To correct errors beyond the control of the filer due to
electronic transmission.
Page 15 - Column Nine months ended 9/30/94, line Assumed conversion
of Series B preferred stock, corrected to 401 from 402.
Page 16 - Column Three months ended 9/30/94, line Fully diluted
earnings (loss) reported, corrected to $(0.15) from $(0.10).
Page 23 - Column Three months ended 9/30/94 and column Nine months
ended 9/30/94, line Realized securities (losses), corrected to
$1,870 from 0.
Page 27 - Column Volume, line Net interest income, corrected to
$1,254 from $1,25.
Page 29 - Column Sept. 30, 1994 Amount, line Real estate-mortgage,
corrected to $4,205 from $4,204.
Page 29 - Column December 31, 1994 Amount, line Total, corrected
to $8,326 from $8,328.
FORM 10-Q/A1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1995
- 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 0-17848
HUDSON CHARTERED BANCORP, INC.
(Exact name of registrant as specified in its charter)
__________New York_____________ 14-1668718
(State or other jurisdiction of
(I.R.S. Employer)
incorporation or organization)
Identification No.)
PO Box 310, Route 55, Lagrangeville, NY
(Address of principal executive offices) 12540
(Zip Code)
(914)471-1711
(Registrant`s telephone number, including area code)
________________________________________________________________
(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 the latest practicable
date.
<PAGE>
3,482,128 shares of Common Stock outstanding, par value $.80 per
share, at October 31, 1995.
FORM 10-Q
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES
Merger
Hudson Chartered Bancorp, Inc. was formed effective September 30,
1994 upon the merger of Fishkill National Corporation and
Community Bancorp, Inc. ( merger ). All 1994 comparative amounts
reflect the pooling of interests accounting for the merger. Also
in accordance with this method, merger related costs are expensed
as incurred.
Basis of Presentation
As permitted by the Securities and Exchange Commission, the
accompanying unaudited and condensed consolidated financial
statements and notes have been condensed and, therefore, do not
contain all disclosures required by generally accepted accounting
principles. See the notes to the financial statements for the
year ended December 31, 1994.
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain adjustments
(consisting only of normal recurring accruals) necessary to
present fairly the consolidated financial position as of
September 30, 1995 and the consolidated results of operations for
the three and nine months periods ended September 30, 1995 and
1994 and the consolidated cash flows for the nine months ended
September 30, 1995 and 1994.
The results of operations for the nine months ended September 30,
1995 are not necessarily indicative of the results to be expected
for the full year.
The Company's consolidated revenues are primarily derived from
its commercial banking subsidiary, The First National Bank of the
Hudson Valley (the "Bank"). At September 30, 1995, the Bank had
total assets of $678,745,000 and total stockholder s equity of
$50,362,000, compared, respectively, to $640,815,000 and
$47,108,000 in total assets and total stockholder s equity at
December 31, 1994. Net income of the Bank included in
consolidated equity was $4,917,000 and $3,191,000 for the nine
months ended September 30, 1995 and 1994, respectively.
Material intercompany items and transactions have been eliminated
in consolidation.
Accounting for Impairment of a Loan
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting for Impairment
of a Loan, as amended by SFAS No. 118, Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures.
This statement requires recognition of the impairment of a loan
when it is probable that either principal and/or interest are not
collectible in accordance with the terms of the loan agreement.
Measurement of the impairment is based on the present value of
9<PAGE>
expected cash flows discounted at the loan s effective rate or,
as a practical expedient, at the loan s observable market price
or the fair value of the collateral. Implementation of SFAS 114
did not have a material effect on the financial statements.
Prior to 1995, the allowance for loan losses related to impaired
loans was based on undiscounted cash flows or the fair value of
the collateral for collateral dependent loans. The Company
recognizes interest income on impaired loans primarily on the
cash basis method.
At September 30, 1995, the recorded investment in loans that are
considered to be impaired under SFAS 114 was $4.3 million (all of
which loans were in nonaccrual status). Each impaired loan is
either reduced to the value of its collateral or has a related
allowance for credit loss, in accordance with bank policy, to
reflect the risk of loss to the Bank. The total allowance for
loan losses related to these impaired loans was $860,000 as of
September 30, 1995. The average recorded investment in impaired
loans for the period ended September 30, 1995 was approximately
$4.4 million. For the period ending September 30, 1995, interest
income recognized by the Company on impaired loans was not
material.
Pending Pronouncement
In May 1995, the Financial Accounting Standards Board (FASB)
issued Statement No. 122 Accounting for Mortgage Servicing
Rights (SFAS 122). Such statement allows banks to report
originated mortgage servicing rights as assets on the balance
sheet. Such asset would be reported as the present value of
estimated future net cash flows related to servicing mortgages
for secondary market investors.
The Company has not, at this point, elected early adoption of
SFAS No. 122 and, accordingly, has not recorded an asset related
to originated mortgage servicing rights. The Company has sold
$29 million in loans in 1995 into the secondary market and
retained servicing income rights related to such loans at
approximately .25% per annum. The servicing income related to
such loans sold will be recorded in the statement of income and
expense as earned. Had the Company recorded the value of such
servicing rights as an asset, other income would have increased
in 1995 for the value of such rights. However, future income
related to the amounts recorded would be correspondingly reduced.
SFAS No. 122 must be implemented by January 1, 1996 and can only
be applied on a prospective basis. In addition, the value of
such servicing rights, when recorded, must be re-evaluated for
impairment on a quarterly basis and a valuation reserve must be
established when the then fair market value of such rights
recorded is lower than the recorded amounts.
Recent Developments
In October 1995, FASB discussed transition guidance for its
Special Report Question and Answer Guidance on Implementation of
SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities to be issued in the fourth quarter of 1995.
