<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, 1997
[_] 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 1-13213
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.
4,687,326 shares of Common Stock outstanding, par value $.80 per share, at
July 31, 1997.
<PAGE>
HUDSON CHARTERED BANCORP, INC. & SUBSIDIARIES
INDEX
Page Reference
--------------
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
PART II
Item 5 - Other Information 24
Signatures 26
<PAGE>
Part 1
Item 1: Financial information
<TABLE>
<CAPTION>
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES Form 10-Q
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(Unaudited) June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 34,381 $ 35,059
Federal funds sold 23,250 11,350
-------- --------
Total cash and cash equivalents 57,631 46,409
Securities
Available for sale 166,949 162,915
Held to maturity 18,535 13,568
Regulatory securities 2,755 2,755
Loans held for sale 219 168
Loans( see notes)
Gross loans 463,030 451,751
Allowance for loan losses (9,428) (9,302)
-------- --------
Net loans 453,602 442,449
Premises and equipment, net 15,974 16,249
Accrued income 5,441 5,191
Other assets 7,941 7,171
-------- --------
TOTAL ASSETS $729,047 $696,875
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (see notes)
Non-Interest bearing $153,901 $142,256
Interest bearing 503,613 483,570
-------- --------
Total deposits 657,514 625,826
Notes payable 1,832 1,854
Other liabilities 3,913 4,030
-------- --------
TOTAL LIABILITIES 663,259 631,710
STOCKHOLDERS' EQUITY (see notes)
Common stock 3,854 3,854
Common paid-in capital 40,863 40,863
Retained earnings 24,249 21,830
Net unrealized securities gains 284 296
Employee stock ownership plan (107) (129)
Treasury stock (3,355) (1,549)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 65,788 65,165
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' $729,047 $696,875
EQUITY ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
6/30/97 6/30/96 6/30/97 6/30/96
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 10,203 $ 9,696 20,154 $ 19,442
Federal funds sold 369 267 549 685
Taxable securities 1,804 2,068 3,622 4,083
Tax-exempt securities 768 541 1,511 1,065
---------- ---------- --------- ----------
Total interest income 13,144 12,572 25,836 25,275
Interest expense 5,237 4,945 10,202 10,110
---------- ---------- --------- ----------
Net interest income 7,907 7,627 15,634 15,165
Provision for loan loss 600 750 1,300 1,350
---------- ---------- --------- ----------
Net interest income
after provision for loan losses 7,307 6,877 14,334 13,815
---------- ---------- --------- ----------
Noninterest income:
Service charges and fees 1,015 1,071 2,035 2,081
Trust earnings 182 145 345 309
Gains on sales of securities, net 25 19 34 92
Gains on sales of loans, net 55 72 79 128
Other income 267 259 628 501
---------- ---------- --------- ----------
Total noninterest income 1,544 1,566 3,121 3,111
---------- ---------- --------- ----------
GROSS OPERATING INCOME 8,851 8,443 17,455 16,926
---------- ---------- --------- ----------
Noninterest expense:
Salaries and employee benefits 3,093 2,829 6,113 5,816
Net occupancy and equipment expense 986 992 2,055 2,000
Stationary & supplies 109 155 222 308
Telephone 123 107 253 190
Other real estate owned 21 (18) 57 8
Other expenses 1,133 1,187 2,181 2,319
---------- ---------- --------- ----------
Total noninterest expense 5,465 5,252 10,881 10,641
---------- ---------- --------- ----------
Income before income taxes 3,386 3,191 6,574 6,285
Income taxes 1,121 1,087 2,170 2,168
---------- ---------- --------- ----------
Net income $ 2,265 $ 2,104 4,404 $ 4,117
========== ========== ========= ==========
Weighted average common shares outstanding:
Primary 4,842,000 4,825,000 4,861,000 4,619,000
Fully diluted 4,847,000 4,838,000 4,867,000 4,836,000
PER COMMON SHARE DATA:
Primary earnings $0.47 $0.43 0.91 $0.87
Fully diluted earnings 0.47 0.43 0.90 0.85
Cash dividends declared 0.18 0.15 0.36 0.29
Book value
at period end 14.01 $13.08
$14.01 $13.08
</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
6/30/97 6/30/96
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,404 $ 4,117
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,300 1,350
Depreciation and amortization 967 922
Amortization of security premiums and
accretion of discounts 118 161
Amortization of core deposit intangible 58 66
Realized gains on sales of securities and loans (113) (220)
Deferred income tax benefits (112) (112)
(Increase) in other assets (1,270) (43)
(Decrease) in other liabilities (186) (94)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,166 6,147
-------- --------
INVESTING ACTIVITIES
Proceeds from sales of securities
available for sale 33,924 8,157
Proceeds from maturities of securities available for sale 30,396
Proceeds from maturities of securities held to maturity 12,882 2,495
Purchases of securities available for sale (51,169) (36,304)
Purchases of securities held to maturity (4,742) (2,129)
Sales of loans 3,117 5,654
Net increase in loans (15,542) (19,021)
Purchases of premises and equipment (692) (453)
Proceeds from sale of OREO 312 810
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (21,910) (10,395)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 31,688 (12,648)
Proceeds from issuance of stock 910 549
Redemption of Preferred Series B stock (123)
Repurchase of common stock (3,005) (508)
Cash dividends- preferred (193)
Cash dividends- common (1,627) (1,187)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 27,966 (14,110)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,222 (18,358)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 46,409 67,853
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57,631 $ 49,495
======== ========
CASH PAID FOR:
Interest $ 10,259 $ 10,308
Taxes 1,902 2,168
NON-CASH ITEMS
Transfer from loans to OREO $ 964 $ 1,040
Sale of OREO funded by loans 74
Net change in unrealized gains (losses) recorded
on securities available for sale (20) (795)
Change in deferred taxes on net unrealized (gains)
losses recorded on securities available for sale 8 559
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 STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid-in Retained Gains Treasury
Stock Capital Earnings on Securities Stock ESOP Total
------ ---------- -------- ------------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 $3,854 $40,863 $21,830 $ 296 ($1,549) ($129) $65,165
Net income 4,404 4,404
Cash dividends declared on
common stock ($0.36 per share) (1,696) (1,696)
Dividend reinvestment and stock
purchase plan - 16,059 shares 421 421
Options exercised - 36,541 shares 489 489
Net loss on issuance of
treasury stock - 52,600 shares (289) 289
Purchase of treasury stock - 105,148 shares (3,005) (3,005)
Payments on ESOP borrowings 22 22
Net change in unrealized gain
on securities, after tax (12) (12)
------ ------- ------- ------- ------- ----- -------
Balance June 30, 1997 $3,854 $40,863 $24,249 $ 284 ($3,355) ($107) $65,788
====== ======= ======= ======= ======= ===== =======
</TABLE>
4
<PAGE>
FORM 10-Q
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
- ---------------------
The consolidated financial statements and related notes have been prepared
in accordance with Regulation S-X under the Securities and Exchange Act of
1934, as amended, and consequently the accompanying unaudited and condensed
consolidated financial statements and notes do not contain all disclosures
required by generally accepted accounting principles. These interim financial
statements should be read in conjunction with the audited consolidated
financial statements and note disclosure in the Annual Report on Form 10-K for
the year ended December 31, 1996.
