-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EudnuEnqQ8eVmS/Z0pcuK22DW3dYWGoG8eofM7rCe+6T1la16GysWw4/rL5XgrKp SsxtRmGok+mJnBHyVmyIug== 0000906197-96-000056.txt : 19961104 0000906197-96-000056.hdr.sgml : 19961104 ACCESSION NUMBER: 0000906197-96-000056 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961101 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROGRESSIVE BANK INC CENTRAL INDEX KEY: 0000797507 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 141682661 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15025 FILM NUMBER: 96651943 BUSINESS ADDRESS: STREET 1: 1301 ROUTE 52 STREET 2: PO BOX 7000 CITY: FISHKILL STATE: NY ZIP: 12524-7000 BUSINESS PHONE: 9148977400 MAIL ADDRESS: STREET 1: P O BOX BB CITY: PAWLING STATE: NY ZIP: 12564 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-15025 PROGRESSIVE BANK, INC. (Exact name of registrant as specified in its charter) New York 14-1682661 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No. 1301 Route 52, Fishkill, New York 12524 (Address of principal executive offices) (Zip Code) (914) 897-7400 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 30, 1996: 2,579,764 shares. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 1 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1996 and September 30, 1995 2 Consolidated Statements of Shareholders' Equity for the Nine Months Ended September 30, 1996 and September 30, 1995 3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and September 30, 1995 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-16 PART II - OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 Exhibit I 19 CONSOLIDATED BALANCE SHEETS Progressive Bank, Inc. and Subsidiary (In thousands, except shares and per share amounts) (Unaudited)
September 30, December 31, 1996 1995 Assets Cash and due from banks $ 16,316 14,923 Federal funds sold 10,600 22,970 Securities: Available for sale, at fair value 178,028 106,901 Held to maturity (fair value of $75,866 in 1996 and $40,386 in 1995) 76,702 40,148 Total securities 254,730 147,049 Loans, net: Mortgage loans 503,746 480,569 Other loans 71,616 59,123 Allowance for loan losses (8,834) (8,033) Net deferred loan origination costs 962 55 Total loans, net 567,490 531,714 Accrued interest receivable 6,640 5,029 Other real estate, net 1,717 405 Premises and equipment, net 10,474 9,673 Deferred income taxes, net 6,267 5,223 Intangible assets 9,096 -- Other assets 2,713 6,228 Total assets $886,043 743,214 Liabilities and Shareholders' Equity Liabilities: Savings and time deposits $746,943 605,056 Demand deposits 59,337 51,956 Accrued expenses and other liabilities 7,042 17,544 Total liabilities 813,322 674,556 Shareholders' equity: Preferred stock ($1.00 par value; 5,000,000 shares authorized; none issued) -- -- Common stock ($1.00 par value; 15,000,000 shares authorized; 2,951,974 shares issued) 2,952 2,952 Paid-in capital 27,355 27,355 Retained earnings 50,466 44,880 Treasury stock, at cost (352,710 shares in 1996 and 323,705 shares in 1995) (8,711) (7,655) Net unrealized gain on securities available for sale, net of taxes 659 1,126 Total shareholders' equity 72,721 68,658 Total liabilities and shareholders' equity $886,043 743,214 See accompanying notes to consolidated interim financial statements.
CONSOLIDATED STATEMENTS OF INCOME Progressive Bank, Inc. and Subsidiary (In thousands, except per share amounts) (Unaudited)
For the For the Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Interest and dividend income: Mortgage loans $10,624 10,027 31,573 28,829 Other loans 1,697 1,469 4,816 4,206 Securities 4,303 2,313 10,715 6,281 Federal funds sold and other 407 439 1,706 1,663 Total interest and dividend income 17,031 14,248 48,810 40,979 Interest expense: Deposits 8,956 7,248 25,061 20,206 Other borrowings -- -- 51 -- Total interest expense 8,956 7,248 25,112 20,206 Net interest income 8,075 7,000 23,698 20,773 Provision for loan losses 600 150 1,500 400 Net interest income after provision for loan losses 7,475 6,850 22,198 20,373 Other income: Deposit service fees 599 510 1,802 1,495 Other service fees 184 140 511 456 Net gain (loss) on securities -- 53 (194) 45 Net gain on sale of loans 31 1 139 38 Other non-interest income 83 46 224 123 Total other income 897 750 2,482 2,157 Net interest and other income 8,372 7,600 24,680 22,530 Other expense: Salaries and employee benefits 2,779 2,302 7,900 6,773 Occupancy and equipment 765 595 2,252 1,749 Net cost of other real estate 172 98 471 279 FDIC deposit insurance 1 (40) 2 660 Amortization of intangible assets 349 -- 655 -- Other non-interest expense 1,587 1,513 4,981 4,619 Total other expense 5,653 4,468 16,261 14,080 Income before income taxes 2,719 3,132 8,419 8,450 Income tax expense 174 1,290 1,018 3,470 Net income $ 2,545 1,842 7,401 4,980 Net income per common share $ 0.97 0.68 2.82 1.82 Weighted average common shares outstanding 2,611 2,714 2,623 2,733 See accompanying notes to consolidated interim financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Progressive Bank, Inc. and Subsidiary (In thousands, except shares and per share amounts) (Unaudited)