As part of this guidance, it is likely that companies may be able
to reassess classifications of securities between Available for
10<PAGE>
Sale and Held to Maturity. Reclassifications from Held to
Maturity that result from this one-time reassessment would not
call into question the intent of the enterprise to hold other
debt securities to maturity in the future. The Company intends
to perform the reassessment, if and when the Special Report
permits, presumably prior to December 31, 1995. As a result,
certain securities currently classified as Held to Maturity may
be reclassified as Available for Sale. The Company may also
choose to sell a number of these securities and realize the gain
or loss on such sale. The carrying cost of all Held to Maturity
securities is $85,134,000 and the market value is $86,098,000 as
of September 30, 1995.
11<PAGE>
<TABLE>
Loans
Major classifications of loans (not held for sale) are summarized
below (in thousands):
At 9/30/95 At 12/31/94
<S> <C> <C>
Commercial and $ 64,626 $ 95,412
industrial
Consumer installment 61,255 50,135
Real estate - 14,099 6,417
construction
Real estate - mortgage 274,530 277,593
Other loans 3,126 2,505
Total $417,636 $432,062
</TABLE>
In September 1995, the Company conformed the presentations of the
separate loan portfolios of the predecessors to the Bank. As a
result, $20.7 million of loans previously classified as
commercial and industrial were reclassified as real estate-
mortgage and $1.6 million of loans were similarly reclassified
as real estate-construction . In addition, the Company sold
$29 million of previously originated long-term fixed rate
residential mortgages.
<TABLE>
Deposits
Major classifications of deposits are summarized below (in
thousands):
At 9/30/95 At 12/31/94
<S> <C> <C>
Demand deposits $131,982 $135,181
NOW accounts 56,210 55,698
Money market deposits 68,638 85,989
account
Savings accounts 199,796 175,153
Time deposits under 135,361 107,209
$100,000
Time deposits greater 29,934 20,840
than $100,000
Total $621,921 $580,070
</TABLE>
12<PAGE>
<TABLE>
Securities
Securities consist of the following (in thousands):
At September 30, 1995 At December 31, 1994
Carrying Amortized Fair Carrying Amortized Fair
Amount Cost Value Amount Cost Value
US Treasury:
<S> <C> <C> <C> <C> <C> <C>
Available for Sale $20,871; $20,877 $20,871 $15,079 $15,187 $15,079
Held to Maturity 13,747 13,808 13,927 13,751 13,826 13,358
US Gov't. Agencies:
Available for Sale 38,485 38,278 38,485 27,716 27,942 27,716
Held to Maturity 30,906 31,903 31,815 33,391 34,616 32,468
Obligations of States and
Political Subdivisions:
Available for Sale 7,211 7,131 7,211 1,412 1,470 1,412
Held to Maturity 40,456 40,622 40,331 45,807 46,005 44,941
Other Securities:
Available for Sale 10,614 10,678 10,614 9,630 9,707 9,630
Held to Maturity 25 25 25 25 25 25
13<PAGE>
Regulatory Securities 1,877 1,877 1,877 914 914 914
Total Securities $164,192 $165,199 $165,156 $147,725 $149,692 $145,543
Total Available for Sale $ 77,181 $ 76,964 $ 77,181 $ 53,837 $ 54,306 $ 53,837
Total Held to Maturity 85,134 86,358 86,098 92,974 94,472 90,792
Regulatory Securities 1,877 1,877 1,877 914 914 914
Total Securities $164,192 $165,199 $165,156 $147,725 $149,692 $145,543
</TABLE>
At September 30, 1995 the net unrealized gain on Securities
Available for Sale (net of tax effect of $91,000) included as a
separate component of stockholders equity was $126,000.
As a result of the merger in 1994, certain securities classified
as Available for Sale when acquired were transferred to the Held
to Maturity portfolio. The securities were transferred at their
estimated fair value of $71,468,000 on the dates transferred.
The difference between the amortized cost and fair value on the
transfer date aggregated $(1,637,000) or $(953,000) after tax.
The difference is being amortized over the remaining term of the
securities. The remaining unamortized loss on September 30, 1995
(net of tax effect of $514,000) included in the separate
component of stockholders equity was $710,000.
14<PAGE>
<TABLE>
Earnings (loss) per common share (in thousands, except per share
data)
Primary earnings (loss) per common share is computed as follows:
Three months Nine months
ended ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Weighted average common 3,466 3,392 3,449 3,370
shares outstanding
Net effect of dilutive
stock options at
average market price 49 62 49 50
Total primary shares 3,515 3,454 3,498 3,420
Net Income (loss) $1,946 $(396) $4,851 $2,248
Less preferred stock
dividends declared 104 105 311 313
Net income (loss)
applicable to common stock $1,842 $(501) $4,540 $1,935
Primary earnings (loss)
per common share $0.52 $(0.15) $1.30 $0.57
</TABLE>
<TABLE>
Fully diluted earnings (loss) per common share is computed as
follows:
Three months Nine months
ended ended
September 30, September 30,
1995 1994 1995 1994
Weighted average common
<S> <C> <C> <C> <C>
shares outstanding 3,466 3,392 3,449 3,370
Net effect of dilutive
stock options 49 68 49 68
Assumed conversion of
Series B, preferred stock 401 401 401 401
Total fully diluted
shares 3,916 3,861 3,899 3,839
Net income (loss) $1,946 $(396) $4,851 $2,248
Fully diluted earnings
(loss) per common share $0.50 $(0.10) $1.24 $0.59
15<PAGE>
Fully diluted earnings
(loss) reported $0.50 $(0.15) $1.24 $0.57
</TABLE>
The net dilutive effect of stock options outstanding for primary
earnings per share was based on the Treasury stock method using
average market price. The net dilutive effect of stock options
outstanding for fully diluted earnings per share was based on the
Treasury stock method using the greater of the quarter end or
average market price.
