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 September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission File Number: 0-15025
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.)
1301 Route 52, Fishkill, New York 12524
- ----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 897-7400
- ----------------------------------------------------------
(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 November 3, 1995: 2,669,819 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1995 and September 30, 1994
Consolidated Statements of Shareholders' Equity for the Nine
Months Ended September 30, 1995 and September 30, 1994
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and September 30, 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>
September 30, December 31,
1995 1994
<S> <C> <C>
Assets
Cash and due from banks $ 12,232 14,054
Federal funds sold 27,400 57,700
Securities:
Available for sale, at fair value 60,293 43,916
Held to maturity (fair value of $79,138 in 1995
and $81,172 in 1994) 77,663 83,764
Total securities 137,956 127,680
Loans, net:
Mortgage loans 467,432 425,397
Other loans 59,615 57,920
Allowance for loan losses (8,350) (9,402)
Net deferred loan origination fees (205) (836)
Total loans, net 518,492 473,079
Accrued interest receivable 4,929 4,208
Other real estate, net 323 2,265
Premises and equipment, net 9,636 8,091
Deferred income taxes, net 5,618 6,333
Other assets 6,242 2,882
Total assets $722,828 696,292
Liabilities and Shareholders' Equity
Liabilities:
Savings and time deposits $598,404 577,935
Demand deposits 46,270 46,394
Accrued expenses and other liabilities 9,758 6,023
Total liabilities 654,432 630,352
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 43,621 40,165
Treasury stock, at cost (262,155 shares in 1995
and 205,090 shares in 1994) (5,898) (4,310)
Net unrealized gain (loss) on securities
available for sale, net of taxes 366 (222)
Total shareholders' equity 68,396 65,940
Total liabilities and shareholders' equity $722,828 696,292
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 For the
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans $10,027 8,721 28,829 25,529
Other loans 1,469 1,330 4,206 3,882
Securities 2,313 2,561 6,281 7,095
Federal funds sold and other 439 266 1,663 654
Total interest and dividend income 14,248 12,878 40,979 37,160
Interest on deposits 7,248 5,445 20,206 15,221
Net interest income 7,000 7,433 20,773 21,939
Provision for loan losses 150 250 400 750
Net interest income after provision for loan losses 6,850 7,183 20,373 21,189
Other income:
Deposit service fees 510 460 1,495 1,359
Other service fees 140 170 456 476
Net gain on securities 53 43 45 39
Net gain on sale of loans 35 32 136 7
Other non-interest income 12 46 25 86
Total other income 750 751 2,157 1,967
Net interest and other income 7,600 7,934 22,530 23,156
Other expense:
Salaries and employee benefits 2,302 2,261 6,773 6,774
Occupancy and equipment 595 478 1,749 1,808
Net cost of other real estate 98 93 279 1,636
FDIC deposit insurance (40) 338 660 1,047
Other non-interest expense 1,513 1,515 4,619 4,497
Total other expense 4,468 4,685 14,080 15,762
Income before income taxes 3,132 3,249 8,450 7,394
Income tax expense 1,290 1,333 3,470 1,789
Net income $ 1,842 1,916 4,980 5,605
Net income per common share $ 0.68 0.66 1.82 1.93
Weighted average common shares outstanding 2,714 2,882 2,733 2,907
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 -- -- -- 4,980 -- -- 4,980
Cash dividends declared
($0.45 per share) -- -- -- (1,232) -- -- (1,232)
Stock options exercised 25,935 -- -- (292) 559 -- 267
Purchases of treasury stock (83,000) -- -- -- (2,147) -- (2,147)
Net change in unrealized gain
(loss) on securities available
for sale, net of taxes -- -- -- -- -- 588 588
Balance at September 30, 1995 2,689,819 $2,952 27,355 43,621 (5,898) 366 68,396
Balance at December 31, 1993 2,938,574 $2,952 27,355 33,748 (234) -- 63,821
Net income -- -- -- 5,605 -- -- 5,605
Cash dividends declared
($0.275 per share) -- -- -- (801) -- -- (801)
Stock options exercised 10,810 -- -- (149) 201 -- 52
Purchases of treasury stock (97,500) -- -- -- (2,052) -- (2,052)
Net change in unrealized gain
(loss) on securities available
for sale, net of taxes:
As of January 1, 1994 -- -- -- -- -- 2,165 2,165
