-----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, VHpaTxyrft6GQ7d7NSS5ukTPgBQ0hJCQ9gIbePf2K++GG3RhmF8G5vNOGlFHTbSG w2Pn2/4qiEle5KQpsWPgSw== 0000912057-97-027346.txt : 19970813 0000912057-97-027346.hdr.sgml : 19970813 ACCESSION NUMBER: 0000912057-97-027346 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 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: 97657518 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 10-Q 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 June 30, 1997 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 August 7, 1997: 3,820,934 shares. TABLE OF CONTENTS PART I--FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.............................................. 1 Consolidated Statements of Income for the Three and Six Months Ended June 30, 1997 and June 30, 1996................... 2 Consolidated Statements of Shareholders' Equity for the Six Months Ended June 30, 1997 and June 30, 1996................... 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and June 30, 1996................... 4 Notes to Consolidated Interim Financial Statements................... 5-6 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 11............................................................... 19 Explanatory Note: This Quarterly Report on Form 10-Q contains certain forward-looking statements consisting of estimates with respect to financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these statements. These factors include changes in general, economic and market, and legislative and regulatory conditions, and the development of an interest rate environment that adversely affects the interest rate spread or other income anticipated from the Company's operations and investments. CONSOLIDATED BALANCE SHEETS PROGRESSIVE BANK, INC. AND SUBSIDIARY (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) (UNAUDITED)
JUNE 30, DECEMBER 31, 1997 1996 ---------- ------------ ASSETS Cash and due from banks.............................................................. $ 18,121 15,070 Federal funds sold................................................................... 21,300 30,500 Securities: Available for sale, at fair value.................................................. 132,302 137,792 Held to maturity, at amortized cost (fair value of $86,966 in 1997 and $72,315 in 1996)............................................. 87,323 72,614 ---------- ------------ Total securities................................................................. 219,625 210,406 ---------- ------------ Loans, net: Mortgage loans..................................................................... 518,124 517,077 Other loans........................................................................ 78,639 75,708 Allowance for loan losses.......................................................... (9,833) (9,231) ---------- ------------ Total loans, net................................................................. 586,930 583,554 ---------- ------------ Accrued interest receivable.......................................................... 6,408 6,068 Other real estate, net............................................................... 1,388 2,270 Premises and equipment, net.......................................................... 9,573 10,323 Deferred income taxes, net........................................................... 5,692 6,134 Intangible assets.................................................................... 8,056 8,755 Other assets......................................................................... 1,730 2,100 ---------- ------------ TOTAL ASSETS..................................................................... $ 878,823 875,180 ---------- ------------ ---------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Savings and time deposits.......................................................... $ 732,311 736,579 Demand deposits.................................................................... 65,586 57,622 Accrued expenses and other liabilities............................................. 5,784 8,437 ---------- ------------ TOTAL LIABILITIES................................................................ 803,681 802,638 ---------- ------------ 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; 4,427,999 shares issued)............................................. 4,428 4,428 Paid-in capital.................................................................... 25,879 25,879 Retained earnings.................................................................. 54,882 51,882 Treasury stock, at cost (607,065 shares in 1997 and 603,315 shares in 1996)...................................................... (10,582) (10,416) Net unrealized gain on securities available for sale, net of taxes................. 535 769 ---------- ------------ TOTAL SHAREHOLDERS' EQUITY....................................................... 75,142 72,542 ---------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................... $ 878,823 875,180 ---------- ------------ ---------- ------------
See accompanying notes to consolidated interim financial statements. 1 CONSOLIDATED STATEMENTS OF INCOME PROGRESSIVE BANK, INC. AND SUBSIDIARY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- INTEREST AND DIVIDEND INCOME: Mortgage loans.......................................................... $ 11,492 10,458 22,812 20,949 Other loans............................................................. 1,824 1,609 3,642 3,119 Securities.............................................................. 3,692 3,917 7,140 6,412 Federal funds sold and other............................................ 258 1,111 651 1,299 --------- --------- --------- --------- Total interest and dividend income.................................... 17,266 17,095 34,245 31,779 --------- --------- --------- --------- INTEREST EXPENSE: Deposits................................................................ 8,605 8,762 17,172 16,105 Other borrowings........................................................ -- 21 -- 51 --------- --------- --------- --------- Total interest expense................................................ 8,605 8,783 17,172 16,156 --------- --------- --------- --------- Net interest income................................................... 8,661 8,312 17,073 15,623 Provision for loan losses................................................. 500 600 1,100 900 --------- --------- --------- --------- Net interest income after provision for loan losses................... 8,161 7,712 15,973 14,723 --------- --------- --------- --------- OTHER INCOME: Deposit service fees.................................................... 555 608 1,132 1,203 Other service fees...................................................... 190 177 385 327 Net gain (loss) on securities........................................... 15 (194) 15 (194) Net gain on sales of loans.............................................. 79 18 144 108 Other non-interest income............................................... 