APB Opinion 15 states that when there are antidilutive effects of
common stock equivalents, such
effect should not be reported. Therefore, fully diluted earnings
(loss) per share for three months and nine months ended 1994 are
the same as primary earnings (loss) per share.
16<PAGE>
Stockholders' Equity
The Company has authorized 5,000,000 shares of preferred stock,
$.01 par value, which the Board of Directors is authorized to
divide into series. The Board is also authorized to fix the
rights and preferences of any series so established. The Series
A and Series B described below are a portion of the shares
authorized.
On January 15, 1994, the Company redeemed all the issued and
outstanding shares of its 10% cumulative perpetual preferred
stock, Series A, at its original issue and liquidation price of
$100 per share. This transaction reduced the equity capital of
the Company by $805,000.
The cumulative convertible perpetual preferred stock, Series B,
is convertible at the option of the holder into shares of common
stock at $14.25 per share of common stock, approximately 0.7
shares of common stock for each share of Series B. The
conversion price is subject to adjustment upon the occurrence of
certain events. The Series B is redeemable at $10 per share (the
original issue and liquidation price) at the Company's option
prior to January 1, 1998, if the market price of the Company's
common stock has been at least 140% of the conversion price for
20 consecutive trading days at any time during the period. On or
after January 1, 1998, the Series B is redeemable at the
Company's option at prices declining annually from $10.40 per
share in 1998 to $10.00 per share after 2002. Of the 575,000
authorized shares of Series B preferred, 571,301 shares were
outstanding at September 30, 1995 and December 31, 1994.
Cumulative cash dividends are payable quarterly at the rate of
7.25% per year on the original issue price of $10 per share.
Quarterly dividends of $.18125 per share were declared on Series
B preferred stock in 1995 and 1994 by the Company.
Shares of all the Company's preferred stock rank prior to common
stock as to dividends and liquidation. Except for a limited
right of each series of preferred stock to elect two Directors if
full cumulative dividends have not been paid for six quarterly
dividend periods, and a right to vote as a class on amendments to
the Company's Certificate of Incorporation which could adversely
affect the rights of the preferred shareholder, the preferred
shareholders are not entitled to vote.
Authorized common stock, $.80 par value, is 20,000,000 shares.
Issued and outstanding shares at September 30, 1995 and December
31, 1994, were 3,463,085 and 3,411,929, respectively.
On July 27, 1995, the Company announced that its Board of
Directors authorized repurchases of up to 100,000 shares of
common stock, (including equivalent shares of its convertible
preferred stock) or approximately 2.9% of outstanding shares.
Such shares will be held as treasury stock. The acquired shares
will be used in connection with employee and shareholder stock
plans. If the Company were to repurchase all of the 100,000
shares authorized, the total reduction to stockholders equity
would be approximately $1,575,000 to $1,700,000 based upon
current market share prices. The Company believes that such
purchases will have a modest positive effect on earnings per
17<PAGE>
share. As of September 30, 1995, the Company has repurchased
7,224 shares at a cost of $115,000 under its repurchase program.
18<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
The Company's financial condition on September 30, 1995 reflected
total assets of $684,321,000, an increase of $38,344,000 or 5.9%
over total assets at December 31, 1994. Net loans (not held for
sale) decreased some $14,743,000 or 3.5 % to $408,993,000 at
September 30, 1995. In the second and third quarters, the
Company sold certain long-term fixed rate residential mortgages
of which $18,000,000 were funded at September 30, 1995 and
$7,200,000 were reclassified as loans held for sale pending
funding. The Company sold these loans to reduce its exposure to
future increases in interest rates. Exclusive of the loan sales,
net loans increased $10,457,000. Cash and cash equivalents
increased $27,851,000 or 64.4% to $71,122,000 at September 30,
1995. Additionally, aggregate securities investments were
$164,192,000 at September 30, 1995, an increase of $16,467,000 or
11.1% from the level at December 31, 1994. Other assets
increased by $1,664,000. Of this increase, approximately
$1,172,000 is related to the net transfer, due to foreclosure, of
certain non-accruing loans to other real estate owned .
Of the changes in loans, exclusive of reclassification,
commercial loans outstanding fell $8,186,000 or 11.2%, and real
estate loans decreased $23,763,000 or 8.0%, primarily related to
the sale of fixed rate residential mortgages noted above. Local
loan demand of business remains flat, and competitive pressure
for market share in business lending is intensifying.
Residential construction loans increased $6,100,000 or 76.1%
reflecting the seasonal period of a stronger local market for new
home building. Consumer installment loans increased $11,120,000
or 22.2% as the Bank continued to generate indirect automobile
loans through its network of local automobile dealerships. Due
to the competitive nature of this type of financing, the yields
may be somewhat lower than other consumer loan products.
Indirect automobile financing can carry a higher risk of loss
than direct financing. Such risk is taken into account in
management s evaluation of the adequacy of the Allowance for Loan
Losses. The Company also maintains enhanced credit policies and
procedures on this portfolio.
Total deposits increased $41,851,000 or 7.2% in the first nine
months of 1995 to $621,921,000. Of this amount, total Public
(Municipal) Funds increased $363,000 or 0.8% to $46,096,000, and
total non-public funds increased $41,488,000 or 7.8% to
$575,825,000. The following tables summarize the net changes in
public fund and non-public fund deposits from December 31, 1994
to September 30, 1995 (in thousands):
19<PAGE>
<TABLE>
Public Funds
Balance Balance Net Percent Change
12/31/94 9/30/94 Change over '94
<S> <C> <C> <C> <C>
Demand accounts $ 3,484 $ 7,990 $ 4,506 129.33%
NOW accounts 10,390 13,600 3,210 30.90
Money market accounts 20,551 14,661 (5,890) (28.66)
Savings accounts 1,929 3,718 1,789 92.74
Time deposits 9,379 6,127 (3,252) (34.67)
Total public deposits $45,733 $46,096 $363 0.79%
</TABLE>
The increase in public funds is primarily attributable to demand
and NOW accounts in school district balances. Tax receipts for
school districts occur regularly in the third quarter of each
year. Due to the Company s high level of liquidity, the Company
has not bid aggressively for Money Market or time deposits of
municipalities.
