<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-----------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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(Address of principal executive offices) (Zip Code)
(914) 897-7400
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(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 7, 1997: 3,828,809 shares.
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1997 and September 30, 1996 . . . . . . . . . 2
Consolidated Statements of Shareholders' Equity for the Nine
Months Ended September 30, 1997 and September 30, 1996 . . . . . . . . . 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and September 30, 1996 . . . . . . . . . 4
Notes to Consolidated Interim Financial Statements. . . . . . . . . . . 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . .6-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . .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 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Explanatory Note: This Quarterly Report on Form 10-Q contains certain
forward-looking statements consisting of estimates with respect to financial
condition, results of operations and business of the Company that are subject to
various factors which could cause actual results to differ materially from these
statements. These factors include changes in general, economic and market, and
legislative and regulatory conditions, and the development of an interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.
<PAGE>
CONSOLIDATED BALANCE SHEETS
PROGRESSIVE BANK, INC. AND SUBSIDIARY
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
ASSETS
Cash and due from banks . . . . . . . . . . . . . $ 14,325 15,070
Federal funds sold. . . . . . . . . . . . . . . . 39,100 30,500
Securities:
Available for sale, at fair value. . . . . . . . 111,408 137,792
Held to maturity, at amortized cost (fair
value of $115,564 in 1997 and $72,315 in
1996). . . . . . . . . . . . . . . . . . . . . 115,425 72,614
- ------------------------------------------------------------------------------
Total securities . . . . . . . . . . . . . . . 226,833 210,406
- ------------------------------------------------------------------------------
Loans, net:
Mortgage loans . . . . . . . . . . . . . . . . . 506,189 517,077
Other loans. . . . . . . . . . . . . . . . . . . 77,149 75,708
Allowance for loan losses. . . . . . . . . . . . (9,603) (9,231)
- ------------------------------------------------------------------------------
Total loans, net . . . . . . . . . . . . . . . 573,735 583,554
- ------------------------------------------------------------------------------
Accrued interest receivable . . . . . . . . . . . 5,813 6,068
Other real estate, net. . . . . . . . . . . . . . 505 2,270
Premises and equipment, net . . . . . . . . . . . 9,419 10,323
Deferred income taxes, net. . . . . . . . . . . . 5,389 6,134
Intangible assets . . . . . . . . . . . . . . . . 7,709 8,755
Other assets. . . . . . . . . . . . . . . . . . . 1,789 2,100
- ------------------------------------------------------------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . $884,617 875,180
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Savings and time deposits. . . . . . . . . . . . $732,626 736,579
Demand deposits. . . . . . . . . . . . . . . . . 68,038 57,622
Accrued expenses and other liabilities . . . . . 6,710 8,437
- ------------------------------------------------------------------------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . 807,374 802,638
- ------------------------------------------------------------------------------
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; 4,427,999 shares issued). . . . . . 4,428 4,428
Paid-in capital. . . . . . . . . . . . . . . . . 25,879 25,879
Retained earnings. . . . . . . . . . . . . . . . 56,408 51,882
Treasury stock, at cost (599,940 shares in 1997
and 603,315 shares in 1996) . . . . . . . . . . (10,466) (10,416)
Net unrealized gain on securities available for
sale, net of taxes. . . . . . . . . . . . . . . 994 769
- ------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . 77,243 72,542
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . $884,617 875,180
==============================================================================
See accompanying notes to consolidated interim financial statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PROGRESSIVE BANK, INC. AND SUBSIDIARY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
----------------------------------------
INTEREST AND DIVIDEND INCOME:
Mortgage loans . . . . . . . . . . . $11,461 10,624 34,273 31,573
Other loans. . . . . . . . . . . . . 1,761 1,697 5,403 4,816
Securities . . . . . . . . . . . . . 3,585 4,303 10,725 10,715
Federal funds sold and other . . . . 463 407 1,114 1,706
- --------------------------------------------------------------------------------
Total interest and dividend income 17,270 17,031 51,515 48,810
- --------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . 8,767 8,956 25,939 25,061
Other borrowings . . . . . . . . . . -- -- -- 51
- --------------------------------------------------------------------------------
Total interest expense . . . . . . 8,767 8,956 25,939 25,112
- --------------------------------------------------------------------------------
Net interest income. . . . . . . . 8,503 8,075 25,576 23,698
Provision for loan losses. . . . . . . 500 600 1,600 1,500
- --------------------------------------------------------------------------------
Net interest income after provision
for loan losses . . . . . . . . . 8,003 7,475 23,976 22,198
- --------------------------------------------------------------------------------
OTHER INCOME:
Deposit service fees . . . . . . . . 540 599 1,672 1,802
Other service fees . . . . . . . . . 213 184 598 511
Net gain (loss) on securities. . . . -- -- 15 (194)
Net gain on sales of loans . . . . . 73 31 217 139
Other non-interest income. . . . . . 76 83 232 224
- --------------------------------------------------------------------------------
Total other income . . . . . . . . 902 897 2,734 2,482
- --------------------------------------------------------------------------------
Net interest and other income. . . 8,905 8,372 26,710 24,680
- --------------------------------------------------------------------------------
OTHER EXPENSE: . . . . . . . . . . . .
Salaries and employee benefits . . . 2,673 2,779 8,232 7,900
Occupancy and equipment. . . . . . . 664 765 2,051 2,252
Net cost of other real estate. . . . (33) 172 61 471
Amortization of intangible assets. . 349 349 1,047 655
Other non-interest expense . . . . . 1,624 1,588 4,537 4,983
- --------------------------------------------------------------------------------
Total other expense. . . . . . . . 5,277 5,653 15,928 16,261
- --------------------------------------------------------------------------------
Income before income taxes.. . . . 3,628 2,719 10,782 8,419
Income tax expense . . . . . . . . . . 1,433 174 4,272 1,018
- --------------------------------------------------------------------------------
Net income . . . . . . . . . . . . $ 2,195 2,545 6,510 7,401
================================================================================
Net income per common share(1) . . . . $ 0.57 0.65 1.70 1.88
================================================================================
Weighted average common shares
outstanding(1). . . . . . . . . . . . 3,825 3,916 3,822 3,935
================================================================================
(1) The 1996 amounts were adjusted for the three-for-two stock split completed
in December 1996. See note 2.
See accompanying notes to consolidated interim financial statements.