In the opinion of the management, 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, 1997 and its consolidated Company's results
of operations for the three and six month periods ended June 30, 1997 and 1996
and the consolidated cash flows for the six month then ended, and changes in
consolidated stockholders' equity for the six months ended
June 30, 1997.
In preparing such financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated statements of condition and the
revenues and expenses for the periods reported. Actual results could differ
significantly from those estimates.
Estimates that are particularly susceptible to significant change relate to
the determination of the allowance for loan losses and the valuation of other
real estate acquired in connection with foreclosures or in satisfaction of loan
receivables. In connection with the determination of the allowance for loan
losses and other real estate owned, management obtains independent appraisals
for significant properties, when appropriate, according to Bank policy or
regulation.
The results of operations for the three and six months ended June 30, 1997
are not necessarily indicative of the results to be expected for the full year.
Material intercompany items and transactions have been eliminated in
consolidation.
Forward-Looking Statements
- --------------------------
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for the remainder of 1997 and, in certain instances,
subsequent periods. The Company cautions that these forward-looking statements
are subject to numerous assumptions, risks and uncertainties, and that
statements for subsequent periods are subject to greater uncertainty because of
the increased likelihood of changes in underlying factors and assumptions.
Actual results could differ materially from forward-looking statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements; pricing
pressures on loan and deposit products; actions of competitors; changes in
economic conditions; the extent and timing of actions of the Federal Reserve
5
<PAGE>
Board; customer deposit disintermediation; changes in customers' acceptance of
the Company's products and services; other normal business risks such as credit
losses, litigation, etc.; and the extent and timing of legislative and
regulatory actions and reform.
The Company's forward-looking statements speak only as of the date on which
such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changing or
unanticipated events of circumstances.
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT IMPLEMENTED
Earnings Per Share
- ------------------
On March 3, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS" No. 128), Earnings per
Share. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
is not permitted. Restatement of all prior-period earnings per share ("EPS")
data presented is required upon adoption of SFAS No. 128.
SFAS No. 128 establishes standards for computing and presenting "Basic" and
"Diluted" EPS. SFAS No. 128 states that "Basic EPS" excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period; "Diluted
EPS" reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that would then share in the
earnings of the entity. "Basic EPS", replaces the presentation of "Primary
EPS", while, "Diluted EPS" is computed similarly to "Fully Diluted EPS"
pursuant to APB Opinion No. 15 (APB 15).
On a pro forma basis, the effect of this statement will be to report
earnings per share as follows:
Earnings per share as reported (per APB 15):
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------- ------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary earnings
per share $0.91 $0.87 $0.47 $0.44
Fully diluted earnings
per share 0.90 0.85 0.47 0.43
</TABLE>
Pro forma earnings per share (per SFAS No. 128):
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------- ------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings
per share $0.93 $0.91 $0.48 $0.45
Diluted earnings
per share 0.90 0.85 0.47 0.43
</TABLE>
6
<PAGE>
Reporting Comprehensive Income and Disclosures About Segments of an
- -------------------------------------------------------------------
Enterprise and Related Information
- ----------------------------------
In June 1997, the Financial Accounting Standards Board issued two new
accounting standards, Statement of Financial Standards No. 130 "Reporting
Comprehensive Income" ("SFAS No. 130") and Statement of Financial Accounting
Standards No. 131 "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131").
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. This statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as are the financial statements. Comprehensive income is defined as
"the change in equity (net assets) of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources.
It includes all changes in equity during a period, except those resulting from
investments by owners and distributions to owners."
SFAS No. 131 establishes standards for the way public business enterprises
report information about operating segments and annual financial statements and
requires that those enterprises report selected information about operating
segments and interim financial reports issued to shareholders. It also
establishes standards for related disclosure about products and services,
geographic areas, and major customers. The statement requires that a public
business enterprise report financial and description information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and assess performance. The statement requires that public
business enterprises report a measure of segment profit or loss, certain
specific revenue/expense items and segment assets. It also requires that
information be reported about revenues derived from the enterprises' products
or services, or about the countries in which the enterprises earn revenues and
holds assets, and about major customers, regardless of whether that information
is used in making operating decisions. This statement is effective for
financial statements for periods beginning after December 15, 1997.