Net change during period -- -- -- -- -- (2,390) (2,390)
Balance at September 30, 1994 2,851,884 $2,952 27,355 38,403 (2,085) (225) 66,400
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 Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Operating activities:
Net income $ 4,980 5,605
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 400 750
Depreciation expense 618 575
Provision for losses on other real estate 250 1,000
Gain on sales of other real estate (302) (401)
Net gain on securities and loans (181) (46)
Amortization of net deferred loan origination fees (340) (499)
Amortization of net premiums on securities 56 556
Net increase in accrued interest receivable (721) (28)
Net change in income tax assets and liabilities 4,044 (2,595)
Other, net (2,983) 2,047
Net cash provided by operating activities 5,821 6,964
Investing activities:
Purchases of securities:
Securities available for sale (28,407) (14,292)
Securities held to maturity (3,384) (45,301)
Proceeds from principal payments, maturities and calls of securities:
Securities available for sale 11,108 31,587
Securities held to maturity 9,538 11,465
Proceeds from sale of securities available for sale 1,780 385
Disbursements for loan originations, net of principal collections (54,359) (61,465)
Proceeds from sales of loans 9,652 22,291
Purchases of premises and equipment (2,163) (1,085)
Proceeds from sales of other real estate 1,685 2,574
Net cash used in investing activities (54,550) (53,841)
Financing activities:
Net increase in time deposits 40,719 16,399
Net increase in other deposits (21,000) 37,292
Cash dividends paid on common stock (1,232) (801)
Net proceeds on issuance of common stock 267 52
Purchases of treasury stock (2,147) (2,052)
Net cash provided by financing activities 16,607 50,890
Net increase (decrease) in cash and cash equivalents (32,122) 4,013
Cash and cash equivalents at beginning of period 71,754 25,793
Cash and cash equivalents at end of period $39,632 29,806
Supplemental data:
Interest paid $20,004 13,551
Income taxes paid, net 2,490 4,185
Loans transferred to other real estate 951 2,425
Loans originated to finance sales of other real estate 1,220 2,371
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 to 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.
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 $722.8 million at September 30, 1995 as
compared to $696.3 million at December 31, 1994, an increase of $26.5 million
or 3.8%.
At September 30, 1995, net loans totaled $518.5 million, compared to $473.1
million at December 31, 1994, an increase of $45.4 million or 9.6%. The
residential mortgage segment of the loan portfolio increased $46.1 million or
13.3% (net of loan sales to the secondary market of $9.5 million) from $346.1
million at December 31, 1994 to $392.2 million at September 30, 1995. The
commercial mortgage segment of the loan portfolio decreased $895,000, or 1.3%,
from $66.4 million at December 31, 1994 to $65.5 million at September 30,
1995. Other loans increased $1.7 million or 2.9% during the first nine months
of 1995 from $57.9 million at December 31, 1994 to $59.6 million at September
30, 1995, primarily due to increases in business installment loans and mobile
home loan categories, partially offset by declines in automobile financing.
The $10.3 million overall increase in securities was primarily comprised of
a $16.1 million increase in the carrying value of United States Treasury and
agency securities reflecting purchases of Treasury notes in the third quarter
of 1995, partially offset by a $6.1 million decrease in the amortized cost of
mortgage-backed securities due to normal principal paydowns. In October 1995,
the Financial Accounting Standards Board announced that it will allow a one-
time transfer of securities from held to maturity to available for sale and
sales from the held to maturity portfolio that were not previously permitted
under SFAS No. 115. The Company is currently reviewing the investment
portfolio and may make transfers in the fourth quarter of 1995 as deemed
appropriate.
The $20.3 million increase in deposits during the first nine months of 1995
was attributable to the $40.7 million increase in time deposits and the $31.3
million increase in money market accounts, partially offset by the decline in
savings accounts of $47.2 million.