73 70 156 141 --------- --------- --------- --------- Total other income.................................................... 912 679 1,832 1,585 --------- --------- --------- --------- Net interest and other income......................................... 9,073 8,391 17,805 16,308 --------- --------- --------- --------- OTHER EXPENSE: Salaries and employee benefits.......................................... 2,713 2,669 5,559 5,121 Occupancy and equipment................................................. 698 755 1,387 1,487 Net cost of other real estate........................................... 106 245 94 299 Amortization of intangible assets....................................... 349 306 698 306 Other non-interest expense.............................................. 1,520 1,995 2,913 3,395 --------- --------- --------- --------- Total other expense................................................... 5,386 5,970 10,651 10,608 --------- --------- --------- --------- Income before income taxes............................................ 3,687 2,421 7,154 5,700 Income tax expense (benefit).............................................. 1,475 (513) 2,839 844 --------- --------- --------- --------- Net income............................................................ $ 2,212 2,934 4,315 4,856 --------- --------- --------- --------- --------- --------- --------- --------- Net income per common share(1)............................................ $ 0.58 0.74 1.13 1.23 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average common shares outstanding(1)............................. 3,817 3,945 3,821 3,945 --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ (1) The 1996 amounts were adjusted for the three-for-two stock split completed in December 1996. See note 2. See accompanying notes to consolidated interim financial statements. 2 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY PROGRESSIVE BANK, INC. AND SUBSIDIARY (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) (UNAUDITED)
COMMON STOCK NET --------------------------- UNREALIZED SHARES PAID-IN RETAINED TREASURY GAIN ON OUTSTANDING(1) AMOUNT(1) CAPITAL(1) EARNINGS STOCK SECURITIES TOTAL -------------- ----------- ----------- ----------- --------- ----------- --------- Balance at December 31, 1996............ 3,824,684 $ 4,428 25,879 51,882 (10,416) 769 72,542 Net income.............................. -- -- 4,315 -- -- 4,315 Cash dividends declared ($0.34 per share)................................ -- -- (1,300) -- -- (1,300) Stock options exercised................. 11,250 -- -- (15) 196 -- 181 Purchases of treasury stock............. (15,000) -- -- -- (362) -- (362) Net change in unrealized gain on securities available for sale, net of taxes................................. -- -- -- -- (234) (234) -------------- ----------- ----------- ----------- --------- ----- --------- Balance at June 30, 1997................ 3,820,934 $ 4,428 25,879 54,882 (10,582) 535 75,142 -------------- ----------- ----------- ----------- --------- ----- --------- -------------- ----------- ----------- ----------- --------- ----- --------- Balance at December 31, 1995............ 3,942,441 $ 4,428 25,879 44,880 (7,655) 1,126 68,658 Net income.............................. -- -- 4,856 -- -- 4,856 Cash dividends declared ($0.27 per share)(1)............................. -- -- (1,052) -- -- (1,052) Stock options exercised................. 60,846 -- -- (212) 968 -- 756 Purchases of treasury stock............. (33,000) -- -- -- (621) -- (621) Net change in unrealized gain on securities available for sale, net of taxes................................. -- -- -- -- (758) (758) -------------- ----------- ----------- ----------- --------- ----- --------- Balance at June 30, 1996................ 3,970,287 $ 4,428 25,879 48,472 (7,308) 368 71,839 -------------- ----------- ----------- ----------- --------- ----- --------- -------------- ----------- ----------- ----------- --------- ----- ---------
- ------------------------ (1) The 1996 amounts were adjusted for the three-for-two stock split completed in December 1996. See note 2. See accompanying notes to consolidated interim financial statements. 3 CONSOLIDATED STATEMENTS OF CASH FLOWS PROGRESSIVE BANK, INC. AND SUBSIDIARY (IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, --------------------- 1997 1996 --------- ---------- OPERATING ACTIVITIES: Net income................................................................................ $ 4,315 4,856 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses............................................................. 1,100 900 Provision for losses on other real estate............................................. -- 225 Depreciation expense.................................................................. 434 494 Net (gain) loss on securities and loans............................................... (159) 86 Amortization of net premiums (discounts) on securities................................ 51 (63) Amortization of net deferred loan origination fees.................................... (76) (335) Net increase in accrued interest receivable........................................... (340) (1,583) Gain on sales of premises and equipment............................................... (186) -- Gain on sales of other real estate.................................................... (403) (72) Amortization of intangible assets..................................................... 698 306 Net decrease in accrued expenses and other liabilities................................ (2,653) (9,474) Other, net............................................................................ 944 3,484 --------- ---------- Net cash provided by (used in) operating activities................................. 3,725 (1,176) --------- ---------- INVESTING ACTIVITIES: Purchases of securities: Securities available for sale......................................................... (28,596) (107,655) Securities held to maturity........................................................... (26,587) (45,147) Proceeds from principal payments, maturities and calls of securities: Securities available for sale......................................................... 33,727 23,010 Securities held to maturity........................................................... 11,803 5,786 Proceeds from sales of securities available for sale...................................... -- 5,953 Disbursements for loan originations, net of principal collections......................... (10,260) (18,994) Proceeds from sales of loans.............................................................. 5,066 1,808 Purchases of premises and equipment....................................................... (148) (1,306) Proceeds from sales of premises and equipment............................................. 650 -- Proceeds from sales of other real estate.................................................. 