<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 SEPTEMBER 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.
7,054,843 shares of Common Stock outstanding, par value $.80 per share, at
October 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 6(a) Other Information 24
Signatures 26
<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>
September 30, December 31,
1997 1996 VARIANCE
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 30,263 $ 35,929 $ (5,666)
Federal funds sold 26,800 11,350 15,450
------------- ------------- -------------
Total cash and cash equivalents 57,063 47,279 9,784
Securities
Available for sale 164,570 162,915 1,655
Held to maturity 21,399 13,568 7,831
Regulatory securities 2,755 2,755 0
Loans held for sale 99 168 (69)
Loans( see notes)
Gross loans 457,289 451,751 5,538
Allowance for loan losses (9,453) (9,302) (151)
------------- ------------- -------------
Net loans 447,836 442,449 5,387
Premises and equipment, net 15,803 16,249 (446)
Accrued income 5,878 5,191 687
Other assets 7,905 6,301 1,604
------------- ------------- -------------
TOTAL ASSETS $ 723,308 $ 696,875 26,433
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (see notes)
Non-Interest bearing $ 149,965 $ 142,256 7,709
Interest bearing 498,877 483,570 15,307
------------- ------------- -------------
Total deposits 648,842 625,826 23,016
Notes payable 1,821 1,854 (33)
Other liabilities 4,316 4,030 286
------------- ------------- -------------
TOTAL LIABILITIES 654,979 631,710 23,269
STOCKHOLDERS' EQUITY (see notes)
Common stock 3,854 3,854 0
Common paid-in capital 40,863 40,863 0
Retained earnings 25,948 21,830 4,118
Net unrealized securities gains 820 296 524
Employee stock ownership plan (96) (129) 33
Treasury stock (3,060) (1,549) (1,511)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 68,329 65,165 3,164
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 723,308 $ 696,875 $ 26,433
============= ============= =============
</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 Nine Nine
Months Ended Months Ended Months Ended Months Ended
9/30/97 9/30/96 9/30/97 9/30/96
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 10,353 $ 9,892 30,507 $ 29,334
Federal funds sold 443 273 812 958
Taxable securities 1,618 2,068 5,420 6,151
Tax-exempt securities 849 542 2,360 1,608
------------ ------------ ------------ ------------
Total interest income 13,263 12,775 39,099 38,051
Interest expense 5,234 4,973 15,436 15,083
------------ ------------ ------------ ------------
Net interest income 8,029 7,802 23,663 22,968
Provision for loan loss 600 750 1,900 2,100
------------ ------------ ------------ ------------
Net interest income
after provision for loan losses 7,429 7,052 21,763 20,868
------------ ------------ ------------ ------------
Noninterest income:
Service charges and fees 968 1,045 3,003 3,126
Trust earnings 195 168 540 477
Gains on sales of securities, net 102 13 136 105
Gains on sales of loans, net 47 32 126 160
Other income 257 297 885 798
------------ ------------ ------------ ------------
Total noninterest income 1,569 1,555 4,690 4,666
------------ ------------ ------------ ------------
GROSS OPERATING INCOME 8,998 8,607 26,453 25,534
------------ ------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits 3,131 2,929 9,244 8,745
Net occupancy and equipment expense 961 959 3,016 2,959
Advertising and Public Relations 157 66 407 268
Stationary & supplies 101 154 323 462
Telephone 116 112 369 302
Other real estate owned 82 27 139 35
Other expenses 996 1,148 2,927 3,266
------------ ------------ ------------ ------------
Total noninterest expense 5,544 5,395 16,425 16,037
------------ ------------ ------------ ------------
Income before income taxes 3,454 3,212 10,028 9,497
Income taxes 1,121 1,102 3,291 3,270
------------ ------------ ------------ ------------
Net income $ 2,333 $ 2,110 $ 6,737 $ 6,227
============ ============ ============ ============
Weighted average common shares outstanding:
Primary 7,254,000 7,221,000 7,269,000 7,016,000
Fully diluted 7,294,000 7,252,000 7,320,000 7,248,000
PER COMMON SHARE DATA:
Primary earnings $ 0.32 $ 0.29 $ 0.93 $ 0.88
Fully diluted earnings 0.32 0.29 0.92 0.86
Cash dividends declared 0.13 0.11 0.37 0.30
Book value at period end 9.70 $ 8.89
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
HUDSON CHARTERED BANCORP, INC. AND SUBSIDIARIES FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine
Months Ended
9/30/97 9/30/96
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,737 $ 6,227
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,900 2,100
Depreciation and amortization 1,429 1,246
Amortization of security premiums and
accretion of discounts 223 228
Amortization of core deposit intangible 87 99
Realized gains on sales of securities and loans (262) (265)
Deferred income tax benefits (112) (50)
Increase in other assets (3,038) (501)
(Decrease) in other liabilities 169 124
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,133 9,208
----------- -----------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 47,074 15,157
Proceeds from maturities of securities available for sale 15,943 34,749
Proceeds from maturities of securities held to maturity 3,190 3,282
Purchases of securities available for sale (66,639) (56,306)
Purchases of securities held to maturity (8,237) (4,985)
Sales of loans 6,516 7,010
Net increase in loans (13,608) (32,529)
Purchases of premises and equipment (983) (504)
Proceeds from sale of OREO 393 1,144
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (16,351) (32,982)
----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 23,016 14,850
Proceeds from issuance of stock 1,947 1,011
Redemption of Preferred Series B stock (123)
Repurchase of common stock (3,491) (1,116)
Cash dividends- preferred (193)
Cash dividends- common (2,470) (1,899)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,002 12,530
