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 June 30, 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 14-1682661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization 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 August 7, 1996: 2,596,833 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 1
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 1996 and June 30, 1995 2
Consolidated Statements of Shareholders' Equity for the Six Months
Ended June 30, 1996 and June 30, 1995 3
Consolidated Statements of Cash Flows for the Six Months Ended June
30, 1996 and June 30, 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-16
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>
June 30, 1996 December 31, 1995
<S> <C> <C>
Assets
Cash and due from banks $ 16,355 14,923
Federal funds sold 38,400 22,970
Securities:
Available for sale, at fair value 184,241 106,901
Held to maturity (fair value of $78,241 in 1996 and $40,386 in 1995) 79,440 40,148
Total securities 263,681 147,049
Loans, net:
Mortgage loans 485,311 480,569
Other loans 68,842 59,123
Allowance for loan losses (8,666) (8,033)
Net deferred loan origination costs 808 55
Total loans, net 546,295 531,714
Accrued interest receivable 6,612 5,029
Other real estate, net 1,910 405
Premises and equipment, net 10,485 9,673
Deferred income taxes, net 6,225 5,223
Intangible assets 9,432 --
Other assets 2,295 6,228
Total assets $ 901,690 743,214
Liabilities and Shareholders' Equity
Liabilities:
Savings and time deposits $ 764,070 605,056
Demand deposits 57,711 51,956
Accrued expenses and other liabilities 8,070 17,544
Total liabilities 829,851 674,556
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 48,472 44,880
Treasury stock, at cost (305,141 shares in 1996 and 323,705 shares in 1995) (7,308) (7,655)
Net unrealized gain on securities available for sale, net of taxes 368 1,126
Total shareholders' equity 71,839 68,658
Total liabilities and shareholders' equity $ 901,690 743,214
See accompanying notes to consolidated interim 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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans $ 10,458 9,610 20,949 18,802
Other loans 1,609 1,396 3,119 2,737
Securities 3,917 2,093 6,412 3,968
Federal funds sold and other 1,111 558 1,299 1,224
Total interest and dividend income 17,095 13,657 31,779 26,731
Interest expense:
Deposits 8,762 6,737 16,105 12,958
Other borrowings 21 -- 51 --
Total interest expense 8,783 6,737 16,156 12,958
Net interest income 8,312 6,920 15,623 13,773
Provision for loan losses 600 125 900 250
Net interest income after provision for loan losses 7,712 6,795 14,723 13,523
Other income:
Deposit service fees 608 498 1,203 985
Other service fees 177 171 327 316
Net loss on securities (194) (8) (194) (8)
Net gain on sale of loans 18 28 108 37
Other non-interest income 70 39 141 77
Total other income 679 728 1,585 1,407
Net interest and other income 8,391 7,523 16,308 14,930
Other expense:
Salaries and employee benefits 2,669 2,197 5,121 4,471
Occupancy and equipment 755 554 1,487 1,154
Net cost of other real estate 245 95 299 181
FDIC deposit insurance -- 350 1 700
Amortization of intangible assets 306 -- 306 --
Other non-interest expense 1,995 1,582 3,394 3,106
Total other expense 5,970 4,778 10,608 9,612
Income before income taxes 2,421 2,745 5,700 5,318
Income tax (benefit) expense (513) 1,121 844 2,180
Net income $ 2,934 1,624 4,856 3,138
Net income per common share $ 1.12 0.59 1.85 1.14
Weighted average common shares outstanding 2,630 2,740 2,630 2,743
See accompanying notes to consolidated interim 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, 1995 2,628,269 $ 2,952 27,355 44,880 (7,655) 1,126 68,658
Net income -- -- 4,856 -- -- 4,856
Cash dividends declared
($0.40 per share) -- -- (1,052) -- -- (1,052)
Stock options exercised 40,564 -- -- (212) 968 -- 756
Purchases of treasury stock (22,000) -- -- -- (621) -- (621)
Net change in unrealized gain
(loss) on securities available
for sale, net of taxes -- -- -- -- (758) (758)
Balance at June 30, 1996 2,646,833 $ 2,952 27,355 48,472 (7,308) 368 71,839