2,256 496 --------- ---------- Net cash used in investing activities............................................... (12,089) (136,049) --------- ---------- FINANCING ACTIVITIES: Increase in deposits from acquisition of branches, net of premium paid.................... -- 143,030 Net increase in deposits, exclusive of acquisition........................................ 3,696 11,974 Cash dividends paid on common stock....................................................... (1,300) (1,052) Net proceeds on exercises of stock options................................................ 181 756 Purchases of treasury stock............................................................... (362) (621) --------- ---------- Net cash provided by financing activities........................................... 2,215 154,087 --------- ---------- Net (decrease) increase in cash and cash equivalents........................................ (6,149) 16,862 Cash and cash equivalents at beginning of period............................................ 45,570 37,893 --------- ---------- Cash and cash equivalents at end of period.................................................. $ 39,421 54,755 --------- ---------- --------- ---------- SUPPLEMENTAL DATA: Interest paid............................................................................. $ 19,222 15,874 Income taxes paid, net of refunds received................................................ 2,859 1,585 Loans transferred to other real estate.................................................... 1,121 2,487 Loans originated to finance sales of other real estate.................................... 170 327 --------- ---------- --------- ----------
See accompanying notes to consolidated interim financial statements. 4 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 ("Pawling"), 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 for 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, 1996. 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. All 1996 share and per share data have been adjusted to give retroactive effect to the three-for-two stock split completed in December 1996. The split resulted in the issuance of 1,476,025 additional common shares. The total par value for these shares was retroactively transferred to common stock from paid-in-capital. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which requires presentation of both basic EPS and diluted EPS by all entities with complex capital structures. Basic EPS, which replaces primary EPS, excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as the Company's stock options) were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. As required, the Company will adopt SFAS No. 128 in the fourth quarter of 1997 and will present EPS data for all periods in accordance with the new statement. Note 3: Other Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, " Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income (and its components) in financial statements. The standard does not, however, specify when to recognize or how to measure items that make up comprehensive income. Comprehensive income represents net income and certain amounts reported directly to equity, such as the net unrealized gain or loss on available-for-sale securities. While SFAS No. 130 does not require a specific reporting format, it does require that an enterprise display an amount representing total comprehensive income for the period. SFAS No. 130 is effective for both interim and annual periods beginning after December 15, 1997. In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Among other things, SFAS No. 131 requires public companies to report (1) certain financial and descriptive information about its reportable operating segments (as defined) 5 and (2) certain enterprise-wide financial information about products and services, geographic areas and major customers. The required segment financial disclosures include a measure of profit or loss, certain specific revenue and expense items, and total assets. SFAS No. 131 is effective for periods beginning after December 15, 1997. Management does not anticipate that the adoption of SFAS Nos. 130 and 131 will have a material impact on the Company's consolidated financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The financial condition and operating results of the Company are primarily dependent upon the financial condition and operating results of 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 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 $878.8 million at June 30, 1997 as compared to $875.2 million at December 31, 1996, an increase of $3.6 million or 0.4%. Total securities increased by $9.2 million, consisting of a $14.7 million increase in securities held to maturity and a $5.5 million decrease in securities available for sale. The increase in securities held to maturity primarily reflects $26.6 million in purchases of fixed rate seven- and fifteen-year balloon mortgage-backed securities, partially offset by principal paydowns of $11.8 million. The decrease in securities available for sale primarily reflects maturities, calls, and principal paydowns of $33.7 million, partially offset by $28.6 million in purchases of U.S. government agencies and U.S. Treasury notes. Net loans totaled $586.9 million at June 30, 1997, compared to $583.6 million at December 31, 1996, an increase of $3.3 million or 0.6%. The residential mortgage segment of the loan portfolio increased $4.8 million (net of loan sales to the secondary market of $5.0 million) from $429.2 million at December 31, 1996 to $434.0 million at June 30, 1997. The commercial mortgage segment of the loan portfolio decreased $4.8 million or 6.0%, from $81.1 million at December 31, 1996 to $76.3 million at June 30, 1997. The construction mortgage segment of the loan portfolio increased $896,000 or 10.1%, from $8.9 million at December 31, 1996 to $9.8 million at June 30, 1997. Other loans increased $2.8 million or 3.9% during the first six months of 1997 from $72.5 million to $75.3 million, primarily due to increases in business installment loans and automobile financing. The $3.7 million increase in deposits during the first six months of 1997 was primarily attributable to increases of $27.9 million in money market accounts and $8.0 million in demand deposits, partially offset by decreases of $25.2 million in time deposits and $4.8 million in savings accounts. Shareholders' equity at June 30, 1997 was $75.1 million, an increase of $2.6 million or 3.6% from December 31, 1996. This increase primarily reflects net income of $4.3 million, partially offset by cash dividends of $1.3 million. Shareholders' equity, as a percent of total assets, was 8.55% at June 30, 1997 compared to 8.29% at December 31, 1996. Book value per share increased to $19.67 at June 30, 1997 from $18.97 at December 31, 1996. 6 The following table shows the Company's average consolidated balances, interest income and expense, and average rates (annualized) for the periods indicated.
THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 1997 JUNE 30, 1996 --------------------------------- ----------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE --------- --------- ----------- --------- ----------- ----------- (DOLLARS IN THOUSANDS) Interest-earning assets: Mortgage loans (1)...................... $ 519,556 11,492 8.85% $ 483,213 10,458 8.66% Other loans (1)......................... 75,036 1,824 9.72 65,168 1,609 9.88 Mortgage-backed securities (2).......... 125,495 2,141 6.82 116,148 2,017 6.95 U.S. Treasury and agencies, corporate and other securities (2,3)............. 98,603 1,551 6.29 120,907 1,900 6.29 Interest on income tax refund........... -- -- -- -- 420 -- Federal funds sold...................... 18,793 258 5.49 57,230 691 4.83 --------- --------- ----- --------- ----------- ----- Total interest-earning assets......... 837,483 17,266 8.25% 842,666 17,095 8.11% Non-interest-earning assets............... 45,615 43,783 --------- --------- ----- --------- ----------- ----- Total assets........................ $ 883,098 $ 886,449 --------- --------- ----- --------- ----------- ----- --------- --------- ----- --------- ----------- ----- Interest-bearing liabilities: Time deposits........................... $ 354,216 4,717 5.33% $ 406,980 5,555 5.46% Other deposits (4)...................... 379,161 3,888 4.10 332,489 3,207 3.86 Other borrowings........................ -- -- -- 1,462 21 5.75 --------- --------- ----- --------- ----------- ----- Total interest-bearing liabilities.. 733,377 8,605 4.69% 740,931 8,783 4.74% Non-interest-bearing liabilities.......... 75,487 74,799 --------- --------- ----- --------- ----------- ----- Total liabilities................... 808,864 815,730 Shareholders' equity...................... 74,234 70,719 --------- --------- ----- --------- ----------- ----- Total liabilities and shareholders'equity............... $ 883,098 $ 886,449 --------- --------- ----- --------- ----------- ----- --------- --------- ----- --------- ----------- ----- Net earning balance....................... $ 104,106 $ 101,735 --------- --------- ----- --------- ----------- ----- --------- --------- ----- --------- ----------- ----- Net interest income....................... 8,661 8,312 --------- --------- ----- --------- ----------- ----- --------- --------- ----- --------- ----------- ----- Interest rate spread (5,7)................ 3.56% 3.37% Net yield on interest- earning assets (margin)(6,7)............ 4.14% 3.95% --------- --------- ----- --------- ----------- ----- --------- --------- ----- --------- ----------- ----- SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1996 ----------------------------------- ----------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE --------- ----------- ----------- --------- ----------- ----------- Interest-earning assets: Mortgage loans (1)...................... $ 520,364 22,812 8.77% $ 482,554 20,949 8.68% Other loans (1)......................... 74,088 3,642 9.83 62,480 3,119 9.98 Mortgage-backed securities (2).......... 124,147 4,242 6.83 102,269 3,495 6.83 U.S. Treasury and agencies, corporate and other securities (2,3)............ 92,717 2,898 6.25 92,156 2,917 6.33 Interest on income tax refund........... -- -- -- -- 420 -- Federal funds sold...................... 24,691 651 5.27 35,775 879 4.91 --------- ----------- ----- --------- ----------- ----- Total interest-earning assets......... 836,007 34,245 8.19% 775,234 31,779 8.20% Non-interest-earning assets............... 45,834 40,661 --------- ----------- ----- --------- ----------- ----- Total assets........................ $ 881,841 $ 815,895 --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- Interest-bearing liabilities: Time deposits........................... $ 362,308 9,623 5.31% $ 373,338 10,263 5.50% Other deposits (4)...................... 372,641 7,549 4.05 300,465 5,842 3.89 Other borrowings........................ -- -- -- 1,844 51 5.53 --------- ----------- ----- --------- ----------- ----- Total interest-bearing liabilities.. 734,949 17,172 4.67% 675,647 16,156 4.78% Non-interest-bearing liabilities.......... 73,222 70,216 --------- ----------- ----- --------- ----------- ----- Total liabilities................... 808,171 745,863 Shareholders' equity...................... 73,670 70,032 --------- ----------- --- --------- ----------- --- Total liabilities and shareholders' equity.............. $ 881,841 $ 815,895 --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- Net earning balance....................... $ 101,058 $ 99,587 --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- Net interest income....................... 17,073 15,623 --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- Interest rate spread (5,7).. 3.52% 3.42% Net yield on interest- earning assets (margin)(6,7)............ 4.08% 4.03% --------- ----------- ----- --------- ----------- ----- --------- ----------- ----- --------- ----------- -----
- ------------------------ (1) 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. (2) Average balances have been calculated based on amortized cost. (3) Yields on tax-exempt obligations have not been computed on a tax-equivalent basis, as the effect thereof is not material. (4) Includes NOW accounts, passbook and statement savings accounts, and money market accounts. (5) Represents average rate on total interest-earning assets less average rate on total interest-bearing liabilities. (6) Represents net interest income divided by total average interest-earning assets. (7) Excluding the interest income on tax refund, the interest rate spread for the three and six months ended June 30, 1996 was 3.18% and 3.31%, respectively, and margin was 3.75% and 3.92%, respectively. 