"will continue", "is anticipated", "estimate", "project", or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties including changes in economic conditions in the
Company's market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Company's market area and competition
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that
the factors listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
Results of Operations
The Company reported net income of $7.3 million for the year ended
December 31, 2000, in comparison with $6.7 million and $5.0 million for the
years 1999 and 1998, respectively. The basic net income per common share was
$1.26 for 2000, $1.15 for 1999 and $.93 for 1998. Fully diluted net income per
common share was $1.22 for 2000, $1.10 for 1999 and $.85 for 1998. Income from
continuing operations was $5.7 million for the year ended December 31, 2000, in
comparison with $6.0 million and $4.9 million for the years 1999 and 1998,
respectively. During the second quarter of 2000, the Company sold the assets of
Procall Teleservices, 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
$.25. Return on average shareholders' equity was 15.16% and return on average
assets was .88% for the year ended December 31, 2000. For 1999, return on
average shareholders' equity was 15.47% and return on average assets was .98%.
Return on average shareholders' equity was 13.78% and return on average assets
was .89% for 1998.
Net Interest Income
Net interest income increased to $31.9 million for 2000, in comparison
with $26.7 million for 1999. This was primarily due to a $15.0 million increase
in the positive variance between average interest-earning assets and average
interest-bearing liabilities resulting from higher volumes in commercial
business loans, commercial real estate loans, lease financing receivables and
investments which were partially offset by increased time deposit volume and
short-term borrowings. 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. The net
interest margin was 4.17% for 2000 compared to 4.24% for 1999; the slight
decline was primarily due to higher deposit rates in 2000 partially offset by
higher yields on commercial business loans, construction loans and investments
in 2000.
Net interest income increased to $26.7 million for 1999, in comparison
with $22.9 million for 1998. This was primarily due to a $13.2 million increase
in the positive variance between average interest-earning assets and average
interest-bearing liabilities resulting from higher volumes in commercial real
estate loans, construction loans, commercial business loans, lease financing
receivables and investment securities partially offset by increased deposit
volume. The net interest margin was 4.24% for 1999 compared to 4.32% for 1998;
the slight decline was primarily due to higher yields on commercial business
loans and lease financing in 1998 partially offset by higher deposit rates in
1998.
12
Provision for Loan and Lease Losses
The provision for loan and lease losses represents the charge against
earnings that is required to fund the allowance for loan and lease losses. The
level of the allowance is determined by known and inherent risks within the
Bank's loan and lease portfolio. Management's periodic evaluation is based upon
an examination of the portfolio, past loss experience, current economic
conditions and other relevant factors.
The provision for loan and lease losses amounted to $4.4 million in
2000 compared to $3.5 million in 1999. The increase was primarily due to loan
growth and to increase the reserve coverage as a result of the current economic
climate.
The provision for loan and lease losses amounted to $3.5 million in
1999 compared to $959,000 in 1998. The increase was due to increases in the loan
and lease portfolio and non-performing loans and leases, an additional charge of
$1.1 million as a result of a new charge-off policy at PLC, and a charge of
$250,000 due to the deterioration of a commercial manufacturing customer's
credit.
The ratio of the allowance for loan and lease losses to total
non-performing loans and leases was 183.61%, 103.96% and 121.91% at December 31,
2000, 1999 and 1998, respectively.
Although management utilizes its best judgment in providing for loan
and lease losses, there can be no assurance that the Bank will not have to
increase its provision for loan and lease losses in the future as a result of
adverse market conditions for real estate in the Bank's primary market area,
future increases in non-performing loans and leases, or for other reasons. Any
such increase could adversely affect the Bank's results of operations. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan and lease losses and
the carrying value of its other non-performing assets. Such agencies may require
the Bank to recognize additions to its allowance for losses based on their
judgements of information available to them at the time of their examination.
The Company and the Bank were most recently examined by the Office of Thrift
Supervision ("OTS") as of June 30, 2000.
Non-interest Income
Non-interest income increased to $19.5 million in 2000 compared to
$17.6 million in 1999. This increase was primarily due to a $4.9 million
increase in financial services fee income and a $1.7 million gain on the sale of
the leasing division partially offset by a $5.3 million decrease in equity in
unconsolidated entities.
Private equity fund management fees increased $1.5 million primarily
generated by the Company's subsidiary PCM, which manages the mezzanine debt and
venture capital funds. Mutual fund, annuity and insurance commissions increased
$1.9 million from the Company's subsidiary PFR. Consulting fees of $963,000 were
generated during 2000 by the Company's subsidiary KMR, which provides financial
and operational management consulting services for commercial clients.
In December 2000, the Company sold the assets of its Maryland-based
leasing division that resulted in the sale of $31.0 million of lease financing
receivables and a gain of $1.7 million.
The losses in unconsolidated entities of $2.8 million in 2000 primarily
relate to Ben Franklin and NewSpring of which the Company owns approximately 36%
and 20%, respectively, and which are accounted for under the equity method.
These losses represent a partial reversal of unrealized gains reported in the
third and fourth quarters of 1999.
The Company recognized $3.5 million of client warrant income during
2000 due to the expiration of restrictions on the sale of warrants to acquire
common stock of Internet Capital Group, Inc. ("ICGE"), US Interactive, Inc. and
EMAX Solutions Partners, Inc. The Company recognized client warrant income of
$1.1 million from the sale of and market value adjustments on shares of ICGE;
$2.0 million from market value adjustments on US Interactive warrants and
$340,000 was on the sale of EMAX warrants back to SciQuest.com in accordance
with the terms of the acquisition of EMAX by SciQuest.com.
The Company has obtained rights to acquire stock (in the form of
warrants) in certain clients as part of negotiated credit facilities. The
receipt of warrants does not change the loan convenants or other collateral
control
13
techniques employed by the Company to mitigate the risk of a loan becoming
nonperforming, and collateral requirements on loans with warrants are similar to
lending arrangements where warrants are not obtained. The timing and amount of
income from the disposition of client warrants typically depends upon factors
beyond the control of the Company, including the general condition of the public
equity markets and restrictions on sales as well as the merger and acquisition
environment. Therefore, income from the disposition of client warrants cannot be
predicted with any degree of accuracy and is likely to vary materially from
period to period. As opportunities present themselves in future periods, the
Company may continue to reinvest some or all of the income realized from the
disposition of client warrants in furthering its business strategies. Additional
information on warrants held by the Company can be found under "Business--
Banking-TechBanc."
A gain on sale of securities of $603,000 was recorded during 2000 from
the sale of 49,412 shares (adjusted for a 2-for-1 split) of common stock of ICGE
which the Company acquired through an investment in a convertible note of ICGE
made by it venture capital subsidiary.
Non-interest income increased to $17.6 million in 1999 compared to $7.6
million in 1998. This increase was partially due to an increase in financial
services fee income of $4.2 million as the Company earned $2.7 million in mutual
fund, annuity and insurance commissions in 1999, private equity fund management
fees increased $500,000 and service charges on deposits increased $434,000.
During 1999, the Company recognized $4.2 million of client warrant
income due to the expiration of restrictions on the sale of warrants to acquire
common stock of VerticalNet and IQEplc. The Company realized $3.7 million of
client warrant income from the sale and market value adjustments on shares of
VerticalNet. The Company realized $513,000 of client warrant income on sales of
common shares of IQEplc.
Equity in unconsolidated entities of $2.5 million in 1999 represents an
increase of $2.3 million over 1998 primarily due to the Company's equity
investment in the Ben Franklin/Progress Capital Fund, L.P. The increase in
equity investment is primarily due to the unrealized appreciation of investments
in Internet Capital Group, Inc. and VerticalNet, Inc. held by Ben
Franklin/Progress Capital Fund, L.P.
During 1999, securities were sold for a loss of $347,000 primarily as
part of a restructuring of investments to higher interest rates as compared to a
gain on sale of securities of $533,000 in 1998.
Non-interest Expense
Non-interest expense for 2000 amounted to $38.3 million compared to
$31.6 million in 1999. Excluding non-recurring expenses of $253,000 during 2000
related to data system conversion costs, a $373,000 write-down of goodwill
during 2000 related to the sale of certain offices of PRA known as the AMIC
Division, and $1.1 million in 1999 associated with a leasing acquisition and
unrelated adjustments, non-interest expense increased $7.1 million. This
increase was partially due to a $4.3 million increase in salaries and employee
benefits as a result of additional employees to staff new bank branches, the
acquisition of KMR, the staffing of PCM, commissions at PFR and from other new
positions established within the Company. Occupancy and furniture, fixtures and
equipment expenses increased $1.5 million mainly due to a new operations center,
bringing data processing in-house and new branch openings. Professional services
expense, excluding $31,000 in data system conversion related expenses in 2000,
increased $492,000 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.
Real estate owned expenses increased $287,000 primarily due to construction
management and legal expenses related to residential real estate development
projects, classified as real estate owned. Loan expenses increased $221,000
primarily due to lease financing broker fees. Capital securities expense
increased $312,000 due to the issuance of $6.0 million of 11.455% capital
securities in July 2000.
Non-interest expense increased to $31.6 million in 1999 in comparison
with $21.8 million for 1998. Excluding non-recurring expenses of $1.1 million in
1999 associated with a leasing acquisition and unrelated adjustments,
non-interest expense increased $8.7 million. This increase was partially due to
a $5.5 million increase in salaries and employee benefits relating to employees
of acquired and newly formed companies and new positions within the Company.
Professional services increased by $852,000 mainly due to the outsourcing of the
internal audit function, consulting fees for Year 2000 systems testing and
increased tax services. Occupancy and furniture, fixtures and equipment expenses
increased $805,000 due to new branch openings and recent acquisitions. Other
non-interest expense for 1999 included a $313,000 loss on the sale of equipment
at PLC from the liquidation of leased property.
14
Income Tax Expense
The Company recorded income tax expense from continuing operations of
$3.0 million during 2000 compared to $3.1 million in 1999 and $2.8 million in
1998, gross of the tax benefit of $26,000 due to the cumulative effect of
accounting change. Income tax expense from the gain on sale of and income from
discontinued operations was $1.1 million during 2000. Income tax expense on
income from discontinued operations was $442,000 in 1999 and $62,000 in 1998.
The changes in income tax expense were primarily due to changes in taxable
income.
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 December 31, 2000, the Bank met all
regulatory capital liquidity requirements.
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 is 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.
At December 31, 2000, the total of approved loan commitments amounted
to $62.0 million, and the Company had $172.5 million of undisbursed loan funds.
At December 31, 2000, total FHLB borrowings that are scheduled to mature during
the 12 months ending December 31, 2001 totaled $25.0 million. At December 31,
2000, total securities purchased under agreement to resell which are scheduled
to mature during the 12 months ended December 31, 2001, totaled $53.7 million.
At December 31, 2000, the amount of time deposits that are scheduled to mature
within 12 months totaled $318.7 million, a substantial portion of which
management believes, on the basis of prior experience, will remain in the
Company.
Deposits are obtained primarily from residents near the Bank's ten
full-service offices in Montgomery County, one full-service office in Rosemont,
Delaware County, two full-service offices in Chester County, one full-service
office in Southampton, Bucks County, and two full-service offices in
Philadelphia County. The Bank has drive-up banking facilities at ten of its
offices and has installed ATM's at all of its offices and at two additional
locations. The Bank offers a wide variety of options to its customer base,
including consumer and commercial demand deposit accounts, negotiable order of
withdrawal ("NOW") accounts, money market accounts, passbook accounts,
certificates of deposit and retirement accounts.
As a member of the FHLB, the Bank is required to own capital stock in
the FHLB and is authorized to apply for advances on the security of such stock
and certain of its home mortgages and other assets (principally securities which
are obligations of, or guaranteed by, the United States), provided certain
standards related to creditworthiness have been met. Advances are made pursuant
to several different credit programs. Each credit program has its own interest
rate and range of maturities. Depending on the program, limitations on the
amount of advances are based either on a fixed percentage of a savings bank's
assets or on the FHLB's assessment of the savings bank's creditworthiness. The
FHLB credit policies may change from time to time at its discretion. The Bank's
maximum borrowing authority from the FHLB on December 31, 2000 was approximately
$184.4 million.
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 2000 and 1999, 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 year ended December 31, 2000,
cash was provided by operating activities. Cash was used in investing activities
as purchases of mortgage-backed and investment securities, and net originations
of loans exceeded repayments and proceeds from sales, maturities and calls of
mortgage-backed and investment securities and proceeds from sales of loans,
lease receivables and the Maryland-based leasing division. Cash provided by
financing activities during 2000, primarily due to increases in deposits, offset
the outflows from investments activities. For the year ended December 31, 1999,
cash was provided by operating activities. Cash was used in investing
15
activities primarily due to net origination of loans. Cash provided by financing
activities, primarily due to increases in time deposits, offset the outflows
from investment activities. For the year ended December 31, 1998, cash was used
by operating activities primarily due to the increase in loans held for sale.
Cash was used in the Company's investment activities during 1998, as purchases
of mortgage-backed and investment securities, and net originations of loans
exceeded repayments on mortgage-backed securities, maturities of investments,
proceeds from sales of mortgage-backed and investment securities. Funds provided
by financing activities in 1998 offset the cash outflows from investment
activities as cash was provided by increased levels of deposits and borrowings.
Capital Resources
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was signed into law on December 19, 1991; regulations implementing
the prompt corrective action provision of FDICIA became effective on December
19, 1992. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and insured depository institutions,
including reductions in insurance coverage for certain kinds of deposits,
increased supervision by the federal regulatory agencies, increased reporting
requirements for insured institutions, and new regulations concerning internal
controls, accounting, and operations. The prompt corrective action regulations
defined specific capital categories based on an institution's capital ratios.
The capital categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To be considered "well capitalized," an
institution must generally have a tangible equity ratio of at least 2%, a Tier 1
or leverage capital 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%. An
institution is deemed to be "critically undercapitalized" if it has a tangible
equity ratio of 2% or less.
At December 31, 2000, the Bank met all regulatory capital requirements.
At December 31, 2000, the Bank's leverage capital ratio was 6.46%, Tier 1
risk-based capital ratio was 9.79%, total risk-based ratio was 11.04% and
tangible equity ratio was 6.46%, based on leverage capital of $57.9 million,
Tier 1 risk-based capital of $57.9 million, total risk-based capital of $65.3
million, and tangible capital of $57.9 million, respectively. As of December 31,
2000, the Bank is classified as "well capitalized."
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. Net
proceeds from the sale of the securities were 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.
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, fully irrevocably and
unconditionally guaranteed all of the Trust's obligations under the Trust
Securities. The Company contributed approximately $6.0 million of the net
proceeds to Progress Bank, to increase its regulatory capital ratios and support
the growth of the expanded lending operations. Net proceeds retained by the
Company will be used for general purposes, including investments in other
subsidiaries and potential future acquisitions.
Statistical Information
Statistical information is furnished pursuant to the requirements of
Guide 3 (Statistical Disclosure by Bank Holding Companies) promulgated under the
Securities Act of 1933. Tabular information is provided in thousands of dollars
except for share and per share data.
16
Distribution of Average Assets, Liabilities and Shareholders' Equity
The following table sets 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.