Shareholders' equity at September 30, 1995 was $68.4 million, an increase of
$2.5 million or 3.7% from December 31, 1994. This increase primarily reflects
net income of $5.0 million, partially offset by treasury stock purchases of
$2.1 million and cash dividends of $1.2 million. Shareholders' equity, as a
percent of total assets, was 9.46% at September 30, 1995, compared to 9.47% at
December 31, 1994. Book value per share increased to $25.43 at September 30,
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 Nine Months Ended Nine Months Ended
September 30, 1995 September 30, 1994 September 30, 1995 September 30, 1994
Average Average Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans<F1> $461,718 10,027 8.69% $418,550 8,721 8.33% $446,412 28,829 8.61% $403,759 25,529 8.43%
Other loans<F1> 59,204 1,469 9.93 56,575 1,330 9.40 58,416 4,206 9.60 53,747 3,882 9.63
Mortgage-backed
securities<F2> 80,473 1,367 6.79 89,418 1,281 5.73 82,607 3,781 6.10 75,513 3,039 5.37
U.S. Treasury,
corporate and other
securities<F2> 55,347 946 6.84 79,172 1,280 6.47 48,179 2,500 6.92 82,720 4,056 6.54
Federal funds sold 29,075 439 6.04 23,909 266 4.45 38,759 1,663 5.72 21,947 654 3.97
Total interest-
earning assets 685,817 14,248 8.31% 667,624 12,878 7.72% 674,373 40,979 8.10% 637,686 37,160 7.77%
Non-interest-earning
assets 27,161 15,431 30,097 22,165
Total assets $712,978 $683,055 $704,470 $659,851
Interest-bearing
liabilities:
Savings deposits<F3> $248,355 2,301 3.71% $290,052 2,393 3.30% $250,310 6,753 3.60% $272,810 6,461 3.16%
Time deposits 344,375 4,947 5.75 278,813 3,052 4.38 332,849 13,453 5.39 270,105 8,760 4.32
Total interest-
bearing
liabilities 592,730 7,248 4.89% 568,865 5,445 3.83% 583,159 20,206 4.62% 542,915 15,221 3.74%
Non-interest-bearing
liabilities 52,134 47,893 53,954 51,115
Total liabilities 644,864 616,758 637,113 594,030
Shareholders' equity 68,114 66,297 67,357 65,821
Total liabilities
and shareholders'
equity $712,978 $683,055 $704,470 $659,851
Net earning balance $ 93,087 $ 98,759 $ 91,214 $ 94,771
Net interest income 7,000 7,433 20,773 21,939
Interest rate spread<F4> 3.42% 3.89% 3.48% 4.03%
Net yield on interest-
earning assets
(margin)<F5> 4.08% 4.45% 4.11% 4.59%
<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> Average balances calculated using amortized cost.
<F3> Includes NOW accounts, passbook and statement savings accounts, and
money market accounts.
<F4> Average rate on total interest-earning assets less average rate on total
interest-bearing liabilities.
<F5> Net interest income divided by total average interest-earning assets.
</TABLE>
RESULTS OF OPERATIONS
GENERAL
For the quarter ended September 30, 1995, the Company's net income was $1.8
million or $0.68 per share as compared to $1.9 million or $0.66 per share for
the same three-month period in 1994. The increase in earnings per share was
primarily the result of the stock repurchase programs. For the nine-month
period ended September 30, 1995, the Company earned $5.0 million or $1.82 per
share as compared to $5.6 million or $1.93 per share for the same period in
1994. The decrease in net income for the nine-month period is primarily the
result of an increase in income tax expense and a decrease in the net interest
income, partially offset by decreases in the net cost of other real estate
and FDIC deposit insurance premium and the provision for loan losses.
NET INTEREST INCOME
Net interest income decreased $433,000, or 5.8%, to $7.0 million for the
three-month period ended September 30, 1995 and $1.2 million, or 5.3%, for the
nine-month period when compared to the same periods in 1994. The decreases
in net interest income for the quarter and nine-months ended September 30,
1995 were primarily due to increases in time deposit interest expense as a
result of increases in both the average balance outstanding as well as
increases in the average rate paid. The increases in interest expense were
partially offset by increases in mortgage interest income as a result of the
significant increase in volume as well as increases in the average rate
earned.
Interest on loans increased by $1.4 million, or 14.4%, for the three-month
period and $3.6 million, or 12.3%, for the nine-month period when compared
to the same periods in 1994, primarily reflecting increases in the volume of
loans outstanding. The yields earned were generally higher, as the increase
in the yield caused by the rising rate environment exceeded the effect of the
changing mix of the portfolio toward adjustable rate loans which generally
have initial rates lower than the comparable fixed rate loans. At September
30, 1995, adjustable rate loans represented approximately 53.8% of the loan
portfolio compared to 42.5% at September 30, 1994. Interest income on loans
was also positively effected by the continued reductions in non-accrual loans.