Both of these statements require disclosures that the Company must make in
its financial statements or notes thereto. Implementation of these statements
will not have any significant effect on the results of operation or financial
condition, as currently reported by the Company. Additional information will
be provided, however, which will provide the user of these financial statements
with a better understanding of the operations of the Company.
Transfers and Servicing of Financial Assets
- -------------------------------------------
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," specifies accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities and for distinguishing whether a transfer of financial assets in
exchange for cash or other consideration should be accounted for as a sale or
as a pledge of collateral in a secured borrowing. SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, except for certain provisions
7
<PAGE>
(relating to the accounting for secured borrowings and collateral and the
accounting for transfers and servicing of repurchase agreements, dollar rolls,
securities lending and similar transactions) which have been deferred until
January 1, 1998 in accordance with SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125." The adoption of these
effective standards did not have a material impact on the Company's
consolidated financial statements. Adoption of the standards deferred by SFAS
No. 127 also are not expected to have a material impact on the Company's
consolidated financial statements.
Loans
- -----
Major classifications of loans (excluding loans held for sale) are
summarized below (in thousands):
<TABLE>
<CAPTION>
At June 30, 1997 At December 31, 1996
---------------- --------------------
<S> <C> <C>
Commercial and industrial $78,299 $71,887
Consumer installment 85,760 80,998
Real estate - construction 13,366 12,227
Real estate - mortgage (Commercial) 147,702 143,199
Real estate - mortgage
(Residential & Home Equity) 131,911 137,226
Other loans 5,992 6,214
-------- --------
Total $463,030 $451,751
======== ========
</TABLE>
Deposits
Major classifications of deposits are summarized below (in thousands):
<TABLE>
<CAPTION>
At June 30, 1997 At December 31, 1996
---------------- --------------------
<S> <C> <C>
Demand deposits $153,901 $142,256
NOW accounts 48,832 47,304
Money market deposit account 70,554 63,871
Savings accounts 213,600 210,130
Time deposits under $100,000 133,744 121,762
Time deposits over $100,000 36,883 40,503
-------- --------
Total $657,514 $625,826
======== ========
</TABLE>
8
<PAGE>
Securities
Securities consist of the following (in thousands):
<TABLE>
<CAPTION>
At June 30, 1997 At December 31, 1996
----------------------------- -----------------------------
Carrying Amortized Fair Carrying Amortized Fair
Amount Cost Value Amount Cost Value
-------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
US Treasury:
Available for Sale $ 44,416 $ 44,460 $ 44,416 $ 54,780 $ 54,716 $ 54,780
US Gov't Agencies:
Available for Sale 35,445 35,328 35,445 29,032 28,858 29,032
Obligations of States and
Political Subdivisions:
Available for Sale 63,484 63,165 63,484 54,574 54,247 54,574
Held to Maturity 18,460 18,460 18,863 13,543 13,543 13,879
Other Securities:
Available for Sale 23,604 23,515 23,604 24,529 24,594 24,529
Held to Maturity 75 75 75 25 25 25
Regulatory Securities 2,755 2,755 2,755 2,755 2,755 2,755
-------- --------- -------- -------- --------- --------
Total Securities $188,239 $187,758 $188,642 $179,238 $178,738 $179,574
======== ========= ======== ======== ========= ========
Total Available for Sale $166,949 $166,468 $166,949 $162,915 $162,415 $162,915
Total Held to Maturity 18,535 18,535 18,938 13,568 13,568 13,904
Regulatory Securities 2,755 2,755 2,755 2,755 2,755 2,755
-------- --------- -------- -------- --------- --------
Total Securities $188,239 $187,758 $188,642 $179,238 $178,738 $179,574
======== ========= ======== ======== ========= ========
</TABLE>
At June 30, 1997 the net unrealized gain on Securities Available for Sale
(net of tax effect of $197,000) that was included as a separate component of
stockholders' equity was $284,000.
9
<PAGE>
Earnings per common share (1996 Data adjusted for 10% stock dividend
- -------------------------
declared December 1996.)
Primary earnings per common share is computed as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, 1997 June 30, 1997
---------------- ------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 4,714 4,514 4,693 4,720
Net effect of dilutive stock options
(at average market price) 147 105 149 105
------ ------ ------ ------
Total "primary" shares 4,861 4,619 4,842 4,825
====== ====== ====== ======
Net income $4,404 $4,117 $2,265 $2,104
Less preferred stock dividends
declared 0 (89) 0 0
------ ------ ------ ------
Net income applicable to common stock $4,404 $4,028 $2,265 $2,104
====== ====== ====== ======
"Primary" earnings per common share $ 0.91 $ 0.87 $ 0.47 $ 0.44
====== ====== ====== ======
</TABLE>
Fully diluted earnings per common share is computed as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, 1997 June 30, 1997
---------------- ------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 4,714 4,514 4,693 4,720
Net effect of dilutive stock options
(at the greater of average or period
end market price) 153 117 154 118
Assumed conversion of Series B,
preferred stock 0 205 0 0
------ ------ ------ ------
Total "fully diluted" shares 4,867 4,836 4,847 4,838
====== ====== ====== ======
Net income applicable to common stock $4,404 $4,117 $2,265 $2,104
====== ====== ====== ======
"Fully diluted" earnings per
common share $ 0.90 $ 0.85 $ 0.47 $ 0.43
====== ====== ====== ======
</TABLE>
Stockholders' Equity
- --------------------
Authorized common stock, $.80 par value, is 20,000,000 shares. Issued and
outstanding shares (net of treasury shares) at June 30, 1997 and December 31,
1996, were 4,696,778 and 4,308,029, respectively. The Company paid a 10% stock
dividend in January 1997, which increased common shares outstanding by 430,802
shares. (All 1996 share data has been accordingly restated.)