For the years ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------
Interest-earning assets:
Interest-earning deposits $21,244 $1,320 6.21% $16,907 $ 868 5.13% $ 3,990 $ 158 3.96%
Trading securities 264 -- -- 86 -- -- -- -- --
Investment securities(1) 65,529 4,430 6.76 40,195 2,550 6.34 18,030 1,017 5.64
Mortgage-backed securities (1) 145,056 10,461 7.21 123,786 8,008 6.47 134,528 8,686 6.46
Commercial business loans 146,332 13,801 9.43 103,934 8,862 8.53 77,268 7,487 9.69
Commercial real estate loans (5) 170,180 14,980 8.80 146,784 12,652 8.62 123,113 10,868 8.83
Construction loans 54,435 5,944 10.92 50,161 5,062 10.09 31,611 3,432 10.86
Single family residential real estate
loans(5) 39,078 2,991 7.65 45,656 3,329 7.29 54,890 4,193 7.64
Consumer loans 37,538 3,049 8.12 31,083 2,449 7.88 26,217 2,190 8.35
Lease financing 93,615 10,446 11.16 76,861 8,600 11.19 60,446 7,298 12.07
------- ------ ----- ------- ------ ----- ------- ------ -----
Total interest-earning assets 773,271 67,422 8.72 635,453 52,380 8.24 530,093 45,329 8.55
------- ------ ----- ------- ------ ----- ------- ------ -----
Non-interest-earning assets:
Cash 16,762 14,091 10,093
Allowance for loan and lease losses (6,263) (4,924) (4,339)
Other assets 49,535 36,237 26,708
-------- -------- --------
Total non-interest earning assets 60,034 45,404 32,462
-------- -------- --------
Total assets $833,305 $680,857 $562,555
======== ======== ========
Interest-bearing liabilities:
Interest-bearing deposits:
NOW and Super NOW $91,975 3,119 3.39 $79,206 2,195 2.77 $ 51,515 1,384 2.69
Money market accounts 37,223 1,172 3.15 35,649 993 2.79 33,722 999 2.96
Passbook and statement savings 29,752 527 1.77 31,763 603 1.90 31,314 725 2.32
Time deposits 329,874 19,344 5.86 248,866 12,968 5.21 206,158 11,358 5.51
------- ------ ----- ------- ------ ----- ------- ------ -----
Total interest-bearing deposits 488,824 24,162 4.94 395,484 16,759 4.24 322,709 14,466 4.48
Short-term borrowings 76,515 4,707 6.15 35,340 2,199 6.22 53,836 3,164 5.88
Long-term debt 108,752 6,306 5.80 120,400 6,474 5.38 82,534 4,820 5.84
------- ------ ----- ------- ------ ----- ------- ------ -----
Total interest-bearing
liabilities 674,091 35,175 5.22 551,224 25,432 4.61 459,079 22,450 4.89
------- ------ ----- ------- ------ ----- ------- ------ -----
Non-interest-bearing liabilities:
Non-interest bearing deposits 72,626 57,514 41,517
Other liabilities 20,652 14,547 11,397
-------- -------- --------
Total non-interest bearing
liabilities 93,278 72,061 52,914
-------- -------- --------
Total liabilities 767,369 623,285 511,993
Capital securities 17,795 14,441 14,422
Shareholders' equity 48,141 43,131 36,140
-------- -------- --------
Total liabilities, capital
securities and
shareholders' equity $833,305 $680,857 $562,555
======== ======== ========
Net interest income $32,247 $26,948 $22,879
======= ======= =======
Interest rate spread (2) 3.50% 3.63% 3.66%
Effect of net interest-free funding
sources(3) .67 .61 .66
----- ----- -----
Net interest margin (4) 4.17% 4.24% 4.32%
===== ===== =====
Average interest-earning assets to
average interest-bearing liabilities 114.71% 115.28% 115.47%
====== ====== ======
(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 shareholders' 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 earnings 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.
17
Rate/Volume Analysis
The following table presents the degree to which changes in the
Company's tax-equivalent interest income, interest expense and net interest
income are attributable to changes in the average amount of interest-earning
assets and interest-bearing liabilities outstanding and/or to changes in rates
earned or paid thereon. The net change attributable to both volume and rate has
been allocated proportionately. Amounts in brackets represent a decrease in
interest income or expense.
- ------------------------------------------------------------------------------------------------------
For the years ended December 31, 2000 vs. 1999 1999 vs. 1998
- ------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
-------------------------------------------------------------
Interest-earning assets:
Interest-earning deposits $248 $204 $452 $ 650 $ 60 $ 710
Trading securities -- -- -- -- -- --
Investment securities 1,701 179 1,880 1,392 141 1,533
Mortgage-backed securities 1,473 980 2,453 (690) 12 (678)
Commercial business 3,925 1,014 4,939 2,354 (979) 1,375
Commercial real estate loans 2,059 269 2,328 2,048 (264) 1,784
Construction loans 449 433 882 1,888 (258) 1,630
Single family residential real estate
loans (496) 158 (338) (680) (184) (864)
Consumer loans 523 77 600 388 (129) 259
Lease financing 1,869 (23) 1,846 1,866 (564) 1,302
- ------------------------------------------------------------------------------------------------------
Interest income 11,751 3,291 15,042 9,216 (2,165) 7,051
- ------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits 4,356 3,047 7,403 3,111 (818) 2,293
Short-term borrowings 2,533 (25) 2,508 (1,140) 175 (965)
Long-term debt (653) 485 (168) 2,062 (408) 1,654
- ------------------------------------------------------------------------------------------------------
Interest expense 6,236 3,507 9,743 4,033 (1,051) 2,982
- ------------------------------------------------------------------------------------------------------
Net interest income $5,515 $(216) $5,299 $5,183 $(1,114) $4,069
======================================================================================================
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities are comprised of the
following at December 31, 2000, 1999 and 1998:
Held to Maturity Available for Sale
--------------------------------------------------
Amortized Estimated Amortized Estimated
December 31, 2000 Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------
FHLB stock $ 6,350 $ 6,350 $ -- $ --
U.S. agency obligations 20,755 19,230 16,524 16,687
Bank deposits -- -- 447 447
Corporate bonds -- -- 1,913 1,570
Municipal bonds 14,835 14,645 -- --
Equity investments -- -- 5,436 2,994
Mortgage-backed securities -- -- 183,475 183,468
- --------------------------------------------------------------------------------------------------
Total investment and mortgage-backed securities $41,940 $40,225 $207,795 $205,166
==================================================================================================
Held to Maturity Available for Sale
--------------------------------------------------
Amortized Estimated Amortized Estimated
December 31, 1999 Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------
FHLB stock $ 4,923 $ 4,923 $ -- $ --
U.S. agency obligations 14,581 14,255 17,107 16,777
Corporate bonds -- -- 1,900 1,693
Municipal bonds 14,805 13,736 -- --
Equity investments -- -- 4,564 12,162
Mortgage-backed securities -- -- 123,958 118,886
- --------------------------------------------------------------------------------------------------
Total investment and mortgage-backed securities $34,309 $32,914 $147,529 $149,518
==================================================================================================
18
Held to Maturity Available for Sale
--------------------------------------------------
Amortized Estimated Amortized Estimated
December 31, 1998 Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------
FHLB stock $ 4,923 $ 4,923 $ -- $ --
U.S. agency obligations 7,478 7,624 2,000 2,001
Corporate bonds -- -- 1,895 1,630
Municipal bonds -- -- 9,599 9,591
Equity investments -- -- 4,714 4,687
Mortgage-backed securities -- -- 146,910 146,459
- --------------------------------------------------------------------------------------------------
Total investment and mortgage-backed securities $12,401 $12,547 $165,118 $164,368
==================================================================================================
The following table sets forth the contractual maturities of the investment and mortgage-backed securities at December 31,
2000 by investment type and the weighted average yield for each range of maturities. The yield on municipal bonds is calculated on a
tax-equivalent basis.
US Government Business Weighted
Agencies Corporations Municipalities Total Average Yield
- --------------------------------------------------------------------------------------------------------------
Available for sale:
Due one year or less $ 524 $ 447 $ -- $ 971 5.07%
Due after one year through 5 years 6,138 10 -- 6,148 7.15
Due after 5 years through 10 years 10,025 -- -- 10,025 7.51
Due after 10 years -- 1,560 -- 1,560 7.94
Mortgage-backed securities 183,468 -- -- 183,468 7.14
Equity securities -- 2,994 -- 2,994 .37
- --------------------------------------------------------------------------------------------------------------
Total available for sale $200,155 $ 5,011 $ -- $205,166 7.06%
==============================================================================================================
Held to maturity:
Due after 5 years through 10 years $ -- $ -- $ 788 $ 788 6.83%
Due after 10 years 20,755 -- 14,047 34,802 7.46
FHLB stock 6,350 -- -- 6,350 7.25
- --------------------------------------------------------------------------------------------------------------
Total held for sale $ 27,105 $ -- $14,835 $ 41,940 7.42%
==============================================================================================================
Loan and Lease Portfolio
The principal categories in the Company's loan and lease portfolio are
commercial business loans; commercial real estate loans, which are secured by
multi-family (over five units) residential and commercial real estate; loans for
the construction of single-family, multi-family and commercial properties,
including land acquisition and development loans; residential real estate loans,
which are secured by single-family (one to four units) residences; consumer
loans; and lease financing. Substantially all of the Company's mortgage loan
portfolio consists of conventional mortgage loans, which are loans that are
neither insured by the Federal Housing Administration nor partially guaranteed
by the Department of Veterans Affairs.
The Company's net loan and lease portfolio totaled $535.7 million at
December 31, 2000 or 58.6% of its total assets, an increase of $38.0 million or
7.6% from the $497.7 million outstanding at December 31, 1999.
19
The following table depicts the composition of the Company's loan and lease portfolio, net of unearned income, at December 31 for
the years indicated:
At December 31, 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------------------------------------------
Commercial business $175,972 32.40% 119,807 23.79% $ 92,737 21.87% $ 69,312 20.14% $ 30,384 11.24%
Commercial real estate(1) 178,874 32.93 162,588 32.28 134,380 31.69 109,938 31.94 90,350 33.42
Construction 60,172 11.08 58,813 11.68 44,546 10.51 26,695 7.76 20,692 7.65
Single family residential
mortgage (2) 34,676 6.39 40,554 8.05 50,086 11.81 56,565 16.44 64,259 23.77
Consumer loans 37,242 6.86 34,918 6.93 28,738 6.78 7.43 8.80
Lease financing 56,183 10.34 86,985 17.27 73,499 17.34 56,072 16.29 40,867 15.12
-------------------------------------------------------------------------------------------------------
Total loans and leases 543,119 100.00% 503,665 100.00% 423,986 100.00% 344,139 100.00% 270,335 100.00%
======= ======= ======= ======= =======
Allowance for loan and
Lease losses (7,407) (5,927) (4,490) (3,863) (3,768)
-------- -------- -------- -------- --------
Net loans and leases $535,712 $497,738 $419,496 $340,276 $266,567
======== ======== ======== ======== ========
(1) Includes $25.3 million of loans classified as held for sale at December 31, 1998.
(2) Includes $373,000 and $599,000 of loans classified as held for sale at December 31, 1997 and 1996, respectively.
The following table sets forth the scheduled contractual maturities of the Company's commercial loans at December 31, 2000.
The following table also sets forth the dollar amount of commercial loans scheduled to mature after one year which have fixed or
adjustable rates.
-------------------------------------------------------------------------------------------------
Commercial Commercial
At December 31, 2000 Mortgage Construction Business
-------------------------------------------------------------------------------------------------
Amounts due:
One year or less $ 16,369 $37,010 $ 97,243
After one year through five years 26,869 23,162 60,533
Beyond five years 135,636 -- 18,196
-------------------------------------------------------------------------------------------------
Total $178,874 $60,172 $175,972
=================================================================================================
Interest rate terms on amounts due after one year:
Fixed $ 72,726 $ 452 $ 41,346
-------------------------------------------------------------------------------------------------
Adjustable $ 89,779 $22,710 $ 37,383
-------------------------------------------------------------------------------------------------
Scheduled contractual principal repayments do not reflect the actual
maturities of commercial loans. The average maturity of commercial loans is less
than their average contractual terms because of prepayments and refinancings.
The average life of mortgage loans tends to increase when current mortgage loan
rates are higher than rates on existing mortgage loans and, conversely, decrease
when rates on existing mortgages are lower than current mortgage loan rates (due
to refinancing of adjustable-rate and fixed-rate loans at lower rates). Under
the circumstances, the weighted average yield on loans decreases as higher
yielding loans are paid or refinanced at lower rates.
Risk Elements
The following table details the Company's underperforming assets at December 31 for the years indicated:
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Loans and leases accounted for on a non-accrual basis $ 4,034 $5,701 $3,683 $2,179 $1,689
REO, net of related reserves 1,750 66 -- 380 2,150
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets 5,784 5,767 3,683 2,559 3,839
Accruing loans 90 or more days past due 4,502 2,336 4,030 2,721 4,077
- ------------------------------------------------------------------------------------------------------------------------------------
Total underperforming assets $10,286 $8,103 $7,713 $5,280 $7,916
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing assets as a percentage of total
loans and leases and real estate owned 1.08% 1.16% .88% .75% 1.43%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-performing assets as a percentage of total assets .63% .75% .57% .50% .96%
- ------------------------------------------------------------------------------------------------------------------------------------
Underperforming assets as a percentage of total loans and
leases and real estate owned 1.91% 1.63% 1.84% 1.55% 2.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Underperforming assets as a percentage of total assets 1.13% 1.05% 1.19% 1.04% 1.99%
- ------------------------------------------------------------------------------------------------------------------------------------
20
Gross interest income that would have been recorded during 2000, 1999
and 1998 if the Company's non-accrual loans and leases at the end of such
periods had been performing in accordance with their terms during such periods
was $351,000, $637,000 and $252,000, respectively. The amount of interest income
that was actually recorded during 2000, 1999 and 1998 with respect to such
non-accrual loans and leases amounted to approximately $175,000, $426,000 and
$112,000, respectively.
The $4.0 million of non-accrual loans and leases at December 31, 2000
consists of $789,000 of loans secured by single-family residential property,
$564,000 of loans secured by commercial property, $1.1 million of commercial
business loans, $346,000 of consumer loans and $1.2 million of lease financing.
The accrual of interest on commercial loans, mortgage loans and leases
is generally discontinued when the loans and leases become 90 days past due and
when, in management's judgement, it is determined that a reasonable doubt exists
as to collectibility. The accrual of interest is also discontinued on
residential and consumer loans when such loans become 90 days past due, except
for those loans in the process of collection which are secured by cash
collateral or by real estate with a loan to value less than 75% for first
mortgage loans and less than 60% for second mortgage loans. When a loan is
placed on non-accrual status, interest accruals cease and uncollected accrued
interest is reversed and charged against current income. Additional interest
income on such loans is recognized only when received. A loan remains on
non-accrual status until the factors which indicate doubtful collectibility no
longer exist, or the loan is liquidated, or when the loan is determined to be
uncollectible and is charged-off against the allowance for loan losses.
All loans and leases are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is deemed insufficient to warrant further accrual.