Net Common Stock Unrealized Shares Paid-in Retained Treasury Gain (Loss) Outstanding Amount Capital Earnings Stock On Securities Total Balance at December 31, 1995 2,628,269 $2,952 27,355 44,880 (7,655) 1,126 68,658 Net income -- -- -- 7,401 -- -- 7,401 Cash dividends declared ($0.60 per share) -- -- -- (1,571) -- -- (1,571) Stock options exercised 42,995 -- -- (244) 1,040 -- 796 Purchases of treasury stock (72,000) -- -- -- (2,096) -- (2,096) Net change in unrealized gain (loss) on securities available for sale, net of taxes -- -- -- -- -- (467) (467) Balance at September 30, 1996 2,599,264 $2,952 27,355 50,466 (8,711) 659 72,721 Balance at December 31, 1994 2,746,884 $2,952 27,355 40,165 (4,310) (222) 65,940 Net income -- -- -- 4,980 -- -- 4,980 Cash dividends declared ($0.45 per share) -- -- -- (1,232) -- -- (1,232) Stock options exercised 25,935 -- -- (292) 559 -- 267 Purchases of treasury stock (83,000) -- -- -- (2,147) -- (2,147) Net change in unrealized gain (loss) on securities available for sale, net of taxes -- -- -- -- -- 588 588 Balance at September 30, 1995 2,689,819 $2,952 27,355 43,621 (5,898) 366 68,396 See accompanying notes to consolidated interim financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS Progressive Bank, Inc. and Subsidiary (In thousands) (Unaudited)
For the Nine Months Ended September 30, 1996 1995 Operating activities: Net income $ 7,401 4,980 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Provision for loan losses 1,500 400 Depreciation expense 814 618 Provision for losses on other real estate 375 250 Gain on sales of other real estate (137) (302) Net loss (gain) on securities and loans 55 (83) Amortization of net deferred loan origination fees (322) (340) Amortization of net (discounts) premiums on securities (83) 56 Net increase in accrued interest receivable (1,611) (721) Net (decrease) increase in accrued expenses and other liabilities (10,502) 3,735 Other, net (6,307) (2,674) Net cash (used in) provided by operating activities (8,817) 5,919 Investing activities: Purchases of securities: Securities available for sale (119,653) (28,407) Securities held to maturity (46,442) (3,384) Proceeds from principal payments, maturities and calls of securities: Securities available for sale 41,776 11,108 Securities held to maturity 9,779 9,538 Proceeds from sale of securities available for sale 5,953 1,780 Disbursements for loan originations, net of principal collections (48,599) (54,985) Proceeds from sales of loans 9,502 9,554 Purchases of premises and equipment (1,615) (2,163) Proceeds from sales of other real estate 742 1,685 Net cash used in investing activities (148,557) (55,274) Financing activities: Net increase in time deposits 39,212 40,719 Net increase (decrease) in other deposits 110,056 (20,374) Cash dividends paid on common stock (1,571) (1,232) Net proceeds on issuance of common stock 796 267 Purchases of treasury stock (2,096) (2,147) Net cash provided by financing activities 146,397 17,233 Net decrease in cash and cash equivalents (10,977) (32,122) Cash and cash equivalents at beginning of period 37,893 71,754 Cash and cash equivalents at end of period $26,916 39,632 Supplemental data: Interest paid $25,057 20,004 Income taxes paid, net of refunds received 2,991 2,490 Loans transferred to other real estate 2,730 951 Loans originated to finance sales of other real estate 431 1,220 See accompanying notes to consolidated interim financial statements
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS Progressive Bank, Inc. and Subsidiary (Unaudited) Note 1: Basis of Presentation The unaudited consolidated financial statements included herein have been prepared by Progressive Bank, Inc. ("Progressive", or, together with its subsidiary, the "Company") in conformity with generally accepted accounting principles for interim financial statements. Progressive, a New York corporation, is a bank holding company whose sole subsidiary is Pawling Savings Bank (a New York state-chartered stock savings bank). In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to a fair presentation of the consolidated interim financial position and results of operations for the periods presented. Certain information and footnote disclosures normally included in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The unaudited consolidated interim financial statements presented herein should be read in conjunction with the annual consolidated financial statements of the Company for the fiscal year ended December 31, 1995. Note 2: Net Income Per Common Share Net income per common share is based on net income divided by the weighted average common shares outstanding during the period. Outstanding common stock equivalents (stock options) did not have a significant dilutive effect upon the net income per share computation. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The financial condition and operating results of Progressive Bank, Inc. ("Progressive," or, together with its subsidiary, the "Company"), a bank holding company, are primarily dependent upon the financial condition and operating results of its wholly-owned subsidiary, Pawling Savings Bank ("Pawling"). The Company is engaged principally in the business of attracting retail deposits from the general public and the business community and investing those funds in residential and commercial mortgages, consumer loans and securities. The operating results of the Company depend primarily on its net interest income after provision for loan losses. Net interest income is the difference between interest and dividend income on earning assets, primarily loans and securities, and interest expense on deposits and other