<PAGE>
FORM 10-Q
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 JUNE 30, 1996
-------------
/ / 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 12540
- ----------------------------------------------------------------------------
(Address of principal executive offices) (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.
4,291,995 shares of Common Stock outstanding, par value $.80 per share, at
July 31, 1996.
<PAGE>
HUDSON CHARTERED BANCORP, INC. & SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Reference
---------------
<S> <C>
PART I
Item 1 - Financial Statements
Condensed Consolidated Balance
Sheets 1
Condensed Consolidated Statements
of Income & Expense 2
Condensed Consolidated Statements
of Cash Flows 3
Condensed Consolidated Statement
of Changes in Stockholders' Equity 4
Notes to Unaudited Condensed
Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results
of Operations 11
Signatures 26
</TABLE>
<PAGE>
Part 1
Item 1: Financial information
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES Form 10-Q
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 34,170 $ 38,856
Federal funds sold 15,325 28,997
---------- ----------
Total cash and cash equivalents 49,495 67,853
Securities
Available for sale 164,283 167,334
Held to maturity 13,389 14,465
Regulatory securities 2,755 2,107
Loans held for sale 69 273
Loans (see notes)
Gross loans 434,432 422,083
Allowance for loan losses (8,770) (8,770)
---------- ----------
Net loans 425,662 413,313
Premises and equipment, net 16,593 17,062
Accrued Income 5,735 5,618
Other assets 7,620 8,458
---------- ----------
TOTAL ASSETS $ 685,601 $ 696,483
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (see notes)
Non-Interest Bearing $ 132,993 $ 138,656
Interest Bearing 485,419 492,404
---------- ----------
Total deposits 618,412 631,060
Notes payable 1,875 1,896
Other liabilities 3,528 3,598
---------- ----------
TOTAL LIABILITIES 623,815 636,554
STOCKHOLDERS' EQUITY (see notes)
Preferred stock Series B,
7.25%, convertible, cumulative liquidation value 5,713
Common stock 3,435 3,086
Common paid-in capital 29,168 23,378
Retained earnings 30,167 27,454
Net unrealized securities (losses) gains (209) 586
Employee stock ownership plan (150) (171)
Treasury Stock (625) (117)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 61,786 59,929
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 685,601 $ 696,483
EQUITY
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
- 1 -
<PAGE>
<TABLE>
<CAPTION>
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(dollars in thousands, except per share data)
(Unaudited)
Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 9,696 10,066 $ 19,442 19,660
Federal funds sold 267 445 685 799
Taxable securities 2,068 1,642 4,083 3,257
Tax-exempt securities 541 505 1,065 1,028
_______ _______ _______ _______
Total interest income 12,572 12,658 25,275 24,744
Interest expense 4,945 5,483 10,110 10,410
_______ _______ _______ _______
Net interest income 7,627 7,175 15,165 14,334
Provision for loan losses 750 600 1,350 1,100
_______ _______ _______ _______
Net interest income
after provision for loan losses 6,877 6,575 13,815 13,234
_______ _______ _______ _______
Noninterest income:
Service charges and fees 1,071 906 2,081 1,741
Trust earnings 145 176 309 313
Gains on sales of securities, net 19 10 92 10
Gains on sales of loans, net 72 194 128 206
Other income 259 333 501 635
_______ _______ _______ _______
Total noninterest income 1,566 1,619 3,111 2,905
_______ _______ _______ _______
GROSS OPERATING INCOME 8,443 8,194 16,926 16,139
_______ _______ _______ _______
Noninterest expense:
Salaries and employee benefits 2,829 2,900 5,816 5,748
Net occupancy and equipment expense 992 910 2,000 1,833
FDIC insurance 9 390 16 711
Stationary & supplies 157 241 308 453
Telephone 107 107 190 257
Other real estate owned (18) 102 8 177
Merger related expense 250
Other expenses 1,176 1,246 2,303 2,344
_______ _______ _______ _______
Total noninterest expense 5,252 5,896 10,641 11,773
_______ _______ _______ _______
Income before income taxes 3,191 2,298 6,285 4,366
Income taxes 1,087 779 2,168 1,461
_______ _______ _______ _______
Net income $ 2,104 1,519 $ 4,117 2,905
======= ======= ======= =======
Weighted average common shares outstanding:
(in thousands)
Primary 4,386 3,856 4,199 3,838
Fully diluted 4,398 4,297 4,396 4,279
Per common share data:
Primary earnings $ 0.48 0.36 $ 0.96 0.70
Fully diluted earnings 0.48 0.35 0.94 0.68
Cash dividends declared 0.16 0.14 0.32 0.27
Book value at end of period $ 14.39 12.69
</TABLE>
See notes to condensed consolidated financial statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited) Six
Months Ended
6/30/96 6/30/95
OPERATING ACTIVITIES -------------------------
<S> <C> <C>
Net income $ 4,117 $ 2,905
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,350 1,100
Depreciation and amortization 922 962
Amortization of security premiums and
accretion of discounts 161 198
Amortization of core deposit intangible 66 80
Realized gains on sales of securities and loans (220) (216)
Deferred income tax benefits (112) (72)
Increase in other assets (43) (695)
Decrease in other liabilities (94) (2,564)
________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,147 1,698
________ ________
INVESTING ACTIVITIES
Proceeds from sales of securities
available for sale 8,157 510
Proceeds from maturities of securities available for sale 30,396 14,768
Proceeds from maturities of securities held to maturity 2,495 1,284
Purchases of securities available for sale (36,304) (23,966)
Purchases of securities held to maturity (2,129) (1,986)
Sales of loans 5,654 18,961
Transfer of loans to available for sale (11,360)
Net increase in loans (19,021) (7,534)
Purchases of premises and equipment (453) (918)
Proceeds from sale of OREO 810 150
________ ________
NET CASH USED BY INVESTING ACTIVITIES (10,395) (10,091)
________ ________
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts (12,648) 28,342
Repayments on borrowings (6,107)
Proceeds from issuance of stock 549 674
Redemption of Preferred Series B stock (123)
Repurchase of common stock (508)
Cash dividends- preferred (193) (207)
Cash dividends- common (1,187) (1,029)
________ ________
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (14,110) 21,673
________ ________
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,358) 13,280
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 67,853 43,271
________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,495 $ 56,551
======== ========
CASH PAID FOR:
Interest $ 10,308 $ 10,329
Taxes 2,168 1,620
NON-CASH ITEMS
Transfer from loans to OREO $ 1,040 $ 1,171
Sale of OREO funded by loans 74
Net change in unrealized gains (losses)
on securities available for sale (795) 544
Change in deferred taxes on net unrealized gains
(losses) on securities available for sale 559 (227)
Conversion of Preferred Series B stock into common shares 5,590
</TABLE>
See notes to condensed consolidated financial statements.