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, 1997 reflected total assets of
$729.0 million, an increase of $32.2 million or 4.6% over total assets at
December 31, 1996. Net loans increased some $11.2 million or 2.5% to $453.6
million at June 30, 1997. Cash and cash equivalents increased from $46.4
million at December 31, 1996 to $57.6 million at June 30, 1997. Other assets
increased by $.7 million. Aggregate securities investments were $188.2 million
at June 30, 1997, an increase of $9.0 million or 5.0% from the level at
December 31, 1996.
During the first half of 1997, the Bank wrote new loan originations of $74.9
million. However, normal amortization and prepayments (which average
approximately $10.0 million per month) and sales of loans into the secondary
market were approximately $63.6 million, resulting in the $11.3 million net
increase in loans outstanding at June 30, 1997 compared to December 31, 1996.
The increases arose in the categories of commercial loans ($6.4 million),
consumer, principally "indirect", installment loans ($4.8 million) and real
estate construction ($1.1 million), which increases were offset partially by
modest declines in real estate mortgage of $.8 million and other loans of $.2
million.
Period end total deposits increased $31.7 million or 5.1% in the first six
months of 1997 to $657.5 million. Of this amount, total Public (Municipal)
Funds increased $5.8 million or 12.0% to $54.5 million and total non-public
funds increased $25.9 million or 4.5% to $603 million, which principally
reflects the effects of the Bank's second quarter "No Penalty CD" promotion,
the second quarter seasonality in the demand deposit category, and the
contribution of the Bank's new Orange County, NY branches, in Monroe and Goshen
(which recorded $7 million in new non-municipal deposits since opening early
this year.
The following tables summarize the net changes in public (municipal) fund
and non-public fund deposits from December 31, 1996 to June 30, 1997 (in
thousands):
11
<PAGE>
Public Funds
<TABLE>
<CAPTION>
Percent
Change
Balance Balance Net over
12/31/96 6/30/97 Change Y/E '96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Demand accounts $2,239 $3,372 $1,133 50.6%
NOW accounts 10,296 10,814 518 5.0
Money market accounts 11,136 17,357 6,221 55.9
Savings accounts 3,046 3,302 256 8.4
Time deposits 21,929 19,630 (2,299) (10.5)
-------- -------- -------- --------
Total public deposits $48,646 $54,475 $5,829 12.0%
======== ======== ======== ========
</TABLE>
Public funds balance are expected to increase late in the third quarter
due both to the receipt of state aid payments and to school district tax
assessments levied in September.
Non Public Funds
<TABLE>
<CAPTION>
Percent
Change
Balance Balance Net over
12/31/96 6/30/97 Change Y/E '96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Demand accounts $140,017 $150,529 $ 10,512 7.5%
NOW accounts 37,008 38,018 1,010 2.7
Money market accounts 52,735 53,197 462 .9
Savings accounts 207,084 210,298 3,214 1.6
Time deposits 140,336 150,997 10,661 7.6
-------- -------- -------- --------
Total non public deposits $577,180 $603,039 $25,859 4.5%
======== ======== ======== ========
</TABLE>
Total Stockholders' Equity increased $623,000, or approximately 1%. Net
retentions of $2.7 million were partially offset by a net treasury stock
purchases of $1.8 million. While the unrealized gains (net of tax) on
available for sale securities remained virtually unchanged at June 30, 1997 vs.
December 31, 1996, during the second quarter of 1997 securities market interest
rates declined to levels closer to those at the beginning of the year, thereby
eliminating an unrealized loss as of March 31, 1997 of $448,000, after tax.
12
<PAGE>
Results of Operations
- ---------------------
Interest income as reported, for the six months ended June 30, 1997,
compared to the same period in 1996, increased $561,000 while interest expense
increased by $92,000. This resulted in an increase in net interest income of
$469,000. Provision for loan losses decreased by $50,000. Total non-interest
income increased $10,000 or .3%. Total noninterest expenses increased by
$240,000 or 2.3%. Net income after tax increased by $287,000 or 6.97% as the
Company's effective tax rate fell from 34.5% to 33.0% for the period. Fully
diluted earnings per share increased $.05 to $.90 for the six months of 1997
vs. 1996.
Net income and earnings per common share data is presented in the following
table:
<TABLE>
<CAPTION>
Six months ended Three months ended
6/30/97 6/30/96 6/30/97 6/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (in thousands) $ 4,404 $ 4,117 $ 2,265 $ 2,104
Per common share:
Primary earnings $ 0.91 $ 0.87 $ 0.47 $ 0.44
Fully diluted earnings $ 0.90 $ 0.85 $ 0.47 $ 0.43
</TABLE>
The Company's return on average assets and return on average equity for the
six months ended June 30, 1997 and 1996, are detailed in the table below:
<TABLE>
<CAPTION>
Six months ended Three months ended
6/30/97 6/30/96 6/30/97 6/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Return on assets 1.25% 1.20% 1.26% 1.22%
Return on total stockholders' equity 13.51 13.52 13.91 13.70
</TABLE>
Interest income
- ---------------
On a tax equivalent basis, gross interest income increased by $774,000 or
3.0% for the six months ended June 30, 1997 compared to the same period in
1996. Total interest expense increased by $92,000 or .9% for the six months
period ended June 30, 1997 as compared to the six months ended
June 30, 1996. For the first six months of 1997, the Company experienced a
net increase in average earning assets compared to the same period of 1996 of
$19.6 million. Average loans increased by $25.6 million.
