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, 1996
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 May 6, 1996: 2,634,067 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 1
Consolidated Statements of Income for the Three Months Ended March 31, 1996
and March 31, 1995 2
Consolidated Statements of Shareholders' Equity for the Three
Months Ended March 31, 1996 and March 31, 1995 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 and March 31, 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit I 19
<TABLE>
CONSOLIDATED BALANCE SHEETS
Progressive Bank, Inc. and Subsidiary
(In thousands, except shares and per share amounts)
(Unaudited)
<CAPTION>
March 31, 1996 December 31, 1995
<S> <C> <C>
Assets
Cash and due from banks $ 13,967 14,923
Federal funds sold 2,520 22,970
Securities:
Available for sale, at fair value 131,058 106,901
Held to maturity (fair value of $70,498 in 1996 and $40,386 in 1995) 71,009 40,148
Total securities 202,067 147,049
Loans, net:
Mortgage loans 484,146 480,569
Other loans 61,538 59,123
Allowance for loan losses (8,275) (8,033)
Net deferred loan origination costs 441 55
Total loans, net 537,850 531,714
Accrued interest receivable 5,110 5,029
Other real estate, net 1,024 405
Premises and equipment, net 9,523 9,673
Deferred income taxes, net 5,598 5,223
Other assets (note 3) 7,895 6,228
Total assets $785,554 743,214
Liabilities and Shareholders' Equity
Liabilities:
Savings and time deposits $612,666 605,056
Demand deposits 49,925 51,956
Other borrowings 17,900 --
Accrued expenses and other liabilities 35,464 17,544
Total liabilities 715,955 674,556
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 46,263 44,880
Treasury stock, at cost (321,373 shares in 1996 and 323,705 shares in 1995) (7,600) (7,655)
Net unrealized gain on securities available for sale, net of taxes 629 1,126
Total shareholders' equity 69,599 68,658
Total liabilities and shareholders' equity $785,554 743,214
</TABLE>
See accompanying notes to consolidated interim financial statements.
<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,
1996 1995
<S> <C> <C>
Interest and dividend income:
Mortgage loans $10,491 9,192
Other loans 1,510 1,341
Securities 2,495 1,875
Federal funds sold 188 666
Total interest and dividend income 14,684 13,074
Interest expense:
Deposits 7,343 6,221
Other borrowings 30 --
Total interest expense 7,373 6,221
Net interest income 7,311 6,853
Provision for loan losses 300 125
Net interest income after provision for loan losses 7,011 6,728
Other income:
Deposit service fees 595 487
Other service fees 150 145
Net gain on sale of loans 90 9
Other non-interest income 71 38
Total other income 906 679
Net interest and other income 7,917 7,407
Other expense:
Salaries and employee benefits 2,452 2,274
Occupancy and equipment 732 600
Net cost of other real estate 54 86
FDIC deposit insurance 1 350
Other non-interest expense 1,399 1,524
Total other expense 4,638 4,834
Income before income taxes 3,279 2,573
Income tax expense 1,357 1,059
Net income $1,922 1,514
Net income per common share $ 0.73 0.55
Weighted average common shares outstanding 2,630 2,746
</TABLE>
See accompanying notes to consolidated interim financial statements.