<TABLE>
Non Public
Funds
Balance Balance Net Percent Change
12/31/94 9/30/95 Change over '94
<S> <C> <C> <C> <C>
Demand accounts $131,697 $123,992 ($7,705) (5.85)%
NOW accounts 45,308 42,610 (2,698) (5.95)
Money market accounts 65,438 53,977 (11,46) (17.50)
Savings accounts 173,224 196,078 22,854 13.20
Time deposits 118,670 159,168 40,498 34.13
Total non public deposits $534,337 $575,825 $41,488 7.76%
</TABLE>
20<PAGE>
The increase in nonpublic funds, although somewhat seasonal, is
principally attributable to promotion of the Bank's Merit Plus
savings product (a package of free services with a savings
account interest rate related to the Federal Reserve discount
rate) and special promotion of certain certificates of deposit
products. These promotions achieved their growth targets and,
as a result, were discontinued in May 1995. These increases
offset declines in demand deposits and Money Market deposit
accounts. Management believes the declines in demand deposits
and Money Market accounts principally represents the migration of
these balances to higher interest rate products (time and savings
accounts). While these shifts in deposits have raised the cost
of interest bearing liabilities, the impact on the Company s
overall average cost of funds is mitigated by the significant
level of the Company s demand deposit base. All repurchase
agreements outstanding at December 31, 1994 totaling $6,106,000
were repaid during the first quarter.
Total stockholders equity increased by $4,248,000 or 8.1% to
$56,786,000 at September 30, 1995. This increase is due to net
income of $4,851,000 for the nine months ended September 30, 1995
and additional common stock of $823,000 issued through the
dividend reinvestment plan and the exercise of stock options.
Further, the decline in interest rates since year end produced an
increase in the after tax market value of Available For Sale
securities of $560,000. These increases in stockholders equity
were partially offset by dividends declared to preferred and
common shareholders of $311,000 and $1,592,000, respectively,
and $115,000 in purchases of treasury stock under the Company s
stock repurchase plan.
Results of Operations (Nine months ended September 30, 1995 vs.
1994)
Net income increased by $2,603,000 or 116%. However, exclusive
of the merger related items detailed following, ($3,870,000 or
$2,465,000 after tax), underlying net income increased $138,000
or 2.9%. Primary earnings per share increased $.73 in the first
nine months of 1995 over 1994, and fully diluted earnings per
share increased $.67 to $1.24 in the same periods of 1995 vs.
1994.
<TABLE>
Net income and earnings per common share data is presented in the
following table:
Three months ended Nine months ended
9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C>
Net income (loss)(in thousands) $1,946 $(396) $4,851 $2,248
Per common share:
21<PAGE>
Primary earnings (loss) $ .52 $ (.15) $ 1.30 $ .57
Fully diluted earnings (loss) $ .50 $ (.15) $ 1.24 $ .57
</TABLE>
<TABLE>
The Company s annualized return on assets, return on equity and
return on common equity for the nine months ended September 30,
1995 and 1994, are detailed in the table below:
Three months ended Nine months ended
9/30/95 9/30/94 9/30/95 9/30/94
Annualized returns on:
<S> <C> <C> <C> <C>
Assets 1.13% (.24)% .97% .48%
Stockholders equity 13.25 (3.01) 11.65 5.68
Common equity 13.90 (4.28) 12.16 5.48
</TABLE>
22<PAGE>
In 1994, as a result of the merger, accruals were made for
certain one time costs. In connection with the merger, the
investment portfolios of each predecessor company were
restructured and securities losses were realized. The following
analysis shows the pro forma, comparison for the Company on net
income, per share earnings and relevant returns prior to
accounting for the unusual merger related items incurred in 1994.