borrowings. Net income of the Company is also affected by other income, which includes service fees and net gain (loss) on sale of securities and loans; other expense, which includes salaries and employee benefits and other operating expenses; and Federal and state income taxes. FINANCIAL CONDITION Total assets of the Company were $886.0 million at September 30, 1996 as compared to $743.2 million at December 31, 1995, an increase of $142.8 million or 19.2%. The increase in total assets primarily reflects the acquisition of two Rockland County branches on April 12, 1996 and the subsequent reinvestment of these proceeds. Additionally, the purchase premium that resulted from this transaction is accounted for as an intangible asset. The $107.7 million increase in securities consisted of a $71.1 million increase to maturity. The increase in securities available for sale primarily reflects purchases of $119.7 million in adjustable rate mortgage-backed securities, U.S. government agencies and U.S. Treasury notes, partially offset by maturities, sales, calls, and principal paydowns. The increase in securities held to maturity primarily reflects purchases of $46.4 million of fixed rate five- and seven-year balloon mortgage-backed securities, partially offset by principal paydowns. At September 30, 1996, net loans totaled $567.5 million, compared to $531.7 million at December 31, 1995, an increase of $35.8 million or 6.7%. The residential mortgage segment of the loan portfolio increased $22.5 million or 5.7% (net of loan sales to the secondary market of $9.4 million) from $395.9 million at December 31, 1995 to $418.4 million at September 30, 1996. The commercial mortgage segment of the loan portfolio increased $2.1 million or 2.8% from $73.9 million at December 31, 1995 to $75.9 million at September 30, 1996. Other loans increased $12.5 million or 21.1% during the first nine months of 1996 from $59.1 million to $71.6 million. The $149.3 million increase in deposits during the first nine months of 1996 primarily reflects the acquisition of two branches which resulted in an increase in deposits of $152.8 million. Shareholders' equity at September 30, 1996 was $72.7 million, an increase of $4.1 million or 5.9% from December 31, 1995. This increase primarily reflects net income of $7.4 million and proceeds of $796,000 from exercises of stock options, partially offset by treasury stock purchases of $2.1 million and cash dividends of $1.6 million. Shareholders' equity, as a percent of total assets, was 8.21% at September 30, 1996 compared to 9.24% at December 31, 1995. Book value per share increased to $27.98 at September 30, 1996 from $26.13 at December 31, 1995. The following table shows the Company's average consolidated balances, interest income and expense, and average rates (not on a tax-equivalent basis) for the periods indicated.
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995 Average Average Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate (Dollars in thousands) Interest-earning assets: Mortgage loans () $493,104 10,624 8.62% $461,718 10,027 8.69% $486,096 31,573 8.66% $446,412 28,829 8.61% Other loans () 69,402 1,697 9.78 59,204 1,469 9.93 64,804 4,816 9.91 58,416 4,206 9.60 Mortgage-backed securities () 116,131 1,993 6.86 80,473 1,367 6.79 106,924 5,488 6.84 82,607 3,781 6.10 U.S. Treasury and agencies, corporate and other securities (),() 143,889 2,310 6.42 55,347 946 6.84 109,529 5,227 6.36 48,179 2,500 6.92 Interest on income tax refund -- -- -- -- -- -- -- 420 -- -- -- -- Federal funds sold 31,046 407 5.24 29,075 439 6.04 34,067 1,286 5.03 38,759 1,663 5.72 Total interest-earning assets 853,572 17,031 7.98% 685,817 14,248 8.31% 801,420 48,810 8.12% 674,373 40,979 8.10% Non-interest- earning assets 48,980 27,161 43,506 30,097 Total assets $902,552 $712,978 $844,926 $704,470 Interest-bearing liabilities: Savings deposits () $360,147 3,555 3.95% $248,355 2,301 3.71% $320,504 9,397 3.91% $250,310 6,753 3.60% Time deposits 398,406 5,401 5.42 344,375 4,947 5.75 381,755 15,664 5.47 332,849 13,453 5.39 Other borrowings -- -- -- -- -- -- 1,225 51 5.55 -- -- -- Total interest- bearing liabilities 758,553 8,956 4.72% 592,730 7,248 4.89% 703,484 25,112 4.76% 583,159 20,206 4.62% Non-interest- bearing liabilities 71,719 52,134 70,738 53,954 Total liabilities 830,272 644,864 774,222 637,113 Shareholders' equity 72,280 68,114 70,704 67,357 Total liabilities and shareholders' equity $902,552 $712,978 $844,926 $704,470 Net earning balance $ 95,019 $ 93,087 $ 97,936 $ 91,214 Net interest income 8,075 7,000 23,698 20,773 Interest rate spread (,) 3.26% 3.42% 3.36% 3.48% Net yield on interest-earning assets (margin) (,) 3.78% 4.08% 3.94% 4.11% () Interest income on loans does not include interest on non-accrual loans; however, such loans have been included in the calculation of the average balances outstanding. () Average balances have been calculated using amortized cost. () Yields on tax exempt obligations have not been computed on a tax-equivalent basis, as the effect thereof is not material. () Includes NOW accounts, passbook and statement savings accounts, and money market accounts. () Average rate on total interest-earning assets less average rate on total interest-bearing liabilities. () Net interest income divided by total average interest-earning assets. () Excluding the interest income on tax refund, the interest rate spread for the nine months ended September 30, 1996 was 3.29% and margin was 3.87%