<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, 1995 2,628,269 $2,952 27,355 44,880 (7,655) 1,126 68,658
Net income -- -- 1,922 -- -- 1,922
Cash dividends declared
($0.20 per share) -- -- (526) -- -- (526)
Stock options exercised 2,332 -- -- (13) 55 -- 42
Net change in unrealized gain
(loss) on securities available
for sale, net of taxes -- -- -- -- (497) (497)
Balance at March 31, 1996 2,630,601 $2,952 27,355 46,263 (7,600) 629 69,599
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
</TABLE>
See accompanying notes to consolidated interim financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Progressive Bank, Inc. and Subsidiary
(In thousands)
(Unaudited)
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Operating activities:
Net income $ 1,922 1,514
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 300 125
Depreciation expense 238 204
Provision for losses on other real estate 75 --
Gain on sales of other real estate (31) (73)
Net gain on sale of loans (90) (9)
Amortization of net deferred loan origination fees (203) (71)
Amortization of net (discounts) premiums on securities (22) 34
Net (increase) decrease in accrued interest receivable (81) 164
Net increase in accrued expenses and other liabilities 17,920 3,565
Other, net (1,682) 392
Net cash provided by operating activities 18,346 5,845
Investing activities:
Purchases of securities:
Securities available for sale (38,665) (3,108)
Securities held to maturity (33,164) (3,383)
Proceeds from principal payments, maturities and calls of securities:
Securities available for sale 13,861 4,334
Securities held to maturity 2,126 2,368
Disbursements for loan originations, net of principal collections (8,258) (17,204)
Proceeds from sales of loans 1,377 1,992
Purchases of premises and equipment (88) (453)
Proceeds from sales of other real estate 64 410
Net cash used in investing activities (62,747) (15,044)
Financing activities:
Net increase (decrease) in time deposits (14,890) 17,976
Net increase (decrease) in other deposits 20,469 (23,523)
Cash dividends paid on common stock (526) (412)
Net proceeds on issuance of common stock 42 44
Increase in other borrowings 17,900 --
Purchases of treasury stock -- (116)
Net cash provided by (used in) financing activities 22,995 (6,031)
Net decrease in cash and cash equivalents (21,406) (15,230)
Cash and cash equivalents at beginning of period 37,893 71,754
Cash and cash equivalents at end of period $16,487 56,524
Supplemental data:
Interest paid $ 7,252 6,167
Income taxes paid (refunded), net 390 (2,642)
Loans transferred to other real estate 826 703
Loans originated to finance sales of other real estate 96 --
</TABLE>
See accompanying notes to consolidated interim financial statements.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Progressive Bank, Inc. and Subsidiary
(Unaudited)
Note 1: Basis of Presentation
The unaudited 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. 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 interim 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 unaudited consolidated interim 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, 1995.
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.
Note 3: New Accounting Standards
Effective January 1, 1996, the Company changed its method of accounting for
mortgage servicing rights, upon adoption of Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights." SFAS
No. 122 requires that entities recognize as separate assets, the rights to
service mortgage loans for others, regardless of how these servicing rights
are acquired. Additionally, SFAS No. 122 requires that the capitalized
mortgage servicing rights be assessed for impairment based on the fair value
of these rights, and that impairment, if any, be recognized through a
valuation allowance. The fair value of capitalized mortgage servicing rights
included in other assets totaled $13,000 at March 31, 1996. The amortization
of the capitalized mortgage servicing rights was insignificant for the
quarter ended March 31, 1996.
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 residential and commercial mortgages, 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 and other borrowings.
Net income of the Company is also affected by other income, which includes
service fees and net gain (loss) on sale of 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 $785.6 million at March 31, 1996 as compared
to $743.2 million at December 31, 1995, a increase of $42.3 million or 5.7%.
Federal funds sold decreased $20.5 million, or 89.0%, primarily a result of
the Company reducing its cash position through security purchases in
preparation for the large cash inflow from the branch acquisition as
discussed on page 16.
The $55.0 million increase in securities for the quarter consisted of a $24.2
million increase in securities available for sale and a $30.9 million
increase in securities held to maturity. The increase in securities held to
maturity primarily reflects purchases of $33.2 million of fixed rate
mortgage-backed securities, partially offset by principal paydowns. The
increase in securities available for sale primarily reflects purchases of
$38.7 million in adjustable rate mortgage-backed securities, U.S. government
agencies and U.S. Treasury notes, partially offset by maturities, calls, and
principal paydowns on adjustable rate mortgage-backed securities.
