UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-15025
PROGRESSIVE BANK, INC.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or organization)
14-1682661
(I.R.S. Employer
Identification No.)
86 State Route 22, Pawling, New York 12564
(Address of principal executive offices) (Zip Code)
(914) 855-1333
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 5, 1995: 2,750,234 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1995
and December 31, 1994
Consolidated Statements of Income for the Three
Months Ended March 31, 1995 and March 31, 1994
Consolidated Statements of Shareholders' Equity
for the Three Months Ended March 31, 1995 and
March 31, 1994
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1995
and March 31, 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote
of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit I
<TABLE>
CONSOLIDATED BALANCE SHEETS
Progressive Bank, Inc. and Subsidiary
(In thousands, except shares and per share amounts)
(Unaudited)
<CAPTION>
March 31, 1995
December 31, 1994
<S> <C> <C>
Assets
Cash and due from banks $ 12,824 14,054
Federal funds sold 43,700 57,700
Securities:
Available for sale (fair value of $43,153
in 1995 and $43,916 in 1994) 43,153 43,916
Held to maturity (fair value of $83,562 in
1995 and $81,172 in 1994) 84,785 83,764
Total securities 127,938 127,680
Loans, net:
Mortgage loans 439,059 425,397
Other loans 58,033 57,920
Allowance for loan losses (8,506) (9,402)
Net deferred loan origination fees (719) (836)
Total loans, net 487,867 473,079
Accrued interest receivable 4,044 4,208
Other real estate, net 2,245 2,265
Premises and equipment, net 8,340 8,091
Deferred income taxes, net 5,935 6,333
Other assets 2,739 2,882
Total assets $695,632 696,292
Liabilities and Shareholders' Equity
Liabilities:
Savings and time deposits $577,361 577,935
Demand deposits 41,421 46,394
Accrued expenses and other liabilities 9,588 6,023
Total liabilities 628,370 630,352
Shareholders' equity:
Preferred stock ($1.00 par value; 5,000,000 shares
authorized; none issued)
Common stock ($1.00 par value; 15,000,000 shares
authorized; 2,951,974 shares issued) 2,952 2,952
Paid-in capital 27,355 27,355
Retained earnings 41,157 40,165
Treasury stock, at cost (202,740 shares in
1995 and 205,090 shares in 1994) (4,272) (4,310)
Net unrealized gain (loss) on securities available
for sale, net of taxes 70 (222)
Total shareholders' equity 67,262 65,940
Total liabilities and shareholders' equity $695,632 696,292
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Progressive Bank, Inc. and Subsidiary
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
For the
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Interest and dividend income:
Mortgage loans $ 9,192 8,418
Other loans 1,341 1,258
Securities 1,875 2,127
Federal funds sold and other 666 118
Total interest and dividend income 13,074 11,921
Interest on deposits 6,221 4,791
Net interest income 6,853 7,130
Provision for loan losses 125 250
Net interest income after
provision for loan losses 6,728 6,880
Other income:
Deposit service fees 487 447
Other service fees 145 173
Net gain on securities -- 14
Net gain on sale of loans 40 40
Other non-interest income 7 26
Total other income 679 700
Net interest and other income 7,407 7,580
Other expense:
Salaries and employee benefits 2,274 2,248
Occupancy and equipment 600 759
Net cost of other real estate 86 744
FDIC deposit insurance 350 360
Other non-interest expense 1,524 1,445
Total other expense 4,834 5,556
Income before income taxes 2,573 2,024
Income tax expense 1,059 219
Net income $ 1,514 1,805
Net income per common share $ 0.55 0.61
Weighted average common shares outstanding 2,746 2,939
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Progressive Bank, Inc. and Subsidiary
(In thousands, except shares and per share amounts)
(Unaudited)
<CAPTION>
Net
Common Stock Unrealized
Shares Paid-in Retained Treasury Gain (Loss)
Outstanding Amount Capital Earnings Stock on Securities Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 2,746,884 $2,952 27,355 40,165 (4,310) (222) 65,940
Net income -- -- 1,514 -- -- 1,514
Cash dividends declared
($0.15 per share) -- -- (412) -- -- (412)
Stock options exercised 7,350 -- -- (110) 154 -- 44
Purchases of treasury stock (5,000) -- -- -- (116) -- (116)
Net change in unrealized
gain (loss) on securities
available for sale,
net of taxes -- -- -- -- 292 292
Balance at March 31, 1995 2,749,234 $2,952 27,355 41,157 (4,272) 70 67,262
Balance at December 31, 1993 2,938,574 $2,952 27,355 33,748 (234) -- 63,821
Net income -- -- 1,805 -- -- 1,805
Cash dividends declared
($0.075 per share) -- -- (221) -- -- (221)
Stock options exercised 3,700 -- -- (49) 67 -- 18
Purchases of treasury stock (15,000) -- -- -- (282) -- (282)
Net unrealized gain (loss) on
securities available for
sale, net of taxes:
As of January 1, 1994 -- -- -- -- 2,165 2,165