The increase in other real estate owned since December 31, 1999 was
primarily related to residential real estate development projects, acquired by
the Company through deeds in lieu of foreclosure as a result of defaulted loans
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:
- ------------------------------------------------------------------------------------------------------------------------------------
At of December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Delinquencies:
30 to 59 days $6,255 1.15% $7,488 1.49% $7,305 1.72%
60 to 89 days 1,480 .27 1,288 .26 3,337 .79
90 or more days 4,502 .83 2,336 .46 4,030 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Total $12,237 2.25% $11,112 2.21% $14,672 3.46%
====================================================================================================================================
Concentrations of Credit Risk
The Company extends credit through loans and leases in the normal
course of business to its customers, a significant number of whom operate or
reside within southeastern Pennsylvania and surrounding business areas. The
ability of its customers to meet contractual obligations is, to some extent,
dependent upon the conditions of this regional economy.
In addition, certain groups of borrowers share characteristics which,
given current economic conditions may affect their ability to meet contractual
obligations. These customers and their credit extensions at December 31, 2000,
include: retail consumers that account for 13% of all credit extensions;
commercial mortgages and construction that account for 36%; residential
construction that account for 8%; and commercial business that accounts for 43%.
21
Summary of Loan and Lease Loss Experience
The following table details the allocation of the allowance for loan and lease losses to the various categories at the
dates indicated. The allocation is not necessarily indicative of the categories in which future losses will occur, and the entire
allowance is available to absorb losses in any category of loans or leases.
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Amount Total Amount Total Amount Total Amount Total Amount Total
Loans Loans Loans Loans Loans
and and and and and
Leases Leases Leases Leases Leases
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial business $2,342 32.40% $1,256 23.79% $ 930 21.87% $749 20.14% $ 387 11.24%
Commercial real estate 2,332 32.93 1,384 32.28 1,134 31.69 1,120 31.94 1,620 33.42
Construction 1,068 11.08 885 11.68 652 10.51 290 7.76 257 7.65
Single family
residential mortgage 176 6.39 436 8.05 116 11.81 127 16.44 129 23.77
Consumer 15 6.86 39 6.93 39 6.78 131 7.43 154 8.80
Lease financing 1,474 10.34 1,927 17.27 1,619 17.34 1,446 16.29 1,221 15.12
- ------------------------------------------------------------------------------------------------------------------------------------
Total $7,407 100.00% $5,927 100.00% $4,490 100.00% $3,863 100.00% $3,768 100.00%
====================================================================================================================================
The following table details the Company's allowance for loan and lease losses for the periods indicated:
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Average loans and leases outstanding $541,178 $454,479 $373,545 $306,052 $246,076
- ------------------------------------------------------------------------------------------------------------------------------------
Balance beginning of period $5,927 $4,490 $3,863 $3,768 $2,310
Charge-offs:
Commercial business 1,717 -- 2 291 7
Commercial real estate -- -- -- 394 --
Single family residential mortgage 52 79 -- 3 25
Consumer 10 2 72 100 80
Lease financing 1,839 2,473 681 879 309
- ------------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 3,618 2,554 755 1,667 421
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial business 121 18 128 20 26
Commercial real estate 7 -- 5 -- 30
Construction -- -- 2 -- --
Single family residential mortgage 2 -- 1 -- 2
Consumer 6 16 12 19 19
Lease financing 546 409 275 214 171
- ------------------------------------------------------------------------------------------------------------------------------------
Total recoveries 682 443 423 253 248
- ------------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 2,936 2,111 332 1,414 173
Provision for loan and lease losses 4,416 3,548 959 1,509 781
Allowances assumed through acquisitions (1) -- -- -- -- 850
- ------------------------------------------------------------------------------------------------------------------------------------
Total additions 4,416 3,548 959 1,509 1,631
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $7,407 $5,927 $4,490 $3,863 $3,768
====================================================================================================================================
Ratio of net charge-offs during the period to
average loans and leases outstanding during the period .54% .46% .09% .46% .07%
====================================================================================================================================
Ratio of allowance for loan and lease losses to
non-performing loans and leases at end of period 183.61% 103.96% 121.91% 177.28% 223.09%
====================================================================================================================================
Ratio of allowance for loan and lease losses to
under-performing loans and leases at end of period(2) 86.77% 73.75% 58.21% 78.84% 65.35%
====================================================================================================================================
(1) Allowance assumed through acquisitions represents The Equipment Leasing Company in 1996.
(2) Includes loans 90 or more days delinquent and still accruing.
An allowance for loan and lease losses is maintained at a level that
management considers adequate to provide for potential losses based upon an
evaluation of known and inherent risks in the portfolio. Management's periodic
evaluation of the adequacy of the allowance is based upon examination of the
portfolio, past loss experience, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
current economic conditions, the results of the most recent regulatory
examinations, and other relevant factors. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary if economic conditions differ substantially from the
assumptions used in making such evaluations.
22
Deposits
Certificates of deposit in amounts of $100,000 or more were $125.5
million, $116.9 million and $56.9 million at December 31, 2000, 1999 and 1998,
including brokered certificates of deposits of $30.0 million, $25.0 million and
$20.0 million, respectively.
The following table presents the remaining maturity of certificates of deposits of $100,000 or more at December 31, 2000:
--------------------------------------------------------------------------------------------------------------------------
Remaining Maturity > 3 months > 6 months > 12 months
At December 31, 2000 3 months or less through 6 months through 12 months
--------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit $100,000 or more $73,385 $33,026 $14,199 $4,893
==========================================================================================================================
Short-Term Borrowings
The following table presents certain information regarding short-term securities sold under agreement to repurchase:
- --------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Balance outstanding at end of period $53,700 $47,145 $40,150
Weighted average interest rate at end of period 6.34% 5.51% 5.63%
Average balance outstanding $66,259 $28,162 $39,461
Weighted average interest rate during the period 6.06% 5.72% 5.70%
Maximum amount outstanding at any month-end during the period $77,710 $47,145 $60,003
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Asset Liability Management
The major objectives of the Company's asset and liability management
are to manage exposure to changes in the interest rate environment, to ensure
adequate liquidity and funding, to preserve and build capital, and to maximize
net interest income opportunities. The Company manages these objectives through
its Asset Liability and Investment Committee. The Committee meets monthly to
develop strategies that affect the future level of net interest income,
liquidity and capital. The Committee utilizes cash flow forecasts, considers
current economic conditions and the direction of interest rates, and manages the
Bank's risk to such changes.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An institution is
considered to be liability sensitive, or as having a negative gap, when the
amount of its interest-bearing liabilities maturing or repricing within a given
time period exceeds the amount of its interest-earning assets also maturing or
repricing within that time period. Conversely, an institution is considered to
be asset sensitive, or as having a positive gap, when the amount of its
interest-bearing liabilities maturing or repricing is less than the amount of
its interest-earning assets also maturing or repricing during the same period.
Generally, in a falling interest rate environment, a negative gap should result
in an increase in net interest income, and in a rising interest rate
environment, a negative gap should adversely affect net interest income. The
converse would be true for a positive gap.
However, shortcomings are inherent in a simplified gap analysis that
may result in an institution with a nominally negative gap having interest rate
behavior associated with an asset sensitive balance sheet. For example, although
certain assets and liabilities may have a similar maturity or periods of
repricing, they may react in different degrees to changes in market interest
rates. Furthermore, repricing characteristics of certain assets and liabilities
may vary substantially within a given time period. In the event of a change in
interest rates, prepayment and early withdrawal levels could also deviate
significantly from those assumed in calculating gap.
Management believes that the simulation of net interest income in
different interest rate environments provides a more meaningful measure of
interest rate risk. Simulation analysis incorporates the potential of all assets
and liabilities to mature or reprice as well as the probability that they will
do so. Simulation in net interest income over a two-year period
23
also incorporates the relative interest rate sensitivities of these items, and
projects their behavior over an extended period of time. Finally, simulation
analysis permits management to assess the probable effects on the balance sheet
not only of changes in interest rates, but also of proposed strategies for
responding to them.
The Company's simulation model analyzes interest rate sensitivity by
projecting net interest income over the next 24 months in a flat rate scenario.
The flat rate model projects growth in the loan portfolio and projects the mix
of accounts within the loan portfolio. In addition, the Company must also make
certain assumptions regarding the movement of the rates on its assets and
liabilities, especially its deposit rates.
The Company projects net interest income in a rising rate scenario of
200 basis points over a 24-month period as well as a 200 basis point decrease in
a declining rate scenario during this same period. The Company then determines
its interest rate sensitivity by calculating the difference in net interest
income in the rising and declining rate scenarios versus the flat rate scenario.
Based on this analysis at December 31, 2000 the Company would experience an
approximate 4.9% increase in net interest income over a one year period if rates
rise 200 basis points in comparison to a flat rate scenario and an approximate
5.8% decrease in net interest income if rates decline 200 basis points.
The following table presents the anticipated maturities or repricing of
the Company's interest-earning assets and interest- bearing liabilities for
various time periods based on the information and the assumptions set forth in
the notes below.
Less than three Three months to One to five Five to ten Over ten
months one year years years years
At December 31, 2000 Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-earnings assets (1)
Interest-earning deposits $ 59,637 6.40% $ -- --% $ -- --% --% $ -- --%
Investment securities 23,239 5.91 22,933 7.23 9,251 7.27 10,837 7.94 -- --
Mortgage-backed securities 5,782 7.12 40,537 7.03 69,862 7.17 40,167 7.17 27,127 7.17
Commercial business 127,746 10.65 10,079 8.87 30,470 8.67 3,997 8.75 41 7.25
Commercial real estate loans 26,040 9.77 41,646 8.59 101,953 8.39 7,784 7.99 93 8.17
Construction loans 55,654 11.07 4,216 9.00 494 9.25 -- -- -- --
Single family residential 4,641 7.89 14,630 8.34 10,979 7.79 3,094 7.69 616 7.80
Consumer loans 11,087 9.76 3,818 8.22 15,488 8.17 7,338 8.21 3,131 8.21
Lease financing 1,986 11.75 9,923 11.75 41,677 11.75 -- -- -- --
----------------------------------------------------------------------------------------------------
Total interest-earning
assets $315,812 9.37% $147,782 8.16% $280,174 8.54% $ 73,217 7.58% $ 31,008 7.29%
====================================================================================================
Interest-bearing
liabilities: (2)
Money market deposits $ 1,242 3.50% $ 6,190 3.50% $ 18,577 3.50% $ 7,432 3.50% $ 3,716 3.50%
NOW and Super NOW 8,484 3.62 17,440 3.62 53,361 3.62 20,924 3.62 3,838 3.62
Passbook and statement
savings 454 1.77 2,280 1.77 15,035 1.77 6,834 1.77 2,734 1.77
Time deposits 97,984 6.01 221,674 6.22 40,631 6.01 357 6.39 -- --
Short-term borrowings 59,960 6.59 19,400 5.98 -- -- -- -- -- --
Long-term debt 10,000 6.76 40,000 5.06 62,000 5.95 -- -- -- --
Subordinate debt -- -- -- -- 3,000 8.25 -- -- -- --
----------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $178,124 6.10% $306,984 5.82% $192,604 4.79% $ 35,547 3.27% $ 10,288 3.09%
====================================================================================================
Excess (deficiency) of
interest-earning assets
over interest-bearing
liabilities $137,688 $(159,202) $ 87,570 $ 37,670 $ 20,720
====================================================================================================
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities $137,688 $ (21,514) $ 66,056 $103,726 $124,446
====================================================================================================
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities as a percent
of total assets 15.06% (2.35)% 7.23% 11.35% 13.61%
====================================================================================================
(1) Adjustable and floating-rate items are included in the period in which interest rates are next scheduled to reprice rather than
in the period in which they are due, and fixed rate loans are included in period in which they are scheduled to be repaid or are
estimated to prepay. Loan balances have been reduced for non-accrual loans, which amounted to $4.0 million at December 31, 2000.
Interest earning assets do not include loan loss reserves, deferred loan fees, and mark-to market adjustment on available for
sale securities.
(2) Money market deposits, savings accounts, and NOW accounts are estimated in terms of repricing and balance sensitivity; the
estimates are necessarily subjective due to the indeterminate maturity of the accounts.
24
Item 8. Financial Statements and Supplementary Data
Consolidated Statements of Financial Condition
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
At December 31, 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from other financial institutions:
Non-interest earning $ 25,360 $ 15,648
Interest earning 59,637 24,278
Trading securities -- 3,267
Investments and mortgage-backed securities:
Available for sale at fair value (amortized cost: $207,795 in 2000 and $147,529 in 1999) 205,166 149,518
Held to maturity at amortized cost (fair value: $40,225 in 2000 and $32,914 in 1999) 41,940 34,309
Loans and leases, net (net of reserves: $7,407 in 2000 and $5,927 in 1999) 535,712 497,738
Investments in unconsolidated entities 9,266 11,427
Premises and equipment, net 18,343 15,600
Accrued interest receivable 5,625 4,162
Net deferred income tax assets 4,446 2,081
Other assets 8,754 9,725
Net assets of discontinued operations
-------- --------
-- 1,188
Total assets $914,249 $768,941
========= ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest-bearing $ 88,356 $ 65,305
Interest-bearing 529,187 456,134
Short-term borrowings:
Securities sold under agreement to repurchase 53,700 47,145
Other short-term borrowings 25,660 3,622
Long-term debt 112,000 109,000
Subordinated debt 3,000 3,000
Payable for securities purchased 10,075 4,892
Accrued interest payable 5,819 2,936
Deferred tax liabilities 2,229 3,587
Other liabilities 13,831 11,060
-------- --------
Total liabilities 843,857 706,681
-------- --------
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust holding
solely junior subordinated debentures of the Corporation 20,232 14,451
Commitments and contingencies (Note 14) 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; and 5,814,000 and 5,680,000
shares issued and outstanding at December 31, 2000 and December 31, 1999, respectively 5,814 5,680
Treasury stock (125,000 and 152,000 shares at December 31, 2000 and December 31, 1999,
respectively) (1,245) (1,963)
Unearned Employee Stock Ownership Plan shares (0 and 14,000 shares at December 31, 2000 and
December 31, 1999, respectively) -- (64)
Unearned compensation - restricted stock awards (858) (1,051)
Capital surplus 44,400 42,612
Retained earnings 3,848 1,361
Net accumulated other comprehensive income (loss) (1,799) 1,234
-------- --------
Total shareholders' equity 50,160 47,809
-------- --------
Total liabilities, Corporation-obligated mandatorily redeemable capital securities
and shareholders' equity $914,249 $768,941
======== ========
See Notes to Consolidated Financial Statements.