At March 31, 1996, net loans totaled $537.9 million, compared to $531.7
million at December 31, 1995, an increase of $6.1 million or 1.2%. The
commercial mortgage segment of the loan portfolio increased $4.0 million or
5.4%, from $73.9 million at December 31, 1995 to $77.9 million at March 31,
1996. The residential mortgage segment of the loan portfolio increased $1.5
million (net of loan sales to the secondary market of $1.3 million) from
$395.9 million at December 31, 1995 to $397.4 million at March 31, 1996.
Other loans increased $2.4 million or 4.1% during the first three months of
1996 from $59.1 million to $61.5 million.
The $5.6 million increase in deposits during the first quarter of 1996 was
primarily attributable to a $27.1 million increase in money market accounts,
partially offset by a decrease in time deposits of $14.9 million and a
decline in savings accounts of $3.0 million.
Other borrowings at March 31, 1996 totaled $17.9 million and represents
Federal funds purchased. There were no borrowings at December 31, 1995. The
increase in other borrowings was primarily a result of the reduction in the
cash position as discussed above.
The $17.9 million increase in accrued expenses and other liabilities
primarily reflects a $18.0 million increase in the purchase of securities not
settled at March 31, 1996 as compared to December 31, 1995.
Shareholders' equity at March 31, 1996 was $69.6 million, an increase of
$941,000 or 1.4% from December 31, 1995. This increase primarily reflects
net income of $1.9 million, partially offset by cash dividends of $526,000
and a decrease of $497,000 resulting from market value changes of securities
available for sale, net of taxes. Shareholders' equity, as a percent of
total assets, was 8.86% at March 31, 1996 compared to 9.24% at December 31,
1995. Book value per share increased to $26.45 at March 31, 1996 from $26.13
at December 31, 1995.
The following table shows the Company's average consolidated balances,
interest income and expense, and average rates for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
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> $481,895 10,491 8.71% $433,955 9,192 8.47%
Other loans <F1> 59,754 1,510 10.11 57,907 1,341 9.26
Mortgage-backed securities <F2> 88,391 1,478 6.69 83,764 1,129 5.39
U.S. Treasury and agencies,
corporate and other securities
<F2>,<F6> 63,388 1,017 6.42 43,099 746 6.92
Federal funds sold 14,292 188 5.26 51,839 666 5.14
Total interest-earning assets 707,720 14,684 8.30% 670,564 13,074 7.80%
Non-interest-earning assets 44,313 25,398
Total assets $752,033 $695,962
Interest-bearing liabilities:
Savings deposits <F3> $268,441 2,635 3.93% $259,099 2,279 3.52%
Time deposits 339,697 4,708 5.54 319,617 3,942 4.93
Other borrowings 2,226 30 5.39 -- -- --
Total interest-bearing liabilities 610,364 7,373 4.83% 578,716 6,221 4.30%
Non-interest-bearing liabilities 72,540 50,645
Total liabilities 682,904 629,361
Shareholders' equity 69,129 66,601
Total liabilities and
shareholders' equity $752,033 $695,962
Net earning balance $ 97,356 $ 91,848
Net interest income 7,311 6,853
Interest rate spread <F4> 3.47% 3.50%
Net yield on interest-earning
assets (margin) <F5> 4.13% 4.09%
<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.
<F6> Yields on tax exempt obligations have not been computed on a
tax-equivalent basis, as the effect thereof is not material.
</TABLE>
RESULTS OF OPERATIONS
GENERAL
For the quarter ended March 31, 1996, the Company's net income was $1.9
million or $0.73 per share as compared to $1.5 million or $0.55 per share for
the same three-month period in 1995. The $408,000 increase in net income was
primarily the result of a $458,000 increase in net interest income and a
$227,000 increase in other income, partially offset by a $298,000 increase in
income tax expense.