- 3 -
<PAGE>
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER EQUITY
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Net
Additional Unrealized
Preferred Common Paid-in Retained Gains(losses) Treasury
Stock Stock Capital Earnings on Securities Stock ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 $5,713 $3,086 $23,378 $27,454 $586 ($117) ($171) $59,929
Net Income 4,117 4,117
Cash dividends declared on preferred
stock (89) (89)
Cash dividends declared on common
stock ($0.32 per share) (1,315) (1,315)
Dividend reinvestment and stock
purchase plan - 22,480 shares 18 388 406
Conversion of Series B preferred
stock - 559,055 shares (5,590) 319 5,271 0
(converted into 431,590 common
shares) 0
Redemption of Series B preferred
stock (123) (123)
Options exercised - 14,555 shares 12 131 143
Purchase of treasury stock (508) (508)
Payments on ESOP borrowings 21 21
Net unrealized loss on securities (795) (795)
---------- -------- -------- -------- ------- ------ ------- --------
Balance June 30, 1996 $0 $3,435 $29,168 $30,167 ($209) ($625) ($150) $61,786
========= ========= ======== ======== ======= ======= ====== ========
</TABLE>
-4-
<PAGE>
FORM 10-Q
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 1995.)
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the consolidated financial
position as of June 30, 1996 and the consolidated results of operations for the
three and six month periods ended June 30, 1996 and 1995 and the consolidated
cash flows for the six month periods ended June 30, 1996 and 1995.
The results of operations for the six months ended June 30, 1996 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 June 30, 1996 the Bank had total assets of $679.2 million and total
stockholder's equity of $54.0 million, compared, respectively, to $690.6 million
and $53.0 million in total assets and total stockholder's equity at December 31,
1995. Net income of the Bank included in consolidated net income was $4.2
million and $3.0 million for the six month periods ended June 30, 1996 and 1995,
respectively.
This Form 10-Q contains certain forward looking statements pertaining to net
interest income and non-interest income. These projections are subject to
various factors that could cause actual results to differ materially from the
estimates made in the forward looking statements. Such factors include interest
rates, customer preferences and local and general economic conditions.
Material intercompany items and transactions have been eliminated in
consolidation.
Accounting for Stock-Based Compensation
- ---------------------------------------
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". SFAS No. 123 establishes a fair
value based method of accounting for stock-based compensation plans and
encourages, but does not require, entities to adopt that method in place of the
provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees", for all arrangements under which employees
receive shares of stock or other equity instruments of the employer or the
employer incurs liabilities to employees in amounts based on the price of the
stock. SFAS No. 123 also establishes fair value as the measurement basis for
transactions in which an entity acquires goods or services from nonemployees in
exchange for equity instruments.
5
<PAGE>
An entity may continue to apply APBO No. 25 in accounting for stock-based
employee compensation arrangements. However, entities doing so will be required
to disclose, in their fiscal year-end accounts, pro forma net income and
earnings per share determined as if the fair value based method established by
SFAS No. 123 had been applied in measuring compensation cost.
The accounting provisions of SFAS No. 123 are effective for transactions entered
into after December 15, 1995. Following adoption of SFAS No. 123, the Company
will continue measuring compensation cost for employee stock compensation plans
in accordance with the provisions of APBO No. 25.
Accounting for Mortgage Servicing Rights
- ----------------------------------------
The Company adopted SFAS No. 122 "Accounting for Mortgage Servicing Rights"
effective January 1, 1996. As a result of implementation, $33,000 was recorded
as an asset for originated mortgage servicing rights which accordingly increased
gains on sales of loans. This asset represents the present value of estimated
future net cash flows related to normal servicing rights on $5,654,000 in
originated mortgages sold into the secondary market in the first half of 1996.
The Company regards .25% of sold loans as normal servicing rights. It is
expected that most future originated long-term mortgages will be sold, many of
which will be servicing retained, and thus the asset related to originated
mortgage servicing rights will increase. As a result, gains on sales of loans
may increase, and the annual income related to mortgage servicing may
accordingly decline. The Company will reevaluate the asset on a quarterly basis
for impairment and would establish a reserve if the fair value of such servicing
rights is less than the recorded amounts. All previously originated and sold
loans will continue to accrue income at the related servicing income of .25% as
SFAS No. 122 can only be adopted prospectively.