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,784 (11,244)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 47,279 67,853
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57,063 $ 56,609
=========== ===========
CASH PAID FOR:
Interest $ 15,358 $ 15,353
Taxes 2,852 3,298
NON-CASH ITEMS
Transfer from loans to OREO $ 1,130 $ 1,174
Sale of OREO funded by loans 274
Net change in unrealized gains (losses) recorded
on securities available for sale 904 (1,193)
Change in deferred taxes on net unrealized (gains)
losses recorded on securities available for sale 379 485
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 6,737 6,737
Cash dividends declared on common
stock ($0.37 per share) (2,586) (2,586)
Dividend reinvestment and stock
purchase plan - 42,747 shares 634 634
Options exercised - 111,052 shares 1,313 1,313
Net loss on issuance of treasury
stock - 153,805 shares (33) 33
Purchases of treasury
stock - 129,321 shares (3,491) (3,491)
Payments on ESOP borrowings 33 33
Net change in unrealized gain
on securities, after tax 524 524
---------- ---------- ---------- ------------- ---------- ---------- --------
Balance September 30, 1997 $ 3,854 $ 40,863 $ 25,948 $ 820 ($3,060) ($96) $ 68,329
========== ========== ========== ============= ========== ========== ========
</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 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 disclosures 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 Company's
consolidated financial position as of September 30, 1997 and its consolidated
results of operations for the three and nine month periods ended
September 30, 1997 and 1996 and the consolidated cash flows for the nine
months ended September 30, 1997 and 1996, and changes in consolidated
stockholders' equity for the nine months ended September 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 nine months ended September 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. Certain reclassifications have been made to conform to current
presentation.
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
5
<PAGE>
pressures on loan and deposit products; actions of competitors; changes in
economic conditions; the extent and timing of actions of the Federal Reserve
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>
Nine months ended Three months ended
----------------- ------------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Primary earnings
per share $0.93 $0.88 $0.32 $0.29
Fully diluted earnings
per share 0.92 0.86 0.32 0.29
</TABLE>
Pro forma earnings per share (per SFAS No. 128):
<TABLE>
<CAPTION>
Nine months ended Three months ended
----------------- ------------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic earnings
per share $0.95 $0.89 $0.33 $0.30
Diluted earnings
per share 0.93 0.86 0.32 0.29
</TABLE>
6
<PAGE>
Reporting Comprehensive Income and Disclosures About Segments of an
- -------------------------------------------------------------------
Enterprise and Related Information
- ----------------------------------
In June 1997, the FASB issued two new accounting standards, SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information".
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 in annual financial statements
and requires that those enterprises report selected information about operating
segments in 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 descriptive 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.
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 (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
7
<PAGE>
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 Sept. 30, 1997 At December 31, 1996
----------------- --------------------
<S> <C> <C>
Commercial and industrial $72,638 $71,887
Consumer installment 90,625 80,998
Real estate - construction 10,757 12,227
Real estate - mortgage
(Commercial) 143,205 143,199
Real estate - mortgage
(Residential & Home Equity) 134,563 137,226
Other loans 5,501 6,214
-------- --------
Total $457,289 $451,751
======== ========
</TABLE>
Deposits
- --------
Major classifications of deposits are summarized below (in thousands):
<TABLE>
<CAPTION>
At Sept. 30, 1997 At December 31, 1996
----------------- --------------------
<S> <C> <C>
Demand deposits $149,965 $142,256
NOW accounts 49,388 47,304
Money market deposit account 65,699 63,871
Savings accounts 208,787 210,130
Time deposits under $100,000 133,896 121,762
Time deposits over $100,000 41,107 40,503
-------- --------
Total $648,842 $625,826
======== ========
</TABLE>
8
<PAGE>
Securities
- ----------
Securities consist of the following (in thousands):
<TABLE>
<CAPTION>
At Sept. 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 $42,088 $41,907 $42,088 $54,780 $54,716 $54,780
US Gov't Agencies:
Available for Sale 29,532 29,443 29,532 29,032 28,858 29,032
Obligations of States
and Political Subdivisions:
Available for Sale 70,910 69,865 70,910 54,574 54,247 54,574
Held to Maturity 21,324 21,324 21,827 13,543 13,543 13,879
Other Securities:
Available for Sale 22,040 21,952 22,040 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 $188,724 $187,321 $189,227 $179,238 $178,738 $179,574
======== ======== ======== ======== ======== ========
Total Available for Sale $164,570 $163,167 $164,570 $162,915 $162,415 $162,915
Total Held to Maturity 21,399 21,399 21,902 13,568 13,568 13,904
Regulatory Securities 2,755 2,755 2,755 2,755 2,755 2,755
-------- -------- -------- -------- -------- --------
Total Securities $188,724 $187,321 $189,227 $179,238 $178,738 $179,574
======== ======== ======== ======== ======== ========
</TABLE>
At September 30, 1997 the net unrealized gain on Securities Available for Sale
(net of tax effect of $583,000) that was included as a separate component of
stockholders' equity was $820,000.