RESULTS OF OPERATIONS GENERAL For the quarter ended September 30, 1996, the Company's net income was $2.5 million or $0.97 per share as compared to $1.8 million or $0.68 per share for the same three-month period in 1995. For the nine-month period ended September 30, 1996, the Company earned $7.4 million or $2.82 per share as compared to $5.0 million or $1.82 per share for the same period in 1995. The increases in net income for the three- and nine-month periods were primarily the result of increases in net interest income and decreases in income tax expense, partially offset by increases in other expense and the provision for loan losses. NET INTEREST INCOME Net interest income increased $1.1 million, or 15.4%, to $8.1 million for the three-month period ended September 30, 1996 and $2.9 million, or 14.1%, to $23.7 million for the nine-month period when compared to the same periods in 1995. The increases in net interest income for the quarter and nine months ended September 30, 1996 were primarily due to increases in interest on securities and loans, partially offset by increases in interest paid on deposits. For the three-month period ended September 30, 1996, the Company's interest rate spread narrowed by 16 basis points primarily reflecting the decrease in the average yield on earning assets, partially offset by the decrease in the cost of interest-bearing liabilities. For the nine-month period, the Company's interest rate spread narrowed by 12 basis points primarily the result of the increase in the cost of funds. The Company's net interest margin also narrowed, primarily a result of the change in interest rate spread. The reduction in net interest margin and spread was primarily due to the acquisition of deposits from GreenPoint Bank. These proceeds were temporarily placed into investment securities until the funds could be reinvested into loans at higher spreads. The narrowing of the spread and margin for the nine months ended September 30, 1996 would have been greater without the impact of interest on income tax refunds as described in note 7 to the table on page 7. Interest on loans increased by $825,000, or 7.2%, for the three-month period and $3.4 million, or 10.2%, for the nine-month period when compared to the same periods in 1995, primarily reflecting increases in the volume of loans outstanding. The Company anticipates further loan growth due to the reinvestment of the funds received in the branch acquisition into new loans. Average mortgage loans and other loans increased by $41.6 million for the three- month period ended September 30, 1996 and $46.1 million for the nine-month period when compared to the same periods in 1995. Interest on mortgage-backed securities increased $626,000, or 45.8%, for the three-month period and $1.7 million, or 45.1%, for the nine-month period when compared to the same periods in 1995, primarily due to increases in the average balance outstanding due to additional security purchases as well as increases in the average yield earned on the portfolio due to purchases of securities with higher yields and upward adjustments on adjustable rate mortgage-backed securities. Interest and dividends on U.S. Treasury and agencies, corporate and other securities increased by $1.4 million for the three-month period ended September 30, 1996 and $2.7 million for the nine-month period when compared to the same periods in 1995. These increases primarily reflect a higher average balance outstanding due to additional purchases of U.S. Treasury and agency securities, partially offset by maturities and calls during the year. Interest on Federal funds sold and other interest income decreased $32,000 for the three-month period ended September 30, 1996 and increased $43,000 for the nine-month period when compared to the same periods in 1995. The increase for the nine-month period reflects $420,000 of interest income due to the receipt of refunds of certain prior years' Federal income taxes. This amount was substantially offset by the decline in interest income on Federal funds sold due to the decrease in the average yield as well as the decrease in the average balance outstanding for the nine-month period. The increases in interest on interest-bearing liabilities for the three- and nine-month periods ended September 30, 1996 of $1.7 million and $4.9 million, respectively, were primarily due to increases in the average balance outstanding due to the acquisition of the Rockland County branches during the second quarter of 1996. PROVISION FOR LOAN LOSSES The provision for loan losses is a charge against income which increases the allowance for loan losses. The adequacy of the allowance for loan losses is evaluated periodically and is determined based on management's judgment concerning the amount of risk and potential for loss inherent in the portfolio. Management's judgment is based upon a number of factors including a review of non-performing and other classified loans, the value of collateral for such loans, historical loss experience, changes in the nature and volume of the loan portfolio, and current and prospective economic conditions. For the three- and nine-month periods ended September 30, 1996, the provision for loan losses was $600,000 and $1.5 million, respectively, as compared to $150,000 and $400,000 for the comparable