NET INTEREST INCOME
Net interest income increased $458,000, or 6.7%, to $7.3 million for the
three-month period ended March 31, 1996 compared to $6.9 million for the same
period in 1995. The components of net interest income are interest and
dividend income, which increased $1.6 million or 12.3%, and interest on
deposits and other borrowings, which increased $1.2 million or 18.5%. The
Company's interest rate spread narrowed by 3 basis points from 3.50% for the
three months ended March 31, 1995 to 3.47% for the same period in 1996,
reflecting a 53 basis point increase in the average cost of interest-bearing
liabilities, partially offset by a 50 basis point increase in the average
yield on earning assets. The net interest margin widened by 4 basis points
from 4.09% for the three months ended March 31, 1995 to 4.13% for the same
period in 1996.
Interest on loans increased by $1.5 million, or 13.9%, primarily reflecting
an increase in the volume of loans outstanding. Average mortgage loans and
other loans increased by $47.9 million and $1.8 million, respectively, for
the quarter as compared to the same quarter in the previous year. In
addition to the increases in volume, the average rate earned on the mortgage
and other loan portfolios increased by 24 basis points and 85 basis points,
respectively.
Interest on mortgage-backed securities increased $349,000, or 30.9%,
primarily due to increases in the average yield earned on the portfolio due
to purchases of securities with higher yields and upward adjustments on
adjustable rate mortgage-backed securities.
Interest and dividends on U.S. Treasury and agencies, corporate and other
securities increased by $271,000, or 36.3%, primarily reflecting an increase
in the average balance outstanding from $43.1 million for the three months
ended March 31, 1995 to $63.4 million for the same period in 1996. This
increase was primarily the result of purchases of $34.2 million of U.S.
Treasury and agency securities during the first quarter of 1996, partially
offset by maturities and calls during the year. The average rate earned on
U.S. Treasury and agencies, corporate and other securities decreased from
6.92% for the three months ended March 31, 1995 to 6.42% for the same period
in 1996 primarily a result of maturities and calls of securities with higher
yields during the year.
Interest on Federal funds sold decreased $478,000 due to a decrease in the
average balance outstanding from $51.8 million in 1995 to $14.3 million in
1996, partially offset by an increase in the rate earned to 5.26% in 1996
from 5.14% in 1995.
The $1.2 million increase in interest on interest-bearing liabilities was
due primarily to an increase in the cost of funds as a result of the
generally higher rate environment in the first quarter of 1996 as compared to
the same period in the previous year, 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 quarter ended March 31, 1996, average savings
deposits decreased $45.3 million and average money market accounts and
average time deposits increased $60.6 million and $20.1 million,
respectively, from the quarter ended March 31, 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, 1996, the provision for loan
losses was $300,000, an increase of $175,000 from the provision of $125,000
for the comparable period in 1995. The higher provision primarily reflects
the slight increase in non-performing loans as well as the overall growth in
the loan portfolio. Non-performing loans increased to $6.2 million, or 1.13%
of total loans, at March 31, 1996 from $5.6 million, or 1.13% of total loans,
at March 31, 1995 and $5.8 million, or 1.07% of total loans, at December 31,
1995.
In determining the allowance 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 March 31, 1996, slow paying loans amounted to $4.0
million as compared to $2.9 million at March 31, 1995 and $3.4 million at
December 31, 1995.