6
<PAGE>
Loans
- -----
Major classification of loans (not held for sale) are summarized below (in
thousands):
<TABLE>
<CAPTION>
At June 30, 1996 At December 31, 1995
---------------- --------------------
<S> <C> <C>
Commercial and industrial $ 70,364 $ 69,889
Consumer installment 70,880 63,554
Real estate - construction 9,519 13,347
Real estate - mortgage 279,225 271,068
Other loans 4,444 4,225
-------- --------
Total $434,432 $422,083
======== ========
Deposits
- --------
Major classifications of deposits are summarized below (in thousands):
At June 30, 1996 At December 31, 1995
---------------- --------------------
Demand deposits $132,993 $138,656
NOW accounts 48,617 50,106
Money market deposit account 63,921 66,526
Savings accounts 217,770 204,693
Time deposits under $100,000 125,723 132,895
Time deposits over $100,000 29,388 38,184
-------- --------
Total $618,412 $631,060
======== ========
</TABLE>
7
<PAGE>
Securities
- ----------
Securities consist of the following (in thousands):
<TABLE>
<CAPTION>
At June 30, 1996 At December 31, 1995
------------------------------------- ------------------------------------
Carrying Amortized Fair Carrying Amortized Fair
Amount Cost Value Amount Cost Value
------------------------------------- ------------------------------------
US Treasury:
<S> <C> <C> <C> <C> <C> <C>
Available for Sale $ 69,304 $ 69,501 $ 69,304 $ 76,984 $ 76,504 $ 76,984
US Gov't Agencies:
Available for Sale 30,515 30,272 30,515 36,555 36,247 36,555
Obligations of States
and Political
Subdivisions:
Available for Sale 34,384 34,568 34,384 33,244 32,958 33,244
Held to Maturity 13,364 13,364 13,786 14,440 14,440 14,897
Other Securities:
Available for Sale 30,080 30,295 30,080 20,551 20,636 20,551
Held to Maturity 25 25 25 25 25 25
Regulatory Securities 2,755 2,755 2,755 2,107 2,107 2,107
--------------------------------------------------------------------------
Total Securities $180,427 $180,781 $180,849 $183,906 $182,917 $184,363
==========================================================================
Total Available for Sale $164,283 $164,636 $164,283 $167,334 $166,345 $167,334
Total Held to Maturity 13,389 13,389 13,811 14,465 14,465 14,922
Regulatory Securities 2,755 2,755 2,755 2,107 2,107 2,107
--------------------------------------------------------------------------
Total Securities $180,427 $180,780 $180,849 $183,906 $182,917 $184,363
==========================================================================
</TABLE>
At June 30, 1996 the net unrealized loss on Securities Available for Sale (net
of tax effect of $144,000) that was included as a separate component of
stockholders' equity was $(209,000).
8
<PAGE>
Earnings per common share (1995 Data adjusted for 10% stock dividend)
- -------------------------
Primary earnings per common share is computed as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
Three months Six months ended
ended June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares 4,291 3,805 4,104 3,784
outstanding
Net effect of dilutive stock options at
average market price 95 51 95 54
------ ------ ------ ------
Total "primary" shares 4,386 3,856 4,199 3,838
====== ====== ====== ======
Net Income $2,104 $1,519 $4,117 $2,905
Less preferred stock dividends declared 0 103 89 207
------ ------ ------ ------
Net income applicable to common stock $2,104 $1,416 $4,028 $2,698
====== ====== ====== ======
"Primary" earnings per common share $0.48 $0.36 $0.96 $0.70
====== ====== ====== ======
</TABLE>
Fully diluted earnings per common share is computed as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Three months ended Six months
June 30, ended June 30,
------------------ ----------------
1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 4,291 3,805 4,104 3,784
Net effect of dilutive stock options (at 107 51 107 54
period end market price)
Assumed conversion of Series B, preferred 0 441 185 441
stock -------- ------ ------ ------
Total "fully diluted" shares 4,398 4,297 4,396 4,279
======== ====== ====== ======
Net income applicable to common stock $2,104 $1,519 4,117 2,905
======== ====== ====== ======
"Fully diluted" earnings per common share $0.48 $0.35 $0.94 $0.68
======== ====== ====== ======
</TABLE>
9
<PAGE>
Stockholders' Equity
- --------------------
On March 12, 1996, the Company called all the outstanding (571,301) shares of
the Series B preferred stock for redemption, effective April 15, 1996. Of the
571,301 shares outstanding, 559,055 shares of Series B preferred were converted
into 431,500 shares of common stock of the Company and 12,246 shares were
redeemed, for a total reduction of stockholders' equity related to redemption of
$122,500, which was paid from the Company's liquid assets. Of the 575,000
authorized shares of Series B Preferred, 571,301 shares were outstanding at
December 31, 1995.
Authorized common stock, $.80 par value, is 20,000,000 shares. Issued and
outstanding shares at June 30, 1996 and December 31, 1995, were 4,293,093 and
3,499,825, respectively. The Company paid a 10% stock dividend in January 1996
which increased common shares outstanding by approximately 350,000 shares.
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
- -------------------
The Company's financial condition on June 30, 1996 reflected total assets of
$685.6 million or a decrease of $10.9 million or 1.6% from total assets at
December 31, 1995. Net loans increased some $12.3 million or 3.0% to $425.7
million at June 30, 1996. Cash and cash equivalents decreased $18.4 million or
27.0% to $49.5 million at June 30, 1996. Other assets decreased by
$.7 million. Aggregated securities investments were $180.4 million at
June 30, 1996, a decrease of $1.4 million or .8% from the level at
December 31, 1995.
Of the increase in loans, commercial loans increased $.5 million or .7%.
Consumer installment loans increased $7.3 million or 11.5% as the Bank continues
to generate automobile loans through a network of local automobile dealerships
in order to build its consumer loan volumes. Due to the competitive nature of
this type of financing, the yields obtained on this type of financing may be
somewhat lower than other consumer loan products. Indirect automobile
financing can carry a higher risk of loss than direct financing. In order to
manage the risk the Company maintains enhanced credit policies and procedures on
this portfolio. Real estate mortgage loans (construction and permanent
financing) increased by $4.3 million to $288.7 million at June 30, 1996,
reflecting increases in commercial mortgage lending activities.
Total deposits decreased $12.6 million or 2.0% in the first six months of 1996
to $618.4 million. Of this amount, total Public (Municipal) Funds decreased
$1.1 million or 2.6% to $40.9 million and total non-public funds decreased $11.6
million or 2.0% to $577.3 million. The following tables summarize the net
changes in public (municipal) fund and non-public fund deposits from December
31, 1995 to June 30, 1996 (in thousands):
11
<PAGE>
<TABLE>
<CAPTION>
Public Funds
Percent
Change
Balance Balance Net over
12/31/95 6/30/96 Change Y/E'95
----------------------------------------
<S> <C> <C> <C> <C>
Demand accounts $ 2,947 $ 2,682 $ (265) (9.0)%
NOW accounts 8,237 8,848 611 7.4
Money market accounts 12,223 13,965 1,742 14.3
Savings accounts 3,094 3,328 234 7.6
Time deposits 15,465 12,050 (3,415) (22.1)
----------------------------------------
Total public deposits $ 41,966 $ 40,873 $(1,093) (2.6%)
========================================
</TABLE>
The decrease in public funds is primarily attributable to school district
balances. Tax receipts for school districts occur regularly in the third
quarter of each year.