9
<PAGE>
Earnings per common share (1996 Data adjusted for 10% stock dividend declared
- -------------------------
December 1996. 1996 and 1997 data adjusted for the three for two stock split
paid as a 50% stock dividend declared September 1997.)
Primary earnings per common share is computed as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
Nine months ended Three months ended
Sept. 30, 1997 Sept. 30, 1997
----------------- ------------------
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 7,058 6,874 7,032 7,084
Net effect of dilutive stock options
(at average market price) 211 142 222 137
------ ------ ------ ------
Total "primary" shares 7,269 7,016 7,254 7,221
====== ====== ====== ======
Net income $6,737 $6,227 $2,333 $2,110
Less preferred stock dividends declared 0 (89) 0 0
------ ------ ------ ------
Net income applicable to common stock $6,737 $6,138 $2,333 $2,110
====== ====== ====== ======
"Primary" earnings per common share $ 0.93 $ 0.88 $ 0.32 $ 0.29
====== ====== ====== ======
</TABLE>
Fully diluted earnings per common share is computed as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Nine months ended Sept. months ended
Sept. 30, 1997 Sept. 30, 1996
----------------- ------------------
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 7,058 6,874 7,032 7,084
Net effect of dilutive stock options
(at the greater of average or period
end market price) 262 168 262 168
Assumed conversion of Series B,
preferred stock 0 206 0 0
------ ------ ------ ------
Total "fully diluted" shares 7,320 7,248 7,294 7,252
====== ====== ====== ======
Net income applicable to common stock $6,737 $6,227 $2,333 $2,110
====== ====== ====== ======
"Fully diluted" earnings per
common share $ 0.92 $ 0.86 $ 0.32 $ 0.29
====== ====== ====== ======
</TABLE>
Stockholders' Equity
- --------------------
Authorized common stock, $.80 par value, is 20,000,000 shares. Issued and
outstanding shares (net of treasury shares) at September 30, 1997 and December
31, 1996, were 4,694,299 and 4,308,029, respectively. The Company paid a 10%
stock dividend in January 1997, which increased common shares outstanding by
430,802 shares and a 50% stock dividend in October 1997 which increased comon
shares outstanding by 2,351,654. (All 1996 and 1997 per share data has been
accordingly restated in the condensed consolidated statements of income and
expense and Stockholders' Equity.)
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
- -------------------
The Company's financial condition on September 30, 1997 reflected total assets
of $723.3 million, an increase of $26.4 million or 3.8% over total assets at
December 31, 1996. Net loans increased some $5.4 million or 1.2% to $447.8
million at September 30, 1997. Cash and cash equivalents increased from $46.4
million at December 31, 1996 to $57.1 million at September 30, 1997. Other
assets increased by $1.0 million. Aggregate securities investments were $188.7
million at September 30, 1997, an increase of $9.5 million or 5.3% from the
level at December 31, 1996.
During the first three quarters of 1997, the Bank wrote new loan originations of
$107.6 million. However, normal amortization and prepayments (which average
approximately $10.6 million per month) and sales of loans into the secondary
market (which were approximately $6.5 million) resulted in a net $5.4 million
increase in loans outstanding at September 30, 1997 compared to December 31,
1996. The increases arose in the categories of commercial loans ($.8 million),
and consumer, principally "indirect", installment loans ($9.6 million). These
increases were offset partially by declines in real estate construction loans of
$1.5 million, and other loans of $.7 million. Further, real estate mortgage
loans declined by $2.7 million (entirely in the residential area).
Period end total deposits increased $23.0 million or 3.7% in the first nine
months of 1997 to $648.8 million. Of this amount, total Public (Municipal) Funds
increased $14.7 million or 30.2% to $63.3 million and total non-public funds
increased $8.3 million or 1.4% to $585.5 million, which principally reflects the
effects of the Bank's second quarter "No Penalty CD" promotion, the third
quarter seasonality in the demand deposit category, and the contribution of the
Bank's new Orange County, NY branches, in Monroe and Goshen which since opening
up early this year, non-municipal deposits have grown to $8.9 million at quarter
end.