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 delinquencies, non-performing loans, and charge-offs 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,
1996 1995
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $8,033 9,402
Provision charged to operations 300 125
8,333 9,527
Loans charged-off:
Mortgage loans:
Residential (214) (98)
Commercial -- (234)
Construction and land -- (667)
Other loans:
Consumer (37) (67)
Commercial -- (30)
Total charge-offs (251) (1,096)
Recoveries:
Mortgage loans:
Residential 48 60
Commercial 31 --
Construction and land 101 --
Other loans:
Consumer 12 14
Commercial 1 1
Total recoveries 193 75
Net charge-offs (58) (1,021)
Balance at end of period $8,275 8,506
Ratio of net charge-offs to average total loans
outstanding (annualized) 0.04% 0.83%
</TABLE>
The following table sets forth information with respect to non-performing
loans (non-accrual loans and loans greater than 90 days past due and still
accruing) and other real estate, and certain asset quality ratios at or for
the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1995
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing loans:
Mortgage loans:
Residential properties $2,608 2,370 2,559
Commercial properties 2,357 1,880 2,591
Construction and land 1,173 1,369 593
6,138 5,619 5,743
Other loans 29 13 20
Total non-performing loans <F1> 6,167 5,632 5,763
Other real estate, net 1,024 2,245 405
Total non-performing assets $7,191 7,877 6,168
Ratio of non-performing loans to total loans 1.13% 1.13% 1.07%
Ratio of non-performing assets to total assets 0.92 1.13 0.83
Ratio of allowance for loan losses to total
non-performing loans 134.18 151.03 139.39
<FN>
<F1> Includes loans on non-accrual status of $6.0 million, $5.5 million and
$5.6 million at March 31, 1996, March 31, 1995, and December 31, 1995,
respectively. The remaining balance consists of loans greater than 90 days
past due and still accruing. 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 $1.3 million at March 31,
1996, compared to $1.4 million at March 31, 1995 and $1.5 million at December
31, 1995.
At March 31, 1996, the Company's recorded investment in impaired loans
consisted of commercial mortgage and construction loans totaling $3.5 million.
The total impaired loans consist of (i) loans of $1.1 million for which there
was an allowance for losses of $222,000 determined in accordance with SFAS No.
114 and (ii) loans of $2.5 million for which there was no allowance determined
under SFAS No. 114 due to the adequacy of related collateral and historical
charge-offs associated with these loans. The average recorded investment in
impaired loans was $3.4 million for the first quarter of 1996. Interest
income on impaired loans is recognized on a cash basis and was not
significant for the quarter ended March 31, 1996.
OTHER INCOME
Sources of other income include deposit and other service fees, net gain
(loss) on securities available for sale, net gain (loss) on sales of loans,
and other non-interest income. For the three-month period ended March 31,
1996, other income increased by $227,000 to $906,000 from $679,000 for the
same period in 1995.
Deposit service fees, the largest component of other income, increased by
$108,000, or 22.2%, to $595,000 for the three-month period ended March 31,
1996 from $487,000 for the same period in 1995. This was primarily the
result of an increase in the amount of retail checking account fees
collected. Other service fees increased $5,000 to $150,000 for the quarter
ended March 31, 1996 from $145,000 for the previous year. Net gains on loans
was $90,000 for the three-month periods ended March 31, 1996 compared to
$9,000 during the same period in 1995.
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, 1996, other expense decreased by $196,000, or 4.1%, to $4.6 million
from $4.8 million for 1995, primarily due to decreases in FDIC deposit
insurance expense and other non-interest expense, partially offset by the
increases in salary and employee benefit expense and occupancy and equipment
expense.
Salaries and employee benefits, the largest component of other expense,
increased by $178,000, or 7.8%, to $2.5 million for the three-month period
ended March 31, 1996 from $2.3 million for the same period in 1995. The
increase was primarily the result of hiring additional staff and normal merit
and promotional salary increases.
Occupancy and equipment costs increased $132,000, or 22.0%, to $732,000 for
the three-month period ended March 31, 1996 from the previous year primarily
due to increases in maintenance, depreciation and equipment rental and repair
expenses.
The net cost of other real estate decreased $32,000, or 37.2%, to $54,000
for the quarter ended March 31, 1996 from $86,000 for the previous period,
primarily reflecting a $108,000 decrease in net holding costs partially
offset by a $75,000 increase in the provision for losses on other real
estate.
FDIC deposit insurance expense decreased $349,000 to $1,000 for the
three-month period ended March 31, 1996 from $350,000 for 1995. This
primarily reflects the reduction of the insurance premium on Pawling's
deposits.
Other non-interest expense decreased $125,000, or 8.2%, to $1.4 million for
the three-month period in 1996 when compared to the same period in 1995.