<TABLE>
<CAPTION>
Non Public Funds
Percent
Change
Balance Balance Net over
12/31/95 6/30/96 Change Y/E'95
-----------------------------------------
<S> <C> <C> <C> <C>
Demand accounts $ 135,709 $130,311 $ (5,398) (4.0)%
NOW accounts 41,869 39,769 (2,100) (5.0)
Money market accounts 54,303 49,956 (4,347) (8.0)
Savings accounts 201,599 214,442 12,843 6.4
Time deposits 155,614 143,061 (12,553) (8.1)
-----------------------------------------
Total non public deposits $ 589,094 $577,539 $(11,555) (2.0)%
=========================================
</TABLE>
The increase in nonpublic savings funds of $12.8 million is principally
attributable to the growth in savings due to the Bank's Merit savings product
(a package of free services with a savings account interest rate tied to the
Federal Reserve discount rate). This increase partially offsets declines in
other accounts. Demand deposit declines principally represent a period-end
effect, as average balances in demand deposits during the second quarter were
approximately $134.0 million. The decrease from the average balances reflects
June 15, 1996 corporate tax payments. Further, Management believes the decline
in Money Market and NOW accounts represent a continued migration of these
balances to higher interest products (time and savings accounts). The decline
in time deposit accounts of $12.5 million represents maturing certificates of
deposit which had interest rates higher than renewal rates. Many of these funds
were also reinvested in the Merit savings products which pay a relatively higher
rate of interest without the term restrictions associated with time deposits.
These shifts in deposits will raise the cost of interest bearing liabilities.
However, the impact of such deposit migration on the Company's overall average
cost of funds is mitigated by the high level of the Company's demand deposit
base.
12
<PAGE>
In this connection, it should also be noted that the Company previously offered
a premium rate "15 month" certificate of deposit. Such deposits totaled
approximately $17.0 million and carried interest rates between 6.75% and 7.25%.
These deposits matured during the second quarter of 1996. Although the Company
promoted alternative products to these customers, due to the significantly lower
general market rates approximately $6.0 million of these deposits left the bank.
The remainder of these deposits were retained at substantially lower interest
costs. This had a positive effect on interest expense by reducing the overall
cost of the bank's liabilities. Thus, comparing the Company's net interest
margin between the second quarter of 1995 and the second quarter of 1996, the
net interest margin increased by .03%.
Total stockholders' equity showed an increase of $1,857,000 or 3.1%. This
increase is due to net income of $4,117,000, for the six months ended
June 30, 1996 and additional common stock of $549,000 issued through the
dividend reinvestment plan and the exercise of stock options. These increases
in stockholders' equity were partially offset by dividends declared of
$1,404,000, purchases of treasury stock of $508,000, and a decline of $795,000
(after tax) in unrealized securities gains due to movement in market rates. On
March 12, 1996, the Company called all the outstanding (571,301) shares of the
Series B preferred stock for redemption, effective April 15, 1996. Of the
571,301 shares outstanding, 559,055 shares of Series B preferred were converted
into 431,500 shares of common stock of the Company and 12,246 shares were
redeemed, for a total reduction of stockholders' equity related to redemption of
$122,500, which was paid from the Company's liquid assets. At current dividend
rates on its common stock, the redemption/conversion of the preferred stock will
reduce the overall dividends paid by approximately $138,000 per annum from the
levels previously paid on the preferred stock.
13
<PAGE>
Results of Operations
- ---------------------
Interest income as reported, for the six months ended June 30, 1996 compared to
the same period in 1995 increased $531,000 while interest expense decreased by
$300,000. This resulted in an increase in net interest income of $831,000.
Provision for loan losses increased by $250,000. Total operating expenses
decreased by $1,132,000. Net income increased by $1,212,000 or 41.7%. Fully
diluted earnings per share increased $.13 to $.48 in the second quarter of 1996
vs. 1995.
Net income and earnings per common share data is presented in the following
table:
<TABLE>
<CAPTION>
Three months ended Six months ended
6/30/96 6/30/95 6/30/96 6/30/95
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income (in thousands) $2,104 $1,519 $4,117 $2,905
Per common share:
Primary earnings $ 0.48 $ 0.36 $ 0.96 $ 0.70
Fully diluted earnings $ 0.48 $ 0.35 $ 0.94 $ 0.68
</TABLE>
The Company's return on assets, return on equity and return on common equity for
the six months ended June 30, 1996 and 1995, are detailed in the table below:
<TABLE>
<CAPTION>
Three months ended Six months ended
6/30/96 6/30/95 6/30/96 6/30/95
------- -------- ------- -------
<S> <C> <C> <C> <C>
Return on assets 1.22% .92% 1.20% .89%
Return on total
stockholders' equity 13.70 11.13 13.52 10.78
Return on common equity 13.70 11.59 13.80 11.19
</TABLE>
Interest income
- ---------------
On a tax equivalent basis, gross interest income increased by $533,000 or 2.1%
for the six months ended June 30, 1996 compared to the same period in 1995.
Total interest expense decreased by $300,000 or 2.9% for the six months period
ended June 30, 1996 as compared to the six months ended June 30, 1995. At
June 30, 1996, the Company experienced a net increase in average earning assets
compared to June 30, 1995 of $33.6 million, but a net decrease in average loans
of $4.0 million as a result of the sales of $25.0 million in long-term fixed
rate mortgages in the second and third quarter of 1995. Consequently, fed
funds sold and securities increased by approximately $37.7 million. These
assets generally carry lower yields than loans. This asset growth was
principally funded by an increase in average deposits of $26.4 million for the
six month period ended 1996 compared to 1995, of which $16.5 million were
interest bearing (generally higher yielding products such as Merit savings and
time deposits) and $9.9 million were non-interest-bearing. The remaining
growth was funded by an increase in shareholders' equity.