2
<PAGE>
<TABLE>
Caption>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PROGRESSIVE BANK, INC. AND SUBSIDIARY
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
Net
Common Stock Unrealized
Shares Paid-in Retained Treasury Gain on
Outstanding(1) Amount(1) Capital(1) Earnings Stock Securities Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996. . . . 3,824,684 $4,428 25,879 51,882 (10,416) 769 72,542
Net income. . . . . . . . . . . . . -- -- 6,510 -- -- 6,510
Cash dividends declared
($0.51 per share). . . . . . . . . -- -- (1,950) -- -- (1,950)
Stock options exercised . . . . . . 18,375 -- -- (34) 312 -- 278
Purchases of treasury stock . . . . (15,000) -- -- -- (362) -- (362)
Net change in unrealized gain
on securities available for sale,
net of taxes . . . . . . . . . . . -- -- -- -- 225 225
- ---------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 . . . 3,828,059 $4,428 25,879 56,408 (10,466) 994 77,243
===========================================================================================================================
Balance at December 31, 1995. . . . 3,942,441 $4,428 25,879 44,880 (7,655) 1,126 68,658
Net income. . . . . . . . . . . . . -- -- 7,401 -- -- 7,401
Cash dividends declared
($0.40 per share)(1) . . . . . . . -- -- (1,571) -- -- (1,571)
Stock options exercised . . . . . . 64,493 -- -- (244) 1,040 -- 796
Purchases of treasury stock . . . . (108,000) -- -- -- (2,096) -- (2,096)
Net change in unrealized gain
on securities available for sale,
net of taxes. . . . . . . . . . . -- -- -- -- (467) (467)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 . . . 3,898,934 $4,428 25,879 50,466 (8,711) 659 72,721
===========================================================================================================================
</TABLE>
(1) The 1996 amounts were adjusted for the three-for-two stock split completed
in December 1996. See note 2.
See accompanying notes to consolidated interim financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PROGRESSIVE BANK, INC. AND SUBSIDIARY
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------------------------
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 6,510 7,401
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses . . . . . . . . . . . 1,600 1,500
Provision for losses on other real estate . . . -- 375
Depreciation expense. . . . . . . . . . . . . . 656 814
Net (gain) loss on securities and loans . . . . (232) 55
Amortization of net premiums (discounts) on
securities . . . . . . . . . . . . . . . . . . 150 (83)
Amortization of net deferred loan origination
fees . . . . . . . . . . . . . . . . . . . . . (65) (322)
Net decrease (increase) in accrued interest
receivable . . . . . . . . . . . . . . . . . . 255 (1,611)
Gain on sales of premises and equipment . . . . (186) --
Gain on sales of other real estate. . . . . . . (545) (137)
Amortization of Intangible assets . . . . . . . 1,047 655
Net decrease in accrued expenses and other
liabilities. . . . . . . . . . . . . . . . . . (1,727) (10,502)
Other, net. . . . . . . . . . . . . . . . . . . 952 (6,962)
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . 8,415 (8,817)
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of securities:
Securities available for sale . . . . . . . . . . (37,084) (119,653)
Securities held to maturity . . . . . . . . . . . (60,234) (46,442)
Proceeds from principal payments, maturities and
calls of securities:
Securities available for sale . . . . . . . . . . 63,869 41,776
Securities held to maturity . . . . . . . . . . . 17,269 9,779
Proceeds from sales of securities available for
sale . . . . . . . . . . . . . . . . . . . . . . -- 5,953
Disbursements for loan originations, net of
principal collections . . . . . . . . . . . . . . . (978) (48,599)
Proceeds from sales of loans . . . . . . . . . . . . 8,809 9,502
Purchases of premises and equipment. . . . . . . . . (216) (1,615)
Proceeds from sales of premises and equipment. . . . 650 --
Proceeds from sales of other real estate . . . . . . 2,926 742
- --------------------------------------------------------------------------------
Net cash used in investing activities . . . . (4,989) (148,557)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposits from acquisition of branches,
net of premium paid . . . . . . . . . . . . . . . . -- 143,030
Net increase in deposits, exclusive of acquisition . 6,463 6,238
Cash dividends paid on common stock. . . . . . . . . (1,950) (1,571)
Net proceeds on exercises of stock options . . . . . 278 796
Purchases of treasury stock. . . . . . . . . . . . . (362) (2,096)
- --------------------------------------------------------------------------------
Net cash provided by financing activities . . 4,429 146,397
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . 7,855 (10,977)
Cash and cash equivalents at beginning of period . . 45,570 37,893
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period . . . . . $53,425 26,916
================================================================================
SUPPLEMENTAL DATA:
Interest paid. . . . . . . . . . . . . . . . . . . . $27,998 25,057
Income taxes paid, net of refunds received . . . . . 3,439 2,991
Loans transferred to other real estate . . . . . . . 1,399 2,730
Loans originated to finance sales of other real
estate . . . . . . . . . . . . . . . . . . . . . . 676 431
================================================================================
See accompanying notes to consolidated interim financial statements.
4
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
PROGRESSIVE BANK, INC. AND SUBSIDIARY
(UNAUDITED)
Note 1: Basis of Presentation
The unaudited consolidated interim 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 ("Pawling"), a
New York state-chartered stock savings bank. In the opinion of
management, the unaudited consolidated interim 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, 1996.
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.
All 1996 share and per share data have been adjusted to give
retroactive effect to the three-for-two stock split completed in
December 1996. The split resulted in the issuance of 1,476,025
additional common shares. The total par value for these shares was
retroactively transferred to common stock from paid-in-capital.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," which requires presentation of both basic EPS
and diluted EPS by all entities with complex capital structures.
Basic EPS, which replaces primary EPS, excludes dilution and is
computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (such as the
Company's stock options) were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the
earnings of the entity. As required, the Company will adopt SFAS No.
128 in the fourth quarter of 1997 and will present EPS data for all
periods in accordance with the new statement.
Note 3: Other Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income (and its components) in financial statements.
The standard does not, however, specify when to recognize or how to
measure items that make up comprehensive income. Comprehensive income
represents net income and certain amounts reported directly to equity,
such as the net unrealized gain or loss on available-for-sale
securities. While SFAS No. 130 does not require a specific reporting
format, it does require that an enterprise display an amount
representing total comprehensive income for the period. SFAS No. 130
is effective for both interim and annual periods beginning after
December 15, 1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Among other
things, SFAS No. 131 requires public companies to report
5
<PAGE>
(i) certain financial and descriptive information about its reportable
operating segments (as defined) and (ii) certain enterprise-wide
financial information about products and services, geographic areas
and major customers. The required segment financial disclosures
include a measure of profit or loss, certain specific revenue and
expense items, and total assets. SFAS No. 131 is effective for periods
beginning after December 15, 1997.