Loan growth was principally funded by an increase in average deposits of
$12.2 million, reductions in Fed funds sold of $5.0 million and an increase in
average shareholders' equity of $4.3 million for the six month period ended
1997 compared to 1996.
13
<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,
1997 1996
---- ----
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) $454,182 $ 20,154 8.87% $428,617 $ 19,442 9.07%
Taxable Securities 118,998 3,622 6.09% 136,560 4,083 5.98%
Tax-exempt Securities (2) 63,343 2,256 7.12% 45,224 1,597 7.06%
Fed Funds Sold 20,154 549 5.45% 25,688 685 5.33%
-------- -------- -------- --------
Total Interest Earning Assets 656,677 26,581 8.10% 636,089 25,807 8.11%
Cash & Due from Banks 32,141 31,719
Premises & Equipment 16,282 16,810
Other Assets 11,947 12,874
Allowance for Loan Losses (9,470) (8,487)
-------- --------
Total Assets $707,577 $689,005
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-Bearing Liabilities:
Savings Deposits $210,233 $ 4,185 3.98% $209,700 $ 4,117 3.93%
NOW Accounts 48,786 291 1.19% 49,179 299 1.22%
Money Market Accounts 69,699 1,176 3.37% 69,029 1,159 3.36%
CD's over $100,000 39,710 1,071 5.39% 22,851 619 5.42
Other Time Deposits 127,701 3,426 5.37% 139,425 3,861 5.54%
Borrowed Funds 1,843 53 5.75% 1,886 55 5.83%
-------- -------- -------- --------
Total Interest-Bearing Liabilities 497,972 10,202 4.10 492,070 10,110 4.11%
Noninterest-Bearing Liabilities:
Demand Deposits 138,107 131,790
Other 6,321 4,257
-------- --------
Total Noninterest-Bearing Liabilities 144,428 3.18% 136,047 3.22%
Stockholders' Equity 65,177 60,888
-------- --------
Total Liabilities and
Stockholders' Equity $707,577 $689,005
======== ========
Net interest Margin 16,379 4.99% 15,697 4.94%
Excess of interest earning
assets over interest
bearing liabilities $155,705 $144,019
Ratio of Average Interest-Earning
Assets to Average Interest-Bearing
Liabilities 131.87% 129.27%
Less Tax Equivalent Adjustments (745) (532)
-------- --------
Net Interest Income $ 15,634 4.76% $15,165 4.77%
======== ====== ======== =======
</TABLE>
(1) Average Balances include non-accrual loans.
(2) Tax Equivalent Yields on tax-exempt securities based on a Federal tax
rate of 34%.
14
<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:
Rate/Volume Analysis (in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 vs. 1996
------------------------------------
Increase (Decrease) due to
------------------------------------
Volume Rate Net
------ ------ ------
<S> <C> <C> <C>
Interest Income:
Loans $1,135 $(423) $712
Taxable investment securities (535) 74 (461)
Tax-exempt investment securities 645 14 659
Federal funds sold (151) 15 (136)
------ ------ ------
Total interest income 1,094 (320) 774
Interest expense:
Savings deposits 11 57 68
NOW/accounts (2) (6) (8)
Money market accounts 11 6 17
Certificates over $100,000 455 (3) 452
Other Time Deposits (315) (120) (435)
Borrowed funds (1) (1) (2)
------ ------ ------
Total interest expense 159 (67) 92
------ ------ ------
Net interest margin 935 (253) 682
Less tax equivalent affect (206) (7) (213)
------ ------ ------
Net interest income $729 $(260) $469
====== ====== ======
</TABLE>
Average yields on interest earning assets remained relatively unchanged at
8.10% for the six months ended June 30, 1997 vs. 8.11% as of the same period in
1996 as increases in investment yields partially offset declines in loan
yields. Liability rates also remained relatively unchanged at 4.10% for the
six months ended June 30, 1997 vs. 4.11% as of June 1996. However, due to the
growth in noninterest bearing demand deposit balances, net interest margins on
a tax equivalent basis increased .05% to 4.99% for the six months ended June
30, 1997 compared to the same period in 1996. Variances due to changes in
rates produced a $259,000 decrease in net interest income in the six months of
1997 compared to the same period in 1996, while the increase in average earning
assets of $20.6 million principally contributed to the $728,000 increase in net
interest income due to volume variances over the same period.
The net effect was that net interest income before provisions for loan
losses grew to $15.6 million for the six months ended June 30, 1997 compared to
$15.2 million for the comparable period in 1996, or an increase of $469,000
(3.1%).
15
<PAGE>
Provision for loan losses and credit quality
- --------------------------------------------
The loan loss provision for the six month period ended June 30, 1997 was
$1,300,000 compared to $1,350,000 for the comparable period in 1996, a 3.7%
decrease. Total net charge-offs for the six months of 1997 were $1,173,000,
compared to $1,350,000 for the same period in 1996. The ratio of net
chargeoffs to average loans, on an annualized basis, decreased to .52% in the
first six months of 1997 vs. .62% for the same period of 1996.