Balance at December 31, 1994 2,746,884 $ 2,952 27,355 40,165 (4,310) (222) 65,940
Net income -- -- 3,138 -- -- 3,138
Cash dividends declared
($0.30 per share) -- -- (825) -- -- (825)
Stock options exercised 15,550 -- -- (182) 329 -- 147
Purchases of treasury stock (45,000) -- -- -- (1,138) -- (1,138)
Net change in unrealized gain
(loss) on securities available
for sale, net of taxes -- -- -- -- 569 569
Balance at June 30, 1995 2,717,434 $ 2,952 27,355 42,296 (5,119) 347 67,831
See accompanying notes to consolidated interim financial statements
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Progressive Bank, Inc. and Subsidiary
(In thousands)
(Unaudited)
<CAPTION>
For the Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income $ 4,856 3,138
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Provision for loan losses 900 250
Depreciation expense 494 405
Provision for losses on other real estate 225 175
Gain on sales of other real estate (72) (209)
Net loss (gain) on securities and loans 86 (29)
Amortization of net deferred loan origination fees (335) (162)
Amortization of net (discounts) premiums on securities (63) 21
Net increase in accrued interest receivable (1,583) (29)
Net (decrease) increase in accrued expenses and other liabilities (9,474) 3,541
Other, net (5,975) (3,966)
Net cash (used in) provided by operating activities (10,941) 3,135
Investing activities:
Purchases of securities:
Securities available for sale (107,655) (13,246)
Securities held to maturity (45,147) (3,384)
Proceeds from principal payments, maturities and calls of securities:
Securities available for sale 23,010 8,126
Securities held to maturity 5,786 5,143
Proceeds from sale of securities available for sale 5,953 1,186
Disbursements for loan originations, net of principal collections (18,994) (34,203)
Proceeds from sales of loans 1,808 6,148
Purchases of premises and equipment (1,306) (1,304)
Proceeds from sales of other real estate 496 1,465
Net cash used in investing activities (136,049) (30,069)
Financing activities:
Net increase in time deposits 65,802 30,094
Net increase (decrease) in other deposits 98,967 (28,693)
Cash dividends paid on common stock (1,052) (825)
Net proceeds on issuance of on common stock 756 147
Purchases of treasury stock (621) (1,138)
Net cash provided by (used in) financing activities 163,852 (415)
Net increase (decrease) in cash and cash equivalents 16,862 (27,349)
Cash and cash equivalents at beginning of period 37,893 71,754
Cash and cash equivalents at end of period $ 54,755 44,405
Supplemental data:
Interest paid $ 15,874 12,827
Income taxes paid, net of refunds received 1,585 1,690
Loans transferred to other real estate 2,487 920
Loans originated to finance sales of other real estate 327 1,019
See accompanying notes to consolidated interim financial statements
</TABLE>
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.
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 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 $901.7 million at June 30, 1996 as compared
to $743.2 million at December 31, 1995, an increase of $158.5 million or 21.3%.
The increase in total assets primarily reflects the acquisition of two
Rockland County branches on April 12, 1996 and the subsequent reinvestment of
these proceeds primarily into securities and Federal funds sold. Additionally,
the purchase premium that resulted from this transaction is accounted for as
an intangible asset.
The $116.6 million increase in securities consisted of a $77.3 million
increase in securities available for sale and a $39.3 million increase in
securities held to maturity. The increase in securities held to maturity
primarily reflects purchases of $45.1 million of fixed rate mortgage-backed
securities, partially offset by principal paydowns. The increase in
securities available for sale primarily reflects purchases of $107.7 million
in adjustable rate mortgage-backed securities, U.S. government agencies and
U.S. Treasury notes, partially offset by maturities, sales, calls, and
principal paydowns.