The following tables summarize the net changes in public (municipal) fund and
non-public fund deposits from December 31, 1996 to September 30, 1997 (in
thousands):
11
<PAGE>
Public Funds
<TABLE>
<CAPTION>
Percent
Change
Balance Balance Net over
12/31/96 9/30/97 Change Y/E 96
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Demand accounts $ 2,239 $ 6,908 $ 4,669 208.5%
NOW accounts 10,296 14,108 3,812 37.0
Money market accounts 11,136 15,098 3,962 35.5
Savings accounts 3,046 2,671 (375) (12.3)
Time deposits 21,929 24,557 2,628 11.9
-------- ------- ------- -------
Total public deposits $48,646 $63,342 $14,696 30.2%
======== ======= ======= =======
</TABLE>
Public funds balances increased late in the third quarter due both to the
regular receipt of state aid payments and to school district tax assessments
levied in September. This increase is expected to reverse by year end as the
result of the applicable school districts employing their funds.
<TABLE>
<CAPTION>
Percent
Change
Balance Balance Net over
12/31/96 9/30/97 Change Y/E 96
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Demand accounts $140,017 $143,057 $ 3,040 2.2%
NOW accounts 37,008 35,280 (1,728) (4.6)
Money market accounts 52,735 50,601 (2,134) (4.1)
Savings accounts 207,084 206,116 (968) (.46)
Time deposits 140,336 150,446 10,110 7.2
-------- -------- ------- -------
Total non public deposits $577,180 $585,500 $ 8,320 1.4%
======== ======== ======= =======
</TABLE>
Total Stockholders' Equity increased $3,164,000, or approximately 4.9%. Net
retentions of $4.1 million were partially offset by net treasury stock purchases
of $1.5 million. Unrealized gains (net of tax) on available for sale securities
increased $524,000 to $820,000 at September 30, 1997 vs. $296,000 at December
31, 1996, as public market interest rates declined during the second and third
quarters to levels below those at the beginning of the year.
12
<PAGE>
Results of Operations
- ---------------------
Interest income as reported, for the nine months ended September 30, 1997,
compared to the same period in 1996, increased $1,048,000 while interest expense
increased by $353,000. This resulted in an increase in net interest income of
$695,000. Provision for loan losses decreased by $200,000. Total non-interest
income increased $24,000 or .5%. Total noninterest expenses increased by
$388,000 or 2.4%. Net income after tax increased by $510,000 or 8.2%. Fully
diluted earnings per share increased $.06 to $.92 for the nine months of 1997
vs. 1996.
Net income and earnings per common share data is presented in the following
table:
<TABLE>
<CAPTION>
Nine months ended Three months ended
9/30/97 9/30/96 9/30/97 9/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (in thousands) $ 6,737 $ 6,227 $ 2,333 $ 2,110
Per common share:*
Primary earnings $ 0.93 $ 0.88 $ 0.32 $ 0.29
Fully diluted earnings 0.92 0.86 0.32 0.29
</TABLE>
* Adjusted for the 10% stock dividend declared December 1996 and the 50% stock
dividend declared September 1997.
The Company's return on average assets and return on average equity for the nine
months and three months ended September 30, 1997 and 1996, are detailed in the
table below:
<TABLE>
<CAPTION>
Nine months ended Three months ended
9/30/97 9/30/96 9/30/97 9/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Return on assets 1.27% 1.20% 1.30% 1.20%
Return on total stockholders' equity 13.73 13.55 14.14 13.70
</TABLE>
Interest income
- ---------------
On a tax equivalent basis, gross interest income increased by $1,435,000 or 3.7%
for the nine months ended September 30, 1997 compared to the same period in
1996. Total interest expense increased by $353,000 or 2.3% for the nine months
period ended September 30, 1997 as compared to the nine months ended September
30, 1996. For the first nine months of 1997, the Company experienced a net
increase in average earning assets compared to the same period of 1996 of $17.7
million. Average loans increased by $22.5 million.