14
<PAGE>
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.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
---- ----
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans $428,617 $19,442 9.07% $432,637 $19,660 9.09%
Taxable Securities 136,560 4,083 5.98% 98,783 3,257 6.59%
Tax-exempt Securities (2) 45,224 1,597 7.06% 43,563 1,558 7.15%
Fed Funds Sold 25,688 685 5.33% 27,469 799 5.82%
-------- ------- -------- -------
Total Interest Earning Assets 636,089 25,807 8.11% 602,452 25,274 8.39%
Cash & Due from Banks 31,719 29,606
Premises & Equipment 16,810 17,845
Other Assets 12,874 14,049
Allowance for Loan Losses (8,487) (8,487)
-------- --------
Total Assets $689,005 $655,465
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-Bearing Liabilities:
Savings $209,700 $ 4,117 3.93% $184,154 $ 3,995 4.43%
NOW accounts 49,179 299 1.22% 53,907 565 2.10%
Money Market Accounts 69,029 1,159 3.36% 79,375 1,429 3.60%
Certificates over $100,000 22,851 619 5.42% 26,164 745 5.69%
Other Time Deposits 139,425 3,861 5.54% 130,127 3,594 5.52%
Borrowed Funds 1,886 55 5.83% 2,329 82 7.04%
-------- ------- -------- -------
Total Interest-Bearing Liabilities 492,070 10,110 4.11% 476,056 10,410 4.37%
Demand Deposits 131,790 121,853
Other 4,257 3,638
-------- --------
Total Noninterest-
Bearing Liabilities 136,047 3.22% 125,491 3.46%
Stockholder Equity 60,888 53,918
-------- --------
Total Liabilities and
Stockholders' Equity $689,005 $655,465
======== ========
Net interest Margin 15,697 4.94% 14,864 4.93%
Ratio of Average Interest-Earning
Assets to Average Interest-Bearing
Liabilities 129.27% 126.55%
Less Tax Equivalent Adjustments (532) (530)
------- -------
Net Interest Income $15,165 4.77% $14,334 4.76%
======= ======= ====
</TABLE>
(1) Average Balances include non-accrual loans.
(2) Yields on tax-exempt securities based on a Federal tax rate of 34%.
15
<PAGE>
The following table reflects the effects of changes in volumes and interest
rates for each of the same categories on a tax equivalent basis:
<TABLE>
<CAPTION>
Rate/Volume Analysis (in thousands)
Six Months Ended June 30,
1996 vs. 1995
------------------------------------------
Increase (Decrease) due to
------------------------------------------
Volume Rate Net
--------- ------ -------
<S> <C> <C> <C>
Interest Income:
Loans $ (183) $ (35) $(218)
Taxable investment securities 1,245 (419) 826
Tax-exempt investment
securities (59) 20 (39)
Federal funds sold (52) (62) (114)
--------- -------- -------
Total interest income 1,069 (536) 533
Interest expense:
Savings deposits 554 (432) 122
NOW/accounts (50) (216) (266)
Money market accounts (186) (84) (270)
Certificates over $100,000 (94) (32) (126)
Other time 257 10 267
Borrowed funds (16) (11) (27)
--------- -------- -------
Total interest expense 465 (765) (300)
--------- -------- -------
Net interest margin 604 229 833
--------- -------- -------
Less tax equivalent affect (4) 2 (2)
--------- -------- -------
Net interest income $ 600 $ 231 $ 831
========= ======== =======
</TABLE>
Average yields on interest earning assets decreased .28% to 8.11% in the second
quarter 1996 vs. 1995. The average cost of interest-bearing liabilities
decreased .26% to 4.11% in the same period. Net interest margins on a tax
equivalent basis increased .01% to 4.94% for the six months ended June 30, 1996
compared to the same period in 1995. Variances due to changes in rates produced
a $231,000 increase in net interest income in the second quarter of 1996
compared to the same period in 1995. Additionally, the increase in average
earning assets of $33.6 million contributed $600,000 in additional net interest
income over the same periods.
The net effect was that net interest income before provisions for loan losses
increased to $15.2 million for the six months ended June 30, 1996 compared to
$14.3 million for the comparable period in 1995, or an increase of $831,000
(5.8%).
16
<PAGE>
Provision for loan losses and credit quality
- --------------------------------------------
The loan loss provision for the six month period ended June 30, 1996 was
$1,350,000 compared to $1,100,000 for the comparable period in 1995, a 22.7%
increase. Total net charge-offs for the six months of 1996 were $1,350,000,
compared to $927,000 for the same period in 1995. The ratio of net chargeoffs
to loans, on an annualized basis, increased to .62% in the first six months of
1996 vs. .43% over the full year of 1995. The increase in charge-offs over the
first six months of 1995 is spread almost equally between commercial loans and
residential real estate related loans. (There was no increase in commercial
real estate loan charge-offs.) Most of the increase is associated with
increasing difficulties being experienced by borrowers unable to cope with the
extended economic impact of the complete closure of the IBM Kingston facility in
1995. While there was significant turnover in the Company's OREO portfolio,
OREO balances outstanding remained unchanged from year-end 1995, and non-
performing loans declined by some $450,000, from $6.5 million to $6.1 million,
attributable to $650,000 decrease in nonperforming commercial and industrial
loans. The Company's ratio of loan loss allowance to non-performing loans stood
at 182% at June 30, 1996 compared to 166% at year-end 1995, and the allowance
represented 2% of loans vs. 2.1% at the end of 1995. The period-end ratio of
non-performing assets to total assets declined somewhat to .89% at June 30, 1996
vs. .93% at December 31, 1995, due primarily to the slight decline in non-
performing assets during this period.
These nonperforming assets represent 96 loans or properties of which 22 have
balances in excess of $100,000, and no loan has a balance greater than $300,000.
Of the nonperforming assets total, 45.5% is secured by residential property,
34.9% by commercial property, and 19.6% by other assets or unsecured.