25
Consolidated Statements of Income
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans and leases $51,132 $40,952 $35,468
Mortgage-backed securities 10,461 8,008 8,686
Investment securities 4,115 2,346 1,017
Other 1,320 868 158
------- ------- -------
Total interest income 67,028 52,174 45,329
------- ------- -------
Interest expense:
Deposits 24,162 16,759 14,466
Short-term borrowings 4,707 2,199 3,164
Long-term debt 6,306 6,474 4,820
------- ------- -------
Total interest expense 35,175 25,432 22,450
------- ------- -------
Net interest income 31,853 26,742 22,879
Provision for loan and lease losses 4,416 3,548 959
------- ------- -------
Net interest income after provision for loan and lease losses 27,437 23,194 21,920
------- ------- -------
Non-interest income:
Service charges on deposits 2,236 2,097 1,663
Lease financing fees 1,433 1,223 1,245
Mutual fund, annuity and insurance commissions 4,605 2,669 --
Loan brokerage and advisory fees 2,193 2,385 2,108
Private equity fund management fees 2,235 702 202
Client warrant income 3,523 4,188 --
Equity (loss) in unconsolidated entities (2,791) 2,524 222
Gain on sale of leasing division 1,686 -- --
Gain (loss) from sale of securities 533 (347) 533
Gain (loss) on sale of loan and lease receivables 667 (20) 418
Other 3,222 2,166 1,254
------- ------- -------
Total non-interest income 19,542 17,587 7,645
------- ------- -------
Non-interest expense:
Salaries and employee benefits 20,180 15,850 10,319
Occupancy 2,302 1,495 1,168
Data processing 1,098 1,171 1,070
Professional services 2,466 1,943 1,091
Furniture, fixtures and equipment 2,147 1,477 999
Loan and real estate owned expenses, net 1,228 720 592
Capital securities expense 1,907 1,595 1,593
Other 6,978 7,397 5,002
------- ------- -------
Total non-interest expense 38,306 31,648 21,834
------- ------- -------
Income from continuing operations before income taxes and cumulative effect of
accounting change 8,673 9,133 7,731
Income tax expense 3,016 3,101 2,816
------- ------- -------
Income from continuing operations before cumulative effect of accounting change 5,657 6,032 4,915
Cumulative effect of accounting change (net of tax benefit of $26) -- -- (46)
------- ------- -------
Income from continuing operations 5,657 6,032 4,869
Gain on sale of discontinued operations (net of tax expense of $1,035) 1,519 -- --
Income from discontinued operations (net of tax expense of $30, $442 and $62) 123 639 111
------- ------- -------
Net income $ 7,299 $ 6,671 $ 4,980
======= ======= =======
Basic income from continuing operations per common share before cumulative effect
of accounting change $ .98 $ 1.04 $ .92
Diluted income from continuing operations per common share before cumulative
effect of accounting change .95 .99 .84
Basic net income per common share 1.26 1.15 .93
Diluted net income per common share 1.22 1.10 .85
Dividends per share .21 .17 .12
Average common shares outstanding 5,793,607 5,778,014 5,377,636
Diluted average common shares outstanding 5,984,594 6,085,859 5,883,867
See Notes to Consolidated Financial Statements.
26
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income (Dollars in thousands)
For the years ended December 31, 2000, 1999 and 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Unearned Net
Compensation Accumulated Total
Unearned Restricted Other Compre- Share-
Common Treasury ESOP Stock Capital Retained Comprehensive hensive holders'
Stock Stock Shares Awards Surplus Earnings Income(Loss) Income Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 $4,126 $-- $(164) $-- $20,950 $(10) $460 $25,362
Issuance of common stock in stock
offering (792,800 common shares) 793 -- -- -- 13,468 -- -- 14,261
Issuance of stock under employee
benefit plans (47,774 common shares;
10,525 ESOP shares) 48 -- 50 -- 334 -- -- 432
Exercise of stock warrants
(26,250 common shares) 26 -- -- -- 124 -- -- 150
Net income -- -- -- -- -- 4,980 -- $4,980 4,980
Other comprehensive loss, net of tax(a) -- -- -- -- -- -- (955) (955) (955)
------
Net comprehensive income $4,025
======
Purchase of treasury stock
(231,000 treasury shares) -- (3,098) -- -- -- -- -- (3,098)
Acquisition of subsidiary
(54,003 treasury shares) -- 811 -- -- (61) -- -- 750
Investment in unconsolidated subsidiary
(21,153 common shares) 21 -- -- -- 309 -- -- 330
Cash dividend declared -- -- -- -- -- (658) -- (658)
Distribution of stock dividend
(249,653 common shares; 300
treasury shares; 1,644 ESOP shares) 249 -- --
-- -- 4,462 (4,711) --
- -------------------------------------------------------------------------------------------------------- -------
Balance at December 31, 1998 5,263 (2,287) (114) -- 39,586 (399) (495) 41,554
Issuance of stock under employee
benefit plans (21,772 common shares;
107,709 treasury shares; 10,799 22 1,319 50 (1,066) 134 -- -- 459
ESOP shares)
Retirement of restricted stock awards
(1,300 common shares) (1) -- -- 15 (14) -- -- --
Exercise of stock warrants (125,971
common shares; 122,088 treasury 126 1,666 -- -- (442) -- -- 1,350
shares)
Early retirement of warrants -- -- -- -- (331) -- -- (331)
Net income -- -- -- -- -- 6,671 -- $6,671 6,671
Other comprehensive income, net of tax(a) -- -- -- -- -- -- 1,729 1,729 1,729
-------
Net comprehensive income $8,400
======
Purchase of treasury stock
(202,500 treasury shares) -- (2,661) -- -- -- -- -- (2,661)
Cash dividend declared -- -- -- -- -- (962) -- (962)
Distribution of stock dividend
(269,997 common shares; 2,250
treasury shares; 799 ESOP shares) 270 -- -- -- 3,679 (3,949) -- --
- -------------------------------------------------------------------------------------------------------- -------
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 (24,239 common shares;
6,154 treasury shares; 14,011 ESOP 24 80 64 192 325 -- -- 685
shares)
Retirement of restricted stock awards
(84 common shares) -- -- -- 1 (1) -- -- --
Net income -- -- -- -- -- 7,299 -- $7,299 7,299
Other comprehensive income, net of tax(a) -- -- -- -- -- -- (3,033) (3,033) (3,033)
------
Net comprehensive income $4,266
======
Purchase of treasury stock
(205,500 treasury shares) -- (2,165) -- -- -- -- -- (2,165)
Acquisition of subsidiary
(60,000 treasury shares) -- 800 -- -- -- -- -- 800
Cash dividend declared -- -- -- -- -- (1,235) -- (1,235)
Distribution of stock dividend (109,833
common shares; 166,596 treasury shares) 110 2,003 -- -- 1,464 (3,577) -- --
- --------------------------------------------------------------------------------------------------------- -------
Balance at December 31, 2000 $5,814 $(1,245) $ -- $ (858) $44,400 $3,848 $(1,799) $50,160
========================================================================================================= =======
(a)Calculation of other comprehensive income (loss) net of tax: 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Unrealized holding gains (losses) arising during the period, net of tax $(2,681) $1,500 $(603)
Less: Reclassification adjustment for gains (losses) included in net
income, net of tax 352 (229) 352
------- ------ -----
Other comprehensive income (loss), net of tax $(3,033) $1,729 $(955)
======= ====== =====
See Notes to Consolidated Financial Statements.
27
Consolidated Statements of Cash Flows
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Income from continuing operations $ 5,657 $ 6,032 $ 4,869
Add (deduct) items not affecting cash flows from continuing operations:
Depreciation and amortization 3,159 1,393 1,406
Provision for loan and lease losses 4,416 3,548 959
Deferred income tax expense (2,160) 893 13
Gain on sale of leasing division (1,686) -- --
Gain from sale of loans held for sale -- (14) --
(Gain) loss from sales of loans and leases (667) 34 (418)
(Gain) loss from sales of securities available for sale (533) 347 (533)
Realized loss on transfer of mortgage-backed securities -- -- 72
(Gain) loss on sale of ORE properties 9 -- (203)
Amortization of deferred loan fees (2,572) (2,747) (1,657)
Amortization of premiums/accretion of discounts on securities 216 903 1,076
Client warrant income (3,523) (4,188) --
(Equity) loss in unconsolidated entities 2,791 (2,524) (222)
Other, net 288 351 170
Originations and purchases of loans held for sale -- (11,365) (25,250)
Proceeds from sales of loans held for sale -- 9,476 --
Repayments on loans held for sale -- 4,766 --
Net proceeds from sales of trading securities 996 -- --
Increase in accrued interest receivable (1,463) (917) (517)
Decrease in other assets 1,351 357 22,054
Increase (decrease) in other liabilities 11,820 756 (28,075)
Increase in accrued interest payable 2,883 676 634
--------- --------- ---------
Net cash flows provided by (used in) continuing operations 20,982 7,777 (25,622)
Net cash flows provided by (used in) discontinued operations (1,917) 6 72
--------- --------- ---------
Net cash flows provided by (used in) operating activities 19,065 7,783 (25,550)
Cash flows from investing activities:
Capital expenditures (5,012) (6,187) (2,401)
Purchases of investments and mortgage-backed securities available for sale (84,200) (40,273) (168,637)
Purchases of investment and mortgage-backed securities held to maturity (7,599) (12,428) (8,350)
Repayments on investment and mortgage-backed securities available for sale 17,127 32,902 28,440
Repayments on investment and mortgage-backed securities held to maturity -- -- 8,788
Proceeds from sales, maturity and calls of investment and mortgage-backed
securities available for sale 10,323 17,132 65,241
Proceeds from sale of leasing division 32,460 -- --
Investment in real estate owned (4,314) -- --
Proceeds from sales of real estate owned 8,226 -- 583
Proceeds from sales of loan and lease receivables 23,419 875 28,343
Proceeds from sale of discontinued teleservices operations 4,944 -- --
Purchases of loans and lease receivables -- (4,180) (10,079)
Net increase in total loans and leases (99,318) (78,701) (67,765)
Net investments in unconsolidated entities (268) (3,365) (5,144)
Other, net (375) (625) 41
--------- --------- ---------
Net cash flows used in investing activities (104,587) (94,850) (130,940)
--------- --------- ---------
Cash flows from financing activities:
Net increase in demand, NOW and savings deposits 44,974 11,038 49,796
Net increase in time deposits 51,130 102,795 14,044
Decrease in short-term borrowings (407) (14,205) (6,927)
Proceeds from issuance of long-term debt 47,000 9,000 90,000
Repayment on calls of long-term debt (15,000) -- --
Dividends paid (1,235) (962) (656)
Proceeds from stock offerings and exercise of warrants -- 1,350 14,411
Retirement of warrants -- (331) --
Proceeds from issuance of stock under employee benefit plans 296 282 221
Purchase of treasury stock (2,165) (2,661) (3,098)
Proceeds from issuance of capital securities
6,000 -- --
--------- --------- ---------
Net cash flows provided by financing activities 130,593 106,306 157,791
--------- --------- ---------
Net increase in cash and cash equivalents 45,071 19,239 1,301
Cash and cash equivalents:
Beginning of year 39,926 20,687 19,386
--------- --------- ---------
End of year $ 84,997 $ 39,926 $ 20,687
========= ========= =========
28
Consolidated Statements of Cash Flows - continued
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures:
Net conversion of loans receivable to real estate owned $ 5,696 $ 66 $ --
Transfer of loans held for sale to portfolio -- 22,305 --
Transfer of investment securities available for sale to held to maturity -- 9,464 --
Transfer of mortgage-backed securities held to maturity to available for sale -- -- 40,147
Exercise of client warrants 1,986 3,256 --
Treasury shares issued in purchase of subsidiary 800 -- --
Cash payments for:
Income taxes for continuing operations $ 1,998 $ 3,257 $ 3,965
Income taxes for discontinued operations 759 466 8
Interest 32,292 24,756 21,816
See Notes to Consolidated Financial Statements.
(1) Summary of Significant Accounting Policies
Progress Financial Corporation and its subsidiaries (the "Company")
follow accounting principles and reporting practices that are in accordance with
generally accepted accounting principles in the United States of America. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses for the period.
Actual results could differ from such estimates.
The material estimates relate to the determination of the allowance for
loan and lease losses, the deferred tax asset valuation allowance, and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan and lease losses and real estate owned, management obtains independent
appraisals for collateral dependent loans and significant properties.
The more significant accounting policies are summarized below. Certain
prior period amounts have been reclassified when necessary to conform to current
year classifications. Tabular information is presented in thousands of dollars.
Basis of Presentation
The consolidated financial statements include the accounts of Progress
Financial Corporation and its subsidiaries; Progress Bank (the "Bank"), Progress
Capital Inc. ("PCI"), Progress Development Corp. ("PDC"), Progress Financial
Resources, Inc. ("PFR"), Progress Capital Management, Inc. ("PCM") and KMR
Management, Inc. ("KMR"). The Bank's primary operating subsidiaries are Progress
Leasing Company ("PLC") and Progress Realty Advisors, Inc. ("PRA"). All
significant intercompany transactions and balances have been eliminated.
Significant estimates are made by management in determining the
allowance for loan and lease losses and carrying values of real estate owned.
Consideration is given to a variety of factors in establishing these estimates
including current economic conditions, diversification of the loan portfolio,
delinquency statistics, results of internal loan reviews, borrowers' perceived
financial and managerial strengths, the adequacy of underlying collateral, the
dependence on collateral, or the strength of the present value of future cash
flows and other relevant factors. Since the allowance for loan and lease losses
and carrying value of real estate assets is dependent, to a great extent, on
general and other conditions that may be beyond the Company's control, it is at
least reasonably possible that the Company's estimates of the allowance for loan
and lease losses and the carrying values of the real estate assets could differ
materially in the near term.
The earnings of the Company depend primarily upon the level of net
interest income, which is the difference between interest earned on its
interest-earning assets, such as loans and leases and investments, and the
interest paid on its interest-bearing liabilities; such as deposits and
borrowings. Accordingly, the operations of the Company are subject to broad
risks and uncertainties surrounding its exposure to changes in the interest rate
environment.
29
Cash and Cash Equivalents
The Company's cash and due from other financial institutions are
classified as cash and cash equivalents, which have an original maturity of
three months or less.
Trading, Investment and Mortgage-Backed Securities
The Company accounts for its investments in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires debt
and equity securities to be classified and accounted for as follows: debt
securities which the Company has the positive intent and ability to hold to
maturity are classified as "securities held to maturity" and are reported at
amortized cost adjusted for amortization of premiums and accretion of discounts,
both computed on the interest method; debt and equity securities that are bought
and held principally for the purpose of selling in the near term are classified
as "trading securities" and are reported at fair value with unrealized gains and
losses included in earnings; and debt and equity securities not classified as
either held to maturity or trading securities are classified as "securities
available for sale" and are reported at fair value with unrealized gains and
losses excluded from earnings, but reported as a separate component of
shareholders' equity, net of deferred income taxes.
Investment and mortgage-backed securities classified as available for
sale include such items that management intends to use as part of its
asset-liability strategy or that may be sold in response to changes in interest
rates, changes in prepayment risks, the need to increase regulatory capital or
other strategic factors. When an investment or mortgage-backed security is sold,
any gain or loss is recognized utilizing the specific identification method.
Real Estate Owned
Real estate acquired in partial or full satisfaction of loans is
classified as real estate owned ("REO"). Prior to transferring a real estate
loan to REO, it is written down to the lower of cost or estimated fair value
less estimated selling costs (net realizable value) through a charge to the
allowance for loan and lease losses. Subsequently, valuations are periodically
performed by management, and any decline in net realizable value is charged to
operations. Costs relating to the development and improvement of property are
capitalized, whereas costs relating to the holding of property are only
capitalized when carrying value does not exceed net realizable value. If a sale
of real estate owned results in a gain or loss, the gain or loss is charged to
operations as incurred.