Management does not anticipate that the adoption of SFAS Nos. 130 and
131 will have a material impact on the Company's consolidated
financial statements.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The financial condition and operating results of the Company are primarily
dependent upon the financial condition and operating results of 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 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 $884.6 million at September 30, 1997 as
compared to $875.2 million at December 31, 1996, an increase of $9.4 million or
1.1%.
Total securities increased by $16.4 million consisting of a $42.8 million
increase in securities held to maturity partially offset by a $26.4 million
decrease in securities available for sale. The increase in securities held to
maturity primarily reflects $60.2 million in purchases of fixed rate seven-year
balloon and fifteen-year mortgage-backed securities, partially offset by
principal paydowns of $17.3 million. The decrease in securities available for
sale primarily reflects maturities, calls, and principal paydowns of $63.9
million, partially offset by $37.1 million in purchases of U.S. government
agencies and U.S. Treasury notes.
Net loans totaled $573.7 million at September 30, 1997, compared to $583.6
million at December 31, 1996, a decrease of $9.8 million or 1.7%. The
residential mortgage segment of the loan portfolio decreased $6.0 million or
1.4% (net of loan sales to the secondary market of $8.6 million) from $429.2
million at December 31, 1996 to $423.1 million at September 30, 1997. The
commercial mortgage segment of the loan portfolio decreased $5.4 million or
6.6%, from $81.1 million at December 31, 1996 to $75.7 million at September 30,
1997. The construction mortgage segment of the loan portfolio increased
$303,000 or 3.4% from $8.9 million at December 31, 1996 to $9.2 million at
September 30, 1997. Other loans increased $1.3 million or 1.8% during the first
nine months of 1997 from $72.5 million to $73.8 million, primarily due to
increases in business installment loans and automobile financing.
The $6.5 million increase in deposits during the first nine months of 1997
was primarily attributable to increases of $45.1 million in money market
accounts and $10.4 million in demand deposits, partially offset by decreases of
$26.4 million in time deposits and $22.6 million in savings accounts.
Shareholders' equity at September 30, 1997 was $77.2 million, an increase
of $4.7 million or 6.5% from December 31, 1996. This increase primarily
reflects net income of $6.5 million, partially offset by cash dividends of $2.0
million. Shareholders' equity, as a percent of total assets, was 8.73% at
September 30, 1997 compared to 8.29% at December 31, 1996. Book value per share
increased to $20.18 at September 30, 1997 from $18.97 at December 31, 1996.
6
<PAGE>
The following table shows the Company's average consolidated balances, interest
income and expense, and average rates (annualized) for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1996 September 30, 1997
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1). . . . . . . . . . $514,315 11,461 8.91% $493,104 10,624 8.62% $518,326 34,273 8.82%
Other loans (1) . . . . . . . . . . . 74,774 1,761 9.42 69,402 1,697 9.78 74,319 5,403 9.69
Mortgage-backed securities (2). . . . 133,793 2,228 6.66 116,131 1,993 6.86 127,397 6,470 6.77
U.S. Treasury and agencies,
corporate and other securities (2, 3) 87,160 1,357 6.23 143,889 2,310 6.42 90,860 4,255 6.24
Interest on income tax refund . . . . -- -- -- -- -- -- -- -- --
Federal funds sold. . . . . . . . . . 33,276 463 5.57 31,046 407 5.24 27,575 1,114 5.39
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets. . . 843,318 17,270 8.19% 853,572 17,031 7.98% 838,477 51,515 8.19%
Non-interest-earning assets . . . . . . 45,617 48,980 45,764
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . $888,935 $902,552 $884,241
===================================================================================================================================
Interest-bearing liabilities:
Time deposits . . . . . . . . . . . . $347,692 4,706 5.41% $398,406 5,401 5.42% $357,383 14,329 5.35%
Other deposits (4). . . . . . . . . . 386,118 4,061 4.21 360,147 3,555 3.95 377,183 11,610 4.10
Other borrowings. . . . . . . . . . . -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 733,810 8,767 4.78% 758,553 8,956 4.72% 734,566 25,939 4.71%
Non-interest-bearing liabilities. . . . 78,932 71,719 75,112
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities. . . . . . . . . 812,742 830,272 809,678
Shareholders' equity. . . . . . . . . . 76,193 72,280 74,563
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity. . . . . . . $888,935 $902,552 $884,241
===================================================================================================================================
Net earning balance . . . . . . . . . . $109,508 $ 95,019 $103,911
===================================================================================================================================
Net interest income . . . . . . . . . . 8,503 8,075 25,576
===================================================================================================================================
Interest rate spread (5, 7) . . . . . . 3.41% 3.26% 3.48%
Net yield on interest-earning
assets (margin) (6, 7). . . . . . . . 4.03% 3.78% 4.07%
===================================================================================================================================
<CAPTION>
Nine Months Ended
September 30, 1996
Average Average
Balance Interest Rate
------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1). . . . . . . . . . $486,096 31,573 8.66%
Other loans (1) . . . . . . . . . . . 64,804 4,816 9.91
Mortgage-backed securities (2). . . . 106,924 5,488 6.84
U.S. Treasury and agencies,
corporate and other securities (2, 3) 109,529 5,227 6.36
Interest on income tax refund . . . . -- 420 --
Federal funds sold. . . . . . . . . . 34,067 1,286 5.03
- -----------------------------------------------------------------------
Total interest-earning assets. . . 801,420 48,810 8.12%
Non-interest-earning assets . . . . . . 43,506
- -----------------------------------------------------------------------
Total assets . . . . . . . . . . . $844,926
=======================================================================
Interest-bearing liabilities:
Time deposits . . . . . . . . . . . . $381,755 15,664 5.47%
Other deposits (4). . . . . . . . . . 320,504 9,397 3.91
Other borrowings. . . . . . . . . . . 1,225 51 5.55
- -----------------------------------------------------------------------
Total interest-bearing liabilities 703,484 25,112 4.76%
Non-interest-bearing liabilities. . . . 70,738
- -----------------------------------------------------------------------
Total liabilities. . . . . . . . . 774,222
Shareholders' equity. . . . . . . . . . 70,704
- -----------------------------------------------------------------------
Total liabilities and
shareholders' equity. . . . . . . $844,926
=======================================================================
Net earning balance . . . . . . . . . . $ 97,936
=======================================================================
Net interest income . . . . . . . . . . 23,698
=======================================================================
Interest rate spread (5, 7) . . . . . . 3.36%
Net yield on interest-earning
assets (margin) (6, 7). . . . . . . . 3.94%
=======================================================================
</TABLE>
(1) 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.
(2) Average balances have been calculated based on amortized cost.
(3) Yields on tax exempt obligations have not been computed on a
tax-equivalent basis, as the effect thereof is not material.