Net change during period -- -- -- -- (438) (438)
Balance at March 31, 1994 2,927,274 $2,952 27,355 35,283 (449) 1,727 66,868
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Progressive Bank, Inc. and Subsidiary
(In thousands)
(Unaudited)
<CAPTION>
For the Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Operating activities:
Net income $ 1,514 1,805
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 125 250
Depreciation expense 204 311
Provision for losses on other real estate -- 500
Gain on sales of other real estate (73) (189)
Net gain on securities and loans (40) (54)
Amortization of net deferred loan origination fees (71) (202)
Amortization of net premiums on securities 34 367
Net decrease in accrued interest receivable 164 203
Net change in income tax assets and liabilities 3,912 543
Other, net 45 1,077
Net cash provided by operating activities 5,814 4,611
Investing activities:
Purchases of securities:
Securities available for sale (3,108) (200)
Securities held to maturity (3,383) (13,676)
Proceeds from principal payments, maturities and calls of
securities:
Securities available for sale 4,334 11,282
Securities held to maturity 2,368 5,516
Disbursements for loan originations, net of principal collections (16,992) (8,191)
Proceeds from sales of loans 2,023 8,030
Purchases of premises and equipment (453) (38)
Proceeds from sales of other real estate 410 210
Net cash provided by (used in) investing activities (14,801) 2,933
Financing activities:
Net increase (decrease) in time deposits 17,976 (7,827)
Net increase (decrease) in other deposits (23,735) 7,552
Cash dividends paid on common stock (412) (221)
Net proceeds on issuance of common stock 44 18
Purchases of treasury stock (116) (282)
Net cash used in financing activities (6,243) (760)
Net increase (decrease) in cash and cash equivalents (15,230) 6,784
Cash and cash equivalents at beginning of period 71,754 25,793
Cash and cash equivalents at end of period $ 56,524 32,577
Supplemental data:
Interest paid $ 6,167 3,353
Income taxes paid (refunded) (2,642) 160
Loans transferred to other real estate 703 209
Loans originated to finance sales of other real estate -- 605
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Progressive Bank, Inc. and Subsidiary
(Unaudited)
Note 1: Basis of Presentation
The consolidated financial statements included herein have been prepared by
Progressive Bank, Inc. ("Progressive", or, together with its subsidiary, the
"Company") in conformity with generally accepted accounting principles for
interim financial statements without audit. Progressive, a New York
corporation, is a bank holding company whose sole subsidiary is Pawling
Savings Bank (a New York state-chartered stock savings bank). In the opinion
of management, the unaudited consolidated financial statements include all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the consolidated financial position and results of operations
for the periods presented. Certain information and footnote disclosures
normally included in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company believes that the
disclosures are adequate to make the information presented not misleading.
However, the results for the periods presented are not necessarily indicative
of results to be expected for the entire year.
The unaudited consolidated financial statements presented herein should be
read in conjunction with the annual consolidated financial statements of the
Company for the fiscal year ended December 31, 1994.
Note 2: Net Income Per Common Share
Net income per common share is based on net income divided by the weighted
average common shares outstanding during the period. Outstanding common
stock equivalents (stock options) did not have a significant dilutive effect
upon the net income per share computation.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The financial condition and operating results of Progressive Bank, Inc.
("Progressive", or, together with its subsidiary, the "Company"), a bank
holding company, are primarily dependent upon the financial condition and
operating results of its wholly-owned subsidiary, Pawling Savings Bank
("Pawling").
The Company is engaged principally in the business of attracting retail
deposits from the general public and the business community and investing
those funds in mortgage loans, consumer loans and securities. The operating
results of the Company depend primarily on its net interest income after
provision for loan losses. Net interest income is the difference between
interest and dividend income on earning assets, primarily loans and
securities, and interest expense on deposits. Net income of the Company is
also affected by other income, which includes service fees and net gain
(loss) on securities and loans; other expense, which includes salaries and
employee benefits and other operating expenses; and Federal and state income
taxes.