Loans on non-accrual status totaled $4.2 million at September 30, 1995
compared to $7.3 million at September 30, 1994.
Interest on mortgage-backed securities increased $86,000, or 6.7%, for the
three-month period and $742,000, or 24.4%, for the nine-month period when
compared to the same periods in 1994. These increases primarily reflect
increases in the average yield earned on the portfolio due to purchases of
securities with higher yields as well as upward adjustments on adjustable
rate securities. In addition, for the nine-month period ended September 30,
1995, there were also increases in the average outstanding balance due to the
Company emphasizing the purchase of mortgage-backed securities, principally
adjustable rate securities that are consistent with management's overall
strategy to manage interest rate risk.
Interest and dividends on U.S. Treasury, corporate and other securities
decreased by $334,000, or 26.1%, for the three-month period ended September
30, 1995 and $1.6 million, or 38.4%, for the nine-month period when compared
to the same periods in 1994. These decreases were primarily the result of
maturities and, to a lesser degree, the effect of corporate securities being
called prior to maturity. Funds provided by maturities and calls were
generally used for loan originations, reinvestment into Treasury notes, and
purchases of mortgage-backed securities. The average rate earned on U.S.
Treasury, corporate and other securities increased to 6.84% for the three-
month period and to 6.92% for the nine months ended September 30, 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 increased $173,000 for the three-month period
ended September 30, 1995 and $1.0 million for the nine-month period when
compared to the same periods in 1994. These increases primarily resulted
from the increased average balance outstanding combined with the higher rates
available during 1995.
Interest expense on deposits increased by $1.8 million, or 33.1%, for the
three-month period ended September 30, 1995 and $5.0 million, or 32.8%, for
the nine-month period when compared to the same periods in 1994. The primary
reason for the increase in the three-month period was an increase in the cost
of funds from 3.83% in 1994 to 4.89% in the current quarter. For the nine-
month period, the cost of funds was up from 3.74% in 1994 to 4.62% in the
current period. The increase in the cost of funds was due in part to the
higher interest rate environment as well as the shift in the mix of deposits
from lower cost savings deposits to higher cost time and money market
deposits. For the three- and nine-month periods ended September 30, 1995,
average savings accounts decreased $41.7 million and $22.5 million,
respectively, and average time deposits increased $65.6 million and $62.7
million, respectively, as compared to the same periods in the previous year.
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. When
doubt exists in the view of management as to the collectibility of the
remaining balance of a loan, the Company will charge-off that portion deemed
to be uncollectible.
For the three- and nine-month periods ended September 30, 1995, the provision
for loan losses was $150,000 and $400,000, respectively, as compared to
$250,000 and $750,000 for the comparable periods in 1994. The lower
provisions reflect the continued reduction in non-performing loans, and
continued stable conditions in the local economy and most sectors of the real
estate market. Non-performing loans declined to $4.4 million, or 0.83% of
total loans, at September 30, 1995 compared to $10.0 million, or 2.06% of
total loans, at September 30, 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 to eighty-nine days or more, but has not yet been placed on non-
accrual status. At September 30, 1995, slow paying loans amounted to $3.3
million as compared to $6.3 million at September 30, 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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $8,691 13,795 9,402 13,920
Provision charged to operations 150 250 400 750
8,841 14,045 9,802 14,670
Loans charged-off:
Mortgage loans:
Residential (84) (153) (245) (305)
Commercial (312) (316) (546) (517)
Construction and land (61) (40) (819) (218)
Other loans:
Consumer (53) (41) (159) (189)
Commercial -- (8) (30) (57)
Total charge-offs (510) (558) (1,799) (1,286)
Recoveries:
Mortgage loans:
Residential -- 2 60 7
Commercial 1 13 80 28
Construction and land -- 1 159 1
Other loans:
Consumer 13 15 42 50
Commercial 5 1 6 49
Total recoveries 19 32 347 135
Net charge-offs (491) (526) (1,452) (1,151)
Balance at end of period $8,350 13,519 8,350 13,519
Ratio of net charge-offs
to average total loans
outstanding (annualized) (0.38%) (0.44%) (0.38%) (0.34%)
</TABLE>
The following table sets forth information with respect to non-performing
loans and other real estate, and certain asset quality ratios at the dates
indicated:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994 1994