This primarily reflects a $183,000 reduction in foreclosure and collection
expense, partially offset by higher miscellaneous operating expenses.
INCOME TAX EXPENSE
For the three-month periods ended March 31, 1996 and 1995, income tax
expense was $1.4 million and $1.1 million, respectively (effective tax rates
of 41.4% and 41.2%, respectively).
The Company's net deferred tax assets were $5.6 million at March 31, 1996.
At December 31, 1995, the Company's net deferred tax assets were $5.2
million. 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.
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,
1996 1995 1995
<S> <C> <C> <C>
Return on assets:
Net income divided by average
total assets 1.02% 0.87% 0.95%
Return on equity:
Net income divided by average equity <F1> 11.12% 9.09% 10.04%
<FN>
<F1> Average equity includes the effect of the net 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
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, 1996,
the Company had a primary liquidity ratio of 5.18% as compared to 8.21% at
December 31, 1995. The decline was primarily due to the $20.5 million
decrease in Federal funds sold.
An important source of funds is Pawling's core deposit base. Management
believes that a substantial portion of Pawling's deposits of $662.6 million
at March 31, 1996 are core deposits. Core deposits are generally considered
to be a highly stable source of liquidity due to the 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 March 31, 1996, had
immediate access to additional liquidity in the form of borrowings from the
FHLBNY of $70.9 million. The Company also has access to the discount window
of the Federal Reserve Bank.
At March 31, 1996, Pawling had outstanding loan commitments and unadvanced
customer lines of credit totaling $74.0 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.
On February 6, 1995, the Superintendent of Banks for the State of New York
(the "Superintendent") seized Nationar, a check-clearing and trust company,
freezing all of Nationar's assets. The Superintendent is now in the process
of winding up the affairs of Nationar and liquidating its assets. The
Company used Nationar for Federal funds transactions, as well as certain
custodial and investment services. At the time of seizure, the Company had
approximately $3.6 million in Federal funds sold and other deposits invested
with Nationar. The Superintendent has given preliminary indications that the
assets of Nationar may be inadequate to satisfy all claims of creditors in
full. Based on the foregoing and a deficit in net shareholders' equity that
was noted in a report issued by the Superintendent in February 1996,
management, as advised by legal counsel, believes that there is a reasonable
likelihood that the Company will not recover all of its investments in
Federal funds and other deposits at Nationar. As of March 31, 1996, the
Company has reclassified the Federal funds sold to other assets and has
provided a reserve of $1.0 million for probable loss of a portion of these
Nationar assets. The Company will periodically review this reserve as
developments occur.
The foregoing events will not have any material effect on the Company's
ability to meet their liquidity needs. Management is taking all steps
necessary to recover the amounts owed to the Company by Nationar.
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.
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, 1996, 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 $68,925 8.77% $68,925 15.88% $74,384 17.14%
Minimum requirement 31,424 4.00 17,356 4.00 34,713 8.00
Excess $37,501 4.77% $51,569 11.88% $39,671 9.14%
<FN>
<F1> For all capital amounts, actual capital excludes the Company's net
unrealized loss of $629,000 on securities available for sale (exclusive of a
$32,000 unrealized loss on equity securities) and an intangible asset of
$13,000.
</TABLE>
At March 31, 1996, Pawling's capital ratios exceeded the FDIC's minimum
regulatory capital requirementsas 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 $62,903 8.07% $62,903 14.62% $68,317 15.88%
Minimum requirement 31,174 4.00 17,209 4.00 34,418 8.00
Excess $31,729 4.07% $45,694 10.62% $33,899 7.88%
<F1> For all capital amounts, actual capital excludes Pawling's net
unrealized loss of $678,000 on securities available for sale and an
intangible asset of $13,000.
</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. At March 31, 1996, 63,000 shares had been purchased under
the third plan at a cost of $1.8 million or $28.41 per share. The Company
considers its stock to be an attractive investment and believes these
programs will increase shareholder value.