Investments in Unconsolidated Entities
Investments in unconsolidated entities consist of partnerships,
corporate joint ventures and other investments in which the Company owns 50% or
less of the common stock. Investments in unconsolidated entities that the
Company has the ability to exercise significant influence over operating and
financial policies are accounted for under the equity method. All others are
accounted for under the cost method.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed based on the estimated useful lives of
the assets using the straight-line method. Gains and losses are recognized upon
disposal of the assets. Maintenance and repairs are recorded as expenses.
Federal Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax
return. Certain items of income and expense (primarily net operating losses,
depreciation, provision for loan and lease losses, and real estate owned losses)
are reported in different periods for tax purposes. Deferred taxes are provided
on such temporary differences existing between financial and income tax
reporting subject to the deferred tax asset realization criteria required under
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109".)
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of aggregate cost or market value. Net unrealized
losses are charged to income in the period in which they arise.
30
Loans and Leases
Loans and leases are stated at the principal amount outstanding,
excluding unearned interest and allowance for loan and lease losses and
including unamortized initial direct costs.
The company originates direct finance leases accounted for in
accordance with SFAS No. 13 "Accounting for Leases." Under this method, the
excess of minimum rentals plus estimated residual value over the cost of
equipment is recorded as unearned income and amortized over the lease term so as
to produce a constant periodic rate of return on the net investment in the
lease.
The accrual of interest on commercial loans and leases is discontinued
when they become 90 days past due and when, in management's judgment, it is
determined that a reasonable doubt exists as to their collectibility. The
accrual of interest is also discontinued on residential mortgage and consumer
loans when such loans become 90 days past due, except for those loans in the
process of collection which are secured by real estate and have a loan to value
ratio less than 75% for first mortgage loans and 60% for second mortgage loans.
When a loan is placed on non-accrual status, interest accruals cease and
uncollected accrued interest is reversed and charged against current income.
Additional interest income on such loans is recognized only when received.
Loan origination fees and related direct loan origination costs are
deferred and recognized over the life of the loan as an adjustment to yield. The
unamortized balance of such net loan origination fees is reported on the
Company's consolidated statements of financial condition as part of loans. Lease
origination and commitment fees and related costs are deferred and the amount is
amortized as an adjustment to the related asset's yield.
Allowance for Loan and Lease Losses
An allowance for loan and lease losses is maintained at a level that
management considers adequate to provide for potential losses in the loan and
lease portfolio. Management's periodic evaluation of the adequacy of the
allowance is based upon examination of the portfolio, past loss experience,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, current economic conditions and
other relevant factors. While management uses the best information available to
make such evaluations, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluations. The allowance for loan losses includes reserves for impaired loans.
All non-accrual loans are considered impaired loans. The measurement of impaired
loans may be based on the present value of expected future cash flows discounted
at the historical effective rate or based on the fair value of the underlying
collateral. Impairment criteria are applied to the loan portfolio exclusive of
smaller balance homogeneous loans such as residential mortgages and consumer
loans, which are evaluated collectively for impairment.
Treasury Stock
The Company accounts for treasury stock purchases at cost. Shares are
reissued on a FIFO (first-in-first-out) basis.
Earnings Per Share
The Company presents "Earnings Per Share" on a basic per-share amount
for income from continuing operations and on a diluted basis. The per share
results of operations were computed by dividing net income by the weighted
average number of shares outstanding during the period. Shares outstanding do
not include treasury shares and Employee Stock Ownership Plan ("ESOP") shares
that were purchased and unallocated in accordance with Statement of Position
("SOP") 93-6, "Employers Accounting for Employees Stock Ownership Plans." Prior
period amounts have been restated to reflect stock dividends distributed during
2000, 1999 and 1998.
Accounting for Derivative Instruments
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
("SFAS 133"). The Company chose to adopt SFAS 133 in 1998. SFAS 133 establishes
accounting and reporting standards for derivative instruments and hedging
activity. Under the standard, all derivatives must be measured at fair value and
recognized as either assets or liabilities in the financial statements. As
permitted under SFAS 133, the Company transferred $40.1 million, gross of
unrealized losses of $276,000 and net of realized losses of $72,000, of
mortgage-backed securities from the held to maturity to the available for sale
portfolio in the third quarter of 1998. The realized loss of $46,000, net of tax
benefit of $26,000, was presented as the cumulative effect of accounting change
on the Consolidated Statement of Operations.
31
Under SFAS 133 client warrants are considered derivatives and should be
marked to market through earnings if readily convertible to cash. At December
31, 2000, the Company owned warrants on common stock in approximately 43
companies which were not readily convertible to cash as they contained certain
conditions which precluded their convertibility; and hence, have not been
included in assets. If, in the future, those conditions were to be satisfied and
the underlying common stock were to become marketable, the warrants would be
recorded at fair value as an adjustment to current earnings.
(2) Acquisitions
The following acquisitions were accounted for as purchases. Goodwill on these transactions has been recorded in other
assets and will be amortized on the straight-line basis.
Date Purchase Amortization
Completed Price Shares Issued Goodwill Period
- --------------------------------------------------------------------------------------------------------------------------
KMR Management, Inc. 01/03/00 $1,050 60,000 Treasury $1,063 10 Years
Primary Capital Corp. 11/20/98 $750 54,003 Treasury $823 15 Years
On January 14, 1998, the Company acquired PAM Holding Corporation and
its subsidiaries, PAM Financial and PAM Investment Company, which had audited
assets and shareholders' equity of $15.5 million and $235,000 respectively, at
December 31, 1997. The transaction was accounted for under the pooling of
interests method of accounting during 1998 and accordingly, prior year financial
statements have been restated to reflect the impact of the transaction. The
Company issued 61,835 shares of common stock for all of PAM Holding
Corporation's common shares outstanding.
On November 20, 1998, the Company acquired Primary Capital Corp., a
Pennsylvania based leasing company with assets of approximately $1.1 million.
The transaction was recorded under the purchase method of accounting and
generated goodwill amounting to $823,000.
On January 3, 2000, the Company acquired KMR Management, Inc. ("KMR"),
a Pennsylvania based corporation. The acquisition was accounted for under the
purchase method of accounting and generated goodwill amounting to $1.1 million.
(3) 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 restated 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.
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 $.25.
Net assets of discontinued operations at December 31, 1999 we as follows:
Premises and equipment, net $ 843
Accounts receivable 345
-------
Net assets of discontinued operations $1,188
=======
Condensed results of discontinued operations for the twelve months ended 2000, 1999 and 1998 are as follows:
For the years ended December 31, 2000 1999 1998
----------------------------------------------------------------------
Non-interest income $1,558 $3,406 $1,015
Non-interest expense 1,405 2,325 842
------- ------- ------
Income (loss) before income tax 153 1,081 173
Income tax expense (benefit) 30 442 62
------- ------- ------
Net income (loss) $ 123 $ 639 $ 111
======= ======= ======
32
(4) Cash and Due from Other Financial Institutions
Progress Bank is required by the Federal Reserve Board to maintain
reserves based principally on deposits outstanding and are included in cash and
due from other financial institutions. At December 31, 2000 and 1999, required
reserves were $230,000 and $3.9 million, respectively.
(5) Trading Securities
Trading securities at December 31, 1999 were equity securities acquired
through the exercise of client warrants. The change in net unrealized holding
gains on trading securities that has been included in client warrant income was
$2.7 million during 1999. The Company sold its trading securities during 2000
and realized an additional gain of $16,000 that has been included in client
warrant income in 2000.
(6) Investment and Mortgage-Backed Securities
The Bank is required under current Office of Thrift Supervision ("OTS")
regulations to maintain defined levels of liquidity and utilizes certain
investments that qualify as liquid assets. To meet these requirements, the Bank
utilizes deposits with the Federal Home Loan Bank of Pittsburgh ("FHLB") and
United States government and agency obligations. The following tables detail the
amortized cost, carrying value and estimated fair value of the Company's
investments and mortgage-backed securities:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
At December 31, 2000 Cost Gains Losses 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 securities $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 securities $ 41,940 $ 562 $2,277 $ 40,225 $ 41,940
======================================================================================================
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
At December 31, 1999 Cost Gains Losses Value Value
------------------------------------------------------------------------------------------------------
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 securities $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
Municipals bonds 14,805 1 1,070 13,736 14,805
------------------------------------------------------------------------------------------------------
Total held to maturity securities $ 34,309 $ 31 $1,426 $ 32,914 $ 34,309
======================================================================================================
33
Investment and mortgage-backed securities pledged as collateral for
FHLB borrowings amounted to $79.3 million and $30.1 million at December 31, 2000
and 1999, respectively. Investment securities pledged to the Federal Reserve
Bank for Small Business Administration loans amounted to $1.0 million and
$970,000 at December 31, 2000 and 1999, respectively. Investment and
mortgage-backed securities pledged under agreements to repurchase in connection
with borrowings amounted to $70.8 million and $85.3 million at December 31, 2000
and 1999, respectively. Investment and mortgage-backed securities pledged as
collateral for public funds amounted to $10.8 million and $14.1 million at
December 31, 2000 and 1999, respectively. Investment and mortgage-backed
securities pledged to the Federal Reserve Bank to secure borrowings and
Treasury, Tax and Loan balances amounted to $1.7 million and $2.7 million at
December 31, 2000 and 1999, respectively.
The amortized cost and estimated fair value of the Company's debt
securities at December 31, 2000 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities due to the right to
call or prepay such obligations with or without prepayment penalties.
Mortgage-backed securities mature over the life of the security through regular
principal payments and are subject to prepayment risk.
Amortized Estimated Fair
At December 31, 2000 Cost Value
--------------------------------------------------------------------------------------------
Available for Sale:
Due one year or less $ 971 $ 971
Due after one year through five years 6,010 6,148
Due five years through ten years 10,000 10,025
Due after ten years 1,903 1,560
Mortgage-backed securities 183,475 183,468
--------------------------------------------------------------------------------------------
Total debt securities available for sale $202,359 $202,172
============================================================================================
Held to Maturity:
Due five years through ten years $ 789 $ 781
Due after ten years 34,801 33,094
--------------------------------------------------------------------------------------------
Total debt securities held to maturity $ 35,590 $ 33,875
============================================================================================
Proceeds from sales of investment and mortgage-backed securities
available for sale were $4.9 million, $15.9 million and $63.2 million in 2000,
1999 and 1998, respectively. Proceeds from maturities and calls of investment
and mortgage-backed securities available for sale were $5.4 million, $1.2
million and $2.0 million in 2000, 1999 and 1998, respectively.
Total realized gains in 2000, 1999 and 1998 on the sale of investment
and mortgage-backed securities classified as available for sale were $1.9
million, $439,000 and $824,000, respectively. Total realized losses in 2000,
1999 and 1998 on the sale of investment and mortgage-backed securities
classified as available for sale were $287,000, $446,000 and $291,000,
respectively. Net realized gains included above on the sale of equity securities
available for sale acquired through the exercise of client warrants of $1.1
million and $349,000 was recorded in client warrant income during 2000 and 1999,
respectively. Additionally, realized gains on calls of mortgage-backed
securities in 1999 were $8,000.
During 1999, the Company transferred $9.7 million in investments
securities from the available for sale to the held to maturity category. The
investments were transferred at fair value. Unrealized losses, net of tax, on
the date of transfer amounted to $89,000. The remaining unrealized losses, net
of tax, were $64,000 and $79,000 at December 31, 2000 and 1999, respectively,
and are reported in net accumulated other comprehensive income.
During 1998, the Company implemented SFAS 133, resulting in the
transfer of $40.1 million, gross of unrealized losses of $276,000, and net of
realized losses of $72,000, of mortgage-backed securities previously held to
maturity to the available for sale portfolio.
34
(7) Loans and Leases, Net
The components of loans and leases at December 31, 2000 and 1999 are
detailed below:
At December 31, 2000 1999
-----------------------------------------------------------------------------------------------------------
Commercial business $175,972 $119,807
Commercial real estate 178,874 162,588
Construction (net of loans in process of $56,270 and $51,975, respectively) 60,172 58,813
Single-family residential real estate 34,676 40,554
Consumer loans 37,242 34,918
Lease financing 66,166 103,536
Unearned income (9,983) (16,551)
Allowance for loan and lease losses (7,407) (5,927)
---------------------------------------------------------------------------------------------------------
Total loans and leases, net $535,712 $497,738
=========================================================================================================
For the years ended December 31, 2000 and 1999, the average recorded
investment in impaired loans was approximately $4.3 million and $4.5 million,
respectively. At December 31, 2000 and 1999, the recorded investment in loans
for which impairment has been recognized in accordance with SFAS Nos. 114 and
118 "Accounting by Creditors for Impairment of a Loan" totaled $4.0 million and
$5.7 million, respectively.
The Company is a lessor of equipment and machinery under agreements expiring at various dates through the Year 2006. At
December 31, 2000, the components of lease financing are as follows:
2001 $27,042
2002 20,876
2003 11,586
2004 5,212
2005 1,433
2006 17
-------------------------------------------------------------------
Total future minimum lease payments receivable
including estimated residual value of $2,551 66,166
Unearned income (9,983)
-------------------------------------------------------------------
Total lease financing receivables $56,183
===================================================================
During 2000, the Company sold its Maryland-based leasing division that
resulted in the sale of $31.0 million in lease financing receivables.
At December 31, 2000, 1999, and 1998, the Company was servicing loans,
including participations sold, in the amounts of $219.5 million, $240.4 million
and $179.6 million, respectively, for the benefit of others.