Loan growth was principally funded by an increase in average deposits of $12.4
million, reductions in Fed funds sold of $5.1 million and an increase in average
shareholders' equity of $4.2 million for the nine 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. Nine Months Ended September 30,
<TABLE>
<CAPTION>
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) $454,483 $ 30,507 8.95% $432,009 $ 29,334 9.05%
Taxable Securities 118,348 5,420 6.11% 138,768 6,151 5.91%
Tax-exempt Securities (2) 65,898 3,575 7.23% 45,130 2,436 7.20%
Fed Funds Sold 19,654 812 5.51% 24,759 958 5.16%
-------- -------- -------- --------
Total Interest Earning
Assets 658,383 40,314 8.16% 640,666 38,879 8.09%
Cash & Due from Banks 32,102 30,990
Premises & Equipment 16,170 16,702
Other Assets 12,840 12,774
Allowance for Loan Losses (9,478) (8,898)
-------- --------
Total Assets $710,017 $692,234
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-Bearing
Liabilities:
Savings Deposits $210,221 $ 6,341 4.02% $212,382 $ 6,259 3.93%
NOW Accounts 48,628 432 1.18% 50,410 460 1.22%
Money Market Accounts 69,011 1,752 3.38% 68,989 1,745 3.37%
CD's over $100,000 35,918 1,565 5.81% 22,206 899 5.40%
Other Time Deposits 132,093 5,266 5.32% 136,612 5,637 5.50%
Borrowed Funds 1,838 80 5.80% 1,880 83 5.89%
-------- -------- -------- --------
Total Interest-Bearing Liabilities 497,709 15,436 4.14% 492,479 15,083 4.08%
Noninterest-Bearing
Liabilities:
Demand Deposits 141,614 134,400
Other 5,247 4,084
-------- --------
Total Noninterest-
BearingLiabilities 146,861 3.19% 138,484 3.19%
Stockholders' Equity 65,447 61,271
-------- --------
Total Liabilities and
Stockholders' Equity $710,017 $692,234
======== ========
Net interest Margin 24,878 5.04% 23,796 4.95%
ment (1,215) (828)
-------- --------
Net Interest Income $ 23,663 4.79% $ 22,968
======== ===== ========
Excess of interest earning
assets over interest
bearing liabilities $160,674 $148,187
Ratio of Average Interest-
Earning Assets to Average
Interest-Bearing
Liabilities 132.28% 130.09%
</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>
Nine Months Ended September 30,
1997 vs. 1996
-------------------------------
Increase (Decrease) due to
-------------------------------
Volume Rate Net
------ ----- ------
<S> <C> <C> <C>
Interest Income:
Loans $1,508 $(335) $1,173
Taxable investment securities (935) 204 (731)
Tax-exempt investment
securities 1,127 12 1,139
Federal funds sold (211) 65 (146)
------ ----- ------
Total interest income 1,489 (54) 1,435
Interest expense:
Savings deposits (65) 147 82
NOW/accounts (16) (12) (28)
Money market accounts 1 6 7
Certificates over $100,000 597 69 666
Other Time Deposits (180) (191) (371)
Borrowed funds (2) (1) (3)
------ ----- ------
Total interest expense 335 18 353
------ ----- ------
Net interest margin 1,154 (72) 1,082
Less tax equivalent affect (383) (4) (387)
------ ----- ------
Net interest income $ 771 $ (76) $ 695
====== ===== ======
</TABLE>
Average yields on interest earning assets increased to 8.16% for the nine months
ended September 30, 1997 vs. 8.09% as of the same period in 1996 as increases in
investment yields offset declines in loan yields. Liability rates increased to
4.14% for the nine months ended September 30, 1997 vs. 4.08% as of September
1996. However, due to the growth in noninterest bearing demand deposit balances,
net interest margins on a tax equivalent basis increased .09% to 5.04% for the
nine months ended September 30, 1997 compared to the same period in 1996.
Variances due to changes in rates produced a $76,000 decrease in net interest
income in the nine months of 1997 compared to the same period in 1996, while the
increase in average earning assets of $17.7 million (compared to an increase in
interest bearing liabilities of $5.2 million) principally contributed to the
$771,000 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 $23.7 million for the nine months ended September 30, 1997 compared to
$23.0 million for the comparable period in 1996, or an increase of $695,000
(3.0%).
15
<PAGE>
Provision for loan losses and credit quality
- --------------------------------------------
The loan loss provision for the nine month period ended September 30, 1997 was
$1,900,000 compared to $2,100,000 for the comparable period in 1996, a 9.5%
decrease. Total net charge-offs for the nine months of 1997 were $1,749,000,
compared to $1,981,000 for the same period in 1996. The ratio of net chargeoffs
to average loans, on an annualized basis, decreased to .51% in the first nine
months of 1997 vs. .61% for the same period of 1996.
Nonperforming assets increased slightly to $6.4 million at September 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 $1,151,000 showed an
increase of $498,000 at September 30, 1997 from year end 1996, and non-
performing loans decreased by some $229,000, from $5.5 million to $5.3 million.
The change in nonperforming loans is attributable to a $64,000 increase in
nonperforming construction/land development and real estate loans, a $106,000
decline in nonperforming consumer loans, and a $187,000 decrease in
nonperforming commercial and industrial loans. The Company's ratio of loan loss
allowance to non-performing loans stood at 180% at September 30, 1997 compared
to 169% at year-end 1996, and the allowance represented 2.07% of loans vs. 2.06%
at the end of 1996. The period-end ratio of non-performing assets, to total
assets remained relatively unchanged at .89% for September 30, 1997 compared to
.88% at December 31, 1996, due to the slight increase in nonperforming assets,
offset by the growth in total assets during this period.