Current merger related expenses incurred in 1995 ($250,000) have
not been broken out in the following analysis:
<TABLE>
Three months ended Nine months ended
9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C>
Realized securities losses 1,870 1,870
Merger-related expenses 1,690 2,000
Total merger-related items 3,560 3,870
Tax benefit recognized 1,405 1,405
Net after effect of
merger-related items 2,155 2,465
Reported net income (loss) $1,946 (396) $4,851 2,248
Pro forma net income for
comparative purposes $1,946 $1,759 $4,851 $4,713
</TABLE>
<TABLE>
Three months ended Nine months ended
9/30/95 9/30/94 9/30/95 9/30/94
Pro forma per share information:
<S><C> <S> <C> <C> <C> <C>
Primary Earnings per share $0.52 $0.48 $1.30 $1.29
Fully diluted earnings per share 0.50 0.46 1.24 1.23
Pro forma return information:
23<PAGE>
Annualized return on assets 1.13% 1.10% 0.97% 1.01%
Shareholders equity 13.25 13.38 11.65 11.90
Common shareholders' equity 13.9 14.13 12.16 12.47
</TABLE>
<TABLE>
The table below sets forth the consolidated average balance sheets for the
Company for the periods included. Also set forth is information regarding
weighted average yields on interest-earning assets and weighted average rates
paid on interest-bearing liabilities (on a tax equivalent basis):
(Nine Months Ended September 30,)
1995 1994
Average Yield Average Yield/
Balance Interest Cost Balance Interest Cost
ASSETS:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans(1) $432,046 $29,349 9.06% $383,738 $23,598 8.20%
Taxable Securities 106,601 5,186 6.49 118,159 5,022 5.67
Tax-exempt Securities (2) 42,948 2,302 7.15 45,971 2,361 6.85
24<PAGE>
Federal Funds Sold 32,719 1,415 5.77 28,507 822 3.84
Total Interest-Earning Assets 614,314 38,252 8.30% 576,375 31,803 7.36%
Noninterest Earning Assets:
Cash & Due from Banks 27,812 27,879
Premises & Equipment 17,706 14,661
Other Assets 14,328 9,831
Allowance for Loan Loss (8,523) (7,836)
Total Assets $665,637 $620,910
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-Bearing Liabilities:
Savings Deposits $188,870 6,183 4.36% $163,305 3,631 2.96%
NOW Accounts 53,186 749 1.88 56,441 750 1.77
Money Market Accounts 75,483 1,994 3.52 102,542 2,084 2.71
Certificates over $100,000 25,161 1,048 5.55 18,942 673 4.74
Other Time Deposits 134,234 5,747 5.71 102,701 3,293 4.28
Borrowed Funds 2,172 113 6.94 1,389 57 5.47
Total Interest-Bearing Liabilities 479,106 15,834 4.41% 445,320 10,488 3.14%
Noninterest-Bearing Liabilities:
Demand Deposits 126,659 116,965
Other 4,358 5,814
Total Noninterest-Bearing Liabilities 131,017 3.46% 122,779 2.46%
Stockholders' Equity 55,514 52,811
Total Liabilities and
Stockholders' Equity $665,637 $620,910
Net interest margin 22,418 4.87% 21,315 4.93%
Ratio of Average Interest-Earning
Assets to Average Interest-Bearing
Liabilities 128.22% 129.43%
Less Tax Equivalent Adjustments (783) (803)
25<PAGE>
Net Interest income $21,635 4.70% $20,512 4.74%
<FN>
<F1>
(1) Average Balances Include NonAccrual Loans
<F2>
(2) Yields on Tax-Exempt Securities Based on Federal Tax Rate of 34%
</FN>
</TABLE>
26<PAGE>
<TABLE>
Rate/Volume Analysis
(In Thousands)
Nine Months Ended Sept. 30,
1995 vs. 1994
Increase (Decrease) due to
Volume Rate Net
Interest Income:
<S> <C> <C> <C>
Loans $2,970 $2,781 $5,751
Taxable investment securities (491) 655 164
Tax-exempt investment securities (155) 96 (59)
Federal funds sold 120 473 593
Total interest income 2,444 4,005 6,449
Interest expense:
Savings deposits 568 1,984 2,552
NOW/accounts (43) 42 (1)
Money market accounts (549) 459 (90)
Certificates over $100,000 221 154 375
Other time 1,013 1,441 2,454
Borrowed funds 32 24 56
Total interest expense 1,242 4,104 5,346
Net interest margin 1,202 (99) 1,103
Tax equivalent affect 52 (32) 20
Net interest income $1,254 $(131) $1,123
</TABLE>
Net Interest Income Analysis (See preceding tables)
The Company experienced a net increase in average loans of
$48,308,000 for the twelve months ended September 30, 1995
compared to September 30, 1994. These assets were principally
funded by an increase in average deposits of $42,697,000 for the
nine month period ended 1995 compared to 1994, of which
$33,003,000 were interest-bearing and $9,694,000 were non-
interest-bearing.
Average yields on interest earning assets increased 0.94% to
8.30% in the nine months of 1995 vs. 1994 and the average cost
of interest-bearing liabilities increased 1.27% to 4.41% in the
same period. However, because of the relatively high level of
demand deposits, the average total cost of all liabilities
27<PAGE>
increased by only 1.0% to 3.46%. Net interest margins on a tax
equivalent basis decreased 0.06% to 4.87% for the nine months
ended September 30, 1995 compared to the same period in 1994
(primarily due to the increase in demand deposits). Overall
increases in the Company s cost of interest bearing deposits
over increased yields on interest earning assets reduced net
interest income by $131,000. The increase in average earnings
assets of $44,727,000 contributed $1,254,000 in additional net
interest income in the nine months of 1995 compared to the same
period in 1994.
The net effect of the variances was that net interest income
before provisions for loan losses increased to $21,635,000 for
the nine months ended September 30, 1995 compared to $20,512,000
for the comparable period in 1994, or an increase of $1,123,000
(5.5%).
Provision for loan losses and credit quality
The loan loss provision for both of the nine month periods ended
September 30, 1995 and 1994 was $1,700,000. Total net charge-offs for
the nine months of 1995 were $1,384,000, compared to $958,000 for the
same period in 1994. Total nonperforming assets have increased from
$6,198,000 on September 30, 1994 to $6,749,000 on September 30, 1995.
Nonperforming assets were up from $6,269,000 at
December 31, 1994, principally in residential mortgages and one large
commercial loan partially secured by real estate.
Provisions for loan losses are based on management's assessment of risk
of loss inherent in the loan portfolio and as such reflect both trends
in local economic conditions and the categorization of the credit
quality of individual loans. Such assessment is ongoing, and may not
directly reflect the charge-offs taken in any accounting period,
although the trend in charge-offs is an important element in the
evaluation of the adequacy of the allowance for loan losses. Provisions
have tended to increase in periods when the level of charge-offs might
indicate a deteriorating condition in the loan portfolio. The ratio of
the allowance for loan losses to total nonperforming loans is at 195%
vs. 157% at September 30, 1994 and 163% at December 31, 1994.