7 RESULTS OF OPERATIONS GENERAL The Company's net income was $2.2 million or $0.58 per share for the quarter ended June 30, 1997, as compared to $2.9 million or $0.74 per share for the same three-month period in 1996. For the six-month period ended June 30, 1997, the Company earned $4.3 million or $1.13 per share as compared to $4.9 million or $1.23 per share for the same period in 1996. The decreases in net income for the three- and six-month periods were primarily the result of increases in income tax expense, partially offset by increases in net interest income. NET INTEREST INCOME Net interest income increased $349,000, or 4.2%, to $8.7 million for the three-month period ended June 30, 1997 and $1.5 million, or 9.3%, for the six-month period when compared to the same periods in 1996. The increases in net interest income for the quarter and six months ended June 30, 1997 were primarily due to increases in interest on loans, partially offset by decreases in interest on federal funds sold and other interest income for the three-month period and an increase in interest expense for the six-month period. For the three-month period ended June 30, 1997, the Company's interest rate spread widened by 19 basis points primarily reflecting the increase in the average yield on interest-earning assets and the decrease in the average cost of interest-bearing liabilities. The Company's net interest margin also widened by 19 basis points, primarily a result of the change in interest rate spread. For the six-month period, the Company's interest rate spread widened by 10 basis points primarily as a result of the decrease in the average cost of interest-bearing liabilities. The increases in the spread and margin for the three- and six-month periods would have been greater without the impact of the interest on income tax refunds as described in note 7 to the table on page 7. Interest on loans increased by $1.2 million, or 10.4%, for the three-month period and $2.4 million, or 9.9%, for the six-month period when compared to the same periods in 1996, primarily reflecting increases in the average balance of outstanding loans, and to a lesser extent, increases in the average yield. Average mortgage loans and other loans increased by $46.2 million for the three-month period ended June 30, 1997 and $49.4 million for the six-month period when compared to the same periods in 1996. Interest on mortgage-backed securities increased $124,000, or 6.1%, for the three-month period and $747,000, or 21.4%, for the six-month period when compared to the same periods in 1996, primarily due to increases in the average balance outstanding due to additional security purchases. Interest and dividends on U.S. Treasury and agencies, corporate and other securities decreased by $349,000 for the three-month period ended June 30, 1997 and $19,000 for the six-month period when compared to the same periods in 1996. The decrease for the three-month period primarily reflects a lower average balance outstanding, due to maturities and calls, partially offset by purchases of U.S. Treasury and agency securities, while the decrease for the six-month period primarily reflects a decrease of 8 basis points in the average yield. Interest on federal funds sold decreased $433,000 for the three-month period ended June 30, 1997 and $228,000 for the six-month period when compared to the same periods in 1996. The decrease for the three-month period primarily reflects a $38.4 million decrease in the average balance outstanding, offset somewhat by a 66 basis point increase in the average yield. The decrease for the six-month period primarily reflects an $11.1 million decrease in the average balance outstanding, offset partially by a 36 basis point increase in the average yield. The decrease in interest expense of $178,000 for the quarter ended June 30, 1997, compared to the same period in 1996, was due to a decrease in the average balance of interest-bearing liabilities of $7.6 million, combined with a slight decrease in the overall cost of funds. The $1.0 million increase in interest expense for the six-months ended June 30, 1997, compared to the same period in 1996, was due primarily to an increase in the average balance of interest-bearing liabilities of $59.3 million, offset partially by a decrease in the overall cost of funds. The increase in the average balance of interest-bearing liabilities was primarily due to the acquisition of the Rockland County branches during the second quarter of 1996. 8 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 economic conditions. For the three- and six-month periods ended June 30, 1997, the provision for loan losses was $500,000 and $1.1 million, respectively, as compared to $600,000 and $900,000 for the comparable periods in 1996. The allowance for loan losses represented 1.65% of total loans at June 30, 1997, compared to 1.56% a year earlier, and 1.56% at December 31, 1996. Non-performing loans were $5.5 million, or 0.93% of total loans, at June 30, 1997 compared to $6.2 million, or 1.12% of total loans, at June 30, 1996 and $4.8 million, or 0.81% of total loans, at December 31, 1996. 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 June 30, 1997, slow paying loans amounted to $4.3 million as compared to $3.4 million at June 30, 1996 and $6.3 million at December 31, 1996. Loan loss provisions in future periods will continue to depend on trends in the credit quality of the Company's loan portfolio, loan mix 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. 9 Activity in the allowance for loan losses for the periods indicated is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Balance at beginning of period............................................... $ 9,421 8,275 9,231 8,033 Provision charged to operations.............................................. 500 600 1,100 900 --------- --------- --------- --------- 9,921 8,875 10,331 8,933 --------- --------- --------- --------- Loans charged-off: Mortgage loans: Residential.............................................................. (184) (167) (461) (381) Commercial............................................................... (195) (41) (195) (41) Construction and land.................................................... -- -- (41) -- Other loans: Consumer................................................................. (57) (67) (168) (104) Commercial............................................................... -- (5) -- (5) --------- --------- --------- --------- Total charge-offs...................................................... (436) (280) (865) (531) --------- --------- --------- --------- Recoveries: Mortgage loans: Residential.............................................................. 39 1 39 48 Commercial............................................................... 