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing loans:
Mortgage loans:
Residential properties $2,499 2,987 1,636
Commercial properties 1,029 4,217 3,009
Construction and land 800 2,775 2,736
4,328 9,979 7,381
Other loans 45 7 15
Total non-performing loans<F1> 4,373 9,986 7,396
Other real estate, net 323 4,256 2,265
Total non-performing assets $4,696 14,242 9,661
Ratio of non-performing loans
to total loans 0.83% 2.06% 1.53%
Ratio of non-performing assets
to total assets 0.65 2.06 1.39
Ratio of allowance for loan losses
to total non-performing loans 190.94 135.38 127.12
<FN>
<F1> Includes loans on non-accrual status of $4.2 million, $9.9 million and
$7.3 million at September 30, 1995, September 30, 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 September 30, 1995,
compared to $3.5 million at September 30, 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 considered to be impaired if it is
probable that the lender 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. The Company currently measures impaired
loans at the fair value of its collateral. An allowance for loan loss
maintained if the measure of an impaired loan is less than its recorded
investment. Charge-offs are recorded in a manner consistent with the
Company's charge-off policy. SFAS No. 114 applies primarily 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 September 30, 1995, the Company's
recorded investment in impaired commercial mortgage and construction loans
totaled $5.5 million (including $1.8 million on non-accrual status and $3.6
million of potential problem loans). The total impaired loans consist of (1)
loans of $4.2 million for which there was an allowance for losses of $875,000
determined in accordance with SFAS No. 114 and (2) loans of $1.3 million for
which there was no allowance determined under SFAS No. 114. The average
recorded investment in impaired loans was $4.8 million for the third quarter
of 1995. Interest income recognized on impaired loans was insignificant for
the quarter and nine months ended September 30, 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. Other income was virtually unchanged for the three-month
period ended September 30, 1995 and increased $190,000, or 9.7%, for the
nine-month period, compared to the same periods in 1994.
Deposit service fees, the largest component of other income, increased by
$50,000, or 10.9%, for the three-month period and $136,000, or 10.0%, for the
nine-month period, compared to the same periods in 1994. This was primarily
the result of an increase in the amount of retail checking account fees
collected in 1995. Other service fees totaled $140,000 and $456,000 for the
three- and nine-month periods ended September 30, 1995, as compared to
$170,000 and $476,000 for the same periods in 1994. Net gain on securities
for the three- and nine-month periods in 1995 primarily consisted of net
realized gains on calls of equity securities. For the nine-month period, the
gains were partially offset by net realized losses on sales of corporate
securities. There have been no sales of securities classified as held to
maturity. Net gains on sale of loans increased by $3,000 for the three-month
period and $129,000 for the nine-month period compared to the same periods in
1994, primarily due to declining rates as well as the decrease in mortgage
loans sold to the secondary market.
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. Other expense decreased by
$217,000, or 4.6%, for the three-month period ended September 30, 1995 and
$1.7 million, or 10.7%, for the nine-month period, compared to the same
periods in 1994. For the three-month period, the decline was primarily due to
a decrease in the cost of FDIC deposit insurance. For the nine-month period,
the decline primarily reflected a $1.4 million decrease in the net cost of
other real estate as well as the decline in FDIC deposit insurance.
Salaries and employee benefits, the largest component of other expense,
increased by $41,000, or 1.8%, for the three-month period and was virtually
unchanged for the nine-month period, compared to the same periods in 1994.
This primarily reflects increases in expense attributable to hiring additional
staff and normal merit and promotional salary increases, partially offset by
lower medical insurance costs as a result of a change in insurance provider
and a reduction in postretirement health care benefit expense.
Occupancy and equipment expense increased $117,000, or 24.5%, for the three-
month period ended September 30, 1995 and decreased $59,000, or 3.3%, for the
nine-month period, as compared to the same periods in the previous year. The
increase for the three-month period ended September 30, 1995 primarily
reflects increased expense as a result of the acquisition and move to the new
administrative headquarters in Fishkill, New York. The decline in the nine-
month period primarily reflects decreased equipment rental and repair expense
as compared to the same period in the previous year.