Although recent economic statistical data indicates that local economic
conditions may have stabilized, the local economy is not performing as
well as other major regions of the nation. Management, therefore,
continues to closely monitor local economic conditions relative to the
long term impact of IBM s downsizing and the significant vacancy rates
of commercial office and industrial space. Management believes that the
allowance for loan losses is adequate to cover the risk of loss inherent
in the portfolio but no assurance can be given that the local economy
may not be unsettled by future events. Such developments would be
expected to adversely effect the financial performance of the Company.
The following table shows, at the dates indicated, the allocation of the
allowance for loan losses, by category, and the percentage of loans in
each category to total gross loans (dollars in thousands):
28<PAGE>
<TABLE>
Sept. 30, Sept. 30, December 31,
1995 1994 1994 1993 1992
Balance at end of % oftotal % of total % of total % of total % of total
period applicable to: Amount loans Amount loans Amount loans Amount loans Amount loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial &
industrial $2,393 15.47% $1,591 21.8% $2,010 22.10% $2,520 19.10% $2,606 17.30%
Consumer & other 1,443 15.42% 1,358 8.7% 1,363 12.20% 881 9.50% 1,256 11.30%
Real estate -
construction 3.38% 1.00% 1.50% 1.00% 2.70%
Real estate-
mortgage 4,106 65.73% 4,205 68.5% 4,100 64.20% 3,155 70.40% 1,608 68.70%
Unallocate 701 979 853 766 324
Total $8,643 100.00% $8,133 100.00% $8,326 100.00% $7,322 100.00% $5,794 100.00%
</TABLE>
<TABLE>
The table below summarizes the Company's loan loss experience
for the periods indicated:
For the nine months
ended September 30, For the year ended December 31,
1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $8,326 $7,322 $7,322 $5,794 $4,534
Chargeoffs:
Commercial 311 229 350 435 682
Installment 584 182 292 449 856
Real estate 715 738 1,059 1,103 405
Total charge-offs 1,610 1,149 1,701 1,987 1,943
29<PAGE>
Recoveries
Commercial 37 60 63 124 91
Installment 145 111 153 123 211
Real estate 45 20 20 2 1
Total recoveries 227 191 236 249 303
Net charge-offs (1,383) (958) (1,465) (1,738) (1,640)
Provision for Loan Losses 1,700 1,700 2,400 3,266 2,900
Transfers, other * - 69 69
Balance at end of period $8,643 $8,133 $8,326 $7,322 $5,794
Ratio of net charge-offs to
average loan outstanding
during the period (annualized) .43% .33% .37% .49% .44%
Allowance for loan losses as
a percent of period-end loans 2.07% 2.00% 1.93% 2.01% 1.61%
Allowance as a percent of
non-performing loans 195.2% 157.2% 163% 123% 105%
Nonperforming loans and OREO
to total loans and OREO 1.61% 1.52% 1.45% 1.97% 1.74%
<FN>
<F1>
* An adjustment of $69,000 was transferred to the allowance for loan
loan losses as a result of the acquisition of loans of the First
National Bank of Amenia.
</FN>
</TABLE>
<TABLE>
30<PAGE>
The table below summarizes the Company's nonperforming assets
and restructured loans
for the periods indicated (dollars in thousands):
at Sept. 30, at December 31,
1995 1994 1994 1993 1992
Nonaccrual loans:(1)
<S> <C> <C> <C> <C> <C>
Real estate mortgage $3,238 $4,685 $3,866 $4,759 $4,237
Commercial & industrial 671 221 200 331 146
Consumer & other 42 44 39 48 30
Total nonaccrual loans 3,951 4,950 4,105 5,138 4,413
Loans 90 days or more
past due and still accruing:
Real estate mortgage 53 192 620 313 349
Commercial & industrial 60 84 80
Consumer & other 13 31 191 16 20
Total 90 days past due accruing 126 223 895 329 449
Restructured - real estate(2) 350 119 457 625
Total non-performing and
restructured loans 4,427 5,173 5,119 5,924 5,487
Percent of total loans 1.06% 1.27% 1.18% 1.63% 1.51%
Other real estate owned(2) 2,322 1,025 1,150 1,072 831
Total non-performing assets $6,749 $6,198 $6,269 $6,996 $6,318
<FN>
<F1>
(1) Nonaccrual status denotes loans on which, in the opinion of management, the
collection of interest is unlikely, or loans that meet other nonaccrual
criteria as established by regulatory authorities. Payments received on loans
classified as nonaccrual are either applied to the outstanding principal
balance or recorded as interest income, depending upon management's assessment
of the ultimate collectibility of the loan.
31<PAGE>
<F2>
(2) Net of allowance of $250,000 at December 31, 1993.
</FN>
Other real estate owned totals $2,322,000 at September 30, 1995
and consists of properties acquired through foreclosure on deed
in lieu of foreclosure: one parcel of land, one land development
project, seven residences and three non-farm nonresidential
properties. Management believes that the carrying values of
such properties adequately reflect the risk of loss in their
orderly disposal. At September 30, 1995, the Company had
approximately $11,000,000 in loans requiring special attention,
in addition to the nonperforming loans and other nonperforming
assets noted above. Such loans are being regularly monitored to
assess impairment of the borrower s ability to comply with
repayment terms. Virtually all such loans are collateralized by
real estate. In the opinion of management, the Company s
allowance for loan losses adequately provides for the risk of
loss on these loans.
32<PAGE>
Noninterest Income
Noninterest income increased $1,947,000 in the nine months of 1995 to
$4,504,000 compared to the same period of 1994. Exclusive of
securities losses realized in 1994 on repositioning of the
portfolio of $1,870,000, noninterest income increased by $77,000.
The level of service charges and fee income declined $167,000.
Service charge schedules were revised in connection with the merger.
Reductions to customer service charges were implemented immediately
after the merger while increases to certain service charges were
phased in starting in late February 1995. Additionally, many
customers moved into certain no service charge checking accounts.