periods in 1995. The higher provisions were made to increase the allowance for loan losses in line with the Company's loan growth and changes in portfolio mix. Non-performing loans increased to $6.3 million, or 1.09% of total loans, at September 30, 1996 compared to $4.4 million, or 0.83% of total loans, at September 30, 1995 and $5.8 million, or 1.07% of total loans, at December 31, 1995. In determining the allowance for loan losses, management also considers the level of slow paying loans, or loans where the borrower is contractually past due 30 to 89 days or more, but has not yet been placed on non-accrual status. At September 30, 1996, slow paying loans amounted to $4.5 million as compared to $3.3 million at September 30, 1995 and $3.4 million at December 31, 1995. Loan loss provisions in future periods will continue to depend on trends in the credit quality of the Company's loan portfolio and the level of loan charge- offs which, in turn, will depend in part on the economic and real estate market conditions prevailing within the Company's lending region. If general economic conditions or real estate values deteriorate, the level of delinquencies, non- performing loans, and charge-offs may increase and higher provisions for loan losses may be necessary. Activity in the allowance for loan losses for the periods indicated is summarized as follows:
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (Dollars in thousands) Balance at beginning of period $8,666 8,691 8,033 9,402 Provision charged to operations 600 150 1,500 400 9,266 8,841 9,533 9,802 Loans charged-off: Mortgage loans: Residential (322) (84) (703) (245) Commercial (78) (312) (119) (546) Construction and land -- (61) -- (819) Other loans: Consumer (52) (53) (156) (159) Commercial -- -- (5) (30) Total charge-offs (452) (510) (983) (1,799) Recoveries: Mortgage loans: Residential 5 -- 53 60 Commercial -- 1 31 80 Construction and land 1 -- 142 159 Other loans: Consumer 11 13 33 42 Commercial 3 5 25 6 Total recoveries 20 19 284 347 Net charge-offs (432) (491) (699) (1,452) Balance at end of period $8,834 8,350 8,834 8,350 Ratio of net charge-offs to average total loans outstanding (annualized) (0.31%) (0.38%) (0.17%) (0.38%)
The following table sets forth information with respect to non-performing loans (non-accrual loans and loans greater than 90 days past due and still accruing) and other real estate, and certain asset quality ratios at the dates indicated:
September 30, December 31, 1996 1995 1995 (Dollars in thousands) Non-performing loans: Mortgage loans: Residential properties $4,590 2,499 2,559 Commercial properties 852 1,029 2,591 Construction and land 802 800 593 6,244 4,328 5,743 Other loans 53 45 20 Total non-performing loans () 6,297 4,373 5,763 Other real estate, net 1,717 323 405 Total non-performing assets $8,014 4,696 6,168 Ratio of non-performing loans to total loans 1.09% 0.83% 1.07% Ratio of non-performing assets to total assets 0.90 0.65 0.83 Ratio of allowance for loan losses to total non-performing loans 140.29 190.94 139.39 () Includes loans on non-accrual status of $6.1 million, $4.2 million and $5.6 million at September 30, 1996, September 30, 1995, and December 31, 1995, respectively. The remaining balance consists of loans greater than 90 days past due and still accruing. The Company generally stops accruing interest on loans that are delinquent over 90 days.
The loan portfolio also includes certain restructured loans that are current in accordance with modified payment terms and, accordingly, are not included in the preceding table. These restructured loans are loans for which concessions, including reduction of interest rates to below-market levels or deferral of payments, have been granted due to the borrowers' financial condition. Restructured loans totaled $1.3 million at September 30, 1996, compared to $1.4 million at September 30, 1995 and $1.5 million at December 31, 1995. The Company's recorded investment in impaired loans consisted of commercial mortgage and construction loans totaling $1.7 million at September 30, 1996 and $3.2 million at December 31, 1995. Total impaired loans at September 30, 1996 consist of (i) loans of $962,000 for which there was an allowance for losses of $207,000 determined in accordance with SFAS No. 114 and (ii) loans of $692,000 for which there was no allowance determined under SFAS No. 114 due to the adequacy of related collateral and historical charge-offs associated with these loans. For the three and nine months ended September 30, 1996, the average recorded investment in impaired loans was $1.7 million and $2.5 million, respectively. Interest income on impaired loans is recognized on a cash basis and was not significant for the three- and nine-month periods ended September 30, 1996 and 1995. OTHER INCOME Sources of other income include deposit and other service fees, net gain (loss) on securities, net gain (loss) on sales of loans, and other non-interest income. Other income increased by $147,000, or 19.6%, for the three-month period ended September 30, 1996 and increased $325,000, or 15.1% for the nine-month period, compared to the same periods in 1995. Deposit service fees, the largest component of other income, increased by $89,000, or 17.5%, for the three-month period and $307,000, or 20.5%, for the nine-month period, compared to the same periods in 1995. This was primarily the result of an