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 the individual loans
it has made. 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, and accordingly, provisions have tended to increase in periods when the
level of charge-offs might indicate a deteriorating condition in the loan
portfolio. Provisioning policy during the recent years has resulted in a ratio
of allowance for loan losses to total loans of approximately 2.0%. The ratio of
the allowance for loan losses to total nonperforming loans does not reflect
collateral values, although 80% of all of the Bank's nonperforming assets are
collateralized by real estate.
Recent statistical data indicates that economic conditions may have stabilized,
except for Ulster County, which relatively, was the county most severely
impacted by the IBM cutbacks. Ulster County has lost approximately 4,800 jobs
since June 1992 (just prior to the IBM cutbacks). Of the previously announced
4,000 jobs planned to move to the IBM Kingston facility, approximately 3,000
private sector jobs have now been agreed by the State, although many of these
jobs will initially be seasonal. The move of the remaining jobs (state
employees) has been put on hold pending further
17
<PAGE>
analysis by State officials. Despite some clear signs of recovery in certain
sectors, taken as a whole, the local region continues to perform less favorably
in comparison to many other regions in the United States. Management, therefore,
continues to closely monitor local economic conditions relative to the 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 current apparent stabilization of the Company's overall
market area will not be unsettled by future events. Any such developments would
be expected to adversely effect the financial performance of the Company.
The table below summarizes the Company's loan loss experience for the periods
indicated:
<TABLE>
<CAPTION>
For the six months For the year
ended June 30, ended December 31,
1996 1995 1995 1994 1993
--------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of $ 8,770 $8,326 $ 8,326 $ 7,322 $ 5,794
period
Chargeoffs:
Commercial & industrial 434 210 411 350 435
Consumer installment &
other 347 353 593 292 449
Real Estate Mortgage 716 470 1,164 1,059 1,103
--------------------- ----------------------------
Total charge-offs 1,497 1,033 2,168 1,701 1,987
Recoveries:
Commercial 33 13 75 63 124
Installment 83 67 193 153 123
Real estate 31 26 44 20 2
--------------------- ----------------------------
Total recoveries 147 106 312 236 249
--------------------- ----------------------------
Net charge-offs (1,350) (927) (1,856) (1,465) (1,738)
Provision for Loan Losses 1,350 1,100 2,300 2,400 3,266
Transfers, other * 69
--------------------- ----------------------------
Balance at end of period $8,770 $8,499 $8,770 $8,326 $7,322
===================== ============================
Ratio of net charge-offs
to average loans
outstanding during the .62% .43% .43% .37% .49%
period (annualized)
Allowance for loan losses
as a percent of
period-end loans 2.02% 1.97% 2.08% 1.93% 2.01%
Allowance as a percent of
non-performing loans 182% 202% 166% 163% 123%
Nonperforming loans and
OREO to total loans
and OREO 1.40% 1.42% 1.53% 1.45% 1.97%
* An adjustment of $69,000 was transferred to the allowance for loan losses
as a result of the acquisition of loans of the First National Bank of Amenia.
</TABLE>
18
<PAGE>
The table below summarizes the Company's nonperforming assets and restructured
loans for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
at June 30, at December 31,
1996 1995 1995 1994 1993
---------------- -------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans: (1)
Real estate mortgage $3,605 $3,662 $3,246 $3,866 $4,759
Commercial & Industrial 693 192 1,013 200 331
Consumer & other 95 201 148 39 48
----------------- ------------------------
Total nonaccrual loans 4,393 4,055 4,407 4,105 5,138
Loans 90 days or more
past due and still
accruing:
Real estate mortgage 42 61 28 620 313
Commercial & industrial 143 48 476 84
Consumer & other 14 10 18 191 16
----------------- ------------------------
Total 90 days past due 199 119 522 895 329
accruing
Restructured - real 234 351 349 119 457
estate
----------------- ------------------------
Total non-performing
and restructured loans 4,826 4,525 5,278 5,119 5,924
Percent of total loans 1.11% 1.05% 1.23% 1.18% 1.63%
Other real estate 1,273 1,949 1,196 1,150 1,072
owned(2) ----------------- -------------------------
Total non-performing $6,099 $6,474 $6,474 $6,269 $6,996
assets
================= ========================
Nonperforming assets as
a percent of total
assets .89% .97% .93% .97% 1.17%
================= ========================
</TABLE>
(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
collectibility of the loan.
(2) Net of allowance of $250,000 in 1993.
19
<PAGE>
Other real estate owned totals $1,273,000 at June 30, 1996 and includes twelve
properties acquired through foreclosure: three parcels of land, seven
residences, and two non-farm nonresidential properties. Of this amount, there
are contracts currently in place for sales totaling $351,000. Management
believes that the carrying values of such properties adequately reflect the risk
of loss in their orderly disposal. At June 30, 1996, the Company had
approximately $13.0 million in loans requiring special attention (substandard),
in addition to the nonperforming loans and other nonperforming assets noted
above. Such loans are being monitored so that if present concerns about the
borrowers ability to comply with repayment terms becomes evident, management
will be able to quickly assess impairment. Most all such loans are
collateralized by real estate. Further deterioration in such borrowers'
financial position may result in classifying them as nonperforming assets. In
the opinion of management, the risk of loss on these loans is adequately
provided for in the Company's allowance for loan losses.