Nonperforming assets decreased slightly to $5.9 million at June 30, 1997
compared to $6.1 million at December 31, 1996. While there was turnover in the
Company's OREO portfolio, OREO balances outstanding of $958,000 showed an
increase of $306,000 at June 30, 1997 from year end 1996, and non-performing
loans decreased by some $556,000, from $5.5 million to $4.9 million. The
change in nonperforming loans is attributable to a $335,000 decrease in
nonperforming construction/land development and real estate loans, a $132,000
decline in nonperforming consumer loans, and a $76,000 decrease in
nonperforming commercial and industrial loans. The Company's ratio of loan
loss allowance to non-performing loans stood at 190% at June 30, 1997 compared
to 169% at year-end 1996, and the allowance represented 2.04% of loans vs.
2.06% at the end of 1996. The period-end ratio of non-performing assets to
total assets declined to .81% at June 30, 1997 vs. .89% at December 31, 1996,
due both to the decline in nonperforming assets and to the growth in total
assets during this period.
Nonperforming assets represent 135 loans or OREO properties of which on1y 19
have balances in excess of $100,000, and no nonperforming assets has a balance
greater than $330,000. Of the total nonperforming assets, 40% is secured by
residential property, 42% by commercial property, 18% 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, among other things,
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. 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 79% of all of the Bank's nonperforming loans are collateralized by
real estate.
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 relatively stable current economic conditions 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.
16
<PAGE>
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,
----------------------- ---------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $9,302 $8,770 $8,770 $8,326 $7,322
Chargeoffs:
Commercial & industrial 876 434 889 411 350
Consumer installment & other 292 347 554 593 292
Real estate mortgage 224 716 1,289 1,164 1,059
-------- -------- -------- -------- --------
Total charge-offs 1,392 1,497 2,732 2,168 1,701
Recoveries:
Commercial 22 33 89 75 63
Installment 32 83 130 193 153
Real estate 164 31 195 44 20
-------- -------- -------- -------- --------
Total recoveries 218 147 414 312 236
-------- -------- -------- -------- --------
Net charge-offs (1,174) (1,350) (2,318) (1,856) (1,465)
Provision for Loan Losses 1,300 1,350 2,850 2,300 2,400
Transfers, other * 69
-------- -------- -------- -------- --------
Balance at end of period $9,428 $8,770 $9,302 $8,770 $8,326
======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans outstanding during the period
(annualized) .52% .63% .53% .43% .37%
Allowance for loan losses as a
percent of period-end loans 2.04% 2.02% 2.06% 2.08% 1.93%
Allowance as a percent of
non-performing loans 190% 182% 169% 166% 163%
Nonperforming loans and OREO
to total loans and OREO 1.27% 1.40% 1.36% 1.53% 1.45%
</TABLE>
* 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.
17
<PAGE>
The table below summarizes the Comany's nonperforming assets and
restructured loans at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
at June 30, at December 31,
----------------------- ---------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans: (1)
Real estate mortgage $2,997 $3,605 $3,503 $3,246 $3,866
Commercial & Industrial 555 693 712 1,013 200
Consumer & other 136 95 313 148 39
-------- -------- -------- -------- --------
Total nonaccrual loans 3,688 4,393 4,528 4,407 4,105
Loans 90 days or more past due
and still accruing:
Real estate mortgage 180 42 216 28 620
Commercial & industrial 274 143 193 476 84
Consumer & other 75 14 22 18 191
-------- -------- -------- -------- --------
Total 90 days past due accruing 529 199 431 522 895
Restructured - real estate 741 234 534 349 119
-------- -------- -------- -------- --------
Total non-performing and restructured loans 4,958 4,826 5,493 5,278 5,119
Percent of total loans 1.07% 1.11% 1.22% 1.23% 1.18%
Other real estate owned 958 1,273 653 1,196 1,150
-------- -------- -------- -------- --------
Total non-performing assets $5,916 $6,099 $6,146 $6,474 $6,269
======== ======== ======== ======== ========
Nonperforming assets as a percent
of total assets .81% .89% .88% .93% .97%
======== ======== ======== ======== ========
</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.
Other real estate owned totals $958,000 at June 30, 1997 and includes
thirteen properties acquired through foreclosure: two parcels of land, seven
residences, and four non-farm nonresidential properties. Management believes
that the carrying values of such properties adequately reflect the risk of loss
in their orderly disposal.
18
<PAGE>
At June 30, 1997, the Company had approximately $8.7 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. Approximately 76% of all such loans are collateralized by real
estate. Further deterioration in such borrowers' financial position may result
in classifying them as nonperforming assets. The following table summarizes
impaired loans for the periods indicated (in thousands):
June 30, 1997 December 31, 1996
------------- -----------------
Impaired loans with allowance established
($859,000 and $844,000, respectively) $2,419,000 $3,202,000
Impaired loans with a writedown
($1,420,000 and $1,197,000 respectively) 1,945,000 1,750,000
---------- ----------
Total $4,364,000 $4,952,000
========== ==========
Average amount of impaired loans
for the period $4,658,000 $4,682,000
========== ==========
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, December 31,
1997 1996 1996 1995 1994
--------------------------------- ---------------------------------------------------
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Commercial & industrial $2,236 16.9% $2,255 16.2% $2,476 15.9% $2,355 16.6% $2,010 22.10%
Consumer & other 1,928 19.8 1,532 17.3 1,702 19.3 1,400 16.1 1,363 12.20
Real estate - construction 2.9 2.2 2.7 3.1 1.50
Real estate - mortgage 4,091 60.4 4,216 64.3 3,985 62.1 4,247 64.2 4,100 64.20
Unallocated 1,173 767 1,139 768 853
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $9,428 100.00% $8,770 100.00% $9,302 100.00% 48770 100.00% $8,326 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Noninterest Income
- ------------------
Total noninterest income increased $10,000 in the first six months of 1997
to $3,121,000 compared to the same period of 1996, while "other" noninterest
income increased $127,000, of which $114,000 was due to the sale of
19
<PAGE>
annuity products and $59,000 was due to the recoveries of income on a prior year
item. These increases were mostly offset by declines in net gains on sales of
loans of $49,000, a decline of $58,000 in net gains on sales of available for
sale securities and the elimination of $60,000 in merchant processing income due
to the sale of the merchant processing portfolio in the last quarter of 1996.