The net cost of other real estate increased $5,000, or 5.4%, for the three-
month period and decreased $1.4 million, or 82.9%, for the nine-month period,
compared to the same periods in 1994. The decrease for the nine-month period
primarily reflects lower provisions for losses as a result of the decline in
the other real estate owned portfolio and management's assessment of the
adequacy of the allowance for other real estate losses. The investment in
other real estate properties (before allowance for losses) declined
substantially from $5.7 million at September 30, 1994 to $400,000 at
September 30, 1995.
FDIC deposit insurance expense decreased $378,000, or 111.8%, for the three-
month period and $387,000, or 37.0%, for the nine-month period, as compared
to the same periods in the previous year. The significant decrease in FDIC
deposit insurance primarily reflects the $390,000 refund received in the third
quarter of 1995 due to the recapitalization of the Bank Insurance Fund (BIF).
As a result of this recapitalization, the premium rate was reduced effective
June 1, 1995, resulting in refunds equal to the amount of the insurance
overpayment for the months June through September, plus interest at the rate
earned by the FDIC.
Other non-interest expense was virtually unchanged for the three-month period
and increased $122,000, or 2.7%, for the nine-month period when compared to
the same periods in 1994. The increase in the nine-month period primarily
reflects the provisions made in the second and third quarters of 1995 to
accrue for possible losses which may result from the Nationar seizure as
discussed on page 15. This provision was partially offset by reductions
in foreclosure and collection expense due to the decline in problem loans.
INCOME TAX EXPENSE
For the both the three-month periods ended September 30, 1995 and 1994, income
tax expense was $1.3 million (effective tax rates of 41.2% and 41.0%,
respectively). For the nine-month periods, income tax expense was $3.5
million and $1.8 million, respectively (effective tax rates of 41.1% and
24.2%, respectively). The lower effective rate for the first nine months of
1994 was due to a reduction in the deferred Federal tax asset valuation
allowance of $1.2 million. This adjustment was commensurate with the
increase in Federal income taxes recoverable by loss carryback.
The Company's deferred tax assets were $5.6 million at September 30, 1995,
net of a remaining valuation allowance of $221,000. At December 31, 1994,
the Company's deferred tax assets were $6.3 million, net of a remaining
valuation allowance of $262,000. Based on recent historical and anticipated
future pre-tax earnings, management believes that 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 Nine Months Ended Year Ended
September 30, September 30, December 31,
1995 1994 1995 1994 1994
<S> <C> <C> <C> <C> <C>
Return on assets:
Net income divided by average total assets 1.03% 1.12% 0.94% 1.13% 1.15%
Return on equity:
Net income divided by average equity<F1> 10.82% 11.56% 9.86% 11.35% 11.65%
<FN>
<F1> Equity includes the unrealized gain (loss) on securities available for
sale, net of taxes.
</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 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 September 30, 1995,
the Company had a primary liquidity ratio of 9.11% as compared to 12.27% at
December 31, 1994.
An important source of funds is Pawling's core deposit base. Management
believes that a substantial portion of Pawling's deposits of $644.7 million
at September 30, 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. Pawling is a member of the
Federal Home Loan Bank of New York ("FHLBNY") and, at September 30, 1995, had
access to additional liquidity in the form of borrowings from the FHLBNY of
$73.0 million. The Company also has access to the discount window of the
Federal Reserve Bank.
At September 30, 1995, Pawling had outstanding loan commitments and
unadvanced customer lines of credit totaling $75.1 million. These
commitments do not necessarily represent future cash requirements since
certain of these instruments may expire without being funded and others may
not be fully drawn upon. 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 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. After the seizure, the
Superintendent maintained the continued operation of Nationar and has begun
the process of selling Nationar's assets, and has prepared an accounting
of Nationar's assets and liabilities. Based upon the information currently
available, the Company is unable to determine the effect on its consolidated
financial statements. Management is taking all steps necessary to recover the
amounts owed the Company by Nationar. Management believes that there is a
reasonable likelihood that the Company will not recover all of its $3.6
million investment in Federal funds sold from Nationar, which is included in
other assets in the consolidated balance sheet at September 30, 1995.
Accordingly, the Company has established an allowance of approximately
$300,000 through a loss provision primarily recorded in the second
and third quarters of 1995. The Company may make additional provisions
as more information becomes available.