(4) Includes NOW accounts, passbook and statement savings accounts, and
money market accounts.
(5) Represents average rate on total interest-earning assets less average
rate on total interest-bearing liabilities.
(6) Represents net interest income divided by total average
interest-earning assets.
(7) Excluding the interest income on tax refund, the interest rate spread
for the nine months ended September 30, 1996 was 3.29% and margin was
3.87%.
7
<PAGE>
RESULTS OF OPERATIONS
GENERAL
The Company's net income was $2.2 million or $0.57 per share for the
quarter ended September 30, 1997, as compared to $2.5 million or $0.65 per share
for the same three-month period in 1996. For the nine-month period ended
September 30, 1997, the Company earned $6.5 million or $1.70 per share as
compared to $7.4 million or $1.88 per share for the same period in 1996. The
decreases in net income for the three- and nine-month periods were primarily the
result of increases in income tax expense, partially offset by increases in net
interest income.
NET INTEREST INCOME
Net interest income increased $428,000, or 5.3%, to $8.5 million for the
three-month period ended September 30, 1997 and $1.9 million, or 7.9%, for the
nine-month period when compared to the same periods in 1996. The increases in
net interest income for the quarter and nine months ended September 30, 1997
were primarily due to increases in interest on loans, partially offset by a
decrease in interest on securities for the three-month period and an increase in
interest expense for the nine-month period. For the current three-month period
compared to a year ago, the Company's interest rate spread widened by 15 basis
points primarily reflecting the increase in the average yield on interest
earning assets. The Company's net interest margin also widened by 25 basis
points in the current quarter compared to the same period last year, primarily a
result of the change in interest rate spread. For the nine-month period, the
Company's interest rate spread widened by 12 basis points primarily as a result
of the increase in the average yield of interest earning assets and the decrease
in the average cost of interest-bearing liabilities. The increases in the
spread and margin for the nine-month period would have been greater without the
impact of the interest on income tax refund as described in note 7 to the table
on page 7.
Interest on loans increased by $901,000, or 7.3%, for the three-month
period and $3.3 million, or 9.0%, for the nine-month period when compared to the
same periods in 1996, primarily reflecting increases in the average balance of
outstanding loans, and to a lesser extent, increases in the average yield on
mortgage loans, partially offset by the decreases in the average yield on other
loans. Average mortgage loans and other loans increased by $26.6 million for
the three-month period ended September 30, 1997 and $41.7 million for the
nine-month period when compared to the same periods in 1996.
Interest on mortgage-backed securities increased $235,000, or 11.8%, for
the three-month period and $982,000, or 17.9%, for the nine-month period when
compared to the same periods in 1996, primarily due to increases in the average
balance outstanding due to additional security purchases, partially offset by
the decreases in the average yield.
Interest and dividends on U.S. Treasury and agencies, corporate and other
securities decreased by $953,000 for the three-month period ended September 30,
1997 and $972,000 for the nine-month period when compared to the same periods in
1996. The decreases primarily reflect a lower average balance outstanding, due
to maturities and calls.
Interest on federal funds sold increased $56,000 for the three-month period
ended September 30, 1997 and decreased $172,000 for the nine-month period when
compared to the same periods in 1996. The increase for the three-month period
primarily reflects a 33 basis point increase in the average yield and an
increase in the average balance outstanding. The decrease for the nine-month
period primarily reflects a $6.5 million decrease in the average balance
outstanding, partially offset by a 36 basis point increase in the average yield.
The decrease in interest expense of $189,000 for the quarter ended
September 30, 1997, compared to the same period in 1996, was due primarily to a
decrease of $24.7 million in the average balance of interest-bearing
liabilities, offset partially by an increase in the overall cost of funds. The
$827,000 increase in interest expense for the nine months ended September 30,
1997, compared to the same period in 1996, was due primarily to an increase of
$31.1 million in the average balance of interest-bearing liabilities, offset
partially by a decrease in the overall cost of funds. The increase in the
average balance of interest-bearing liabilities was primarily due to the
acquisition of the Rockland County branches during the second quarter of 1996.
8
<PAGE>
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 economic conditions.
For the three- and nine-month periods ended September 30, 1997, the
provision for loan losses was $500,000 and $1.6 million, respectively, as
compared to $600,000 and $1.5 million for the comparable periods in 1996. The
allowance for loan losses represented 1.65% of total loans at September 30,
1997, compared to 1.54% a year earlier and 1.56% at December 31, 1996.
Non-performing loans were $7.8 million, or 1.34% of total loans, at September
30, 1997 compared to $6.3 million, or 1.09% of total loans, at September 30,
1996 and $4.8 million, or 0.81% of total loans, at December 31, 1996.
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 30 to 89 days or more, but has not yet been placed on non-accrual status.
At September 30, 1997, slow paying loans amounted to $1.8 million as compared to
$4.5 million at September 30, 1996 and $6.3 million at December 31, 1996.
Loan loss provisions in future periods will continue to depend on trends in
the credit quality of the Company's loan portfolio, loan mix 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.