At June 30, 1996, net loans totaled $546.3 million, compared to $531.7
million at December 31, 1995, an increase of $14.6 million or 2.7%. The
residential mortgage segment of the loan portfolio increased $1.9 million
(net of loan sales to the secondary market of $1.7 million) from $395.9
million at December 31, 1995 to $397.8 million at June 30, 1996. The
commercial mortgage segment of the loan portfolio increased $1.7 million or
2.3%, from $73.9 million at December 31, 1995 to $75.6 million at June 30,
1996. Other loans increased $9.7 million or 16.4% during the first six
months of 1996 from $59.1 million to $68.8 million.
The $164.8 million increase in deposits during the first six months of 1996
primarily reflects the acquisition of two branches which resulted in an
increase in deposits of $152.8 million, with the remaining $12.0 million
reflecting internal growth.
Shareholders' equity at June 30, 1996 was $71.8 million, an increase of $3.2
million or 4.6% from December 31, 1995. This increase primarily reflects net
income of $4.9 million, partially offset by cash dividends of $1.1 million
and a decrease of $758,000 resulting from market value changes of securities
available for sale, net of taxes. Shareholders' equity, as a percent of
total assets, was 7.97% at June 30, 1996 compared to 9.24% at December 31,
1995. Book value per share increased to $27.14 at June 30, 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 (not on a tax-equivalent
basis) for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
Average Avg. Average Avg. Average Avg. Average Avg.
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> $ 483,213 10,458 8.66% $ 443,562 9,610 8.67% $ 482,554 20,949 8.68% $ 438,759 18,802 8.57%
Other loans <F1> 65,168 1,609 9.88 58,138 1,396 9.60 62,480 3,119 9.98 58,022 2,737 9.43
Mortgage-backed
securities <F2> 116,148 2,017 6.95 83,584 1,285 6.15 102,269 3,495 6.83 83,674 2,414 5.77
U.S. Treasury and agencies,
corporate and other
securities <F2>, <F3> 120,907 1,900 6.29 46,553 808 6.94 92,156 2,917 6.33 44,826 1,554 6.93
Interest on income tax
refund -- 420 -- -- -- -- -- 420 -- -- -- --
Federal funds sold 57,230 691 4.83 38,565 558 5.79 35,775 879 4.91 44,378 1,224 5.52
Total interest-earning
assets 842,666 17,095 8.11% 670,402 13,657 8.15% 775,234 31,779 8.20% 669,659 26,731 7.98%
Non-interest-earning
assets 43,783 28,978 40,661 26,303
Total assets 886,449 $ 699,380 $ 815,895 $ 695,962
Interest-bearing
liabilities:
Savings deposits <F4> $ 332,489 3,207 3.86% $ 243,575 2,173 3.57% $ 300,465 5,842 3.89% $ 251,336 4,452 3.54%
Time deposits 406,980 5,555 5.46 334,553 4,564 5.46 373,338 10,263 5.50 327,085 8,506 5.20
Other borrowings 1,462 21 5.75 -- -- -- 1,844 51 5.53 -- -- --
Total interest-bearing
liabilities 740,931 8,783 4.74% 578,128 6,737 4.66% 675,647 16,156 4.78% 578,421 12,958 4.48%
Non-interest-bearing
liabilities 74,799 53,705 70,216 50,940
Total liabilities 815,730 631,833 745,863 629,361
Shareholders' equity 70,719 67,547 70,032 66,601
Total liabilities and
shareholders' equity $ 886,449 $ 699,380 $ 815,895 $ 695,962
Net earning balance $ 101,735 $ 92,274 $ 99,587 $ 91,238
Net interest income 8,312 6,920 15,623 13,773
Interest rate
spread <F5>, <F7> 3.37% 3.49% 3.42% 3.50%
Net yield on interest-earning
assets (margin) <F6>, <F7> 3.95% 4.13% 4.03% 4.11%
<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> Yields on tax exempt obligations have not been computed on a
tax-equivalent basis, as the effect thereof is not material.
<F4> Includes NOW accounts, passbook and statement savings accounts, and money
market accounts.
<F5> Average rate on total interest-earning assets less average rate on total
interest-bearing liabilities.
<F6> Net interest income divided by total average interest-earning assets.