Loans and lease receivables from executive officers and directors, including loans and leases to related persons and
entities, and affiliates consisted of the following activity:
For the years ended December 31, 2000 1999 1998
---------------------------------------------------------------------------------------------
Balances at beginning of year $6,225 $3,327 $ 659
Additional loans and leases granted 5,950 5,535 3,034
Repayments (7,822) (2,637) (366)
---------------------------------------------------------------------------------------------
Balances at end of year $4,353 $6,225 $ 3,327
=============================================================================================
The following is a summary of the activity in the allowance for loan and lease losses:
For the years ended December 31, 2000 1999 1998
----------------------------------------------------------------------------------------------------
Balance at beginning of year $5,927 $4,490 $3,863
Provisions for loan and lease losses, 4,416 3,548 959
Losses charged against the allowance (3,618) (2,554) (755)
Recoveries on charge-off loans 682 443 423
----------------------------------------------------------------------------------------------------
Balance at end of year $7,407 $5,927 $4,490
====================================================================================================
35
(8) Investments in Unconsolidated Entities
Investments in Unconsolidated Entities at December 31, 2000 and 1999 are detailed below:
At December 31, 2000 1999
------------------------------------------------------------------------------------------
Investment in Ben Franklin/Progress Capital Fund, L.P. (A) $2,202 $ 4,771
Other investments in unconsolidated entities (B) 7,064 6,656
-------------------------------------------------------------------------------------------
Total $9,266 $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. Financial statements for Ben Franklin
are filed herewith as Exhibit 99. Condensed financial data of Ben Franklin follows:
For the years ended December 31, 2000 1999 1998
--------------------------------------------------------------------------------------------------
Summary of Operations
--------------------------------------------------------
Revenues $ 517 $ 357 $235
Expenses 308 294 298
Net increase (decrease) in investment valuation (5,059) 6,725 --
--------------------------------------------------------------------------------------------------
Net increase (decrease) in partners' capital
resulting from operations $(4,850) $6,788 $(63)
==================================================================================================
The Company's equity (loss) in Ben Franklin $(2,024) $2,822 $(17)
==================================================================================================
At December 31, 2000 1999
------------------------------------------------------------------------------------
Balance Sheet Data
--------------------------------------------------------
Assets:
Venture capital investments, at fair value $4,135 $ 9,830
Cash and temporary investments 1,503 2,258
Other assets 181 100
------------------------------------------------------------------------------------
Total assets $5,819 $12,188
====================================================================================
Liabilities and Partners' Capital:
Liabilities $ 17 $ 36
Partners' capital 5,802 12,152
------------------------------------------------------------------------------------
Total liabilities and partners' capital $5,819 $12,188
====================================================================================
(B) Includes a $4.0 million investment at December 31, 2000 and 1999, in New Seasons Assisted Living Communities Series
"C" preferred stock, accounted for under the cost method; a $2.2 million and a $2.1 million investment at December
31, 2000 and 1999, respectively, in Progress Development I L.P., owned 50% by the Company and accounted for under the
equity method; and a $804,000 and $871,000 investment at December 31, 2000 and 1999, respectively, in NewSpring
Venture Fund, L.P., accounted for under the equity method.
(9) Premises and Equipment
Land, office buildings and equipment, at cost, are summarized by major classification:
----------------------------------------------------------------------------------------------------
At December 31, Estimated Life 2000 1999
----------------------------------------------------------------------------------------------------
Premises and Equipment Occupied by Company:
Land $3,014 $ 2,931
Buildings and leasehold improvements (40 years or lease term) 8,930 7,364
Furniture, fixtures and equipment (3-5 years) 12,888 11,839
----------------------------------------------------------------------------------------------------
24,832 22,134
Accumulated depreciation (10,238) (8,591)
----------------------------------------------------------------------------------------------------
Total premises and equipment occupied by Company 14,594 13,543
----------------------------------------------------------------------------------------------------
Property Held for Lease:
Buildings and leasehold improvements (40 years or lease term) 4,132 2,205
Accumulated depreciation (383) (148)
----------------------------------------------------------------------------------------------------
Total property held for lease 3,749 2,057
----------------------------------------------------------------------------------------------------
Total Premises and Equipment, Net $18,343 $15,600
====================================================================================================
36
Depreciation expense for the years ended December 31, 2000, 1999 and
1998, was $2.2 million, $1.4 million and $1.0 million, respectively.
At December 31, 2000, the Company leased a number of its office
facilities. The leases provide a schedule of minimum rent for each lease year or
provide for a minimum rental for each lease year as a stated percentage increase
or based upon the consumer price index increase. Generally, the leases provide
for the option to renew with specified terms. At December 31, 2000, minimum
future non-cancelable rental payments under operating leases are as follows:
-------------------------------------------------------------------
Premises and Equipment Occupied by Company:
-------------------------------------------------------------------
2001 $1,486
2002 1,500
2003 1,520
2004 1,372
2005 1,324
-------------------------------------------------------------------
Total $7,202
===================================================================
Rental expense for the years ended December 31, 2000, 1999, and 1998
was $1.7 million, $1.2 million and $914,000, respectively.
The Company was the lessor of office space on two of its properties.
The leases provide a schedule of minimum rent for each lease year and several
leases provide for the option to renew with specified terms. At December 31,
2000, minimum future non-cancelable rental payments to be received under
operating leases are as follows:
-------------------------------------------------------------------
Property Held for Lease:
-------------------------------------------------------------------
2001 $ 590
2002 485
2003 204
-------------------------------------------------------------------
Total $1,279
===================================================================
(10) Other Assets
The following items are included in other assets:
At December 31, 2000 1999
------------------------------------------------------------------
Servicing rights $ 170 $ 157
Accounts receivable 2,076 2,521
Goodwill 3,042 4,914
Other real estate owned 1,750 66
Other assets 1,716 2,067
------------------------------------------------------------------
Total $8,754 $9,725
==================================================================
Servicing rights include $36,000 and $68,000 of purchased mortgage
servicing rights at December 31, 2000 and 1999, respectively; $76,000 and
$89,000 of originated mortgage servicing rights at December 31, 2000 and 1999,
respectively; and $58,000 of SBA Loan servicing rights at December 31, 2000.
Servicing rights have been capitalized in accordance with SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." At December 31, 2000, 1999 and 1998, the Company was servicing
loans, including participations sold, in the amounts of $ 219.5 million, $240.4
million and $179.6 million, respectively, for the benefit of others.
(11) Other Long-Term Debt
Other long-term debt at December 31, 2000 and 1999 consist of the following:
------------------------------------------------------------------------------
At December 31, 2000 1999
------------------------------------------------------------------------------
FHLB borrowings $102,000 $ 85,000
Securities sold under agreement to repurchase 10,000 24,000
------------------------------------------------------------------------------
Total $112,000 $109,000
==============================================================================
37
At December 31, 2000 there were $10.0 million in variable rate FHLB
long-term borrowings at three-month LIBOR plus 8 basis points. At December 31,
2000 the Company had $92.0 million of FHLB long-term borrowings that contained a
provision whereby, at the option of the FHLB, the borrowing may be converted to
a LIBOR adjustable rate advance for the remaining term of the advance. However,
the Company may choose not to accept the adjustable rate advance and would have
the option, at that time, to put the borrowing back to the FHLB without penalty.
At December 31, 2000, FHLB borrowings were secured by approximately $212.2
million in certain investment and mortgage-backed securities and $52.1 million
in certain mortgage loans. At December 31, 2000 aggregate maturities of the FHLB
borrowings were: $10.0 million in 2002; $30.0 million in 2003; $26.0 million in
2005; $15.0 million in 2008; and $21.0 million in 2010. Of these borrowings
$92.0 million are callable at dates ranging from 2001 through 2005.
At December 31, 2000 there were $10.0 million in 5.61% fixed rate
securities purchased under agreement to resell scheduled to mature in 2003.
During 2000, $15.0 million in FHLB borrowings and $14.0 million in
securities sold under agreement to repurchase were reclassified to short-term
borrowings as their maturity become less than one year.
(12) Subordinated Debt
The subordinated debt consists of 12 units of $250,000 notes payable
June 30, 2004. The notes are redeemable at the Company's option at a price of
105% of par after July 1, 1996, declining annually thereafter to par on and
after July 1, 2003. Interest is paid quarterly. The terms of the notes limit the
Company's aggregate amount of long-term senior indebtedness to an amount equal
to or less than the Company's net worth. At December 31, 2000, the Company's net
worth was $47.2 million greater than its aggregate long-term senior
indebtedness.
(13) Income Taxes
Income tax expense, including tax expense on the gain on sale of
discontinued operation of $1.0 million in 2000, tax expense on discontinued
operations of $30,000, $442,000 and $62,000 in 2000, 1999 and 1998,
respectively, and the tax benefit of $26,000 on the cumulative effect of
accounting change in 1998, consisted of the following:
-------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
-------------------------------------------------------------------------------------
Current:
Federal $1,508 $2,664 $2,752
State 413 (14) 87
Deferred:
Federal 2,104 888 (71)
State 56 5 84
-------------------------------------------------------------------------------------
Total income tax expense $4,081 $3,543 $2,852
=====================================================================================
The provision for income taxes differs from the statutory rate due to the following:
-------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
-------------------------------------------------------------------------------------
Tax at statutory rate $3,869 $3,473 $2,663
State tax, net of Federal effect 310 (6) 113
Interest on non-taxable loans and securities (260) (140) (10)
Other 162 216 86
-------------------------------------------------------------------------------------
Total income tax expense $4,081 $3,543 $2,852
=====================================================================================
38
Deferred income taxes reflect the impact of differences between the
financial statement and tax basis of assets and liabilities and available tax
carryforwards. The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax liabilities at
December 31, 2000 and 1999 are presented below:
--------------------------------------------------------------------------------------
At December 31, 2000 1999
--------------------------------------------------------------------------------------
Deferred tax assets:
Unrealized loss on securities available for sale $ 927 $ --
Provision for loan and lease losses 2,490 1,927
Goodwill 876 62
Other 153 92
--------------------------------------------------------------------------------------
Total deferred tax assets 4,446 2,081
--------------------------------------------------------------------------------------
Deferred tax liabilities:
Unrealized gain on securities available for sale -- 636
Unrealized gain on trading securities -- 396
Unrealized gain on client warrants 666 --
Deferred loan and lease costs 1,098 1,213
Direct finance lease receivable 350 441
Investments in unconsolidated entities 27 793
Depreciation and amortization 25 57
Other 63 51
--------------------------------------------------------------------------------------
Total deferred tax liabilities 2,229 3,587
--------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $2,217 $(1,506)
======================================================================================
A valuation allowance has not been provided at December 31, 2000 and
1999 since management believes it is more likely than not that the deferred tax
assets will be realized.
(14) Commitments and Contingencies
The Company is a party to various financial instruments required in the
normal course of business to meet the financing needs of its customers, which
are not included in the Consolidated Statements of Financial Condition at
December 31, 2000. Management does not expect any material losses from these
transactions. The Company's involvement in such financial instruments is
summarized as follows:
------------------------------------------------------------------------------------------------------------
At December 31, 2000 1999
------------------------------------------------------------------------------------------------------------
Contract or Notional Amount
-------------------------------
Amounts representing credit risk:
Commitments to extend credit (including unused lines of credit) $234,563 $223,925
Standby letters of credit, financial guarantees and other letters of credit 12,232 3,983
The Company uses the same credit policies in extending commitments and
letters of credit as it does for on-balance sheet instruments. The Company
controls its exposure to loss from these agreements through credit approval
processes and monitoring procedures. Letters of credit and commitments to extend
credit are generally issued for one year or less and may require payment of a
fee. The total commitment amounts do not necessarily represent future cash
disbursements, as many of the commitments expire without being drawn upon. The
Company may require collateral in extending commitments, which may include cash,
accounts receivable, securities, real or personal property, or other assets. For
those commitments which require collateral, the value of the collateral
generally equals or exceeds the amount of the commitment.
The majority of the Company's commitments to extend credit and letters
of credit carry current market interest rates if converted to loans. Because
commitments to extend credit and letters of credit are generally unassignable by
either the Company or the borrower, they only have value to the Company and the
borrower. The estimated fair value approximates the recorded deferred fee
amounts.
At December 31, 2000, the Company was party to a number of lawsuits.
While any litigation has an element of uncertainty, after reviewing these
actions with legal counsel, management is of the opinion that the liability, if
any, resulting from these actions will not have a material effect on the
financial condition or results of operations of the Company.
39
(15) Related Party Transactions
The Company receives management fees from Ben Franklin and other
unconsolidated entities for accounting and advisory services. For the years
ended December 31, 2000, 1999 and 1998, the Company recorded management fees
from Ben Franklin of $272,000, $272,000 and $270,000, respectively. Aggregate
management fees from other unconsolidated entities were $2.0 million and
$414,000 during 2000 and 1999, respectively; there were no management fees from
other unconsolidated entities in 1998.
Ben Franklin has a certificate of deposit and transaction accounts with
the Bank that totaled $1.5 million and $2.3 million at December 31, 2000 and
1999, respectively. Aggregate transaction accounts that other unconsolidated
subsidiaries have with the Bank totaled $1.8 million at December 31, 2000.
(16) Benefit Plans
The Company has a savings plan under Section 401(k) of the Internal
Revenue Code available to all full-time employees. The plan allows employees to
contribute part of their pretax or after-tax income according to specified
guidelines. The Company matches a percentage of the employee contributions up to
a certain limit. This expense amounted to $359,000, $284,000 and $206,000 for
the years 2000, 1999 and 1998, respectively.
(17) 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. Net
proceeds from the sale of the securities were 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.
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.
(18) Shareholders' Equity
On May 15, 1998 the Company completed a secondary offering of 792,800
shares of common stock at a price of $19.50 per share. During 1998, the Company
announced a plan to repurchase up to 357,000 shares of common stock of which
231,300 shares had been repurchased at December 31, 1998 and 125,700 shares were
repurchased during 1999. In 1999, the Company announced the authorization of a
stock repurchase program under which the Company may repurchase up to 280,000 or
five percent, of its outstanding common stock of which 76,800 common shares were
repurchased in 1999 and 203,200 shares were repurchased during 2000. During
2000, the Company announced the authorization of a new stock repurchase program
under which the Company may repurchase up to 285,000 or five percent, of its
outstanding common stock of which 2,300 shares were repurchased during 2000.
In 1994, the Company completed the sale of $3.0 million in subordinated
debentures in a private placement. Nine whole units and six half units were
sold, ranging from $125,000 to $250,000 in principal amount of 8.25%
subordinated notes due in 2004 and warrants to purchase 13,781 to 27,562 shares
of common stock. Each warrant entitles the holder to purchase one share of the
Company's common stock at an exercise price of $5.44. The warrants were
exercisable in whole or in part, at any time prior to June 30, 1999. During 1999
and 1998, 248,059 and 26,250 shares were issued under these
40
warrants, respectively. Interest on the subordinated debentures is payable
quarterly. The subordinated debentures are due June 30, 2004 and are redeemable
after July 1, 1996.
On April 25, 1990, the Board of Directors of the Company declared a
dividend distribution of one Right for each outstanding share of Common Stock of
the Company to shareholders of record at the close of business on May 11, 1990.
Each Right entitles the registered holder to purchase from the Company a unit
consisting of one one-hundredth of a share (a "Unit") of Series A Junior
Participating Preferred Stock, par value $.01 per share, at a purchase price of
$40.00 per Unit, subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement, between the Company and American Stock
Transfer & Trust Company, as Rights Agent. This agreement expired in April 2000.
Employee Stock Ownership Plan
The Company's ESOP is a defined contribution plan covering all
full-time employees of the Company who have one year of service and are age 21
or older. It is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"). The Company follows the provisions of SOP 93-6,
"Employers' Accounting for Employee Stock Ownership Plans" in accounting for the
ESOP. In January 1996, the ESOP borrowed funds from a third party and purchased
50,000 shares (57,881 shares after the effects of the stock dividends) of the
Company's stock for the ESOP trust. Cash contributions to the ESOP have been
determined based on the ESOP's total debt service less dividends paid on ESOP
shares. Compensation expense of the ESOP was $165,000, $154,000 and $170,000 for
2000, 1999 and 1998, respectively. Interest expense on the borrowings was
$3,000, $8,000 and $13,000 for 2000, 1999 and 1998, respectively. The guaranteed
ESOP obligation was paid off during 2000 and all ESOP shares have been
allocated.
Employee Stock Purchase Plan
In April 1996, the Company established an Employee Stock Purchase Plan
("ESPP") under which 121,551 shares were reserved for issuance. Employees can
elect to purchase shares in the Company at 95% of the market price of the
Company's stock on certain dates throughout the year. During 2000, 1999 and
1998, 25,451, 20,641 and 9,686 shares, respectively, were issued to employees
through their participation in the ESPP. These transactions increased
shareholders' equity by $288,000, $220,000 and $106,000 during 2000, 1999 and
1998, respectively.