86 -- 86 31 Construction and land.................................................... 200 40 200 141 Other loans: Consumer................................................................. 16 9 32 22 Commercial............................................................... 7 21 10 22 --------- --------- --------- --------- Total recoveries....................................................... 348 71 367 264 --------- --------- --------- --------- Net charge-offs.............................................................. (88) (209) (498) (267) --------- --------- --------- --------- Balance at end of period..................................................... $ 9,833 8,666 9,833 8,666 --------- --------- --------- --------- --------- --------- --------- --------- Ratio of net charge-offs to average total loans outstanding (annualized)..... (0.06%) (0.15%) (0.17%) (0.10%) --------- --------- --------- --------- --------- --------- --------- ---------
10 The following table sets forth information with respect to non-performing assets and certain asset quality ratios at or for the dates indicated:
JUNE 30, DECEMBER 31, 1997 1996 1996 --------- --------- ------------- (DOLLARS IN THOUSANDS) NON-PERFORMING LOANS: Mortgage loans: Residential properties...................................................... $ 4,618 4,437 3,769 Commercial properties....................................................... 734 931 714 Construction and land....................................................... 102 828 215 --------- --------- ------ 5,454 6,196 4,698 Other loans................................................................... 73 20 101 --------- --------- ------ Total non-performing loans (1)............................................ 5,527 6,216 4,799 Other real estate, net.......................................................... 1,388 1,910 2,270 --------- --------- ------ Total non-performing assets............................................... $ 6,915 8,126 7,069 --------- --------- ------ --------- --------- ------ Ratio of non-performing loans to total loans.................................... 0.93% 1.12% 0.81% Ratio of non-performing assets to total assets.................................. 0.79 0.90 0.81 Ratio of allowance for loan losses to total non-performing loans................ 177.91 139.41 192.35 --------- --------- ------ --------- --------- ------
- ------------------------ (1) Includes loans on non-accrual status of $5.5 million, $6.0 million and $4.6 million at June 30, 1997, June 30, 1996, and December 31, 1996, 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 $564,000 at June 30, 1997, compared to $1.3 million at June 30, 1996 and $571,000 at December 31, 1996. The Company's recorded investment in impaired loans consisted of non-accrual commercial mortgage and construction loans totaling $836,000 at June 30, 1997 and $929,000 at December 31, 1996. Total impaired loans at June 30, 1997 consist of (i) loans of $149,000 for which there was an allowance for loan impairment of $28,000 determined in accordance with SFAS No. 114 and (ii) loans of $687,000 for which such an allowance was not required due to the adequacy of related collateral values and prior charge-offs. The average recorded investment in impaired loans was $813,000 and $883,000, respectively, for the three and six months ended June 30, 1997 and $2.6 million and $2.8 million, respectively, for the three and six months ended June 30, 1996. Interest income on impaired loans is recognized on a cash basis and was not significant for the quarter and six months ended June 30, 1997 and 1996. At June 30, 1997, management has also identified approximately $1.8 million in potential problem loans which represent loans having more than normal credit risk. Although these loans are currently performing at June 30, 1997, management believes that if economic conditions deteriorate in the Company's lending area, some of these loans could become non-performing in the future. 11 OTHER INCOME Sources of other income include deposit and other service fees, net gain (loss) on securities, net gain on sales of loans, and other non-interest income. For the three-month period ended June 30, 1997, other income increased $233,000, or 34.3%, and for the six-month period increased $247,000, or 15.6%, compared to the same periods in 1996. Deposit service fees, the largest component of other income, decreased by $53,000, or 8.7%, to $555,000 for the three-month period and $71,000, or 5.9%, to $1.1 million for the six-month period, compared to the same periods in 1996. Other service fees increased to $190,000 and $385,000 for the three-and six-month periods ended June 30, 1997, as compared to $177,000 and $327,000 for the same periods in 1996. The $194,000 net loss on securities for both the three and six months ended June 30, 1996 consists of the net realized loss on the sale of U.S. Treasury securities. There have been no sales of securities classified as held to maturity. Net gain on sales of loans was $79,000 and $144,000 for the three- and six-month periods ended June 30, 1997 compared to $18,000 and $108,000 during the same periods in 1996. Sales of mortgage loans in both periods reflect the Company's current practice of selling newly originated fixed rate mortgage loans. 