FINANCIAL CONDITION
Total assets of the Company were $695.6 million at March 31, 1995 as compared
to $696.3 million at December 31, 1994, a decrease of $660,000 or 0.1%.
At March 31, 1995, net loans totaled $487.9 million, compared to $473.1
million at December 31, 1994, an increase of $14.8 million or 3.1%. The
commercial mortgage segment of the loan portfolio decreased $711,000, or
1.1%, from $66.4 million at December 31, 1994 to $65.7 million at March 31,
1995. The residential mortgage segment of the loan portfolio increased $15.5
million or 4.5% (net of loan sales to the secondary market of $2.0 million)
from $346.1 million at December 31, 1994 to $361.6 million at March 31, 1995.
Other loans increased $113,000 or 0.2% during the first three months of 1995
from $57.9 million to $58.0 million.
The $258,000 increase in securities primarily reflects a $3.1 million
increase in equity securities due to an additional purchase of Federal Home
Loan Bank stock and a $292,000 increase due to the change in fair value of
available-for-sale securities, substantially offset by a $3.3 million decline
in U.S. Treasury, corporate and other securities reflecting maturing
investments.
The $5.5 million decrease in deposits during the first quarter of 1995 was
attributable to declines in savings and demand accounts of $18.6 million and
$5.0 million, respectively, partially offset by the $18.0 increase in time
deposits.
Shareholders' equity at March 31, 1995 was $67.3 million, an increase of $1.3
million or 2.0% from December 31, 1994. This increase primarily reflects net
income of $1.5 million, partially offset by cash dividends of $412,000.
Shareholders' equity, as a percent of total assets, was 9.67% at March 31,
1995 compared to 9.47% at December 31, 1994. Book value per share increased
to $24.47 at March 31, 1995 from $24.00 at December 31, 1994.
The following table shows the Company's average consolidated balances,
interest income and expense, and average rates (not on a tax-equivalent
basis) for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1995 March 31, 1994
Average Average Average Average
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans <F1> $433,955 9,192 8.47% $397,650 8,418 8.47%
Other loans <F1> 57,907 1,341 9.26 50,344 1,258 10.00
Mortgage-backed securities 83,764 1,129 5.39 61,191 700 4.58
U.S. Treasury, corporate
and other securities 43,099 746 6.92 84,657 1,427 6.74
Federal funds sold and other 51,839 666 5.14 15,103 118 3.13
Total interest-earning assets 670,564 13,074 7.80% 608,945 11,921 7.83%
Non-interest-earning assets 25,398 27,702
Total assets $695,962 $636,647
Interest-bearing liabilities:
Savings deposits <F2> $259,099 2,279 3.52% $248,889 1,855 2.98%
Time deposits 319,617 3,942 4.93 269,924 2,936 4.35
Total interest-bearing
liabilities 578,716 6,221 4.30% 518,813 4,791 3.69%
Non-interest-bearing liabilities 50,645 52,489
Total liabilities 629,361 571,302
Shareholders' equity 66,601 65,345
Total liabilities and
shareholders' equity $695,962 $636,647
Net earning balance $ 91,848 $ 90,132
Net interest income 6,853 7,130
Interest rate spread <F3> 3.50% 4.14%
Net yield on interest-earning
assets (margin) <F4> 4.09% 4.68%
<FN>
<F1> Interest income on loans does not include interest on non-accrual
loans; however, such loans have been included in the calculation of the
average balances outstanding.
<F2> Includes NOW accounts, passbook and statement savings accounts,
and money market accounts.
<F3> Average rate on total interest-earning assets less average rate
on total interest-bearing liabilities.
<F4> Net interest income divided by total average interest-earning
assets.
</TABLE>
RESULTS OF OPERATIONS
GENERAL
For the quarter ended March 31, 1995, the Company's net income was $1.5
million or $0.55 per share as compared to $1.8 million or $0.61 per share for
the same three-month period in 1994. The $291,000 decrease in net income was
primarily the result of a $840,000 increase in income tax expense, partially
offset by a $658,000 decrease in the net cost of other real estate.
NET INTEREST INCOME
Net interest income decreased $277,000, or 3.9%, to $6.9 million for the
three-month period ended March 31, 1995 compared to $7.1 million for 1994.