Restricted Stock Award Plan
In February 1999 the Board of Directors adopted a Restricted Stock
Award Plan under which 85,443 shares of common stock were reserved for grant to
certain employees of the Company's subsidiary Progress Financial Resources, Inc.
The awards have a five-year vesting period and are accounted for in accordance
with Accounting Principles Board Opinion No. 25, and related interpretations,
which provide for compensation expense to be measured at the grant date and
recognized as the awards vest. During 1999, the Company granted 14,337 and
68,793 shares, issued at market prices of $11.32 and $13.14 per share,
respectively. During 2000, the Company granted 1,512 shares issued at $11.90 per
share. Retirements during 1999 and 2000 amounted to 1,400 and 84 shares,
respectively. The Company accrued $213,000 and $184,000 in compensation expense
relating to the awards in 2000 and 1999, respectively. During 2000, 16,346
shares vested.
Stock Incentive Plans
In 1993, as amended in 1997, 1998 and 1999, the Board of Directors
adopted a Stock Incentive Plan which provides for the grant of incentive stock
options, non-qualified stock options and stock appreciation rights to key
employees. The per share exercise price of an incentive stock option shall at
least equal the fair market value of a share of Common Stock on the date the
option is granted, and the per share exercise price of a non-qualified stock
option shall at least equal the greater of par value or 85% of fair market value
of a share of Common Stock on the date the option is granted. Under this plan,
635,013 shares of common stock were reserved for issuance of which 54,894 shares
remained for future grants at December 31, 2000. All options were granted at the
fair market value and have a one- to five-year vesting period.
Under the Directors' Plan, which was also adopted in February 1993, and
amended in 1997, each non-employee director of the Company will receive
non-qualified options to purchase 607 shares (or such less number of shares as
remain to be granted pursuant to the Directors' Plan) with an exercise price
equal to the fair market value of a share of Common Stock on the date the option
is granted. Additional options may be granted based on the level of business
referrals to the Company. A total of 109,395 authorized but unissued shares of
Common Stock have been reserved for issuance pursuant to the Directors' Plan. At
December 31, 2000, 2,027 shares remained in the reserve for future grants.
41
In 2000, the Board of Directors adopted the 2000 Incentive Stock Option
Plan which provides for the grant of incentive stock options, non-qualified
stock options and stock appreciation rights to officers and employees and
non-qualified stock options to non-employee directors. The per share exercise
price of an incentive stock option or non-qualified stock option shall at least
equal to the greater of the par value or the fair market value of a share of
Common Stock on the date the option is granted. Under this plan, 210,000 shares
of common stock were reserved for issuance; all of which remained for future
grants at December 31, 2000.
Options granted under each of these fixed plans are exercisable during
the period specified in each option agreement and expire no later than the tenth
anniversary of the date the option was granted. A summary of the Company's fixed
stock option plans as of December 31, 2000, 1999 and 1998 and changes during the
years ended on those dates is presented below:
Weighted Average
For the year ended December 31, 2000 Shares Under Option Price Exercise
------------------------------------------------------------------------------------------
Outstanding at beginning of year 550,966 $ 7.0798
Granted during year 111,970 11.6208
Exercised during year (5,518) 2.9447
Forfeited during year (1,883) 10.3460
------------------------------------------------------------------------------------------
Outstanding at end of year 655,535 $ 7.8808
==========================================================================================
Options exercisable at end of year 514,010 $ 6.6879
==========================================================================================
For the year ended December 31, 1999
------------------------------------------------------------------------------------------
Outstanding at beginning of year 528,734 $ 6.1618
Granted during year 103,849 12.2254
Exercised during year (38,831) 1.5823
Forfeited during year (42,786) 13.2145
------------------------------------------------------------------------------------------
Outstanding at end of year 550,966 $ 7.0798
==========================================================================================
Options exercisable at end of year 439,899 $ 6.0360
==========================================================================================
For the year ended December 31, 1998
------------------------------------------------------------------------------------------
Outstanding at beginning of year 504,277 $ 4.5819
Granted during year 86,178 13.3894
Exercised during year (44,731) 2.3652
Forfeited during year (16,990) 5.9246
------------------------------------------------------------------------------------------
Outstanding at end of year 528,734 $ 6.1618
==========================================================================================
Options exercisable at end of year 385,091 $ 4.6323
==========================================================================================
The following table summarizes information about fixed stock options at December 31, 2000:
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------
Weighted
Weighted Average Weighted Number of Average
Range of Number Remaining Average Shares Exercise
Exercise Prices of Shares Contractual Life Exercise Price Exercisable Price
-------------------- -------------------------------------------------- ----------------------------
$ 2.88 - 4.00 148,999 2.6 $ 2.9974 148,999 $ 2.9974
4.01 - 8.00 248,894 5.9 6.1865 248,894 6.1865
8.01 - 12.00 161,160 8.7 11.7375 46,328 11.5337
12.01 - 15.66 96,482 8.0 13.3511 69,789 13.1382
-------------- -------------------------------------------- -----------------------
$ 2.88 - 15.66 655,535 6.1 $ 7.8808 514,010 $ 6.6879
============== ============================================ =======================
42
Pro Forma Stock Based Compensation
In October 1995, the FASB issued the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
is effective for the Company January 1, 1996. The Company adopted the
disclosure-only provision of SFAS 123 and continues to apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its plans. If the Company had elected to recognize compensation cost for the
various Option Plans and Restricted Stock Award Plan based on the fair value at
the grant dates for awards under those plans, consistent with the method
prescribed by SFAS 123, the net income and net income per share for the years
ended December 31, 2000, 1999 and 1998 would have been reduced to the pro forma
amounts indicated below:
-----------------------------------------------------------------------------------------
For the year ended December 31, 2000 1999 1998
-----------------------------------------------------------------------------------------
Net income:
As reported $7,299 $6,671 $4,980
Pro forma $6,951 $6,367 $4,805
Primary earnings per share:
As reported $1.26 $1.15 $0.93
Pro forma $1.20 $1.10 $0.89
Diluted earnings per share:
As reported $1.22 $1.10 $0.85
Pro forma $1.16 $1.05 $0.82
The fair value of Company stock options used to compute pro forma net
income and net income per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for 2000, 1999 and 1998, dividend yield of 1.694%,
1.407%, and 1.031%; expected volatility of 28.011%, 37.619% and 33.377; risk
free interest rate of 6.517%, 6.182% and 5.0133%; and an expected holding period
of 8.84 years, 7.00 years and 7.00 years, respectively. The weighted average
fair value per share of options granted during 2000, 1999 and 1998 was $4.7451,
$5.3714 and $5.4356, respectively.
Earnings Per Share
The following table presents a summary of per share data and the
amounts for the periods included. All prior period information has been restated
to reflect the 5% stock dividends distributed to shareholders on August 11,
2000, August 31, 1999 and August 31, 1998.
Per Share
For the year ended December 31, 2000 Income Shares Amount
-----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Income from continuing operations available to common
shareholders $5,657 5,793,607 $.98
Gain on sale of discontinued operations 1,519 5,793,607 .26
Income from discontinued operations 123 5,793,607 .02
------ 5,793,607 -----
Total income available to common shareholders 7,299 $1.26
=====
Effect of Dilutive Securities:
Warrants -- -- --
Options -- 190,987 --
-------
Diluted Earnings Per Share:
Income from continuing operations available to common
shareholders and assumed conversions 5,657 5,984,594 $.95
Gain on sale of discontinued operations 1,519 5,984,594 .25
Income from discontinued operations 123 5,984,594 .02
------ -----
Total income available to common shareholders and assumed
conversions $7,299 5,984,594 $1.22
====== ========= =====
43
For the year ended December 31, 1999
---------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Income from continuing operations available to common
shareholders $6,032 5,778,014 $1.04
Income from discontinued operations 639 5,778,014 .11
------ 5,778,014 -----
Total income available to common shareholders 6,671 $1.15
=====
Effect of Dilutive Securities:
Warrants -- 76,685 --
Options -- 231,160 --
-------
Diluted Earnings Per Share:
Income from continuing operations available to common
shareholders and assumed conversions 6,032 6,085,859 $.99
Income from discontinued operations 639 6,085,859 .11
------ -----
Total income available to common shareholders and assumed
conversions $6,671 6,085,859 $1.10
====== ========= =====
For the year ended December 31, 1998
---------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Income from continuing operations available to common
shareholders before cumulative effect of accounting change $4,915 5,377,636 $0.92
Income from discontinued operations 111 5,377,636 .02
Cumulative effect of accounting change (46) -- (.01)
------ -----
Total income available to common shareholders 4,980 5,377,636 $0.93
=====
Effect of Dilutive Securities:
Warrants -- 220,932 --
Options -- 285,299 --
---------
Diluted Earnings Per Share:
Income from continuing operations available to common shareholders
and assumed conversions before cumulative effect of
accounting change 4,915 5,883,867 $0.84
Income from discontinued operations 111 5,883,867 .02
Cumulative effect of accounting change (46) -- (.01)
------ -----
Total income available to common shareholders and assumed
conversions $4,980 5,883,867 $0.85
====== ========= =====
---------------------------------------------------------------------------------------------------------------
Capital Resources
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was signed into law on December 19, 1991; regulations implementing
the prompt corrective action provision of FDICIA became effective on December
19, 1992. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and insured depository institutions,
including reductions in insurance coverage for certain kinds of deposits,
increased supervision by the federal regulatory agencies, increased reporting
requirements for insured institutions, and new regulations concerning internal
controls, accounting, and operations. The prompt corrective action regulations
defined specific capital categories based on an institution's capital ratios.
The capital categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To be considered "well capitalized," an
institution must generally have a tangible equity ratio of at least 2%, a Tier 1
or leverage capital 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%. An
institution is deemed to be "critically undercapitalized" if it has a tangible
equity ratio of 2% or less.
At December 31, 2000 and 1999, the Bank's tangible equity ratio was
6.46% and 6.30%, Tier 1 or leverage capital ratio was 6.46% and 6.30%, Tier 1
risk-based capital ratio was 9.79% and 8.90% and total risk-based capital ratio
was 11.04% and 10.01%, respectively. These ratios were based on tangible equity
of $57.9 million and $47.1 million, Tier 1 or leverage capital of $57.9 million
and $47.1 million, Tier 1 risk-based capital of $57.9 million and $47.1 million
and total risk-based capital of $65.3 million and $53.0 million, respectively.
In addition these ratios were based on adjusted total assets of $896.9 million
and $747.8 million, and risk-weighted assets of $591.7 million and $529.3
million at December 31, 2000 and 1999, respectively. As of December 31, 2000,
the Bank is classified as "well capitalized."
44
The following is a reconciliation of the Bank's capital determined in accordance with generally accepted accounting
principles ("GAAP") to regulatory tangible, leverage, and risk-based capital at December 31, 2000 and 1999:
-----------------------------------------------------------------------------------------------------------------
Tier 1 or Tier 1 Total
Tangible Leverage Risk-Based Risk-Based
At December 31, 2000 Equity Capital Capital Capital
-----------------------------------------------------------------------------------------------------------------
Total qualifying capital $57,921 $57,921 $57,921 $65,311
Capital ratio 6.46% 6.46% 9.79% 11.04%
Minimum capital adequacy requirement $17,938 $35,876 $23,667 $47,334
Minimum capital adequacy ratio 2.00% 4.00% 4.00% 8.00%
Regulatory capital excess $39,983 $22,045 $34,254 $17,977
-----------------------------------------------------------------------------------------------------------------
Tier 1 or Tier 1 Total
Tangible Leverage Risk-Based Risk-Based
At December 31, 1999 Equity Capital Capital Capital
-----------------------------------------------------------------------------------------------------------------
Total qualifying capital $47,112 $47,112 $47,112 $53,006
Capital ratio 6.30% 6.30% 8.90% 10.01%
Minimum capital adequacy requirement $14,955 $29,910 $21,174 $42,348
Minimum capital adequacy ratio 2.00% 4.00% 4.00% 8.00%
Regulatory capital excess $32,157 $17,202 $25,938 $10,658
Dividend Restrictions
The Bank's ability to pay dividends is restricted by certain
regulations. Under the current regulations, the Bank is not permitted to pay
cash dividends or repurchase any of its capital stock if such payment or
repurchase would cause its regulatory capital to be reduced below either the
amount of the liquidation account or the regulatory capital requirements
applicable to it. An institution that exceeds its fully phased in capital
requirement could, after prior notice, but without the approval of the OTS, make
capital distributions during a calendar year of up to 100% of its current net
income plus the amount that would reduce its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirement) to less than one-half of
its surplus capital ratio at the beginning of the calendar year. Any additional
capital distributions would require prior regulatory approval. A savings
institution that does not meet its minimum regulatory capital requirements
cannot make any capital distributions without prior OTS approval. Because the
Bank is the primary source of working capital for the Company, the Company's
ability to pay dividends is therefore limited. The Company paid cash dividends
of $.21 per share during 2000.
(19) Fair Value of Financial Instruments
Fair values for financial instruments were based on various assumptions
and estimates as of a specific point in time, represent liquidation values and
may vary significantly from amounts that will be realized in actual
transactions. In addition, certain financial instruments such as lease
contracts, and all non-financial instruments were excluded from the fair value
disclosure requirements. Therefore, the fair values presented below should not
be construed as the underlying value of the Company.
The following methods and assumptions were used to estimate the fair
value of selected financial instruments at December 31, 2000 and 1999:
Cash and due from other financial institutions: Current carrying
amounts reported in the statement of financial condition for cash and
short-term instruments are approximately estimated at fair value.
Trading securities: Current carrying amounts reported in the statement
of financial condition for trading securities are at fair value.
Investments and mortgage-backed securities: Fair values for investments
and mortgage-backed securities were based on current quoted market
prices.
Loans, excluding leases: For variable rate loans that reprice
frequently and have no significant credit risk, fair values are based
on carrying values. The estimated fair values for certain mortgage
loans (e.g., one- to- four-family residential) and other consumer loans
are based on quoted market prices of similar loans sold in conjunction
with
45
securitization transactions. The fair value of non-accruing loans was
estimated using discounted cash flow analyses, with incremental
discount rates which consider credit risk and other relevant factors.
The fair values for all other loans were estimated by discounted cash
flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. The carrying
amount of accrued interest approximates its fair value.
Accrued interest receivable: Current carrying amounts reported in the
statement of financial condition for interest receivable approximate
estimated fair value.
Deposits: Fair values disclosed for deposits with no stated maturity
(checking, NOW, savings, and money market accounts) are, by definition,
equal to the amount payable on demand at December 31, 2000 and 1999
(i.e., current carrying amounts). Fair values for deposits with stated
maturity dates (time deposits) were estimated with a discounted cash
flow calculation that uses current borrowing rates for advances with
comparable terms and maturities. Current carrying amounts of escrow
deposits approximate estimated fair value.
Short-term borrowings: Current carrying amounts of Federal Home Loan
Bank advances, borrowings under repurchase agreements and other
short-term borrowings approximate estimated fair value.