9
<PAGE>
Activity in the allowance for loan losses for the periods indicated is
summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
(Dollars in thousands)
-----------------------------------------
Balance at beginning of period. . . . . $ 9,833 8,666 9,231 8,033
Provision charged to operations . . . . 500 600 1,600 1,500
- --------------------------------------------------------------------------------
10,333 9,266 10,831 9,533
- --------------------------------------------------------------------------------
Loans charged-off:
Mortgage loans:
Residential . . . . . . . . . . . . (639) (322) (1,100) (703)
Commercial. . . . . . . . . . . . . (27) (78) (222) (119)
Construction and land . . . . . . . (41) -- (82) --
Other loans:
Consumer. . . . . . . . . . . . . . (131) (52) (299) (156)
Commercial. . . . . . . . . . . . . -- -- -- (5)
- --------------------------------------------------------------------------------
Total charge-offs . . . . . . . . (838) (452) (1,703) (983)
- --------------------------------------------------------------------------------
Recoveries:
Mortgage loans:
Residential . . . . . . . . . . . . 77 5 116 53
Commercial. . . . . . . . . . . . . -- -- 86 31
Construction and land . . . . . . . -- 1 200 142
Other loans:
Consumer. . . . . . . . . . . . . . 28 11 60 33
Commercial. . . . . . . . . . . . . 3 3 13 25
- --------------------------------------------------------------------------------
Total recoveries. . . . . . . . . 108 20 475 284
- --------------------------------------------------------------------------------
Net charge-offs . . . . . . . . . . . . (730) (432) (1,228) (699)
- --------------------------------------------------------------------------------
Balance at end of period. . . . . . . . $ 9,603 8,834 9,603 8,834
================================================================================
Ratio of net charge-offs to average
total loans outstanding (annualized). (0.50%) (0.31%) (0.28%) (0.17%)
================================================================================
10
<PAGE>
The following table sets forth information with respect to non-performing
assets and certain asset quality ratios at the dates indicated:
SEPTEMBER 30, DECEMBER 31,
1997 1996 1996
-----------------------------------
(Dollars in thousands)
NON-PERFORMING LOANS:
Mortgage loans:
Residential properties. . . . . . . . . . $4,748 4,590 3,769
Commercial properties . . . . . . . . . . 734 852 714
Construction and land . . . . . . . . . . 1,723 802 215
- --------------------------------------------------------------------------------
7,205 6,244 4,698
Other loans . . . . . . . . . . . . . . . . 583 53 101
- --------------------------------------------------------------------------------
Total non-performing loans (1) . . . 7,788 6,297 4,799
OTHER REAL ESTATE, NET. . . . . . . . . . . . 505 1,717 2,270
- --------------------------------------------------------------------------------
Total non-performing assets. . . . . $8,293 8,014 7,069
================================================================================
Ratio of non-performing loans to total
loans. . . . . . . . . . . . . . . . . . . . 1.34% 1.09% 0.81%
Ratio of non-performing assets to total
assets . . . . . . . . . . . . . . . . . . . 0.94 0.90 0.81
Ratio of allowance for loan losses to total
non-performing loans. . . . . . . . . . . . 123.31 140.29 192.35
================================================================================
(1) Includes loans on non-accrual status of $7.7 million, $6.1 million and $4.6
million at September 30, 1997, September 30, 1996 and December 31, 1996,
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.
The loan portfolio may also include 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. There were no restructured loans at September 30, 1997, compared to
$1.3 million at September 30, 1996 and $571,000 at December 31, 1996.
The Company's recorded investment in impaired loans consisted of
non-accrual commercial mortgage and construction loans totaling $2.5 million at
September 30, 1997 and $929,000 at December 31, 1996. Total impaired loans at
September 30, 1997 consist of (i) loans of $264,000 for which there was an
allowance for loan impairment of $59,000 determined in accordance with SFAS No.
114 and (ii) loans of $2.2 million for which such an allowance was not required
due to the adequacy of related collateral values and prior charge-offs. The
average recorded investment in impaired loans was $1.6 million and $1.3 million,
respectively for the three and nine months ended September 30, 1997 and $1.7
million and $2.5 million, respectively, for the three and nine months ended
September 30, 1996. Interest income on impaired loans is recognized on a cash
basis and was not significant for the quarter and nine months ended September
30, 1997 and 1996.
At September 30, 1997, management has also identified approximately
$904,000 in potential problem loans which represent loans having more than
normal credit risk. Although these loans are currently performing at September
30, 1997, management believes that if economic conditions deteriorate in the
Company's lending area, some of these loans could become non-performing in the
future.
11
<PAGE>
OTHER INCOME
Sources of other income include deposit and other service fees, net gain
(loss) on securities, net gain on sales of loans, and other non-interest income.
For the three-month period ended September 30, 1997, other income increased by
$5,000, or 0.6%, and for the nine-month period, increased $252,000, or 10.2%,
compared to the same periods in 1996.
Deposit service fees, the largest component of other income, decreased by
$59,000, or 9.8%, to $540,000 for the three-month period and $130,000, or 7.2%,
to $1.7 million for the nine-month period, compared to the same periods in 1996.
Other service fees increased to $213,000 and $598,000 for the three- and
nine-month periods ended September 30, 1997, as compared to $184,000 and
$511,000 for the same periods in 1996.
The $194,000 net loss on securities for the nine months ended September 30,
1996 consists of the net realized loss on the sale of U.S. Treasury securities.
There have been no sales of securities classified as held to maturity.
Net gain on sales of loans was $73,000 and $217,000 for the three- and
nine-month periods ended September 30, 1997 compared to $31,000 and $139,000
during the same periods in 1996. Sales of mortgage loans in both periods
reflect the Company's current practice of selling newly originated fixed rate
mortgage loans.
OTHER EXPENSE
Other expense consists of general and administrative expenses incurred in
managing the core business of the Company and the net costs associated with
managing and selling other real estate properties. Other expense decreased by
$376,000, or 6.7%, for the three-month period ended September 30, 1997 compared
to the same period last year, primarily due to decreases of $205,000 in the net
cost of other real estate, $106,000 in salaries and employee benefits, and
$101,000 in occupancy and equipment. Other expense decreased $333,000, or 2.0%,
for the nine-month period compared to the same period in 1996, primarily due to
decreases of $446,000 in other non-interest expense and $410,000 in the net cost
of other real estate, partially offset by increases of $392,000 in the
amortization of intangible assets and $332,000 in salaries and employees
benefits expense.
Salaries and employee benefits, the largest component of other expense,
decreased by $106,000, or 3.8%, to $2.7 million for the three-month period and
increased $332,000, or 4.2%, to $8.2 million for the nine-month period, compared
to the same periods in 1996. The nine-month increase primarily reflects
additional expense due to the April 1996 acquisition of two branches, as well as
normal merit and promotional salary increases.
Occupancy and equipment expense decreased $101,000, or 13.2%, for the
three-month period ended September 30, 1997 and $201,000, or 8.9%, for the
nine-month period, as compared to the same periods in the previous year,
primarily due to decreases in depreciation and equipment rental and repair
expenses.
The net cost of other real estate decreased $205,000 for the three-month
period and $410,000 for the nine-month period, compared to the same periods in
1996, primarily reflecting decreases in the provision for losses on other real
estate and increased gains on sales of properties, partially offset by increased
holding costs.
Amortization of intangible assets totaled $349,000 and $1.0 million for the
three and nine months ended September 30, 1997, compared to $349,000 and
$655,000 for the three and nine months ended September 30, 1996, primarily
reflecting the amortization of the purchase premium as a result of the
acquisition of branches in April 1996.
Other non-interest expense increased $36,000, or 2.3%, for the three-month
period and decreased $446,000, or 9.0%, for the nine-month period when compared
to the same periods in 1996. For the nine-month period, the decrease primarily
reflects decreased foreclosure and collection expense, decreased checking
account charges and a $186,000 gain on the sale of the Newburgh Operations
building in January 1997.