The components of net interest income are interest and dividend income, which
increased $1.2 million or 9.7%, and interest on deposits, which increased
$1.4 million or 29.8%. The Company's interest rate spread narrowed by 64
basis points from 4.14% in 1994 to 3.50% in 1995, primarily reflecting the 61
basis point increase in the average cost of deposits from 3.69% in 1994 to
4.30% in 1995. The net interest margin also narrowed by 59 basis points from
4.68% in 1994 to 4.09% in 1995, primarily reflecting the narrower interest
rate spread.
Interest on loans increased by $857,000, or 8.9%, primarily reflecting an
increase in the volume of loans outstanding, partially offset by a slight
decrease in the yield earned on the portfolio. The lower yield primarily
reflects the changing mix of the portfolio toward adjustable rate loans which
generally provide higher returns in a rising rate environment but have
initial rates lower than comparable fixed rate loans. At March 31, 1995,
adjustable rate loans represented approximately 48.3% of the loan portfolio
compared to 33.0% at March 31, 1994. These factors were partially offset by
the positive effect on interest income of continued reductions in non-accrual
loans. Loans on non-accrual status totaled $5.5 million at March 31, 1995
compared to $7.3 million at December 31, 1994 and $13.2 million at March 31,
1994.
Interest on mortgage-backed securities increased $429,000, or 61.3%,
primarily due to an increase in the average balance outstanding from $61.2
million for the quarter ended March 31, 1994 to $83.8 million for the quarter
ended March 31, 1995, as well as increases in the yield earned on the
portfolio. During the first quarter of 1995, the Company continued to
emphasize the purchase of mortgage-backed securities, principally adjustable
rate securities that are consistent with management's overall strategy to
manage interest rate risk. The increase in the average yield for the first
quarter of 1995 was primarily due to purchases of securities with higher
yields and upward adjustments on adjustable rate securities, as well as the
effect of lower premium amortization as a result of the lower level of
security prepayments.
Interest and dividends on U.S. Treasury, corporate and other securities
decreased by $681,000, primarily reflecting a decrease in the average balance
outstanding from $84.7 million in 1994 to $43.1 million in 1995. This
decrease was primarily the result of maturities and, to a lesser degree, the
effect of corporate securities being called prior to maturity during 1994.
Funds provided by maturities and calls were generally used for loan
originations and purchases of mortgage-backed securities. The average rate
earned on U.S. Treasury, corporate and other securities increased from 6.74%
in 1994 to 6.92% in 1995 as a result of purchases of securities with higher
yields as well as the sale of lower yielding securities during the fourth
quarter of 1994.
Interest on Federal funds sold and other earning assets increased $548,000
due to an increase in the average balance outstanding from $15.1 million in
1994 to $51.8 million in 1995 as well as an increase in the rate earned to
5.14% in 1995 from 3.13% in 1994.
The $1.4 million increase in interest on deposits was due primarily to an
increase in the average balance of deposits from $518.8 million for the first
quarter of 1994 to $578.7 million in the current quarter, as well as the
increase in the average rate paid on deposits from 3.69% for the first
quarter of 1994 to 4.30% for the first quarter of 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses is a charge against income which increases the
allowance for loan losses. The adequacy of the allowance for loan losses is
evaluated periodically and is determined based on management's judgment
concerning the amount of risk and potential for loss inherent in the
portfolio. Management's judgment is based upon a number of factors including
a review of non-performing and other classified loans, the value of
collateral for such loans, historical loss experience, changes in the nature
and volume of the loan portfolio, and current and prospective economic
conditions.
For the three-month period ended March 31, 1995, the provision for loan
losses was $125,000, a reduction of $125,000 from the provision of $250,000
for the comparable period in 1994. The lower provision primarily reflects
the continued reduction in the Company's non-performing loans, and
stabilization in the local economy and certain sectors of the real estate
market. Non-performing loans declined to $5.6 million, or 1.13% of total
loans, at March 31, 1995 from $13.3 million, or 2.96% of total loans, at
March 31, 1994 and $7.4 million, or 1.53% of total loans, at December 31,
1994.
In determining the provision for loan losses, management also considers the
level of slow paying loans, or loans where the borrower is contractually past
due thirty days or more, but has not yet been placed on non-accrual status.
At March 31, 1995, slow paying loans amounted to $2.9 million as compared to
$5.6 million at March 31, 1994 and $2.9 million at December 31, 1994.
Loan loss provisions in future periods will continue to depend on trends in
the credit quality of the Company's loan portfolio and the level of loan
charge-offs which, in turn, will depend in part on the economic and real
estate market conditions prevailing within the Company's lending region. If
general economic conditions or real estate values deteriorate, the level of
non-performing loans may increase and higher provisions for loan losses may
be necessary.