Long-term and subordinated debt: Fair value of long-term borrowings are
estimated using a discounted cash flow calculation that uses current
borrowing rates for advances with comparable terms and maturities.
Accrued interest payable: Current carrying amounts reported in the
statement of financial condition approximate estimated fair value.
Commitments to extend credit and letters of credit: The majority of the
Company's commitments to extend credit and letters of credit carry
current market interest rates if converted to loans. Because
commitments to extend credit and letters of credit are generally
unassignable by either the Company or the borrower, they only have
value to the Company and the borrower. The estimated fair value
approximates the recorded deferred fee amounts.
The carrying amounts and fair values of the Company's financial instruments were as follows:
--------------------------------------------------------------------------------------------------------
At December 31, 2000 1999
--------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------------------------------------------------
Financial assets:
Cash and due from other financial institutions $84,997 $84,997 $39,926 $39,926
Trading securities -- -- 3,267 3,267
Investments and mortgage-backed securities 247,106 245,391 183,827 182,432
Loans, excluding lease receivables 486,936 492,562 416,680 413,767
Accrued interest receivable 5,625 5,625 4,162 4,162
Servicing rights 170 170 157 157
Financial liabilities:
Deposits $617,543 $617,486 $521,439 $523,169
Short-term borrowings 79,360 79,360 50,767 50,767
Long-term and subordinated debt 115,000 115,550 112,000 114,441
Accrued interest payable 5,819 5,819 2,936 2,936
46
(20) Condensed Financial Information of Progress Financial Corporation
(Parent Company Only)
Condensed Statements of Financial Condition
--------------------------------------------------------------------------------------------------------------
At December 31, 2000 1999
--------------------------------------------------------------------------------------------------------------
Assets:
Cash on deposit with subsidiary $ -- $ 189
Interest-earning deposits 25 7
Investment in Bank 59,818 46,664
Investment in non-bank subsidiaries 14,689 18,863
Investment in unconsolidated entities 6 863
Investments available for sale 524 1,107
Loans and advances to subsidiaries 285 3,501
Other assets 199 332
Investment in and advances to discontinued operations -- 1,096
------- -------
Total assets $75,546 $72,622
======= =======
Liabilities and shareholders' equity:
Liabilities:
Subordinated debt $ 3,000 $ 3,000
Employee Stock Ownership Plan note payable -- 74
Accounts payable to subsidiaries 943 7,183
Other liabilities 1,211 105
------- -------
Total liabilities 5,154 10,362
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation 20,232 14,451
Shareholders' equity:
Serial preferred stock -- --
Common stock 5,814 5,680
Treasury stock (1,245) (1,963)
Unearned Employee Stock Ownership Plan shares -- (64)
Unearned compensation--restricted stock awards (858) (1,051)
Capital surplus 44,400 42,612
Retained earnings 3,848 1,361
Net accumulated other comprehensive income (loss) (1,799) 1,234
------- -------
Total shareholders' equity 50,160 47,809
------- -------
Total liabilities, Corporation-obligated mandatorily redeemable capital
securities and shareholders' equity $75,546 $72,622
======= =======
Condensed Statements of Operations
For the years ended December 31, 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------
Dividends from equity investment $ -- $ 1 $ 12
Management fees from subsidiaries 1,055 282 --
Investment advisory fees 24 52 --
Equity in undistributed income of subsidiaries 7,719 8,447 6,060
Loss in unconsolidated entities -- (112) --
Gain (loss) on sale of investments available for sale -- (23) 246
Interest income 24 11 9
------- ------- ------
Total income 8,822 8,658 6,327
------- ------- ------
Interest expense 254 266 287
Professional services 99 82 136
Management fee to Bank 1,854 927 --
Capital securities expense 1,907 1,595 1,593
Miscellaneous expense 147 1,159 70
------- ------- ------
Total expense 4,261 4,029 2,086
------- ------- ------
Income from continuing operations before income taxes 4,561 5,427 4,352
Income tax benefit (1,058) (1,244) (628)
------- ------- ------
Income from continuing operations 5,619 5,927 4,869
Income from discontinued operations (net of tax of $189, $53 and $--) 1,680 744 111
------- ------- ------
Net income $ 7,299 $ 6,671 $4,980
======= ======= ======
47
Condensed Statements of Cash Flows
For the years ended December 31, 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Income from continuing operations $ 5,619 $ 5,927 $ 4,869
Add(deduct) items not affecting cash flows from continuing operations:
Equity in income of subsidiaries (7,719) (8,447) (6,060)
Loss in unconsolidated entities -- 112 --
(Gain) loss on sale of investments available for sale -- 23 (246)
Amortization 69 42 38
Net (increase) decrease in accounts receivable and other assets 4,299 3,242 (3,068)
Net increase (decrease) in accounts payable and other liabilities (5,211) 6,619 831
------- ------- -------
Net cashflows provided by (used in) continuing operations (2,943) 7,518 (3,636)
Net cash flows provided by discontinued operations 2,776 244 --
------- ------- -------
Net cash flows provided by (used in) operating activities (167) 7,762 (3,636)
------- ------- -------
Cash flows from investment activities:
Capital contributions and additional investment in subsidiaries (5,885) (6,726) (9,652)
Dividends and cash distributions from subsidiaries 2,601 3,620 1,259
Investments in unconsolidated entities -- (973) --
Proceeds from sales of investments available for sale 1,107 120 1,185
Purchases of investments available for sale (524) (1,107) --
Purchase of Company owned life insurance (125) (125) --
------- ------- -------
Net cash flows used in investment activities (2,826) (5,191) (7,208)
------- ------- -------
Cash flows from financing activities:
Repayment of ESOP debt (74) (53) (49)
Purchase of treasury stock (2,165) (2,661) (3,098)
Retirement of warrants -- (331) --
Net proceeds from stock offering and exercise of warrants -- 1,350 14,411
Net proceeds from issuance of common stock under employee benefit plans 296 282 221
Dividends paid (1,235) (962) (656)
Proceeds from issuance of capital securities 6,000 -- --
------- ------- -------
Net cash flows provided by (used in) financing activities 2,822 (2,375) 10,829
------- ------- -------
Net increase (decrease) in cash and cash equivalents (171) 196 (15)
Cash and cash equivalents:
Beginning of year 196 -- 15
------- ------- -------
End of year $ 25 $ 196 $ --
======= ======= =======
These statements should be read in conjunction with the other notes to
the consolidated financial statements.
48
[PricewaterhouseCoopers LOGO]
Report of Independent Accountants
To the Shareholders and Board of Directors
of Progress Financial Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholders' equity
and cash flows present fairly, in all material respects, the financial position
of Progress Financial Corporation and its subsidiaries at December 31, 2000 and
December 31, 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
- -----------------------------
January 23, 2001
Philadelphia, Pennsylvania
49
Selected Quarterly Consolidated Financial Data (Unaudited)
The following table represents quarterly financial data for the period
indicated. In the opinion of management, this information reflects all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the results of operations for the periods indicated.
Reclassifications have been made to certain previously reported amounts to
conform to the 2000 classifications. Prior period per share information has been
restated to reflect the 5% stock dividend to shareholders on August 31, 2000.
Dec. 31, Sept. 30, Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30, Mar. 31,
2000 2000 2000 2000 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------
Interest income $18,316 $17,170 $16,331 $15,211 $13,976 $13,168 $12,733 $12,297
Interest expense 10,069 9,091 8,400 7,615 6,810 6,406 6,134 6,082
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 8,247 8,079 7,931 7,596 7,166 6,762 6,599 6,215
Provision for loan and lease losses 1,666 517 1,175 1,058 1,225 658 1,216 449
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan and lease losses 6,581 7,562 6,756 6,538 5,941 6,104 5,383 5,766
Non-interest income 6,545 4,193 3,924 4,880 6,069 5,739 3,260 2,519
Non-interest expense 10,793 9,177 9,142 9,194 9,059 9,116 7,260 6,213
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 2,333 2,578 1,538 2,224 2,951 2,727 1,383 2,072
Income tax expense 907 841 529 739 994 905 447 755
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,426 1,737 1,009 1,485 1,957 1,822 936 1,317
Gain on sale of discontinued
operations, net of tax -- 6 1,513 -- -- -- -- --
Income from discontinued
operations, net of tax -- 9 61 53 4 435 194 6
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,426 $ 1,752 $ 2,583 $1,538 $ 1,961 $2,257 $1,130 $1,323
==============================================================================================================================
Basic income from continuing
operations per common share $.25 $.30 $.18 $.25 $.33 $.31 $.16 $.24
Diluted income from continuing
operations per common share .24 .29 .17 .25 .32 .30 .15 .22
Basic net income per common share .25 .30 .45 .26 .33 .38 .20 .24
Diluted net income per common share .24 .29 .43 .26 .32 .37 .19 .22
Dividends per share .06 .05 .05 .05 .05 .04 .04 .04
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained in the section titled "Information with Respect to
Nominees for Director and Directors Whose Terms Continue" in the Company's
definitive Proxy Statement for the 2001 Annual Meeting to be held April 25, 2001
(the "Proxy Statement").
Item 11. Executive Compensation
The information appearing in the section titled "Executive
Compensation" in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing in the section titled "Beneficial
Ownership of Common Stock by Certain Beneficial Owners and Management" and
"Election of Directors" (with respect to security ownership by Directors) in the
Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing in the section titled "Certain
Transactions" in the Proxy Statement is incorporated herein by reference.
50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. Financial data schedules are not required under the related instructions of
the Securities and Exchange Commission or are inapplicable and, therefore, have
been omitted.
b. The following exhibits are incorporated by reference herein or are filed as
part of this Annual Report.
No. Exhibits
--- --------
*3.1 Certificate of Incorporation (Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987, filed with
the Securities and Exchange Commission (the "SEC"))
*3.2 By-Laws (Exhibit 3.2 to the Company's Registration Statement No.
33-3685 on Form S-4, filed with the SEC on March 3, 1986)
*3.3 Certificate of Amendment of Certificate of Incorporation dated May
13, 1998. (Exhibit 3.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and filed with the SEC on March
29, 1999)
*4.1 Amended and Restated Declaration of Trust relating to Progress
Capital Trust I, dated as of June 3, 1997, between Progress Financial
Corporation and the trustees named therein. (Exhibit 4.4 to the
Company's Registration Statement on Form S-4, filed with the SEC on
October 22, 1997)
*4.2 Indenture, dated as of June 3, 1997, between Progress Financial
Corporation and The Bank of New York, as trustee, relating to Junior
Subordinated Deferrable Interest Debentures due 2027 of Progress
Financial Corporation. (Exhibit 4.1 to the Company's Registration
Statement on Form S-4, filed with the SEC on October 22, 1997)
*4.3 Series B Capital Securities Guarantee Agreement, dated as of December
11, 1997, relating to the Capital Securities of Progress Capital
Trust I. (Exhibit 4.6 to the Company's Registration Statement on Form
S-4, filed with the SEC on October 22, 1997)
*10.1 1993 Stock Incentive Plan as amended in 1999. (Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1999, filed with the SEC on March 29, 2000)
*10.2 1993 Directors' Stock Option Plan as amended in 1997. (Appendix B to
the Company's Definitive Proxy on Form DEF 14A, filed with the SEC on
April 7, 1997)
*10.3 Employment Agreement between Progress Financial Corporation, Progress
Bank and W. Kirk Wycoff dated March 1, 1997. (Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997, filed with the SEC on March 29, 1999)
*10.4 Change in Control and Termination Agreement between Progress
Financial Corporation, Progress Bank and Michael B. High dated
October 2, 1998. (Exhibit 10.6 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998, filed with the SEC on
March 29, 1999)
*10.5 Change in Control and Termination Agreement between Progress
Financial Corporation, Progress Bank and H. Wayne Griest dated
November 17, 1998. (Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, filed with the SEC on
March 29, 1999)
*10.6 Change in Control and Termination Agreement between Progress
Financial Corporation, Progress Bank and Eric J. Morgan dated October
2, 1998. (Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, filed with the SEC on March 29,
1999)
10.7 Employment Agreement between Progress Bank and Joseph R. Klinger
dated January 1, 2000.
51
*10.8 Restricted Stock Award Plan dated February 17, 1999. (Exhibit 4 on
the Company's Registration Statement on Form S-8, File Number
333-72543 filed with the SEC on February 18, 1999)
*10.9 2000 Stock Incentive Plan. (Appendix A to the Company's Definitive
Proxy on Form DEF 14A, filed with the SEC on March 24, 2000)
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants for Progress Financial Corporation
99 Audited financial statements for Ben Franklin/Progress Capital Fund,
L.P.
* Incorporated by reference.
c. Reports on Form 8-K filed for the quarter ended December 31, 2000:
1. On October 19, 2000, the Company filed a Current Report under Item
5 announcing the distribution of an earnings package to analysts.
2. On October 25, 2000, the Company filed a Current Report for October
18, 2000 under Item 5 announcing its Third Quarter 2000 earnings.
3. On October 25, 2000, the Company filed a Current Report announcing
the declaration of its Fourth Quarter 2000 cash dividend.
4. On December 21, 2000, the Company filed a Current Report for
December 14, 2000 under Item 5 announcing its repurchase program to
repurchase up to 285,000 shares of common stock.
5. On December 21, 2000, the Company filed a Current Report under Item
5 announcing the sale of its Maryland-based leasing division.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto being duly authorized.
Progress Financial Corporation
March 20, 2001 BY: /s/ W. Kirk Wycoff
- --------------------------- ------------------------------
Date W. Kirk Wycoff, Chairman,
President and Chief Executive
Officer
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
/s/ W. Kirk Wycoff March 20, 2001
- -------------------------------------------- ----------------
W. Kirk Wycoff, Chairman, President Date
and Chief Executive Officer
/s/ John E. F. Corson March 20, 2001
- -------------------------------------------- ----------------
John E. Flynn Corson, Director Date
/s/ William O. Daggett, Jr. March 20, 2001
- -------------------------------------------- ----------------
William O. Daggett, Jr., Director Date
/s/ G. Daniel Jones March 20, 2001
- -------------------------------------------- ----------------
G. Daniel Jones, Director Date
/s/ Joseph R. Klinger March 20, 2001
- -------------------------------------------- ----------------
Joseph R. Klinger, Director Date
/s/ Paul M. LaNoce March 20, 2001
- -------------------------------------------- ----------------
Paul M. LaNoce, Director Date
/s/ A. John May March 20, 2001
- -------------------------------------------- ----------------
A. John May, III, Director Date
/s/ William L. Mueller March 20, 2001
- -------------------------------------------- ----------------
William L. Mueller, Director Date
/s/ Kevin J. Silverang March 20, 2001
- -------------------------------------------- ----------------
Kevin J. Silverang, Director Date
/s/ Charles J. Tornetta March 20, 2001
- -------------------------------------------- ----------------
Charles J. Tornetta, Director Date
/s/ Stephen T. Zarrilli March 20, 2001
- -------------------------------------------- ----------------
Stephen T. Zarrilli, Director Date
/s/ Michael B. High March 20, 2001
- -------------------------------------------- ----------------
Michael B. High, Executive Vice President Date
and Chief Financial Officer
53