<F7> Excluding the interest income on tax refund, the interest rate spread for
the three and six months ended June 30, 1996 was 3.18% and 3.31%,
respectively, and margin was 3.75% and 3.92%, respectively.
</TABLE>
RESULTS OF OPERATIONS
GENERAL
For the quarter ended June 30, 1996, the Company's net income was $2.9
million or $1.12 per share as compared to $1.6 million or $0.59 per share for
the same three-month period in 1995. For the six-month period ended June 30,
1996, the Company earned $4.9 million or $1.85 per share as compared $3.1
million or $1.14 per share for the same period in 1995. The increases in net
income for the three- and six-month periods were primarily the result of
increases in net interest income and decreases in income tax expense,
partially offset by increases in other expense and the provision for loan
losses.
NET INTEREST INCOME
Net interest income increased $1.4 million, or 20.1%, to $8.3 million for the
three-month period ended June 30, 1996 and $1.9 million, or 13.4%, for the
six-month period when compared to the same periods in 1995. The increases in
net interest income for the quarter and six months ended June 30, 1996 were
primarily due to increases in interest on loans and U.S. Treasury and
agencies, corporate and other securities. The increases in interest income
were partially offset by increases in interest paid on deposits. For the
three-month period ended June 30, 1996, the Company's interest rate spread
narrowed by 12 basis points primarily reflecting the increase in the cost of
interest-bearing liabilities. For the six-month period, the Company's
interest rate spread narrowed by 8 basis points as a result of the increase
in the cost of funds, partially offset by the increase in the average yield
on earning assets. The Company's net interest margin also narrowed,
primarily a result of the change in interest rate spread. The narrowing of
the spread and margin would have been greater without the impact of interest
on income tax refunds as described in note 7 to the table on page 7.
Interest on loans increased by $1.1 million, or 9.6%, for the three-month
period and $2.5 million, or 11.7%, for the six-month period when compared to
the same periods in 1995, primarily reflecting increases in the volume of
loans outstanding. Average mortgage loans and other loans increased by $46.7
million for the three-month period ended June 30, 1996 and $48.3 million for
the six-month period when compared to the same periods in 1995.
Interest on mortgage-backed securities increased $732,000, or 57.0%, for
the three-month period and $1.1 million, or 44.8%, for the six-month period
when compared to the same periods in 1995, primarily due to increases in the
average balance outstanding due to additional security purchases as well as
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 $1.1 million for the three-month period ended June
30, 1996 and $1.4 million for the six-month period when compared to the same
periods in 1995. These increases primarily reflect a higher average balance
outstanding due to additional purchases of U.S. Treasury and agency
securities, partially offset by maturities and calls during the year.
Interest on Federal funds sold and other interest income increased $553,000
for the three-month period ended June 30, 1996 and increased $75,000 for the
six-month period when compared to the same periods in 1995. The increase for
the three-month period primarily reflects $420,000 of interest income due to
the receipt of refunds of certain prior years' Federal income taxes. For the
six-month period, this increase was partially offset by the decline in
Federal funds sold interest income primarily due to the decrease in the
average balance outstanding for the period.
The increases in interest on interest-bearing liabilities for the three- and
six-month periods ended June 30, 1996 of $2.0 million and $3.2 million,
respectively, were primarily due to increases in the average balance
outstanding due to the acquisition of the Rockland County branches during
the second quarter of 1996. The increase in interest expense was also a
result of the increase in the cost of funds, due to the acquisition as well
as the generally higher rate environment for the first six months of 1996 as
compared to the same period 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.