increase in the amount of retail checking account fees collected. Other service fees totaled $184,000 and $511,000 for the three- and nine-month periods ended September 30, 1996, as compared to $140,000 and $456,000 for the same periods in 1995. The $194,000 net loss on securities for the nine months ended September 30, 1996 consists of the net realized loss on the second quarter sale of U.S. Treasury securities. There have been no sales of securities classified as held to maturity. Net gain on loans was $31,000 and $139,000 for the three- and nine-month periods ended September 30, 1996 compared to $1,000 and $38,000 during the same periods in 1995. OTHER EXPENSE Other expense consists of general and administrative expenses incurred in managing the core business of the Company and the net costs associated with managing and selling other real estate properties. Other expense increased by $1.2 million, or 26.5%, for the three-month period ended September 30, 1996 and $2.2 million, or 15.5%, for the nine-month period, compared to the same periods in 1995, primarily due to increases in salary and employee benefit expense, amortization of intangible assets, occupancy and equipment expense, and other operating expense. For the nine-month period, these increases were partially offset by a decrease in FDIC deposit insurance expense. Salaries and employee benefits, the largest component of other expense, increased by $477,000, or 20.7%, for the three-month period and $1.1 million, or 16.6%, for the nine-month period, compared to the same periods in 1995. The increases primarily reflect additional expense due to the branch acquisition during the second quarter of 1996, as well as the hiring of additional staff and normal merit and promotional salary increases. Occupancy and equipment expense increased $170,000, or 28.6%, for the three- month period ended September 30, 1996 and $503,000, or 28.8%, for the nine- month period, as compared to the same periods in the previous year, primarily due to the branch acquisition as well as other increases in depreciation, maintenance and equipment rental and repair expenses. The net cost of other real estate increased $74,000 for the three-month period and $192,000 for the nine-month period, compared to the same periods in 1995. These increases reflect an increase of $67,000 in net holding costs for the nine-month period and increases in the provision for losses on other real estate of $75,000 and $125,000, respectively, for the three and nine months ended September 30, 1996. FDIC deposit insurance expense increased $41,000 for the three-month period, and decreased $658,000 for the nine-month period, as compared to the same periods in the previous year. The decrease in the nine-month period was primarily the result of the reduction of the insurance premium on Pawling's deposits. Amortization of intangible assets totaled $349,000 and $655,000 for the three and nine months ended September 30, 1996, respectively, primarily reflecting the amortization of the purchase premium as a result of the branch acquisition. Other non-interest expense increased $74,000, or 4.9%, for the three-month period and $362,000, or 7.8%, for the nine-month period when compared to the same periods in 1995. The increases in the three- and nine-month periods primarily reflect increased foreclosure and collection expense and increased loan origination and servicing expense due to increased lending activity. INCOME TAX EXPENSE For the quarter ended September 30, 1996, the Company recognized an income tax expense of $174,000 consisting of a provision of $1.1 million or 41.0% of pre- tax income for the quarter, less a benefit of $941,000 from the settlement with the State of New York Department of Taxation and Finance of audits of certain prior years' New York State tax returns. For the same period in the previous year, income tax expense was $1.3 million or 41.2% of pre-tax income. For the nine-month period ended September 30, 1996, income tax expense was $1.1 million, consisting of a provision of $3.5 million or 41.1% of pre-tax income, less the State tax benefit of $941,000 referred to above and a Federal tax benefit of $1.5 million from the settlement of certain Internal Revenue Service audits during the second quarter of 1996. Income tax expense was $3.5 million (effective tax rate of 41.1%) for the same period in the previous year. RATIOS Results of operations can be measured by various ratios. Two widely recognized performance indicators are the return on assets and the return on equity. The following table sets forth these performance ratios for the Company on an annualized basis:
Three Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 1996 1995 1996 1995 1995 Return on assets: Net income divided by average total assets () 1.13% 1.03% 1.17% 0.94% 0.95% Return on equity: Net income divided by average equity (,) 14.08% 10.82% 13.96% 9.86% 10.04% () Excluding the $941,000 New York State income tax benefit, return on assets for the three months ended September 30, 1996 was 0.71% and the return on equity was 8.88%. Excluding the $2.4 million in combined Federal and New York State income tax benefits, return on assets for the nine months ended September 30, 1996 was 0.78% and the return on equity was 9.35%. () Average equity includes the effect of the net unrealized gain (loss) on securities available for sale, net of taxes.