Nonperforming assets represent 115 loans or OREO properties of which on1y 21
have balances in excess of $100,000, and no nonperforming assets have a balance
greater than $400,000. Of the total nonperforming assets, 31.8% is secured by
residential property, 53.4% by commercial property, and 14.8% 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 82% 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 nine months For the year
ended September 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 1,210 652 889 411 350
Consumer installment &
other 451 468 554 593 292
Real estate mortgage 400 1,049 1,289 1,164 1,059
------- ------- ------- ------- -------
Total charge-offs 2,061 2,169 2,732 2,168 1,701
Recoveries:
Commercial 72 39 89 75 63
Installment 50 111 130 193 153
Real estate 190 38 195 44 20
------- ------- ------- ------- -------
Total recoveries 312 188 414 312 236
------- ------- ------- ------- -------
Net charge-offs (1,749) (1,981) (2,318) (1,856) (1,465)
Provision for Loan Losses 1,900 2,100 2,850 2,300 2,400
Transfers, other * 69
------- ------- ------- ------- -------
Balance at end of period $9,453 $8,889 $9,302 $8,770 $8,326
======= ======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding
during the period
(annualized) .51% .61% .53% .43% .37%
Allowance for loan losses
as a percent of period-end
loans 2.07% 2.00% 2.06% 2.08% 1.93%
Allowance as a percent of
non-performing loans 180% 159% 169% 166% 163%
Nonperforming loans and OREO
to total loans and OREO 1.40% 1.41% 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 Company's nonperforming assets and restructured
loans at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
at September 30, at December 31,
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans: (1)
Real estate mortgage $ 2,491 $ 4,056 $ 3,503 $ 3,246 $ 3,866
Commercial & Industrial 421 968 712 1,013 200
Consumer & other 108 121 313 148 39
------- ------- ------- ------- -------
Total nonaccrual loans 3,020 5,145 4,528 4,407 4,105
Loans 90 days or more
past due and still
accruing:
Real estate mortgage 548 - 216 28 620
Commercial & industrial 297 231 193 476 84
Consumer & other 121 - 22 18 191
------- ------- ------- ------- -------
Total 90 days past due
accruing 966 231 431 522 895
Restructured - real
estate 1,278 207 534 349 119
------- ------- ------- ------- -------
Total non-performing
and restructured loans 5,264 5,583 5,493 5,278 5,119
Percent of total loans 1.15% 1.25% 1.22% 1.23% 1.18%
Other real estate owned 1,151 1,032 653 1,196 1,150
------- ------- ------- ------- -------
Total non-performing
assets $6,415 $6,615 $6,146 $6,474 $6,269
======= ======= ======= ======= =======
Nonperforming assets as
a percent of total
assets .89% .93% .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 $1,151,000 at September 30, 1997 and includes
thirteen properties acquired through foreclosure: two parcels of land, seven
residences, and four non-farm nonresidential properties. Of this amount, there
are currently contracts in place for sales totaling approximately $378,000.
Management believes that the carrying values of such properties adequately
reflect the risk of loss in their orderly disposal.
18
<PAGE>
At September 30, 1997, the Company had approximately $7.4 million in loans
requiring special attention (substandard compared to $10.2 million at December
31, 1996), 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 65% 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):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Impaired loans with allowance established
($1,182,000 and $844,000, respectively) $4,002,000 $3,202,000
Impaired loans with a writedown
($1,109,000 and $1,197,000 respectively) 1,231,000 1,750,000
---------- ----------
Total $5,233,000 $4,952,000
========== ==========
Average amount of impaired loans
for the period $5,093,000 $4,682,000
========== ==========
</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>
September 30, December 31,
1997 1996 1996 1995 1994
------------------------------------- ----------------------------------------------------------
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 $ 2,056 15.9% $ 2,492 16.1% $ 2,476 15.9% $ 2,355 16.6% $ 2,010 22.10%
Consumer &
other 2,043 21.0 1,687 18.5 1,702 19.3 1,400 16.1 1,363 12.20
Real estate -
construction 2.4 2.2 2.7 3.1 1.50
Real estate -
mortgage 4,257 60.7 3,855 63.2 3,985 62.1 4,247 64.2 4,100 64.20
Unallocated 1,097 855 1,139 768 853
-------- -------- -------- ------- ------- -------- --------- -------- --------- -------
Total $ 9,453 100.00% $ 8,889 100.00% $ 9,302 100.00% 8,770 100.00% $ 8,326 100.00%
======== ======== ======== ======= ======= ======== ========= ======== ========= =======
</TABLE>
Noninterest Income
- ------------------
Total noninterest income increased $24,000 in the first nine months of 1997 to
$4,690,000 compared to the same period of 1996. Gains on sales of securities
increased by $31,000. "Other" noninterest income increased $87,000, of which
$78,000 was due to the sale of annuity products and $59,000 was due to
recoveries of income on a prior year item. These increases were mostly offset by
declines in net gains on sales of loans of
19
<PAGE>
$34,000, and the elimination of $96,000 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 $388,000 or 2.4% to $16,425,000 for the
first nine months of 1997 compared to the same period of 1996.