On April 18, 1996, the Company's Board of Directors declared a dividend of
20 cents ($0.20) per common share, payable on May 31, 1996 to shareholders of
record as of April 30, 1996.
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 (0.41%) at March 31, 1996.
A negative gap exists when the amount of interest-bearing liabilities exceeds
the amount of interest-earning assets expected to mature or reprice in a
given period. A negative gap may enhance earnings in periods of declining
interest rates in that, during such periods, the interest expense paid on
liabilities may decrease more rapidly than the interest income earned on
assets. Conversely, in a rising interest rate environment, a negative gap
may result in an increase in interest expense paid on liabilities that is
greater than the increase in interest income earned on assets. While a
negative gap indicates the amount of interest-bearing liabilities which will
reprice before interest-earning assets, it does not indicate the extent to
which they will reprice. Therefore, at times, a negative gap may not produce
higher margins in a declining 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 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 March 31, 1996 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 $419,963 263,038 62,533
Total interest-bearing liabilities 423,166 99,186 108,214
Excess (deficiency) of
interest-earning assets
over interest-bearing liabilities ($ 3,203) 163,852 (45,681)
Excess (deficiency) as a percent
of total assets (0.41%) 20.86% (5.82%)
Cumulative excess as
a percent of total assets (0.41%) 20.45% 14.63%
</TABLE>
SUBSEQUENT EVENTS
On April 12, 1996, Pawling completed the acquisition of two branch offices
in Rockland County, New York from GreenPoint Bank. Pawling assumed deposit
liabilities of approximately $154.0 million and acquired real estate and
certain branch furniture, fixtures and equipment and also assumed certain
leasehold liabilities of GreenPoint. There were no loans acquired in the
transaction except for a small amount of passbook loans.
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, upon a motion for summary
judgment, ruled in favor of Progressive and its directors dismissing the
complaint against them. The plaintiff appealed the decision. In February
1996, his appeal was denied and the time to appeal that decision has expired.
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.
(b) On January 16, 1996, Progressive filed an 8-K Report announcing the
signing of an agreement to acquire two branches located in Rockland County,
New York from GreenPoint Savings Bank.
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 8, 1996
/s/ Peter Van Kleeck
Peter Van Kleeck
President and Chief Executive Officer
Date: May 8, 1996
/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,
1996 1995
(In thousands, except per share amounts)
<S> <C> <C>
Net income $1,922 $1,514
Weighted average common shares <F1> <F2> 2,630 2,746
Net income per share $ 0.73 $ 0.55
<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>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,967
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,520
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 131,058
<INVESTMENTS-CARRYING> 71,009
<INVESTMENTS-MARKET> 70,498
<LOANS> 545,684
<ALLOWANCE> 8,275
<TOTAL-ASSETS> 785,554
<DEPOSITS> 662,591
<SHORT-TERM> 17,900
<LIABILITIES-OTHER> 35,464
<LONG-TERM> 0
<COMMON> 2,952
0
0
<OTHER-SE> 66,647
<TOTAL-LIABILITIES-AND-EQUITY> 785,554
<INTEREST-LOAN> 12,001
<INTEREST-INVEST> 2,495
<INTEREST-OTHER> 188
<INTEREST-TOTAL> 14,684
<INTEREST-DEPOSIT> 7,343
<INTEREST-EXPENSE> 7,373
<INTEREST-INCOME-NET> 7,311
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,638
<INCOME-PRETAX> 3,279
<INCOME-PRE-EXTRAORDINARY> 3,279
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,922
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 4.13
<LOANS-NON> 5,987
<LOANS-PAST> 180
<LOANS-TROUBLED> 1,334
<LOANS-PROBLEM> 2,427
<ALLOWANCE-OPEN> 8,033
<CHARGE-OFFS> 251
<RECOVERIES> 193
<ALLOWANCE-CLOSE> 8,275
<ALLOWANCE-DOMESTIC> 8,275
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