LIQUIDITY Liquidity is defined as the ability to generate sufficient cash flow to meet all present and future funding commitments. Management monitors the Company's liquidity position on a daily basis and evaluates its ability to meet depositor withdrawals and to make new loans and investments as opportunities arise. The Asset/Liability Committee, consisting of members of senior management, is responsible for setting general guidelines to ensure maintenance of prudent levels of liquidity. The mix of liquid assets and various deposit products, at any given time, reflects management's view of the most efficient use of these sources of funds. The Company's cash flows are classified according to their source-operating activities, investing activities, and financing activities. Further details concerning the Company's cash flows are provided in the "Consolidated Statements of Cash Flows." Liquid assets are provided by short-term investments, proceeds from maturities of securities and principal collections on loans. One measure used by the Company to assess its liquidity position is the primary liquidity ratio (defined as the ratio of cash and due from banks, Federal funds sold and securities maturing within one year to total assets). At September 30, 1996, the Company had a primary liquidity ratio of 5.21% as compared to 8.21% at December 31, 1995. An important source of funds is Pawling's core deposit base. Management believes that a substantial portion of Pawling's deposits of $806.3 million at September 30, 1996 are core deposits. Core deposits are generally considered to be a highly stable source of liquidity due to long-term relationships with deposit customers. Pawling recognizes the importance of maintaining and enhancing its reputation in the consumer market to enable effective gathering and retention of core deposits. The Company does not currently utilize brokered deposits as a source of funds. In addition to the funding sources discussed above, the Company has the ability to borrow funds from several sources. Pawling is a member of the Federal Home Loan Bank of New York ("FHLBNY") and, at September 30, 1996, had immediate access to additional liquidity in the form of borrowings from the FHLBNY of up to $88.8 million. The Company also has access to the discount window of the Federal Reserve Bank. At September 30, 1996, Pawling had outstanding loan commitments and unadvanced customer lines of credit totaling $99.5 million. These commitments do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon. The sources of liquidity discussed above are deemed by management to be sufficient to fund outstanding loan commitments and to meet the Company's other obligations. On February 6, 1995, the Superintendent of Banks for the State of New York (the "Superintendent") seized Nationar, a check-clearing and trust company, freezing all of Nationar's assets. The Superintendent is now in the process of winding up the affairs of Nationar and liquidating its assets. The Company used Nationar for Federal funds transactions, as well as certain custodial and investment services. At the time of seizure, the Company had approximately $3.6 million in Federal funds sold and other deposits invested with Nationar. The Superintendent had given preliminary indications that the assets of Nationar may be inadequate to satisfy all claims of creditors in full. Based on the foregoing and a deficit in net shareholders' equity that was noted in a report issued by the Superintendent in February 1996, management, as advised by legal counsel, believed that there was a reasonable likelihood that the Company would not recover all of its investments in Federal funds and other deposits at Nationar. During the second quarter of 1996, the Company received a partial distribution of $1.4 million, or 40% of the claim against Nationar. As of September 30, 1996, other assets include $1.2 million in remaining claims against Nationar, net of a $1.0 million reserve for probable loss which was established in 1995. On October 23, 1996, the Superintendent announced that he has filed an application seeking the authority to pay in full the balance of all accepted unsecured claims before the end of 1996. If the court rules in favor of the Superintendent's recommendation, the Company would recover the remainder of its entire claim of 2.2 million in 1996. The Company will continue to review the situation as developments occur. CAPITAL Progressive, as a bank holding company, is subject to regulation and supervision by the Federal Reserve Board ("FRB"). Pawling, as a New York state-chartered stock savings bank, is subject to regulation and supervision by the New York State Banking Department as its chartering agency and by the FDIC as its deposit insurer. Both the FRB and the FDIC have developed and follow, in substance, similar requirements to maintain minimum levels of leverage and risk-based capital. The risk-based capital adequacy guidelines require the Company and Pawling to maintain capital according to the risk profile of the asset portfolio and certain off-balance sheet items. The guidelines set forth a system for calculating risk-weighted assets by assigning assets (and credit-equivalent amounts for certain off-balance sheet items) to one of four broad risk-weight categories. The amount of risk-weighted assets is determined by applying a specific percentage (0%, 20%, 50% or 100%, depending on the level of credit risk) to the amounts assigned to each category. As a percentage of risk- weighted assets, a minimum ratio of 4.0% must be maintained for Tier 1 capital and 8.0% for total capital. At September 30, 1996, Progressive's capital ratios exceeded the FRB's minimum regulatory capital requirements as follows:
Risk-Based Capital Leverage Capital Tier 1 Total Amount() Ratio Amount() Ratio Amount() Ratio Actual $62,968 7.11% $62,968 13.60% $68,794 14.86% Minimum requirement 35,447 4.00 18,522 4.00 37,044 8.00 Excess $27,521 3.11% $44,446 9.60% $31,750 6.86% () For all capital amounts, actual capital excludes the Company's net unrealized gain of $659,000 on securities available for sale (other than a $24,000 unrealized loss on equity securities) and intangible assets of $9.1 million.
At September 30, 1996, Pawling's capital ratios exceeded the FDIC's minimum regulatory capital requirements as follows:
Risk-Based Capital Leverage Capital Tier 1 Total Amount() Ratio Amount() Ratio Amount() Ratio Actual $58,131 6.60% $58,131 12.61% $63,931 13.87% Minimum requirement 35,256 4.00 18,437 4.00 36,875 8.00 Excess $22,875 2.60% $39,694 8.61% $27,056 5.87% () For all capital amounts, actual capital excludes Pawling's net unrealized gain of $703,000 on securities available for sale and intangible assets of $9.1 million.