Salaries and employee benefits increased $499,000 in the first nine months of
1997 compared to 1996, mainly due to the personnel costs associated with the
Bank's new Orange County branches ($300,000), and other increases in
compensation related to new hires and normal salary increases ($458,000). Such
increases were partially offset by a change in the recorded amount of salary and
benefit expenses related to stock appreciation rights' of $259,000. 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 expense charge of $139,000 in the comparable period of 1996.
Occupancy and equipment expense showed an increase of $57,000 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 $104,000 to
$139,000 for the nine months ended September 30, 1997 as a result of additional
writedowns of $131,000 associated with OREO properties carried in 1997 vs. 1996.
Advertising and public relations expenditures increased by $139,000 (in
conjunction with the promotion of new branches and increased product promotional
activities). These increases in expenses were partially offset by a decrease in
supply expense of $139,000 to $323,000 for the nine months ended September 30,
1997 vs. 1996 and a decline in other noninterest expenses of $339,000 or 10.4%.
Major savings in other expenses include insurance expense ($62,000),
miscellaneous losses (forgeries, etc. $82,000), postage savings through
barcoding ($44,000) and loan processing, foreclosure and collection expenses
($93,000).
Despite the increase in pretax income, income tax expense remained relatively
unchanged at $3,291,000 at September 30, 1997 compared to $3,270,000 at the same
time in 1996, due to the increased investment in tax-exempt securities. The
Company's effective tax rate was 32.8% and 34.4% for the nine months ended
September 30, 1997 and 1996, respectively.
Three months ended September 30, 1997 vs. September 30, 1996
- ------------------------------------------------------------
Net interest income increased $227,000 or 2.9% for the three months ended
September 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 ongoing assessment of the amounts necessary to maintain an adequate
allowance for possible loan losses, reflecting upon the more stable economic
condition in the market place.
Other income increased $14,000 to $1,569,000 for the three months ended
September 30, 1997, primarily as a result of a $27,000 of trust earnings due to
higher account balances under administration and an increase of $89,000 in gains
on security sales and increases in annuity sales commissions of $30,000
20
<PAGE>
partially offset by service charge declines of $77,000 in the three months ended
September 30, 1997 compared to 1996 (due in large part to customers increasing
their balances to minimize such fees) and the reduction of $33,000 in merchant
income from the sale of the portfolio in the fourth quarter of 1996.
Total noninterest expense increased $149,000 to $5,544,000 for the three months
ended September 30, 1997 compared to September 30, 1996.
Salaries and benefits increased by $202,000 in this period due to the staffing
associated with the new Orange County branches, additional support staff, and
normal merit increases. Occupancy and equipment expense increased by $2,000 due
to the cost associated with new branches were mostly offset by declines in
depreciation on equipment.
Other real estate owned expense increased $55,000 to $82,000 in the three months
ended September 30, 1997, primarily due to a higher level of gains on disposal
of properties in the third quarter of 1996 compared to write downs of several
properties of $67,000 in the third quarter of 1997.
Stationary and supplies expense was $53,000 below the third quarter 1996 levels
primarily due to control procedures put in place in late 1996. Other expenses
are $152,000 below the third quarter of 1996 levels primarily in the areas of
loan processing and collections, insurance and miscellaneous losses offset by
increases in advertising and public relations expenses of $91,000.
Pretax income increased $242,000 or 7.5% for the three months ended September
30, 1997 compared to the same period of 1996, while income taxes increased only
$19,000 due to the increased investment by the Company in tax exempt securities.