Other Expenses
- --------------
In total, noninterest expense was up by $240,000 or 2.3% to $10,881,000 for
the first six months of 1997 compared to the same period of 1996.
Salaries and employee benefits increased $297,000 in the first six months of
1997 compared to 1996, mainly due to the personnel costs associated with the
Bank's new Orange County branches ($176,000), and other increases in
compensation related to new hires and normal salary increases ($355,000). Such
increases were partially offset by a change in the recorded amount of salary
and benefit expenses related to stock appreciation rights' of $234,500. In the
first quarter of 1997, all officers who had stock appreciation rights in tandem
with options, waived such rights, but retained the rights to their related
underlying stock options. As such, the Company recorded a recovery of $120,000
in previous expense vs. an expensive charge of $139,000 in the comparible period
of 1996.
Occupancy and equipment expense showed an increase of $55,000 over the same
period in 1996, again mainly due to the Bank's expansion into Orange County.
Telephone expense shows an increase due mainly to a refund of $24,000 received
in 1996 and cost increases associated with expansion of the Bank's
communications network. Other real estate owned expense increased $49,000 to
$57,000 for the six months ended June 30, 1997 as a result of additional OREO
properties carried in 1997 vs. 1996. Advertising and public relations
expenditures increased by $48,000 (primarily in conjunction with the promotion
of new branches). These increases in expenses were partially offset by a
decrease in supply expense of $86,000 to $222,000 for the six months ended June
30, 1997 vs. 1996 and a decline in other noninterest expenses of $140,000.
Major savings in other expenses include insurance expense ($46,000),
miscellaneous losses (forgeries, etc. $50,000), postage savings through
barcoding ($21,000) and loan processing and collection expenses ($81,000).
Despite the increase in pretax income, income tax expense remained
relatively unchanged at $2,170,000 at June 30, 1997 compared to $2,168,000 at
the same time in 1996, due to the increased investment in tax-exempt
securities. The Company's effective tax rate was 33.0% and 34.5% for the six
months ended June 30, 1997 and 1996, respectively.
Three months ended June 30, 1997 vs. June 30, 1996
- --------------------------------------------------
Net interest income increased $280,000 or 3.7% for the three months ended
June 30, 1997 compared to 1996, primarily due to interest on loans from
higher average balances, partially offset by interest expense related to the
funding of such increased loans.
Provisions for loan losses decreased $150,000 or 20.0% to $600,000 due to
management's assessment of the amounts necessary to maintain an adequate
allowance for possible loan losses.
20
<PAGE>
Other income decreased $22,000 to $1,544,00 for the three months ended
June 30, 1997, primarily as a result of service charge declines of $56,000
in the three months ended June 30, 1997 compared to 1996 offset by $37,000 of
trust earnings due to higher account balances under administration.
Total noninterest expense increased $213,000 to $5,465,000 for the three
months ended June 30, 1997 compared to June 30, 1996.
Salaries and benefits increased by $264,000 in this period due to the
staffing associated with the new Orange County branches, additional support
staff, and normal merit increases. Occupancy expense decreased by $6,000 as
lower equipment expenses offset the cost associated with new branches.
Other real estate owned expense increased $39,000 to $21,000 in the three
months ended June 30, 1997, primarily due to a higher level of gains on
disposal of properties in the second quarter of 1996. (The Company had
recorded a net credit in OREO expense of $18,000 in 1996.)
Stationary and supplies expense was $46,000 below the second quarter 1996
levels primarily due to control procedures put in place in late 1996. Other
expenses are $54,000 below the second quarter of 1996 levels primarily in the
areas of loan processing and collections, insurance and miscellaneous losses.
Pretax income increased $195,000 or 6.1% for the three months ended June 30,
1997 compared to the same period of 1996, while income taxes increased only
$34,000 due to the increased investment by the Company in tax exempt
securities. Comparative income after taxes increased $161,000 to $2,265,000 or
7.7% for the quarter ended June 30, 1997 vs. 1996.
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, 1997 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, 1997,
assuming no management action, the Company's near-term interest rate risk is to
a declining rate environment over the next three months of 1997, as assets
which re-price in the next three months exceed liabilities which would
similarly re-price by 1.8% of earning assets. Thus, near term 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. However, interest
rate risk exposure in the one year time frame is to a rising rate scenario,
principally due to a higher level of fixed-rate liabilities relative to assets
(9.9%) that would reprice in that time frame. 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 actions
that may be taken to manage this risk.
21
<PAGE>
<TABLE>
<CAPTION>
Maturity Repricing Greater
Date (1)(2) Total One yr. than
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 (3) $36,701 $15,868 $52,569 $94,455 $40,152 $187,176
Fed Funds 23,500 23,500 23,500
Commercial loans (3) 52,954 28,860 81,814 28,723 1,369 111,906
Consumer loans (3) 38,936 28,732 67,668 51,928 5,964 125,560
Mortgage loans (3) 82,475 87,507 169,982 39,903 11,194 221,079
-------- -------- -------- -------- -------- --------
Total interest
earning assets (1) 234,566 160,967 395,533 215,009 58,679 669,221
-------- -------- -------- -------- -------- --------
Savings (4) 69,782 143,818 213,600 213,600
NOW (5) 48,832 48,832 48,832
MMDA (5) 70,554 70,554 70,554
Time (5) 81,913 46,791 128,704 41,912 11 170,627
Other interest-bearing
liabilities 107 107 1,725 1,832
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities 222,356 239,441 461,797 43,637 11 505,445
-------- -------- -------- -------- -------- --------
Interest Sensitivity
gap (6) $12,210 $(78,474) $(66,264) $171,372 $58,668 $163,776
-------- -------- -------- -------- -------- --------
Gap as a percent of
earnings assets 1.8% (11.7)% (9.9)% 25.6% 8.8% 24.5%
======== ======== ======== ======== ======== ========
</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, 1997.