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 September 30, 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 $68,030 9.41% $68,030 16.67% $73,170 17.93%
Minimum requirement 28,915 4.00 16,321 4.00 32,642 8.00
Excess $39,115 5.41% $51,709 12.67% $40,528 9.93%
<FN>
<F1> For all capital amounts, actual capital excludes the Company's
net unrealized gain of $366,000 on securities available for sale.
</TABLE>
At September 30, 1995, Pawling's capital ratios exceeded the FDIC'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 $63,647 8.86% $63,647 15.75% $68,739 17.01%
Minimum requirement 28,726 4.00 16,163 4.00 32,325 8.00
Excess $34,921 4.86% $47,484 11.75% $36,414 9.01%
<FN>
<F1> For all capital amounts, actual capital excludes Pawling's net
unrealized gain of $420,000 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. The second repurchase plan was completed on September 29, 1995 and
consisted of 140,000 shares at a total cost of $3.3 million or $23.84 per
share. On October 24, 1995, the Company announced a third plan to repurchase
134,000 shares. The Company considers its stock to be an attractive
investment and believes the program will increase shareholder value.
On October 11, 1995, the Company's Board of Directors declared a dividend of
twenty cents ($0.20) per common share, payable on November 30, 1995 to
shareholders of record as of October 31, 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 4.77% at September 30, 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 may 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
may 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.
Due to limitations inherent in the gap analysis, management augments the
asset/liability management process by using simulation analysis. Simulation
analysis estimates the impact on net interest income of changing the balance
sheet structure and/or interest rate environment. This analysis serves as an
additional tool in meeting the Company's goal of maintaining relatively stable
net interest income in varying interest rate environments.
The Company manages its interest rate risk primarily by structuring its
balance sheet to emphasize holding adjustable rate loans and mortgage-backed
securities 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 September 30, 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 $416,424 208,068 62,628
Total interest-bearing liabilities 381,969 95,504 120,931
Excess (deficiency) of interest-earning assets
over interest-bearing liabilities $ 34,455 112,564 (58,303)
Excess (deficiency) as a percent of total assets 4.77% 15.57 (8.07)
Cumulative excess as a percent of total assets 4.77% 20.34 12.27
</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 the 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 judgement
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: November 10, 1995
/s/ Peter Van Kleeck
- -------------------------------------
Peter Van Kleeck
President and Chief Executive Officer
Date: November 10, 1995
/s/ Robert Gabrielsen
- ----------------------------------
Robert Gabrielsen, Treasurer
Principal Financial Officer and
Principal Accounting Officer
<TABLE>
Exhibit I
<CAPTION>
Computation of Net Income Per Share
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income $1,842 $1,916 $4,980 $5,605
Weighted average common shares<F1><F2> 2,714 2,882 2,733 2,907
Net income per share $ 0.68 $ 0.66 $ 1.82 $ 1.93
<FN>
<F1> Outstanding common stock equivalents (stock options) did not have a
significant dilutive effect upon the net income per share computation
for any of the periods presented.
<F2> Net of treasury stock.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 12,232
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 27,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,293
<INVESTMENTS-CARRYING> 77,663
<INVESTMENTS-MARKET> 79,138
<LOANS> 527,047
<ALLOWANCE> 8,350
<TOTAL-ASSETS> 722,828
<DEPOSITS> 644,674
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,758
<LONG-TERM> 0
<COMMON> 2,952
0
0
<OTHER-SE> 65,444
<TOTAL-LIABILITIES-AND-EQUITY> 722,828
<INTEREST-LOAN> 33,035
<INTEREST-INVEST> 6,281
<INTEREST-OTHER> 1,663
<INTEREST-TOTAL> 40,979
<INTEREST-DEPOSIT> 20,206
<INTEREST-EXPENSE> 20,206
<INTEREST-INCOME-NET> 20,773
<LOAN-LOSSES> 400
<SECURITIES-GAINS> 45
<EXPENSE-OTHER> 14,080
<INCOME-PRETAX> 8,450
<INCOME-PRE-EXTRAORDINARY> 8,450
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,980
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
<YIELD-ACTUAL> 4.11
<LOANS-NON> 4,172
<LOANS-PAST> 201
<LOANS-TROUBLED> 1,350
<LOANS-PROBLEM> 3,649
<ALLOWANCE-OPEN> 9,402
<CHARGE-OFFS> 1,799
<RECOVERIES> 347
<ALLOWANCE-CLOSE> 8,350
<ALLOWANCE-DOMESTIC> 8,350
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