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 decreased by $584,000, or 9.8%, for the three-month period ended June 30, 1997, primarily due to a decrease of $139,000 in the net cost of other real estate and a $286,000 reduction in foreclosure and collection expense. Other expense increased $43,000, or 0.4%, for the six-month period, compared to the same period in 1996, primarily due to increases in salaries and employee benefits and amortization of intangible assets, offset partially by a decrease in the net cost of other real estate and a decline in other non-interest expense due primarily to a $186,000 gain on the sale of the Newburgh Operations building in January 1997. Salaries and employee benefits, the largest component of other expense, increased by $44,000, or 1.6%, to $2.7 million for the three-month period and $438,000, or 8.6%, to $5.6 million for the six-month period, compared to the same periods in 1996. The increases primarily reflect additional expense due to the April 1996 acquisition of two branches, as well as the hiring of additional staff and normal merit and promotional salary increases. Occupancy and equipment expense decreased $57,000, or 7.5%, for the three-month period ended June 30, 1997 and $100,000, or 6.7%, for the six-month period, as compared to the same periods in the previous year, primarily due to decreases in depreciation and equipment rental and repair expenses. The net cost of other real estate decreased $139,000 for the three-month period and $205,000 for the six-month period, compared to the same periods in 1996, primarily reflecting decreases in the provision for losses on other real estate and increased gains on sales of properties, partial offset by increased holding costs. Amortization of intangible assets totaled $349,000 and $698,000 for the three and six months ended June 30, 1997, compared to $306,000 for the three and six months ended June 30, 1996, primarily reflecting the amortization of the purchase premium as a result of the acquisition of branches in April 1996. Other non-interest expense decreased $475,000, or 23.8%, for the three-month period and $482,000, or 14.2%, for the six-month period when compared to the same periods in 1996. The three-month period reduction primarily reflects decreases in foreclosure and collection expense, checking account charges and professional fees. For the six-month period, the decrease primarily reflects a $186,000 gain on the sale of the Newburgh Operations building in January 1997. INCOME TAX EXPENSE For the three- and six-month periods ended June 30, 1997, income tax expense was $1.5 million and $2.8 million, respectively. For the quarter ended June 30, 1996, the Company recognized an income tax benefit of $513,000, consisting of a benefit of $1.5 million from the settlement with the Internal Revenue Service of audits 12 of certain prior years' federal income tax returns, less a provision of $1.0 million or 40.8% of pre-tax income for the quarter. For the six-month period ended June 30, 1996, income tax expense was $844,000. The Company's net deferred tax assets were $5.7 million at June 30, 1997, compared to $6.1 million at December 31, 1996. Based on recent historical and anticipated future pre-tax earnings, management believes it is more likely than not that the Company will realize its net deferred tax assets. 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 SIX MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, DECEMBER 31, 1997 1996 1997 1996 1996 --------- --------- --------- --------- --------------- Return on assets: Net income divided by average total assets (1)................. 1.00% 1.32% 0.98% 1.19% 1.09% Return on equity: Net income divided by average equity (1, 2).................... 11.92% 16.60% 11.71% 13.87% 13.11%
- ------------------------ (1) Excluding the $1.5 million federal income tax benefit, return on assets for the three and six months ended June 30, 1996 was 0.65% and 0.82%, respectively, and the return on equity was 8.11% and 9.58%, respectively. For the year ended December 31, 1996, if the $1.5 million federal income tax benefit and a similar New York State tax benefit of $941,000 were excluded, return on assets was 0.81% and return on equity was 9.68%. (2) 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 Management 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 June 30, 1997, the Company had a primary liquidity ratio of 7.01% as compared to 7.84% at December 31, 1996. An important source of funds is Pawling's core deposit base. Management believes that a substantial portion of Pawling's deposits of $797.9 million at June 30, 1997 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 and commercial markets to enable effective gathering and retention of core deposits. The Company has not utilized 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 13 sources. Pawling is a member of the Federal Home Loan Bank of New York ("FHLBNY") and, at June 30, 1997, had immediate access to additional liquidity in the form of borrowings from the FHLBNY of up to $99.3 million. The Company also has access to the discount window of the Federal Reserve Bank. There were no borrowings from these sources in 1997 and 1996, other than short term purchases of federal funds from the FHLBNY during 1996. At June 30, 1997, Pawling had outstanding loan commitments and unadvanced customer lines of credit totaling $91.6 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. 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 their asset portfolios 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 June 30, 1997, Progressive's consolidated capital ratios exceeded the FRB's minimum regulatory capital guidelines as follows:
RISK-BASED CAPITAL --------------------------------------------- LEVERAGE CAPITAL TIER 1 TOTAL ------------------------ ------------------------ ------------------- AMOUNT(1) RATIO AMOUNT(1) RATIO AMOUNT(1) RATIO ----------- ----- ----------- ----- ---------- ----- Actual............... $ 66,582 7.6% $ 66,582 13.5% $ 72,779 14.8% Minimum requirement.. 35,159 4.0 19,686 4.0 39,372 8.0 --------- --- --------- ---- --------- --- Excess............... $ 31,423 3.6% $ 46,896 9.5% $ 33,407 6.8% --------- --- --------- ---- --------- --- --------- --- --------- ---- --------- ---
- ------------------------ (1) For all capital amounts, actual capital excludes the Company's after-tax net unrealized gain of $535,000 on securities available for sale and intangible assets of $8.0 million. At June 30, 1997, Pawling's capital ratios exceeded the FDIC's minimum regulatory capital requirements as follows:
RISK-BASED CAPITAL --------------------------------------------- LEVERAGE CAPITAL TIER 1 TOTAL ------------------------ ------------------------ ------------------- AMOUNT(1) RATIO AMOUNT(1) RATIO AMOUNT(1) RATIO ----------- ----- ----------- ----- ---------- ----- Actual............... $ 60,881 7.0% $ 60,881 12.4% $ 67,066 13.7% Minimum requirement.. 34,935 4.0 19,645 4.0 39,290 8.0 --------- --- --------- ---- --------- ---- Excess............... $ 25,946 3.0% $ 41,236 8.4% $ 27,776 5.7% --------- --- --------- ---- --------- ---- --------- --- --------- ---- --------- ----