12
<PAGE>
INCOME TAX EXPENSE
For the three- and nine-month periods ended September 30, 1997, income tax
expense was $1.4 million and $4.3 million, respectively, or 39.5% and 39.6% of
pre-tax income, respectively. For the quarter ended September 30, 1996, the
Company recognized an income tax expense of $174,000 consisting of a provision
of $1.1 million or 41.0% of pre-tax income for the quarter, less a benefit of
$941,000 from the settlement with the State of New York Department of Taxation
and Finance of audits of certain prior years' New York State tax returns. For
the nine-month period ended September 30, 1996, income tax expense was $1.1
million, consisting of a provision of $3.5 million or 41.1% of pre-tax income,
less the State tax benefit of $941,000 referred to above and a federal tax
benefit of $1.5 million from the settlement of certain Internal Revenue Service
audits during the second quarter of 1996.
The Company's net deferred tax assets were $5.4 million at September 30,
1997, compared to $6.1 million at December 31, 1996. 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:
THREE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1996 1997 1996 1996
---------------------------------------------------
Return on assets:
Net income divided by average
total assets (1). . . . . . . 0.99% 1.13% 0.98% 1.17% 1.09%
Return on equity:
Net income divided by average
equity (1, 2) . . . . . . . . 11.52% 14.08% 11.64% 13.96% 13.11%
(1) Excluding the $941,000 New York State income tax benefit, return on assets
for the three months ended September 30, 1996 was 0.71% and the return on
equity was 8.88%. Excluding the $2.4 million in combined federal and New
York State income tax benefits, return on assets was 0.78% and the return
on equity was 9.35% for the nine months ended September 30, 1996 and 0.81%
and 9.68%, respectively, for the year ended December 31, 1996.
(2) Average equity includes the effect of the net unrealized gain (loss) on
securities available for sale, net of taxes.
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 Management 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
13
<PAGE>
ratio (defined as the ratio of cash and due from banks, federal funds sold and
securities maturing within one year to total assets). At September 30, 1997,
the Company had a primary liquidity ratio of 7.66% as compared to 7.84% at
December 31, 1996.
An important source of funds is Pawling's core deposit base. Management
believes that a substantial portion of Pawling's deposits of $800.7 million at
September 30, 1997 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 and commercial markets to enable
effective gathering and retention of core deposits. The Company has not
utilized brokered deposits as a source of funds.
In addition to the funding sources discussed above, the Company has the
ability to borrow funds from several sources. Pawling is a member of the
Federal Home Loan Bank of New York ("FHLBNY") and, at September 30, 1997, had
immediate access to additional liquidity in the form of borrowings from the
FHLBNY of up to $99.3 million. The Company also has access to the discount
window of the Federal Reserve Bank. There were no borrowings from these sources
in 1997 and 1996, other than short term purchases of federal funds from the
FHLBNY during 1996.
At September 30, 1997, Pawling had outstanding loan commitments and
unadvanced customer lines of credit totaling $90.4 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.
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 their asset portfolios and
certain off-balance sheet items. The guidelines set forth a system for
calculating risk-weighted assets by assigning assets (and credit-equivalent
amounts for certain off-balance sheet items) to one of four broad risk-weight
categories. The amount of risk-weighted assets is determined by applying a
specific percentage (0%, 20%, 50% or 100%, depending on the level of credit
risk) to the amounts assigned to each category. As a percentage of
risk-weighted assets, a minimum ratio of 4.0% must be maintained for Tier 1
capital and 8.0% for total capital.
At September 30, 1997, Progressive's consolidated capital ratios exceeded
the FRB's minimum regulatory capital requirements as follows:
Risk-Based Capital
-------------------------------------
Leverage Capital Tier 1 Total
-------------------------------------------------------
Amount(1) Ratio Amount(1) Ratio Amount(1) Ratio
- --------------------------------------------------------------------------------
Actual. . . . . . . . . $68,573 7.75% $68,573 14.08% $74,705 15.34%
Minimum requirement . . 35,391 4.00 19,482 4.00 38,964 8.00
- --------------------------------------------------------------------------------
Excess. . . . . . . . . $33,182 3.75% $49,091 10.08% $35,741 7.34%
================================================================================
(1) For all capital amounts, actual capital excludes the Company's
after-tax net unrealized gain of $994,000 on securities available for
sale and intangible assets of $7.7 million.
14
<PAGE>
At September 30, 1997, Pawling's capital ratios exceeded the FDIC's minimum
regulatory capital requirements as follows:
Risk-Based Capital
-------------------------------------
Leverage Capital Tier 1 Total
-------------------------------------------------------
Amount(1) Ratio Amount(1) Ratio Amount(1) Ratio
- --------------------------------------------------------------------------------
Actual. . . . . . . . $62,833 7.15% $62,833 12.93% $68,953 14.18%
Minimum requirement . 35,166 4.00 19,445 4.00 38,889 8.00
- --------------------------------------------------------------------------------
Excess. . . . . . . . $27,667 3.15% $43,388 8.93% $30,064 6.18%
================================================================================
(1) For all capital amounts, actual capital excludes Pawling's after-tax
net unrealized gain of $976,000 on securities available for sale and
intangible assets of $7.7 million.
[A
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 in November 1994 and
consisted of 220,500 shares at a total cost of $3.1 million or $14.14 per share.
The second repurchase plan was completed in September 1995 and consisted of
210,000 shares at a total cost of $3.3 million or $15.89 per share. A third
repurchase plan, which was announced in October 1995, and completed in July
1996, consisted of 202,500 shares at a total cost of $3.9 million or $19.19 per
share. On October 21, 1996, the Company announced a fourth plan to repurchase
195,000 shares, or approximately 5% of outstanding stock. At September 30,
1997, 89,250 shares had been purchased under the fourth plan at a cost of $2.1
million or $23.03 per share. The number of shares and the per share cost of
each repurchase program have been restated to reflect the 1996 three-for-two
stock split.
On October 15, 1997, the Company's Board of Directors declared a dividend
of seventeen cents ($0.17) per common share, payable on November 28, 1997 to
shareholders of record as of October 31, 1997.
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 Management Committee which uses various risk
measurement tools to evaluate the impact of changes in interest rates on the
Company's asset/liability structure and net interest income.
Earnings are susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than
interest-earning assets. These interest rate repricing "gaps" provide an
indication of the extent that net interest income may be affected by future
changes in interest rates. A one-year period is a common measurement interval
of interest sensitivity known as the one-year gap. The Company's one-year gap
as a percentage of total assets was -4.37% at September 30, 1997. 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 decrease earnings as the increase
in interest expense paid on liabilities may be 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 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 hypothetical changes in
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.
15
<PAGE>
The Company manages its interest rate risk primarily by structuring its
balance sheet to emphasize holding adjustable rate loans and mortgage-backed
securities, and maintaining a large base of core deposits. To date, the Company
has not used synthetic hedging instruments such as interest rate futures, swaps
or options in managing its interest rate risk.