For the three- and six-month periods ended June 30, 1996, the provision for
loan losses was $600,000 and $900,000, respectively, as compared to $125,000
and $250,000 for the comparable periods in 1995. The higher provisions were
made to increase the allowance for loan losses in line with the Company's
loan growth and changes in portfolio mix. Non-performing loans increased to
$6.2 million, or 1.12% of total loans, at June 30, 1996 compared to $4.9
million, or 0.96% of total loans, at June 30, 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 June 30, 1996, slow paying loans amounted to $3.4
million as compared to $2.3 million at June 30, 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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 8,275 8,506 8,033 9,402
Provision charged to operations 600 125 900 250
8,875 8,631 8,933 9,652
Loans charged-off:
Mortgage loans:
Residential (167) (63) (381) (161)
Commercial (41) -- (41) (234)
Construction and land -- (91) -- (758)
Other loans:
Consumer (67) (39) (104) (106)
Commercial (5) -- (5) (30)
Total charge-offs (280) (193) (531) (1,289)
Recoveries:
Mortgage loans:
Residential 1 -- 48 60
Commercial -- 79 31 79
Construction and land 40 159 141 159
Other loans:
Consumer 9 15 22 29
Commercial 21 -- 22 1
Total recoveries 71 253 264 328
Net (charge-offs) recoveries (209) 60 (267) (961)
Balance at end of period $ 8,666 8,691 8,666 8,691
Ratio of net (charge-offs) recoveries to
average total loans outstanding (annualized) (0.15%) 0.05% (0.10%) (0.39%)
</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 the
dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1995
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing loans:
Mortgage loans:
Residential properties $ 4,437 2,850 2,559
Commercial properties 931 1,117 2,591
Construction and land 828 935 593
6,196 4,902 5,743
Other loans 20 6 20
Total non-performing loans <F1> 6,216 4,908 5,763
Other real estate, net 1,910 695 405
Total non-performing assets $ 8,126 5,603 6,168
Ratio of non-performing loans to total loans 1.12% 0.96% 1.07%
Ratio of non-performing assets to total assets 0.90 0.80 0.83
Ratio of allowance for loan losses to total
non-performing loans 139.41 177.08 139.39
<FN>
(1) Includes loans on non-accrual status of $6.0 million, $4.7 million and
$5.6 million at June 30, 1996, June 30, 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 June 30, 1996,
compared to $1.4 million at June 30, 1995 and $1.5 million at December 31,
1995.
The Company's recorded investment in impaired loans consisted of commercial
mortgage and construction loans totaling $1.8 million at June 30, 1996 and
$3.2 million at December 31, 1995. Total impaired loans at June 30, 1996
consist of (i) loans of $964,000 for which there was an allowance for losses
of $201,000 determined in accordance with SFAS No. 114 and (ii) loans of
$795,000 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. For the three and six months ended June 30, 1996, the
average recorded investment in impaired loans was $2.6 million and $2.8
million, respectively. Interest income on impaired loans is recognized on a
cash basis and was not significant for the quarter and six months ended June
30, 1996 and 1995.
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. Other income decreased by $49,000, or 6.7%,
for the three-month period ended June 30, 1996 and increased $178,000, or
12.7%, for the six-month period, compared to the same periods in 1995.
Deposit service fees, the largest component of other income, increased by
$110,000, or 22.1%, for the three-month period and $218,000, or 22.1%, for
the six-month period, compared to the same periods in 1995. This was
primarily the result of an increase in the amount of retail checking account
fees collected. Other service fees totaled $177,000 and $327,000 for the
three- and six-month periods ended June 30, 1996, as compared to $171,000 and
$316,000 for the same periods in 1995. The $194,000 net loss on securities
for both the three and six months ended June 30, 1996 consists of the net
realized loss on the sale of U.S. Treasury securities. The net loss for the
same periods in the previous year was $8,000, primarily reflecting net
realized losses on the sale of corporate securities. There have been no
sales of securities classified as held to maturity. Net gain on loans was
$18,000 and $108,000 for the three- and six-month periods ended June 30, 1996
compared to $28,000 and $37,000 during the same periods 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. Other expense increased
by $1.2 million, or 24.9%, for the three-month period ended June 30, 1996 and
$996,000, or 10.4%, for the six-month period, compared to the same periods in
1995, primarily due to increases in salary and employee benefit expense,
other expense, and occupancy and equipment expense, partially offset by
decreases in FDIC deposit insurance expense.