During 1994, the Company announced two plans to repurchase in each case up to 5% of Progressive's outstanding common stock, to be used for general corporate purposes. The first repurchase was completed on November 9, 1994 and consisted of 147,000 shares at a total cost of $3.1 million or $21.21 per share. The second repurchase plan was completed on September 29, 1995 and consisted of 140,000 shares at a total cost of $3.3 million or $23.84 per share. A third repurchase plan, which was announced in October 1995 and completed on July 30,1996, consisted of 135,000 shares at a total cost of $3.9 million or $28.78 per share. On October 21, 1996, the Company announced a fourth plan to repurchase 130,000 shares, or approximately 5% of outstanding stock, over a six- to nine-month period. The Company considers its stock to be an attractive investment and believes these programs will increase shareholder value. On October 8, 1996, the Company's Board of Directors declared a dividend of twenty cents ($0.20) per common share, payable on November 29, 1996 to shareholders of record as of October 31, 1996. ASSET/LIABILITY MANAGEMENT The Company's asset/liability management goal is to maintain an acceptable level of interest rate risk to produce relatively stable net interest income in changing interest rate environments. Management continually monitors the Company's interest rate risk. Risk management strategies are developed and implemented by the Asset/Liability Committee which uses various risk measurement tools to evaluate the impact of changes in interest rates on the Company's asset/liability structure and net interest income. Earnings are susceptible to interest rate risk to the degree that interest- bearing liabilities mature or reprice on a different basis than interest- earning assets. These interest rate repricing "gaps" provide an indication of the extent that net interest income may be affected by future changes in interest rates. A one-year period is a common measurement interval of interest sensitivity known as the one-year gap. The Company's one-year gap as a percentage of total assets was -8.25% at September 30, 1996. A negative gap exists when the amount of interest-bearing liabilities exceeds the amount of interest-earning assets expected to mature or reprice in a given period. A negative gap may enhance earnings in periods of declining interest rates in that, during such periods, the interest expense paid on liabilities may decrease more rapidly than the interest income earned on assets. Conversely, in a rising interest rate environment, a negative gap may result in an increase in interest expense paid on liabilities that is greater than the increase in interest income earned on assets. While a negative gap indicates the amount of interest-bearing liabilities which may reprice before interest-earning assets, it does not indicate the extent to which they will reprice. Therefore, at times, a negative gap may not produce higher margins in a declining rate environment. Due to limitations inherent in the gap analysis, management augments the asset/liability management process by using simulation analysis. Simulation analysis estimates the impact on net interest income of changing the balance sheet structure and/or interest rate environment. This analysis serves as an additional tool in meeting the Company's goal of maintaining relatively stable net interest income in varying interest rate environments. The Company manages its interest rate risk primarily by structuring its balance sheet to emphasize holding adjustable rate loans and mortgage-backed securities in its portfolio and maintaining a large base of core deposits. The Company has not used synthetic hedging instruments such as interest rate futures, swaps or options. The following table summarizes the Company's interest rate sensitive assets and liabilities at September 30, 1996 according to the time periods in which they are expected to reprice, and the resulting gap for each time period.
Within One to Five Over Five One Year Years Years (Dollars in thousands) Total interest-earning assets $435,893 338,959 61,088 Total interest-bearing liabilities 508,989 118,423 119,531 Excess (deficiency) of interest-earning assets over interest-bearing liabilities ($ 73,096) 220,536 (58,443) Excess (deficiency) as a percent of total assets (8.25%) 24.89% (6.60%) Cumulative excess (deficiency) as a percent of total assets (8.25%) 16.64% 10.04%
PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit I, Computation of Net Income Per Share. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROGRESSIVE BANK, INC. (Registrant) Date: October 31, 1996 /s/ Peter Van Kleeck Peter Van Kleeck President and Chief Executive Officer Date: October 31, 1996 /s/ Robert Gabrielsen Robert Gabrielsen, Treasurer Principal Financial Officer and Principal Accounting Officer Exhibit I Computation of Net Income Per Share
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Net income $2,545 $1,842 $7,401 $4,980 Weighted average common shares (,) 2,611 2,714 2,623 2,733 Net income per share $ 0.97 $ 0.68 $ 2.82 $ 1.82 Outstanding common stock equivalents (stock options) did not have a significant dilutive effect upon the net income per share computation for any of the periods presented. Net of treasury stock.
EX-27 2
9 9-MOS DEC-31-1996 DEC-31-1996 16,316 0 10,600 0 178,028 76,702 75,866 575,362 8,834 886,043 806,280 0 7,042 0 0 0 2,952 69,769 886,043 36,389 10,715 1,706 48,810 25,061 25,112 23,698 1,500 (194) 16,261 8,419 8,419 0 0 7,401 2.82 2.82 3.94 6,130 167 1,315 3,343 8,033 983 284 8,834 8,834 0 0
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