These products allowed many customers, previously charged, to obtain a
free account. Such products are expected to be curtailed in future
years.
Securities gains during the nine months of 1995 amounted to $10,000
compared to losses of $1,816,000 in the same period of 1994 as
previously noted above.
Gains on sales of loans increased in 1995 to $375,000, principally as
a result of gains recorded of $334,000 from the sale of approximately
$25,000,000 of previously originated mortgages into the secondary
market. These loans were sold to reduce the Company s holdings of
long-term fixed rate assets. 1994 comparable gains were $122,000.
Other noninterest income increased by $35,000 primarily due to a
$100,000 increase in incentives received from the sale of checks
and $104,000 increase in trust earnings which was offset by
decreases in annuity sales income of $150,000 in 1995 compared to
1994.
Other Expenses
Salaries and employee benefits increased $578,000. This increase is
due to staffing increases related to the five new branches opened in
1994 and 1995 in Amenia, Millerton, Town of Newburgh and the Town
of Poughkeepsie and approximately $110,000 in severance costs during
1995.
Occupancy and equipment expense declined by $90,000 as of
September 30, 1995. This decline is due both to the disposal of
buildings occupied by the banks prior to the merger and rental income
of $203,000 on the Company s new office building. This decrease was
partially offset by the costs associated with the new branches and
facilities of approximately $220,000.
FDIC insurance decreased by $334,000 as a result of assessment
reductions of $358,000 dating back to June of 1995. The annualized
effect of this reduction is approximately $1,080,000 at present
deposit levels.
Supplies expense increased by $210,000 to $669,000 for the 1995 vs.
1994 reflecting new forms related to combining the bank s products
and the additional expense related to the new branches which were
not in full operation in 1994.
Telephone expense increased by $139,000 in the nine months ended
September 30, 1995 from $236,000 to $375,000 as a result of
customer use of 800 number services, new branches and the additional
long distance expenses associated with a wider service area. Of this
increase, $74,000 relates to the first quarter of 1995.
Other real estate owned expense was $185,000 for the nine months ended
September 30, 1995 compared to a net recovery of expense of $50,000 in
1985. The net recovery is the result of a $300,000 gain on
disposition of an OREO property in the third quarter of 1994.
Exclusive of this recovery, OREO expense declined by $65,000 as a
result of lower writedowns and carrying costs associated with
properties held in 1995 vs. those properties held in 1994.
Other expenses increased $225,000 to $3,625,000 or 6.6% for the first
nine months of 1995 compared to the same period of 1994. This
increase related primarily to the increased size of the Company,
consulting expenses, and the costs associated with promotions of
deposit products and new branch locations in Millerton, Town of
Newburgh and Town of Poughkeepsie. In May, the Company hired
A. T. Hudson, a consulting firm specializing in management processes.
The total contract is approximately $340,000 of which $220,000 has
been expensed so far in 1995. It is anticipated that
33<PAGE>
such investment will yield annual running savings in staffing costs
well in excess of the contract cost. Implementation began in the
third quarter of 1995 and is expected to be completed in the fourth
quarter of 1995. In addition, the Company has recorded approximately
$200,000 in consulting expenses related to the merger of its data
processing systems. These costs were somewhat offset by savings
achieved in certain areas due to economies related to the merger.
In the first quarter of 1995, the Company established a provision for
further potential merger expenses of $250,000 related to finalizing
the conversion of its data processing systems. In the first nine
months of 1994, $2,000,000 was recorded in connection with expenses
incurred toward the Merger. Accordingly, year to date merger expenses
are $1,750,000 less than the same period in 1994.
Pretax income rose from $3,510,000 to $7,403,000 or $3,893,000. Of
this increase, $3,620,000 relates to the non-reoccurance of merger
related items noted earlier and $273,000 relates to the general
growth of underlying income in the nine months ended September 30,
1995 compared to the same period in 1994.
Income tax increased $1,286,000 due to the increase in pretax income
noted above. Also, approximately $750,000 of the 1994 merger related
expenses were not considered tax deductible. This increased
comparative tax expense by approximately $310,000 in 1994. The
Company s effective tax rate was 34.5% and 36.0% for the nine months
ended September 30, 1995 and 1994, respectively.
Three months ended September 30, 1995 vs. September 30, 1994
Net interest income increased $37,000 or 0.5% for the three months
ended September 30, 1995 compared to 1994, primarily due to the
overall growth in interest earning assets the Company has
experienced over the past year, offset by higher interest expenses.
Provisions for loan losses remained constant reflecting management s
assessment of the amounts necessary to maintain an adequate allowance
for possible loan losses.
Noninterest income was $1,603,000 for the third quarter 1995 compared
to a loss of $452,000 in 1994. Exclusive of the 1994 realized
securities losses on portfolio repositioning, noninterest income
increased $185,000 of which $169,000 related to gains on sales of
loans in 1995 compared to a small loss on loan sales in 1994.
Additionally, quarterly trust earnings increased $55,000 or 47.8%.
These increases were offset by service charge and fees declining
$72,000 to $881,000 or 7.5% and a decrease of $46,000 in annuity fees.
Noninterest expense decreased $1,558,000 to $5,303,000 for the three
months ended September 30, 1995 compared to September 30, 1994.
Exclusive of merger-related expenses of $1,690,000, total noninterest
expense increased $132,000. Of this amount, salaries and benefits
increased by $269,000 over this period due to severances of $60,000
and staff increases associated with new branch facilities opened in
late 1994 and early 1995. Occupancy expense increased by $39,000
due to the costs of the new branch facilities.
FDIC insurance decreased $338,000 as a result of a $358,000 rebate and
reduction of FDIC insurance premiums from the period June 1, 1995 to
September 30, 1995 as a result of premium reductions from 23 basis
points to 4 basis points.