Activity in the allowance for loan losses for the periods indicated is
summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 9,402 13,920
Provision charged to operations 125 250
9,527 14,170
Loans charged off:
Mortgage loans:
Residential (98) (69)
Commercial (234) --
Construction and land (667) (178)
Other loans:
Consumer (67) (76)
Commercial (30) (45)
Total charge-offs (1,096) (368)
Recoveries:
Mortgage loans:
Residential 60 2
Other loans:
Consumer 14 23
Commercial 1 1
Total recoveries 75 26
Net charge-offs (1,021) (342)
Balance at end of period $ 8,506 13,828
Ratio of net charge-offs to average total loans
outstanding (annualized) 0.83% 0.31%
</TABLE>
The following table sets forth information with respect to non-performing
loans and other real estate, and certain asset quality ratios at or for the
dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1994 1995
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing loans:
Mortgage loans:
Residential properties $2,370 4,043 1,636
Commercial properties 1,880 4,706 3,009
Construction and land 1,369 4,437 2,736
5,619 13,186 7,381
Other loans 13 68 15
Total non-performing loans<F1> 5,632 13,254 7,396
Other real estate, net 2,245 6,277 2,265
Total non-performing assets $7,877 19,531 9,661
Ratio of non-performing loans to total loans 1.13% 2.96% 1.53%
Ratio of non-performing assets to total assets 1.13 3.05 1.39
Ratio of allowance for loan losses to total
non-performing loans 151.03 104.33 127.12
<FN>
<F1> Includes loans on non-accrual status of $5.5 million, $13.2 million and
$7.3 million at March 31, 1995, March 31, 1994, and December 31, 1994,
respectively. The Company generally stops accruing interest on loans that are
delinquent over 90 days.
</TABLE>
The loan portfolio also includes certain restructured loans that are current
in accordance with modified payment terms and, accordingly, are not included
in the preceding table. These restructured loans are loans for which
concessions, including reduction of interest rates to below-market levels or
deferral of payments, have been granted due to the borrowers' financial
condition. Restructured loans totaled $1.4 million at March 31, 1995,
compared to $3.5 million at March 31, 1994 and $1.8 million at December 31,
1994.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan." Under SFAS No. 114, a loan is defined as impaired if
it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement. SFAS No. 114 also
requires that an impaired loan be measured based on (i) the present value of
expected future cash flows discounted at the loan's effective interest rate,
(ii) the loan's observable market price or (iii) the fair value of the
collateral if the loan is collateral dependent. An allowance for loan losses
is maintained if the measure of an impaired loan is less than its recorded
investment. SFAS No. 114 primarily applies to the Company's commercial
mortgage loans, and construction and land loans. It does not apply to
residential mortgage and consumer loans which represent a substantial portion
of the Company's loan portfolio.
The adoption of SFAS No. 114 did not result in any adjustment to the
Company's overall allowance for loan losses. At March 31, 1995, the
Company's recorded investment in impaired commercial mortgage and
construction loans totaled $5.1 million (including $3.2 million on
non-accrual status). The total impaired loans consist of (1) loans of $4.8
million for which there was an allowance for losses of $1.4 million
determined in accordance with SFAS No. 114 and (2) loans of $210,000 for
which there was no allowance determined under SFAS No. 114. The average
recorded investment in impaired loans was $6.3 million for the first quarter
of 1995. Interest income recognized on impaired loans was insignificant for
the quarter ended March 31, 1995.
OTHER INCOME
Sources of other income include deposit and other service fees, net gain
(loss) on securities, net gain (loss) on sales of loans, and other
non-interest income. For the three-month period ended March 31, 1995, other
income decreased by $21,000 to $679,000 from $700,000 for the same period in
1994.
Deposit service fees, the largest component of other income, increased by
$40,000, or 8.9%, to $487,000 for the three-month period ended March 31, 1995
from $447,000 for the same period in 1994. This was primarily the result of
an increase in the volume of retail checking account fees. Other service
fees declined $28,000 to $145,000 for the quarter ended March 31, 1995 from
$173,000 for the previous year, primarily reflecting lower revenues from
debit card fees. There was no net gain or loss on securities for the first
quarter of 1995, as there were no sales or calls of securities during that
period. Net gains on loans was $40,000 for both the three-month periods
ended March 31, 1995 and 1994.