Comparative income after taxes increased $223,000 to $2,333,000 or 10.6% for the
quarter ended September 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) tends 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 September 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 September 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 2.8%
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 (7.3%) 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>
Maturity Repricing
Date (1)(2)
<TABLE>
<CAPTION>
Greater
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) $ 56,463 $ 18,156 $ 74,619 $ 77,857 $ 36,248 $ 188,724
Fed Funds 26,800 26,800 26,800
Commercial loans (3) 39,528 30,303 69,831 26,771 1,119 97,721
Consumer loans (3) 18,654 30,321 48,975 37,813 1,855 88,643
Mortgage loans (3) 94,223 96,323 190,546 55,664 24,814 271,024
-------- -------- -------- -------- -------- ----------
Total interest
earning assets (1) 235,668 175,103 410,771 198,105 64,036 672,912
-------- -------- -------- -------- -------- ----------
Savings (4) 69,673 139,114 208,787 208,787
NOW (5) 49,388 49,388 49,388
MMDA (5) 65,699 65,699 65,699
Time (5) 81,373 54,526 135,899 39,093 11 175,003
Other interest-bearing
liabilities 96 96 1,725 1,821
-------- -------- -------- -------- -------- ----------
Total interest-bearing
liabilities 216,841 243,028 459,869 40,818 11 500,698
-------- -------- -------- -------- -------- ----------
Interest Sensitivity
gap (6) $ 18,827 $(67,925) $(49,098) $157,287 $ 64,025 $ 172,214
======== ======== ======== ======== ======== ==========
Gap as a percent of
earnings assets 2.8% (10.1)% (7.3)% 23.4% 9.5% 25.6%
======== ======== ======== ======== ======== ==========
</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
September 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 $150 million at
September 30, 1997.
22
<PAGE>
Capital Resources and Liquidity
- -------------------------------
The following summarizes the minimum capital requirements and capital position
at September 30, 1997:
<TABLE>
<CAPTION>
To be Well Capitalized
Under Prompt
Capital Position at Corrective Action
September 30, 1997 Provision
--------------------------- ----------------------
Bank Only Consolidated
---------- ------------
<S> <C> <C> <C>
Total Capital
to Risk-Weighted Assets 12.81% 14.82% 10%
===== =====
Tier 1 Capital
to Risk-Weighted Assets 11.54 13.56 6
===== =====
Tier 1 Capital to Average
Assets (Leverage Ratio) 7.75 9.21 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 September 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 $57,063 million in
addition to its securities available for sale of $164,570 million at September
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. Foundation difficulties have caused delays in commencing construction
and such new facilities are now expected to be completed in early spring of
1998. The construction costs associated with these new facilities are
anticipated to total approximately $1,250,000. The Company has sufficient
capital resources to fund such construction.
The Company's total capital to assets level is approximately 9.4% at September
30, 1997. As such, management believes that the Company has ample capital
available for future expansion and diversification and regularly evaluates
appropriate business opportunities to efficiently deploy its capital resources.
23
<PAGE>
PART II
Item 6(a). Exhibits
- --------------------
Exhibit 3.1 By-Law Amendment
Exhibit 27 Financial Data Schedule
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: November 7, 1997 /s/ Paul A. Maisch
---------------------------
Paul A. Maisch
Duly Authorized Officer and
Principal Financial Officer
25
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- -------- -----------
3.1 By-Law Amendment
27 Financial Data Schedule
<PAGE>
EXHIBIT 3.1
- -----------
Section 702 is amended as follows:
Section 702. Record Date. The Board of Directors may fix a record date for the
- -------------------------
determination of the shareholders entitled to notice of, or to vote at, any
meeting of shareholders or any adjournment thereof, or to express consent to or
dissent from any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend, distribution or the
allotment of any rights, or to exercise rights in respect to any change,
conversion or exchange of shares, or for the purpose of any other action;
provided, that such date shall not be more than fifty nor less than ten days
before the date of such meeting, nor more than fifty days prior to any other
action.
This amendment is effective September 25, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 30,263
<INT-BEARING-DEPOSITS> 498,877
<FED-FUNDS-SOLD> 26,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 164,570
<INVESTMENTS-CARRYING> 21,399
<INVESTMENTS-MARKET> 21,902
<LOANS> 457,388
<ALLOWANCE> 9,453
<TOTAL-ASSETS> 723,308
<DEPOSITS> 648,842
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,316
<LONG-TERM> 1,821
0
0
<COMMON> 3,854
<OTHER-SE> 64,475
<TOTAL-LIABILITIES-AND-EQUITY> 723,308
<INTEREST-LOAN> 30,507
<INTEREST-INVEST> 7,780
<INTEREST-OTHER> 812
<INTEREST-TOTAL> 39,099
<INTEREST-DEPOSIT> 15,356
<INTEREST-EXPENSE> 15,436
<INTEREST-INCOME-NET> 21,763
<LOAN-LOSSES> 1,900
<SECURITIES-GAINS> 136
<EXPENSE-OTHER> 16,425
<INCOME-PRETAX> 10,028
<INCOME-PRE-EXTRAORDINARY> 10,028
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,737
<EPS-PRIMARY> .93
<EPS-DILUTED> .92
<YIELD-ACTUAL> 8.16
<LOANS-NON> 3,020
<LOANS-PAST> 966
<LOANS-TROUBLED> 1,278
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,302
<CHARGE-OFFS> 2,059
<RECOVERIES> 314
<ALLOWANCE-CLOSE> 9,453
<ALLOWANCE-DOMESTIC> 8,356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,097
</TABLE>