(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 $154 million
at June 30, 1997.
22
<PAGE>
Capital Resources and Liquidity
The following summarizes the minimum capital requirements and capital
position at June 30, 1997:
<TABLE>
<CAPTION>
To be Well Capitalized
Under Prompt
Capital Position at Corrective Action
June 30, 1997 Provision
------------------------ -----------------------
Bank Only Consolidated
--------- ------------
<S> <C> <C> <C>
Total Capital
to Risk-Weighted Assets 12.41% 14.26% 10%
Tier 1 Capital
to Risk-Weighted Assets 11.14 13.00 6
Tier 1 Capital to Average
Assets (Leverage Ratio) 7.50 8.84 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%.
At June 30, 1997, the Bank met the requirements for a "well capitalized"
institution based on its capital ratios as of such date.
The Company believes that its cash and cash equivalents of $57,631 million
in addition to its securities available for sale of $166,949 million at
June 30, 1997 are sufficient to meet both the funding needs of its borrowers
and the liquidity requirements of its depositors.
The Company plans to open new branches in Middletown, NY (Orange County) and
Wappingers Falls, NY (Dutchess County) as well as relocate its Newburgh Branch
facility. Such new facilities are now expected to be completed around year
end. The construction costs associated with these new facilities is
anticipated to be approximately $1,250,000. The Company has sufficient capital
resources to fund such construction.
23
<PAGE>
PART II
Item 5. Other Information
- --------------------------
Listing on American Stock Exchange: Effective August 4, 1997, the Company
begin primary trading on the American Stock Exchange under the symbol "HCK".
The primary trading market has previously been the NASDAQ National Market
System under the symbol "HCBK".
Item 6(a). Exhibits
- --------------------
Exhibit 27 Financial Data Schedule
Exhibit 99 Press Release - listing on American Stock Exchange
24
<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 11, 1997 /s/ Paul A. Maisch
---------------------------
Paul A. Maisch
Duly Authorized Officer and
Principal Financial Officer
25
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
99 Press Release - Listing on American Stock Exchange
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 57,631
<INT-BEARING-DEPOSITS> 503,613
<FED-FUNDS-SOLD> 23,250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 166,949
<INVESTMENTS-CARRYING> 18,535
<INVESTMENTS-MARKET> 18,938
<LOANS> 463,249
<ALLOWANCE> 9,428
<TOTAL-ASSETS> 729,047
<DEPOSITS> 657,514
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,745
<LONG-TERM> 1,832
0
0
<COMMON> 3,854
<OTHER-SE> 61,934
<TOTAL-LIABILITIES-AND-EQUITY> 729,047
<INTEREST-LOAN> 20,154
<INTEREST-INVEST> 5,133
<INTEREST-OTHER> 549
<INTEREST-TOTAL> 25,836
<INTEREST-DEPOSIT> 10,149
<INTEREST-EXPENSE> 10,202
<INTEREST-INCOME-NET> 14,334
<LOAN-LOSSES> 1,300
<SECURITIES-GAINS> 34
<EXPENSE-OTHER> 10,881
<INCOME-PRETAX> 6,574
<INCOME-PRE-EXTRAORDINARY> 6,574
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,404
<EPS-PRIMARY> .91
<EPS-DILUTED> .90
<YIELD-ACTUAL> 8.10
<LOANS-NON> 3,688
<LOANS-PAST> 529
<LOANS-TROUBLED> 741
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,302
<CHARGE-OFFS> 1,392
<RECOVERIES> 218
<ALLOWANCE-CLOSE> 9,428
<ALLOWANCE-DOMESTIC> 8,255
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,173
</TABLE>
<PAGE>
EXHIBIT 99
- ----------
MONDAY, AUGUST 4, 1997
COMPANY PRESS RELEASE
HUDSON CHARTERED BANCORP BEGINS TRADING ON THE AMEX
NEW YORK, August 4, 1997 -- The American Stock Exchange today began trading the
common stock of Hudson Chartered Bancorp, Inc., the parent company for First
National Bank of the Hudson Valley.
T. Jefferson Cunningham III, Chairman and Chief Executive Officer of Hudson
Chartered Bancorp, said "We are pleased that the American Stock Exchange has
approved our application to list our stock on the Exchange. We believe the move
to AMEX will enhance the trading market of our shares, capitalizing on the
depth, pricing efficiency, and pricing consistency of a recognized exchange.
These advantages will particularly benefit many smaller shareholders in the
communities which we serve. "
From its 21 branches in Dutchess, Ulster, Orange, and Putnam counties, First
Hudson Valley offers individual, business, and municipal customers a full range
of loan and deposit products and trust and investment services. Hudson's
principal executive offices are located in Lagrangeville, New York.
Trading under the ticker symbol HCK, the stock opened at $29.00 on 100 shares.
The company has selected AGS Specialist Partners as its specialist unit. Prior
to today's listing, the company's shares were traded on the NASDAQ National
Market.
The American Stock Exchange is the second largest U.S. Stock exchange and a
primary marketplace for both equity and derivative securities.