OTHER EXPENSE
Other expense consists of general and administrative expenses incurred in
managing the core business of the Company and the net costs associated with
managing and selling other real estate properties. For the quarter ended
March 31, 1995, other expense decreased by $722,000, or 13.0%, to $4.8
million from $5.6 million for 1994, primarily due to a decrease in the net
cost of other real estate.
Salaries and employee benefits, the largest component of other expense,
increased by $26,000, or 1.2%, to $2.3 million for the three-month period
ended March 31, 1995 from $2.2 million for the same period in 1994.
Occupancy and equipment costs decreased $159,000, or 20.9%, to $600,000 for
the three-month period ended March 31, 1995 from the previous year due to
decreased depreciation expense.
The net cost of other real estate decreased $658,000, or 88.4%, to $86,000
for the quarter ended March 31, 1995 from $744,000 for the previous period,
primarily reflecting a $500,000 reduction in the provision for losses. The
lower provision reflects the decline in the other real estate portfolio and
management's assessment of the adequacy of the allowance for other real
estate losses. The investment in other real estate properties (before the
allowance for losses) declined substantially from $7.9 million at March 31,
1994 to $2.8 million at March 31, 1995. The decline in the net cost of other
real estate also included a $158,000 combined decrease in net holding costs
and gains on sales of properties, reflecting the smaller portfolio for the
current quarter.
FDIC deposit insurance expense decreased $10,000, or 2.8%, to $350,000 for
the three-month period ended March 31, 1995 from $360,000 for 1994. This
primarily reflects the decrease in assessable deposits.
Other non-interest expense increased $79,000, or 5.5%, to $1.5 million for
the three-month period in 1995 when compared to the same period in 1994.
This reflects a $52,000 increase in advertising expense due to additional
marketing efforts and higher miscellaneous operating expenses.
INCOME TAX EXPENSE
For the three-month periods ended March 31, 1995 and 1994, income tax expense
was $1.1 million and $219,000, respectively (effective tax rates of 41.2% and
10.8%, respectively). The lower effective rate for the first quarter of 1994
was primarily due to a reduction in the deferred Federal tax asset valuation
allowance in accordance with SFAS No. 109. Income tax expense for the first
three months of 1994 was reduced by an adjustment of $609,000 to the
valuation allowance commensurate with the increase in Federal income taxes
recoverable by loss carryback.
The Company's deferred tax assets were $5.9 million at March 31, 1995, net of
a remaining valuation allowance of $254,000. Based on recent historical and
anticipated future pre-tax earnings, management believes it is more likely
than not that the Company will realize its net deferred tax assets.
Management also anticipates that the Company's near-term results of
operations will not be significantly affected by further adjustments to the
valuation allowance for deferred tax assets.
RATIOS
Results of operations can be measured by various ratios. Two widely
recognized performance indicators are the return on assets and the return on
equity. The following table sets forth these performance ratios for the
Company on an annualized basis:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
1995 1994 1994
<S> <C> <C> <C>
Return on assets:
Net income divided by average total assets 0.87% 1.13% 1.15%
Return on equity:
Net income divided by average equity 9.09% 11.05% 11.65%
</TABLE>
LIQUIDITY
Liquidity is defined as the ability to generate sufficient cash flow to meet
all present and future funding commitments. Management monitors the
Company's liquidity position on a daily basis and evaluates its ability to
meet depositor withdrawals and to make new loans and investments as
opportunities arise. The Asset/Liability Committee, consisting of members of
senior management, is responsible for setting general guidelines to ensure
maintenance of prudent levels of liquidity. The mix of liquid assets and
various deposit products, at any given time, reflects management's view of
the most efficient use of these sources of funds.
The Company's cash flows are classified according to their source operating
activities, investing activities, and financing activities. Further details
concerning the Company's cash flows are provided in the "Consolidated
Statements of Cash Flows".
Liquid assets are provided by short-term investments, proceeds from
maturities of securities and principal collections on loans. One measure used
by the Company to assess its liquidity position is the primary liquidity
ratio (defined as the ratio of cash and due from banks, Federal funds sold
and securities maturing within one year to total assets). At March 31, 1995,
the Company had a primary liquidity ratio of 10.39% as compared to 12.27% at
December 31, 1994.
An important source of funds is Pawling's core deposit base. Management
believes that substantially all of Pawling's deposits of $618.8 million at
March 31, 1995 are core deposits. Core deposits are generally considered to
be a highly stable source of liquidity due to long-term relationships with
deposit customers. Pawling recognizes the importance of maintaining and
enhancing its reputation in the consumer market to enable effective gathering
and retention of core deposits. The Company does not currently utilize
brokered deposits as a source of funds.