Stationary and supplies increased $72,000 in the third quarter of 1995
compared to the same period of 1994 due to the general growth of the
Company and the continuing costs associated with new forms being
prepared for handling the combined Bank s products.
Other real estate owned expense was $8,000 in the third quarter of
1995 compared to a net credit of $125,000 in 1994. Exclusive of
an expense recovery of $300,000 relating to a disposition of an
OREO property, OREO expense in the third quarter of 1994 was $175,000
primarily due to writedowns of OREO properties. In the third quarter
of 1995, no writedowns occurred on OREO properties and
34<PAGE>
rental income received reduced carrying costs to the level of $8,000
for the three months ended September 30, 1995.
Merger related expenses incurred in the third quarter of 1994 of
$1,690,000 relate to pre-merger expenses. There were no merger
related expenses in the third quarter of 1995.
Other noninterest expenses decreased $78,000 to $1,211,000 despite of
the $120,000 related to the A. T. Hudson contract and $50,000 related
to the computer consulting expenses noted earlier.
Therefore, third quarter 1995 net income was $1,946,000 compared to a
third quarter loss of $396,000 in 1994, or a net increase of
$2,342,000 of which $2,155,000 was due to merger related items
incurred in 1994.
Asset/Liability Management
The Company's ability to plan for changes in interest rates is a
significant profitability factor. The Company's primary objective
in managing interest rate sensitivity is to maintain a broadly
balanced position between interest sensitive assets and liabilities in
order to minimize the impact of significant interest rate
fluctuations. The historical level of demand deposits (approximately
20% of total deposits) helps to mitigate increases in interest rates
and reduces the average cost of all liabilities to a level
significantly below the average cost of interest-bearing liabilities.
</TABLE>
<TABLE>
The following chart outlines the interest rate sensitive assets and liabilities of the Company:
subtotal greater
3 months 4 months within one yr. than
or less to one yr. one yr. to 5 yrs. five yrs. Total
Maturity
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1) $292,394 $123,947 $416,341 $172,817 $30,911 $620,069
Interest-bearing liabilities 181,736 265,229 446,965 42,974 489,939
Interest sensitivity gap $110,658 $(141,282) $(30,624) $129,843 $30,911 $130,130(2)
Percent ofearning assets 17.85% (22.78%) (4.94%) 20.94% 4.99% 21.00%
<FN>
<F1>
(1) Does not include loans in non-accrual status or net unrealized gains/losses recorded on
"available for sale" securities as of September 30, 1995. Fixed rate loans are recorded
within interest-earning assets by contractual maturity, adjusted for amortization.
Fixed rate mortgage backed securities are recorded based upon estimated prepayment rates
experienced during the past twelve months.
(2) Non-interest bearing deposit liabilities were approximately $131,982,000 at September 30,
1995.
</FN>
</TABLE>
35<PAGE>
Interest sensitive assets that reprice in less than three months are
primarily prime rate adjustable loans, federal funds sold and floating
rate securities. Interest sensitive assets that reprice or mature
with maturities in excess of three months are loans and securities.
Assets that reprice greater than five years are primarily residential
mortgages and municipal securities. The repricing of fixed rate
assets has been presented based upon contractual maturity, adjusted
for scheduled amortization, but does not reflect potential
prepayments. Interest sensitive liabilities are primarily money
market rate-sensitive deposits in the three month or less category.
Certificates of deposit are shown by contractual maturity. Savings
and NOW accounts have been allocated for the purposes of this table to
the four months to one year category. Although rates on these
types of accounts have recently changed more frequently than in the
past, such rates still regularly lag changes in money market rates.
The relative increase in rates paid on deposits has been greater
than the increase in yields in the Company s interest earning assets
over the past twelve months. This had a negative effect on net
interest income in the nine months ended September 30, 1995
compared to the same period of 1994. If increases in interest rates
paid for interest bearing liabilities continue to exceed the increase
in yields in the Company s interest earning assets, net interest
margin may be adversely affected.
Capital Resources and Liquidity
<TABLE>
The following summarizes the minimum capital requirements and capital
position at September 30, 1995:
Capital Position Minimum
at Sept. 30, 1995 Capital Requirements
Bank Only Consolidated
Total Capital
<S> <C> <C> <C>
to Risk-Weighted Assets 13.1% 14.4% 8.0%
Tier 1 Capital
to Risk-Weighted Assets 11.9 13.1 4.0
Tier 1 Capital to Average
Assets (Leverage Ratio) 7.4 8.2 4.0 - 5.0(1)
<FN>
<F1>
(1) Regulatory authorities require all but the most highly rated banks and
bank holding companies to maintain a minimum leverage ratio of at least
4.0% - 5.0%.
</FN>
</TABLE>
The Company believes that its cash and cash equivalents of $71,122,000
in addition to its securities available for sale of $77,181,000 at
September 30, 1995 are sufficient to meet both the funding needs of
its borrowers and the liquidity requirements of its depositors. The
Company intends to invest its increases in cash and cash equivalents
over its loan funding requirements in investment securities with
average lives of less than five years. It is anticipated that such
purchases will be classified as Available For Sale securities.
PART II - OTHER INFORMATION
Item 6(a). Exhibits
Exhibit 10.1 Employment agreement of John C. VanWormer dated
July 1, 1995.
Exhibit 27 Financial Data Schedule
Item 6(b). Reports on Form 8-K
None.
36<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed in its behalf by
the undersigned thereunto duly authorized.
Hudson Chartered Bancorp, Inc.
(Registrant)
Date: November 21, 1995 By /s/ Paul A. Maisch
Paul A. Maisch
Duly Authorized Officer and
Principal Financial Officer
37<PAGE>