The following table summarizes impaired loans for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Impaired loans with allowance
established ($789 and $1,239,
respectively) $3,802 $3,450
Impaired loans with a writedown
($960 and $740, respectively) 825 1,071
------ ------
Total $4,627 $4,521
====== ======
Average amount of impaired loans
for the period $4,852 $4,287
====== ======
</TABLE>
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):
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1996 1995 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
Balance at end % of % of % of % of % of
of period Amount total Amount total Amount total Amount total Amount total
applicable to: loans loans loans loans loans
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial &
industrial $2,255 16.2% $2,455 14.56% $2,355 16.6% $2,010 22.10% $2,520 19.10%
Consumer &
other 1,532 17.30 1,301 13.89% 1,400 16.1% 1,363 12.20% 881 9.50%
Real estate -
construction 2.20 2.56% 3.1% 1.50% 1.00%
Real estate - 4,216 64.30 4,187 68.99% 4,247 64.2% 4,100 64.20% 3,155 70.40%
mortgage
Unallocated 767 556 768 853 766
-----------------------------------------------------------------------------------------
Total $8,770 100.00% $8,499 100.00% $8,770 100.00% $8,326 100.00% $7,332 100.00%
=========================================================================================
</TABLE>
20
<PAGE>
Noninterest Income
- ------------------
Noninterest income increased $206,000 in the first half of 1996 to $3,111,000
compared to the same period of 1995. Of this amount, the level of service
charges and fee income increased $340,000 due to implementation of a new service
charge structure effective February 1996. An additional $82,000 related to
sales of securities. These increases were partially offset by a decrease of
$28,000 in annuity and mutual funds. While gains on loan sales decreased
$78,000; $174,000 is due to a one-time gain on sale of fixed rate residential
mortgage loans in June 1995. Therefore, underlying gains on sales of loans into
the secondary mortgage market actually increased by $96,000.
Other Expenses
- --------------
Salaries and employee benefits increased $68,000. This increase is due entirely
to the impact of the recent increase of the Company's share price, on the value
of certain stock appreciation rights previously granted to officers.
($139,000). Therefore, underlying salary and benefit expense decreased by
$71,000.
Occupancy and equipment expense increased by $167,000 to $2,000,000 at
June 30, 1996. This increase is due to harsh weather experienced in the first
quarter of 1996 compared to the mild weather in the first quarter of 1995, and
higher level of equipment expense in 1996 vs. 1995.
Supplies expense decreased by $145,000 to $308,000 for the first half of 1996
vs. 1995. Telephone expense decreased in the first half by $67,000 to $190,000.
These expenses decreased due to both initiatives undertaken to reduce overhead
expenses.
Other real estate owned expense decreased $167,000 to $8,000 for the six months
ended June 30, 1996 as a result of reduced carrying costs associated with the
lower levels of other real estate owned in 1996 and gains recognized on disposal
totaling $63,000.
FDIC insurance expense decreased $695,000 to $16,000 as a result of the Bank
Insurance Fund reaching the statutory limits of 1.25% of insured deposits. The
Bank is currently billed at the statutory minimum of $2,000 per annum. The Bank
has approximately $13.0 million in deposits insured by the Savings Association
Insurance Fund of the FDIC ("OKAR" deposits), for which it is required to pay
$.23 per thousand dollars of deposits.
Merger expenses decreased by $250,000 to $0. The Company established a one time
provision for finalizing the conversion of its data processing systems in the
first quarter of 1995.
Other expenses decreased $41,000 to $2,303,000 for the second half of 1996
compared to the same period of 1995. This decrease relates primarily to lower
miscellaneous write-offs from 1995 levels.
Pretax income, therefore, rose by $1,919,000 (44%) from $4,366,000 to $6,285,000
for the six months ended June 30, 1995 and 1996, respectively.
21
<PAGE>
Income tax expense rose $707,000 as a result of the increase in pretax income
noted above. The Company's effective tax rate was 34.5% and 33.5% for the six
months ended June 30, 1996 and 1995, respectively as more of the Company's
increase in pretax income was taxable at the statutory tax rates.
Three months ended June 30, 1996 vs. June 30, 1995
- --------------------------------------------------
Net interest income increased $452,000 or 6.3% for the three months ended June
30, 1996 compared to 1995, primarily due to reductions in interest expense of
$538,000.
Provisions for loan losses increased $150,000 or 25.0% to $750,000 due to
management's assessment of the amounts necessary to maintain an adequate
allowance for possible loan losses.
Other income decreased $53,000 to $1,566,000 for the three months ended
June 30, 1996, primarily as a result of the one-time gains recorded on sales of
long term fixed rate residential mortgages, of $174,000 for the three months
ended June 30, 1995. This was offset by service charges increases of $165,000
in the three months ended June 30, 1996 compared to 1995. Further, other income
decreased $74,000 due to decreases in annuity sales and commissions on sales of
check orders.
Total noninterest expense decreased $644,000 to $5,252,000 for the three months
ended June 30, 1996 compared to June 30, 1995.
Salaries and benefits decreased by $71,000 in this period due to non-recurring
severances of $50,000 in 1995. Occupancy expense increased by $82,000 as
equipment expenses exceeded the prior year.
Other real estate owned expense decreased $120,000 to ($18,000) in the three
months ended June 30, 1995, primarily due to gains on disposal of properties in
the second quarter of 1996.
FDIC insurance premiums decreased $381,000 in the second quarter of 1996 as a
result of reduction of the FDIC assessments.
Other noninterest expense decreased $274,000 of which $100,000 relates to the
1995 A.T. Hudson contract and $150,000 relates to 1995 computer consulting
expenses in connection with the integration of the predecessor banks.
Pretax income increased $893,000 or 38.9% for the three months ended June 30,
1996 compared to the same period of 1995, and income taxes increased $308,000 or
39.5% as more pretax income was subject to statutory rates. Income after taxes
increased $585,000 to $2,164,000 or 38.5% for the three months ended June 30,
1996.
22
<PAGE>
Asset/Liability Management
- --------------------------
Management believes 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. Further, 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 only interest-bearing liabilities.
The following chart (in thousands) provides a quantification of the Company's
interest rate sensitivity gap as of June 30, 1996 based upon the known repricing
dates of certain assets and liabilities and the assumed repricing dates of
others. As shown in the chart below, at June 30, 1996, assuming no management
action, the Company's near-term interest rate risk is to a declining rate
environment, that is, net interest revenue would be expected to be adversely
affected by a decline in interest rates below the rates embedded in the current
yield curve. Over the next three months of 1996, approximately 10.4% of the
Company's interest rate sensitivity is related to changes in short term interest
rates, particularly the prime rate. Interest rate risk exposure in the one year
time frame is to a rising rate scenario, principally due to a high level of
fixed-rate assets relative to liabilities that would reprice in that time frame.