Salaries and employee benefits, the largest component of other expense,
increased by $472,000, or 21.5%, for the three-month period and $650,000, or
14.5%, for the six-month period, compared to the same periods in 1995. The
increases primarily reflect additional expense due to the branch acquisition
during the second quarter of 1996, as well as the hiring of additional staff
and normal merit and promotional salary increases.
Occupancy and equipment expense increased $201,000, or 36.3%, for the
three-month period ended June 30, 1996 and $333,000, or 28.9%, for the
six-month period, as compared to the same periods in the previous year,
primarily due to the branch acquisition as well as other increases in
maintenance, depreciation and equipment rental and repair expenses.
The net cost of other real estate increased $150,000 for the three-month
period and $118,000 for the six-month period, compared to the same periods in
1995, primarily reflecting increases of $175,000 and $68,000 in net holding
costs for the three- and six-month periods. In addition, the provision for
losses on other real estate decreased $25,000 and increased $75,000 for the
three and six months ended June 30, 1996.
FDIC deposit insurance expense decreased $350,000 for the three-month period,
and $699,000 for the six-month period, as compared to the same periods in the
previous year, primarily the result of the reduction of the insurance premium
on Pawling's deposits.
Amortization of intangible assets totaled $306,000 for both the three and six
months ended June 30, 1996, reflecting the amortization of the purchase
premium as a result of the branch acquisition.
Other non-interest expense increased $413,000, or 26.1%, for the three-month
period and $288,000, or 9.3%, for the six-month period when compared to the
same periods in 1995. The increases in the three- and six-month periods
primarily reflect increased foreclosure and collection expense.
INCOME TAX EXPENSE
For the quarter ended June 30, 1996, the Company recognized an income tax
benefit of $513,000, consisting of a benefit of $1.5 million from the
settlement with the Internal Revenue Service of audits of certain prior
years' Federal income tax returns, less a provision of $1.0 million or 40.8%
of pre-tax income for the quarter. For the same period for the previous
year, income tax expense was $1.1 million or 40.8% of pre-tax income. For
the six-month periods ended June 30, 1996 and June 30, 1995, income tax
expense was $844,000 and $2.2 million, respectively. It is currently
anticipated that prior to year end 1996, the Company will have a tax
settlement of prior tax years with the State of New York Department of
Taxation and Finance.
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 Six Months Ended Year Ended
June 30, June 30, December 31,
1996 1995 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Return on assets:
Net income divided by average total assets <F1> 1.32% 0.93% 1.19% 0.90% 0.95%
Return on equity:
Net income divided by average equity <F1>, <F2> 16.60% 9.62% 13.87% 9.42% 10.04%
<FN>
<F1> Excluding the $1.5 million Federal income tax benefit, return on assets
for the three and six months ended June 30, 1996 was 0.65% and 0.82%,
respectively, and the return on equity was 8.11% and 9.58%, respectively.
<F2> 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
June 30, 1996, the Company had a primary liquidity ratio of 7.90% as
compared to 8.21% at December 31, 1995.
An important source of funds is Pawling's core deposit base. Management
believes that a substantial portion of Pawling's deposits of $821.8 million
at June 30, 1996 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 June 30, 1996, had
immediate access to additional liquidity in the form of borrowings from the
FHLBNY of $88.8 million. The Company also has access to the discount window
of the Federal Reserve Bank.
At June 30, 1996, Pawling had outstanding loan commitments and unadvanced
customer lines of credit totaling $98.2 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. During the second quarter of
1996, the Company received a partial distribution of $1.4 million, or 40% of
the claim against Nationar. It is anticipated that additional payments will
be received, although the timing and amount of such payments is unknown. As
of June 30, 1996, other assets include $1.2 million in remaining claims
against Nationar, net of a $1.0 million reserve for probable loss which was
established in 1995. 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 its 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 June 30, 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 $ 62,008 6.88% $ 62,008 13.28% $ 67,878 14.54%
Minimum requirement 36,073 4.00 18,672 4.00 37,345 8.00
Excess $ 25,935 2.88% $ 43,336 9.28% $ 30,533 6.54%
<FN>
<F1> For all capital amounts, actual capital excludes the Company's net
unrealized gain of $368,000 on securities available for sale (exclusive of a
$31,000 unrealized loss on equity securities) and intangible assets of $9.4
million.