The following table summarizes the Company's interest rate sensitive assets
and liabilities at September 30, 1997 according to the time periods in which
they are expected to reprice, and the resulting gap for each time period.
Within One to Five Over Five
One Year Years Years
--------------------------------
(Dollars in thousands)
Total interest-earning assets . . . . . . . . . $480,705 299,193 62,606
Total interest-bearing liabilities. . . . . . . 519,391 112,390 100,844
- --------------------------------------------------------------------------------
(Deficiency) excess of interest-earning
assets compared to interest-bearing
liabilities . . . . . . . . . . . . . . . ($38,686) 186,803 (38,238)
- --------------------------------------------------------------------------------
(Deficiency) excess as a percent of total
assets. . . . . . . . . . . . . . . . . . (4.37%) 21.12% (4.32%)
Cumulative (deficiency) excess as a percent
of total assets. . . . . . . . . . . . . . (4.37%) 16.75% 12.43%
================================================================================
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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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) The following exhibits are filed herewith:
Exhibit 3.1 Certificate of Incorporation of Progressive
Bank, Inc., as amended.
Exhibit 3.2 By-laws of Progressive Bank, Inc., as amended.
Exhibit 11 Computation of Net Income Per Common Share.
Exhibit 27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PROGRESSIVE BANK, INC.
----------------------
(Registrant)
Date: November 7, 1997 /s/ Peter Van Kleeck
-------------------------------------
Peter Van Kleeck
President and Chief Executive Officer
Principal Executive Officer
Date: November 7, 1997 /s/ Robert Gabrielsen
-------------------------------------
Robert Gabrielsen, Treasurer
Principal Financial Officer and
Principal Accounting Officer
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Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
PROGRESSIVE BANK, INC.
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
1. NAME. The name of the Corporation is PROGRESSIVE BANK, INC. (the
"Corporation").
2. PURPOSES. The nature of the business or purposes to be conducted or
promoted for which the Corporation is formed is to engage in any lawful act or
activity for which corporations may be organized under the Business Corporation
Law provided that the Corporation is not formed to engage in any act or activity
which requires the consent or approval of any state official, department, board,
agency or other body, without such consent or approval first being obtained.
3. OFFICE. The office of the Corporation will be located in the County
of Dutchess, State of New York.
4. AUTHORIZED SHARES. The total number of shares of stock which the
Corporation shall have the authority to issue is twenty million (20,000,000).
The shares shall be divided into two classes: fifteen million (15,000,000)
shares shall be common stock, par value $1.00 per share and five million
(5,000,000) shares shall be preferred stock, par value $1.00 per share.
(a) COMMON STOCK. The common stock shall have the following rights:
(i) DIVIDENDS. Subject to the preferential dividend rights
applicable to shares of the preferred stock, the holders of shares of the common
stock shall be entitled to receive such dividends as may be declared by the
Board of Directors.
(ii) LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after distribution in
full of the preferential amounts to be distributed to the holders of shares of
the preferred stock, the holders of shares of the common stock shall be entitled
to receive all of the remaining assets of the Corporation available for
distribution to its shareholders, ratably in proportion to the number of shares
of the common stock held by them.
<PAGE>
(iii) VOTING RIGHTS. Except as otherwise determined by the
Board of Directors of the Corporation pursuant to the provisions of clause (vii)
of paragraph (b) of this Section, the holders of shares of the common stock
shall be entitled to vote on all matters at all meetings of the shareholders of
the Corporation, and shall be entitled to one vote for each share of the common
stock entitled to vote at such meeting, voting together with the holders of
shares of any series of the preferred stock who are entitled to vote and the
holders of shares of any other class of stock who are entitled to vote, and not
as a separate class.
(b) PREFERRED STOCK. Subject to the limitations and in the manner
provided by law, shares of the preferred stock may be issued from time to time
in series, and, the Board of Directors of the Corporation is hereby authorized
to establish and designate series, to fix the number of shares constituting each
series, and to fix the designations and the relative rights, preferences and
limitations of the shares of each series and the variations in the relative
rights, preferences and limitations as between series, and to increase and to
decrease the number of shares constituting each series. Subject to the
limitations and in the manner provided by law, the authority of the Board of
Directors of the Corporation with respect to each series shall include but shall
not be limited to the authority to determine the following:
(i) the designation of such series;
(ii) the number of shares initially constituting such series;
(iii) the increase, and the decrease to a number not less than
the number of the outstanding shares of such series, of the number of shares
constituting such series theretofore fixed;
(iv) the rate or rates and the times at which dividends on the
shares of such series shall be paid, and whether or not such dividends shall be
cumulative, and, if such dividends shall be cumulative, the date or dates from
and after which they shall accumulate; provided, however, that if the stated
dividends are not paid in full, the shares of all series of the preferred stock
shall share ratably in the payment of dividends, including accumulations, if
any, in accordance with the sums which would be payable on such shares if all
dividends were declared and paid in full;
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(v) whether or not the shares of such series shall be
redeemable, and, if such shares shall be redeemable, the terms and conditions of
such redemption, including but not limited to the date or dates upon or after
which such shares shall be redeemable and the amount per share which shall be
payable upon such redemption, which amount may vary under different conditions
and at different redemption dates;
(vi) the amount payable on the shares of such series in the
event of the voluntary or involuntary liquidation, dissolution or winding up of
the corporation; provided, however, that the holders of such shares shall be
entitled to be paid, or to have set apart for payment, not less than $1.00 per
share before the holders of shares of the common stock or the holders of any
other class of stock ranking junior to the preferred stock as to rights on
liquidation shall be entitled to be paid any amount or to have any amount set
apart for payment; provided, further, that, if the amounts payable on
liquidation are not paid in full, the shares of all series of the preferred
stock shall share ratably in any distribution of assets other than by way of
dividends in accordance with the sums which would be payable in such
distribution if all sums payable were discharged in full. A liquidation,
dissolution or winding up of the Corporation, as such terms are used in this
clause (vi), shall not be deemed to be occasioned by or to include any
consolidation or merger of the Corporation with or into any other corporation or
corporations or a sale, lease or conveyance of all or a part of its assets;
(vii) whether or not the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and, if such shares
shall have such voting rights, the terms and conditions thereof, including but
not limited to the right of the holders of such shares to vote as a separate
class either alone or with the holders of shares of one or more other series of
preferred stock and the right to have more than one vote per share;
(viii) whether or not a sinking fund shall be provided for the
redemption of the shares of such series, and, if such a sinking fund shall be
provided, the terms and conditions thereof;
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(ix) whether or not a purchase fund shall be provided for the
shares of such series, and, if such a purchase fund shall be provided, the terms
and conditions thereof;
(x) whether or not the shares of such series shall have
conversion privileges, and, if such shares shall have conversion privileges; the
terms and conditions of conversion, including but not limited to any provision
for the adjustment of the conversion rate or the conversion price; and
(xi) any other relative rights, preferences and limitations.