In addition to the funding sources discussed above, the Company has the
ability to borrow funds from several sources. In September 1994, Pawling
became a member of the Federal Home Loan Bank of New York ("FHLBNY") and, at
March 31, 1995, had access to additional liquidity in the form of borrowings
from the FHLBNY of up to $73.0 million. The Company also had access to the
discount window of the Federal Reserve Bank.
At March 31, 1995, Pawling had outstanding loan commitments and unadvanced
customer lines of credit totaling $59.9 million. At March 31, 1995, the
Company had a commitment for approximately $1.3 million for renovations of a
recently acquired building in Fishkill, New York which will serve as the
administrative headquarters. The sources of liquidity discussed above are
deemed by management to be sufficient to fund outstanding loan commitments
and to meet the Company's other obligations.
One of the Company's long-time correspondents was Nationar, a state-chartered
trust company. The Company has used Nationar for Federal funds transactions,
as well as certain custodial and investment services. On February 6, 1995,
the New York State Superintendent of Banking (the "Superintendent") took
possession of the business and property of Nationar. At that time, all
customer accounts were frozen including $3.6 million of the Company's assets,
primarily consisting of Federal funds sold. Since the seizure, the
Superintendent has maintained the continued operation of Nationar, has begun
the process of selling Nationar's assets, and has prepared an initial
accounting of Nationar's assets and liabilities. Based upon the information
currently available, the Company does not anticipate that the resolution of
this matter will have a material adverse effect on its consolidated financial
statements.
CAPITAL
Progressive, as a bank holding company, is subject to regulation and
supervision by the Federal Reserve Board ("FRB"). Pawling, as a New York
state-chartered stock savings bank, is subject to regulation and supervision
by the New York State Banking Department as its chartering agency and by the
FDIC as its deposit insurer. Both the FRB and the FDIC have developed and
follow, in substance, similar requirements to maintain minimum levels of
leverage and risk-based capital.
Under the current leverage capital guidelines, most banking companies must
maintain Tier 1 capital of between 4.0% and 5.0% of total assets.
The risk-based capital adequacy guidelines require the Company and Pawling to
maintain capital according to the risk profile of the asset portfolio and
certain off-balance sheet items. The guidelines set forth a system for
calculating risk-weighted assets by assigning assets (and credit-equivalent
amounts for certain off-balance sheet items) to one of four broad risk-weight
categories. The amount of risk-weighted assets is determined by applying a
specific percentage (0%, 20%, 50% or 100%, depending on the level of credit
risk) to the amounts assigned to each category. As a percentage of
risk-weighted assets, a minimum ratio of 4.0% must be maintained for Tier 1
capital and 8.0% for total capital.
At March 31, 1995, Progressive's capital ratios exceeded the FRB's minimum
regulatory capital guidelines as follows:
<TABLE>
<CAPTION>
Risk-Based Capital
Leverage Capital Tier 1 Total
Amount<F1> Ratio Amount<F1> Ratio Amount<F1> Ratio
<S> <C> <C> <C> <C> <C> <C>
Actual $67,192 9.66% $67,192 17.15% $72,135 18.41%
Minimum requirement 27,828 4.00 15,674 4.00 31,348 8.00
Excess $39,364 5.66% $51,518 13.15% $40,787 10.41%
<FN>
<F1> For all capital amounts, actual capital excludes the Company's net
unrealized gain of $70,000 on securities available for sale.
</TABLE>
At March 31, 1995, Pawling's capital ratios exceeded the FDIC's minimum
regulatory capital requirements as follows:
<TABLE>
<CAPTION>
Risk-Based Capital
Leverage Capital Tier 1 Total
Amount<F1> Ratio Amount<F1> Ratio Amount<F1> Ratio
<S> <C> <C> <C> <C> <C> <C>
Actual $60,723 8.81% $60,723 15.58% $65,639 16.84%
Minimum requirement 27,563 4.00 15,588 4.00 31,175 8.00
Excess $33,160 4.81% $45,135 11.58% $34,464 8.84%
<FN>
<F1> For all capital amounts, actual capital excludes Pawling's net
unrealized gain of $181,000 on securities available for sale.