</TABLE>
At June 30, 1996, Pawling's capital ratios exceeded the FDIC's minimum
regulatory capital requirements as follows:
<TABLE>
<CAPTION>
Risk-Based Capital
Leverage Capital Tier 1 Total
Amount<F1> Ratio Amount<F1> Ratio Amount<F1> Ratio
<S> <C> <C> <C> <C> <C> <C>
Actual $ 55,751 6.22% $ 55,751 12.01% $ 61,591 13.26%
Minimum requirement 35,826 4.00 18,575 4.00 37,150 8.00
Excess $ 19,925 2.22% $ 37,176 8.01% $ 24,441 5.26%
<FN>
<F1> For all capital amounts, actual capital excludes Pawling's net unrealized
gain of $417,000 on securities available for sale and intangible assets of
$9.4 million.
</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 June 30, 1996, 85,000 shares had been
purchased under the third plan at a cost of $2.4 million or $28.36 per
share. The Company considers its stock to be an attractive investment and
believes these programs will increase shareholder value.
On July 9, 1996, the Company's Board of Directors declared a dividend of
twenty cents ($0.20) per common share, payable on August 30, 1996 to
shareholders of record as of July 31, 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 -6.56% at June 30, 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 may
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 the 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 June 30, 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 $ 458,055 334,937 58,504
Total interest-bearing liabilities 517,222 119,560 127,288
Excess (deficiency) of interest-earning assets
over interest-bearing liabilities ($ 59,167) 215,377 (68,784)
Excess (deficiency) as a percent of total assets (6.56%) 23.89% (7.63%)
Cumulative excess (deficiency) as a percent of total assets (6.56%) 17.33% 9.70%
</TABLE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
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 June 7, 1996, Progressive filed an 8-K/A Report amending the 8-K
Report filed January 16, 1996 to include unaudited pro forma consolidated
financial statements.
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: August 7, 1996
/s/ Peter Van Kleeck
Peter Van Kleeck
President and Chief Executive Officer
Date: August 7, 199
/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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<C> <C> <C> <C>
Net income $ 2,934 $ 1,624 $ 4,856 $ 3,138
Weighted average common shares <F1>, <F2> 2,630 2,740 2,630 2,743
Net income per share $ 1.12 $ 0.59 $ 1.85 $ 1.14
<FN>
<F1> Outstanding common stock equivalents (stock options) did not have a
significant dilutive effect upon the net income per share computations for
any of the periods presented.
<F2> Net of treasury stock.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 16,355
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 38,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 184,241
<INVESTMENTS-CARRYING> 79,440
<INVESTMENTS-MARKET> 78,241
<LOANS> 554,153
<ALLOWANCE> 8,666
<TOTAL-ASSETS> 901,690
<DEPOSITS> 821,781
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,070
<LONG-TERM> 0
0
0
<COMMON> 2,952
<OTHER-SE> 68,887
<TOTAL-LIABILITIES-AND-EQUITY> 901,690
<INTEREST-LOAN> 24,068
<INTEREST-INVEST> 6,832
<INTEREST-OTHER> 879
<INTEREST-TOTAL> 31,779
<INTEREST-DEPOSIT> 16,105
<INTEREST-EXPENSE> 16,156
<INTEREST-INCOME-NET> 15,623
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,608
<INCOME-PRETAX> 5,700
<INCOME-PRE-EXTRAORDINARY> 5,700
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,856
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.85
<YIELD-ACTUAL> 4.03
<LOANS-NON> 6,047
<LOANS-PAST> 169
<LOANS-TROUBLED> 1,323
<LOANS-PROBLEM> 2,973
<ALLOWANCE-OPEN> 8,033
<CHARGE-OFFS> 531
<RECOVERIES> 264
<ALLOWANCE-CLOSE> 8,667
<ALLOWANCE-DOMESTIC> 8,667
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