- ------------------------ (1) For all capital amounts, actual capital excludes Pawling's after-tax net unrealized gain of $545,000 on securities available for sale and intangible assets of $8.0 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 in November 1994 and consisted of 220,500 shares at a total cost of $3.1 million or $14.14 per share. The 14 second repurchase plan was completed in September 1995 and consisted of 210,000 shares at a total cost of $3.3 million or $15.89 per share. A third repurchase plan, which was announced in October 1995, and completed in July 1996, consisted of 202,500 shares at a total cost of $3.9 million or $19.19 per share. On October 21, 1996, the Company announced a fourth plan to repurchase 195,000 shares, or approximately 5% of outstanding stock. At June 30, 1997, 89,250 shares had been purchased under the fourth plan at a cost of $2.1 million or $23.03 per share. The number of shares and the per share cost of each repurchase program have been restated to reflect the 1996 three-for-two stock split. On July 15, 1997, the Company's Board of Directors declared a dividend of 17 cents ($0.17) per common share, payable on August 29, 1997 to shareholders of record as of July 31, 1997. 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 Management 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 -4.86% at June 30, 1997. 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 decrease earnings as the increase in interest expense paid on liabilities may be greater than the increase in interest income earned on assets. While a negative gap indicates the amount of interest-bearing liabilities which will 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 the 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 hypothetical changes in 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 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, and maintaining a large base of core deposits. To date, the Company has not used synthetic hedging instruments such as interest rate futures, swaps or options in managing its interest rate risk. 15 The following table summarizes the Company's interest rate sensitive assets and liabilities at June 30, 1997 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................................................ $ 462,927 302,276 65,789 Total interest-bearing liabilities........................................... 505,654 115,938 110,719 ---------- ----------- ----------- (Deficiency) excess of interest-earning assets compared to interest-bearing liabilities.............................................................. ($ 42,727) 186,338 (44,930) ---------- ----------- ----------- (Deficiency) excess as a percent of total assets........................... (4.86%) 21.20% (5.11%) Cumulative (deficiency) excess as a percent of total assets................ (4.86%) 16.34% 11.23% ---------- ----------- ----------- ---------- ----------- -----------
16 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 The Company's Annual Meeting of Stockholders was held on April 24, 1997. 3,506,288 shares of Progressive Bank, Inc. common stock were represented at the Annual Meeting in person or by proxy. Stockholders voted in favor of the election of three nominees for director. The voting results for each nominee were as follows: VOTES IN FAVOR NOMINEE OF ELECTION VOTES WITHHELD ------------------------------------ -------------- -------------- Thomas C. Aposporos................. 3,486,801 19,487 John J. Page........................ 3,489,571 15,717 David A. Swinden.................... 3,499,835 6,453 Stockholders voted to approve the amendment of the Company's Certificate of Incorporation to include provisions that set forth procedures for director nominations and new business proposals by stockholders. 2,634,640 shares were voted in favor of the proposal, 115,820 shares were voted against the proposal, and 16,618 shares abstained. There were 739,210 broker nonvotes on the matter. Stockholders voted to approve the Progressive Bank, Inc. 1997 Employee Stock Option Plan. 2,026,578 shares were voted in favor of the proposal, 638,813 shares were voted against the proposal, and 38,752 shares abstained. There were 802,145 broker nonvotes on the matter. Stockholders voted to ratify the appointment of KPMG Peat Marwick LLP, independent certified public accountants, as the Company's independent auditors for the fiscal year ending December 31, 1997. 3,490,202 shares were voted in favor of the proposal, 8,954 shares were voted against the proposal, and 7,132 shares abstained. There were 0 broker nonvotes on the matter. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11, Computation of Net Income Per Common Share. (b) Exhibit 27, Financial Data Schedule. 17 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: August 7, 1997 /s/ Peter Van Kleeck ------------------------------------- Peter Van Kleeck President and Chief Executive Officer Principal Executive Officer Date: August 7, 1997 /s/ Robert Gabrielsen ------------------------------------- Robert Gabrielsen, Treasurer Principal Financial Officer and Principal Accounting Officer 18 EX-11 2 EX-11 EXHIBIT 11 COMPUTATION OF NET INCOME PER COMMON SHARE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income................................................................. $ 2,212 $ 2,934 $ 4,315 $ 4,856 Weighted average common shares (1, 2, 3)................................... 3,817 3,945 3,821 3,945 Net income per common share(3)............................................. $ 0.58 $ 0.74 $ 1.13 $ 1.23
- ------------------------ (1) Outstanding common stock equivalents (stock options) did not have a significant dilutive effect on the per share data for any of the periods presented. (2) Net of treasury stock. (3) The 1996 amounts were adjusted for the three-for-two stock split completed in December 1996. See note 2. 19 EX-27 3 FINANCIAL DATA SCHEDULE
9 6-MOS DEC-31-1997 JUN-30-1997 18,121 0 21,300 0 132,302 87,323 86,966 596,763 9,833 878,823 797,897 0 5,784 0 0 0 4,428 70,714 878,823 26,454 7,140 651 34,245 17,172 17,172 17,073 1,100 15 10,651 7,154 7,154 0 0 4,315 1.13 1.13 4.08 5,454 73 564 1,810 9,231 865 367 9,833 9,833 0 0
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