Through the Company's asset/liability management programs, this overall
sensitivity to rising rates within one year has been reduced from 15.2% of
earning assets at March 31, 1996 to 9.5% of earning assets at June 30, 1996.
This chart displays only a static view of the Company's interest rate
sensitivity gap and does not capture the dynamics of balance sheet, rate and
spread movements nor management's actions that may be taken to manage this
position.
23
<PAGE>
<TABLE>
<CAPTION>
Greater
Maturity Repricing Total One yr. than
Date (1)(2) 3 months 4 months within to 5 five
or less to one yr. one yr. yrs. yrs. Total
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities $ 50,467 $ 33,131 $ 83,598 $ 80,087 $17,096 $180,781
Fed Funds 15,325 15,325 15,325
Commercial loans (3) 78,778 3,704 82,482 11,474 356 94,312
Consumer loans (3) 30,051 17,666 47,717 58,670 1,789 108,176
Mortgage loans (3) 72,127 78,222 150,349 58,822 11,109 220,220
-------- ---------- --------- --------- ------- --------
Total interest
earning assets (1) 246,748 132,723 379,471 209,053 30,350 618,874
-------- ---------- --------- --------- ------- --------
Savings (4) 67,590 150,180 217,770 217,770
NOW (5) 48,617 48,617 48,617
MMDA (5) 63,921 63,921 63,921
Time (5) 51,097 50,986 108,083 47,028 155,111
-------- ---------- --------- --------- --------
Other interest-bearing
liabilities 1,875 1,875
Total interest-bearing
liabilities 182,608 255,783 438,391 48,903 487,294
-------- ---------- --------- --------- --------
Interest Sensitivity
gap (6) $ 64,140 $(123,060) $(58,920) $160,150 $30,350 $131,580
------------------------------------------------------------------
Gap as a percent of
earnings assets 10.4% (19.9)% (9.5)% 25.9% 4.9% 21.3%
====================================================================
</TABLE>
(1) Interest rate sensitivity gaps are defined as the fixed rate positions
(assets less liabilities) for a given time period. The gaps measure the
time weighted dollar equivalent volume of positions fixed for a particular
period. The gap positions reflect a repricing date at which date funds are
assumed to "mature" and reprice to a current market rate for the asset or
liability. The table does not include loans in nonaccrual status or net
unrealized losses recorded on "available-for-sale" securities as of June
30, 1996.
(2) Variable rate balances are reported based on their repricing formulas.
Fixed rate balances are reported based on their scheduled contractual
maturity dates, except for certain investment securities and loans secured
by 1-4 family residential properties that are based on anticipated cash
flows.
(3) Prime-priced loans and investments are considered as 1 to 3 month assets.
(4) Savings accounts: one half of the level of Merit savings accounts, which
reprice against changes in the Federal Reserve Discount rate, are
classified as three months or less maturities. Managements' analysis of
changes in levels indicate that changes in this rate are approximately half
as often as changes in other market rates. The balance of these accounts
and other savings accounts are classified as four months to one year
maturities, reflecting the lagging period that historically exists in rates
paid on passbook and savings accounts.
(5) Other deposits: Time deposits are classified by contractual maturity or
repricing frequency. NOW accounts are classified as four months to one
year maturities. The balance of deposits are considered less than three
month maturities, including all money market deposit accounts. The
interest rate sensitivity assumptions presented for these deposits are
based on historical and current experiences regarding balance retention and
interest rate repricing behavior.
(6) Non-interest bearing deposit liabilities were approximately $133 million at
June 30, 1996.
24
<PAGE>
Capital Resources and Liquidity
- -------------------------------
The following summarizes the minimum capital requirements and capital position
at June 30, 1996:
<TABLE>
<CAPTION>
Capital Position Minimum
at June 30, 1996 Capital Requirements
---------------- --------------------
Bank Only Consolidated
---------- ------------
<S> <C> <C> <C>
Total Capital
to Risk-Weighted Assets 13.15% 14.71% 10%
Tier 1 Capital
to Risk-Weighted Assets 11.90 13.45 6
Tier 1 Capital to Average
Assets (Leverage Ratio) 7.76 8.81 5(1)
</TABLE>
(1) Regulatory authorities require all but the most highly rated banks and bank
holding companies to have a leverage ratio of at least between 4.0% -5.0%.
The Company believes that its cash and cash equivalents of $49.5 million in
addition to its securities available for sale of $164.3 million at June 30, 1996
are sufficient to meet both the funding needs of its borrowers and the liquidity
requirements of its depositors.
25
<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: August 8, 1996 /s/ Paul A. Maisch
------------------
Paul A. Maisch
Duly Authorized Officer and
Principal Financial Officer
26
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 49,495
<INT-BEARING-DEPOSITS> 485,419
<FED-FUNDS-SOLD> 15,325
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 164,283
<INVESTMENTS-CARRYING> 16,144
<INVESTMENTS-MARKET> 16,566
<LOANS> 434,432
<ALLOWANCE> 8,770
<TOTAL-ASSETS> 685,601
<DEPOSITS> 618,412
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,528
<LONG-TERM> 1,875
0
0
<COMMON> 61,786
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 685,601
<INTEREST-LOAN> 19,442
<INTEREST-INVEST> 5,148
<INTEREST-OTHER> 685
<INTEREST-TOTAL> 25,275
<INTEREST-DEPOSIT> 10,055
<INTEREST-EXPENSE> 55
<INTEREST-INCOME-NET> 15,165
<LOAN-LOSSES> 1,350
<SECURITIES-GAINS> 92
<EXPENSE-OTHER> 10,641
<INCOME-PRETAX> 6,285
<INCOME-PRE-EXTRAORDINARY> 4,117
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,117
<EPS-PRIMARY> .96
<EPS-DILUTED> .94
<YIELD-ACTUAL> 8.11
<LOANS-NON> 4,393
<LOANS-PAST> 199
<LOANS-TROUBLED> 234
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,770
<CHARGE-OFFS> 1,497
<RECOVERIES> 147
<ALLOWANCE-CLOSE> 8,770
<ALLOWANCE-DOMESTIC> 8,003
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 767
</TABLE>