</TABLE>
During 1994, the Company announced two plans to repurchase in each case up to
5% of Progressive's outstanding common stock, to be used for general
corporate purposes. The first repurchase was completed on November 9, 1994
and consisted of 147,000 shares at a total cost of $3.1 million or $21.21 per
share. On November 10, 1994, the Company announced another plan to
repurchase 140,000 shares. At March 31, 1995, 62,000 shares had been
purchased under the second plan at a cost of $1.3 million or $21.05 per
share. The Company considers its stock to be an attractive investment and
believes he program will increase the Company's book value and earnings per
share.
On April 12, 1995, the Company's Board of Directors declared a dividend of
fifteen cents ($0.15) per common share, payable on May 31, 1995 to
shareholders of record as of April 28, 1995.
ASSET/LIABILITY MANAGEMENT
The Company's asset/liability management goal is to maintain an acceptable
level of interest rate risk to produce relatively stable net interest income
in changing interest rate environments. Management continually monitors the
Company's interest rate risk. Risk management strategies are developed and
implemented by the Asset/Liability Committee which uses various risk
measurement tools to evaluate the impact of changes in interest rates on the
Company's asset/liability structure and net interest income.
Earnings are susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. These interest rate repricing "gaps" provide an
indication of the extent that net interest income may be affected by future
changes in interest rates. A one-year period is a common measurement
interval of interest sensitivity known as the one-year gap. The Company's
one-year gap as a percentage of total assets was 7.09% at March 31, 1995. A
positive gap exists when the amount of interest-earning assets exceeds the
amount of interest-bearing liabilities expected to mature or reprice in a
given period. A positive gap may enhance earnings in periods of rising
interest rates in that, during such periods, the interest income earned on
assets may increase more rapidly than the interest expense paid on
liabilities. Conversely, in a falling interest rate environment, a positive
gap will result in a decrease in interest income earned on assets that is
greater than the decrease in interest expense paid on liabilities. While a
positive gap indicates the amount of interest-earning assets which will
reprice before interest-bearing liabilities, it does not indicate the extent
to which they will reprice. Therefore, at times, a positive gap may not
produce higher margins in a rising rate environment.
The Company manages its interest rate risk primarily by structuring its
balance sheet to emphasize holding adjustable rate loans in its portfolio and
maintaining a large base of core deposits. The Company has not used
synthetic hedging instruments such as interest rate futures, swaps or
options.
The following table summarizes the Company's interest rate sensitive assets
and liabilities at March 31, 1995 according to the time periods in which they
are expected to reprice, and the resulting gap for each time period.
<TABLE>
<CAPTION>
Within One to Five Over Five
One Year Years Years
(Dollars in thousands)
<S> <C> <C> <C>
Total interest-earning assets $391,441 201,555 70,210
Total interest-bearing liabilities 342,096 102,563 132,702
Excess (deficiency) of interest-earning assets
over interest-bearing liabilities $ 49,345 98,992 (62,492)
Excess (deficiency) as a percent of total assets 7.09% 14.23% (8.98%)
Cumulative excess as a percent of total assets 7.09% 21.32% 12.34%
</TABLE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In August 1992, a shareholder of Progressive commenced an action against
Progressive and its directors in the New York Supreme Court seeking to
declare void the March 8, 1991 retirement agreement entered into with E. Hale
Mayer, the retiring Chairman of the Board and Chief Executive Officer of
Progressive and its subsidiary, Pawling Savings Bank, and to recover monies
paid thereunder. On March 25, 1994, the judge hearing the matter upon a
motion for summary judgment ruled in favor of Progressive and its directors
dismissing the complaint against them. The plaintiff has filed an appeal
with the Appellate Division of the New York Supreme Court seeking a reversal
of the decision.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit I, Computation of Net Income Per Share.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROGRESSIVE BANK, INC.
(Registrant)
Date: May 12, 1995
/s/ Peter Van Kleeck
- - ----------------------
Peter Van Kleeck
President and Chief Executive Officer
Date: May 12, 1995
/s/ Robert Gabrielsen
- - -----------------------
Robert Gabrielsen, Treasurer
Principal Financial Officer and
Principal Accounting Officer
<TABLE>
Exhibit I
Computation of Net Income Per Share
<CAPTION>
Three Months Ended March 31,
1995 1994
(In thousands, except per share amounts)
<S> <C> <C>
Net income $1,514 $1,805
Weighted average common shares <F1> <F2> 2,746 2,939
Net income per share $ 0.55 $ 0.61
<FN>
<F1> Outstanding common stock equivalents (stock options) did not have a
significant dilutive effect upon the net income per share computation for
either of the periods presented.
<F2> Net of treasury stock.
</TABLE>