(c) PRE-EMPTIVE RIGHTS. No holder of any shares of the stock of the
Corporation shall be entitled, as such, as a matter of pre-emptive right or any
rights under Section 622(b) or (c) of the Business Corporation Law, to
subscribe for, purchase or otherwise acquire in an offering by the Corporation
any part of the new or additional issue of shares of the Corporation of any
class whatsoever, or of securities convertible into or exchangeable for shares
of the Corporation of any class whatsoever, or of any warrants or other
instruments evidencing rights or options to subscribe for, purchase or otherwise
acquire such shares or securities, whether such shares be now or hereafter
authorized and whether such shares, securities, or warrants or other instruments
be issued for cash, property or services.
5. BOARD OF DIRECTORS.
(a) The Board of Directors of the Corporation shall have the power to
fix the number of directors from time to time. The Board of Directors of the
Corporation shall be divided into three classes in respect of term of office,
each class to contain as near as may be one-third (1/3) of the whole number of
the Board of Directors. Of the Board of Directors as elected at the first
annual meeting of the stockholders of the Corporation, the members of one class
shall serve until the second annual meeting of stockholders of the Corporation,
the members of the second class shall serve until the third annual meeting of
stockholders of the Corporation, and the members of the third class shall serve
until the fourth annual meeting of stockholders of the Corporation; provided,
however, that in each case directors shall continue to serve until their
successors shall be elected and shall qualify. At each annual meeting of
stockholders of the
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Corporation, one class of directors shall be elected to serve until the
annual meeting of stockholders held in the third year next following the year
of its election and until its successors shall be elected and shall qualify.
Stockholders shall not be permitted to cumulate their votes for the election
of directors.
(b) No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law if a judgement
or other final adjudication adverse to him establishes that his acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that his acts violated
New York Business Corporation Law Section 719, including any amendment thereto.
No amendment to or repeal of this Section 5(b) shall apply to or have any effect
on the liability or alleged liability of any director or the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
6. AMENDMENT OF BY-LAWS. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized to
adopt, amend or repeal any By-law of the Corporation by the affirmative vote of
a majority of the Board.
7. MEETINGS OF STOCKHOLDERS. Meetings of stockholders may be held within
or without the State of New York, as the By-laws may provide. Special meetings
of stockholders shall be called only by the Board of Directors. Only business
which is related to the purpose or purposes set forth in the notice of a special
meeting shall be acted upon or transacted at such meeting.
8. NOTICE FOR NOMINATIONS AND PROPOSALS
(a) Nominations for the election of directors and proposals for any
new business to be taken up at any annual or special meeting of stockholders may
be made by the board of directors of the Corporation or by any stockholder of
the Corporation entitled to vote generally in the election of directors.
5
<PAGE>
In order for a stockholder of the Corporation to make any such nominations
and/or proposals, he or she shall give notice thereof in writing, delivered
or mailed by first class United States mail, postage prepaid, to the
Corporate Secretary of the Corporation not less than thirty days nor more
than sixty days prior to the date of any such meeting; provided, however,
that if less than forty days' notice of the meeting is given to stockholders,
such written notice shall be delivered or mailed, as prescribed, to the
Corporate Secretary of the Corporation not later than the close of business
on the tenth day following the day on which notice of the meeting was mailed
to stockholders. Each such notice given by a stockholder with respect to
nominations for the election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such
nominee, and (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee. In addition, the stockholder making
such nomination shall promptly provide any other information reasonably
requested by the Corporation.
(b) Each such notice given by a stockholder to the Corporate
Secretary with respect to business proposals to be brought before a meeting
shall set forth in writing as to each matter: (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting; (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business; (iii) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder; and (iv) any material interest of the stockholder in such
business. Notwithstanding anything in this Certificate to the contrary, no new
business shall be conducted at the meeting except in accordance with the
procedures set forth in this Article.
(c) The Chairman of the annual or special meeting of stockholders
may, if the facts warrant, determine and declare to such meeting that a
nomination or proposal was not made in accordance with the foregoing procedure,
and, if he should so determine, he shall so declare to the meeting and the
defective nomination or proposal shall be disregarded and laid over for action
at the next succeeding special
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or annual meeting of the stockholders taking place thirty days or more
thereafter. This provision shall not require the holding of any adjourned or
special meeting of stockholders for the purpose of considering such defective
nomination or proposal.
9. AMENDMENTS TO CERTIFICATE OF INCORPORATION. The Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation. No amendment, addition, alteration, change or
repeal of this Certificate of Incorporation shall be made, unless it is first
proposed by the Board of Directors of the Corporation, then preliminarily
approved by a majority vote of the Board, and thereafter approved by the
stockholders by the affirmative vote of a majority of the total votes eligible
to be cast at a special meeting of the stockholders called for such purpose.
10. AGENT FOR-SERVICE. The Secretary of State of the State of New York is
designated as agent of the Corporation upon whom all process may be served and
the post office address to which the Secretary shall mail a copy of any process
served against the Corporation is Route 22 and Akindale Road, Pawling, New York
12564.
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Exhibit 3.2
PROGRESSIVE BANK, INC.
BY-LAWS
AS AMENDED AND RESTATED ON JUNE 10, 1997
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
the principal office of the Corporation or at such place within or without the
State of New York as may be fixed by the Board of Directors.
SECTION 2. ANNUAL MEETING. The Annual Meeting of Shareholders shall be
held each year on a date to be fixed by the Board of Directors. At each Annual
Meeting of Shareholders, the Shareholders shall elect the appropriate class of
Directors for the ensuing year and shall transact such other business as may
properly come before the Meeting.
SECTION 3. SPECIAL MEETINGS. Special Meetings of the Shareholders may
be called at any time by the Board of Directors. In the event of failure to
elect a sufficient number of Directors to conduct the business of the
Corporation (either by a failure to so elect at the Annual Meeting of
Shareholders or failure of such meeting to be held for any reason) and failure
of the Board of Directors to call or elect such Directors at a Special Meeting
within a period of one month after the scheduled date for such Annual Meeting of
Shareholders (or if no such date has been so fixed, a period of thirteen months
after the last Annual Meeting of Shareholders), the Secretary shall call a
Special Meeting for the election of such Directors upon demand, in writing, by
the holders of ten percent of the shares entitled to vote in an election of
Directors.
SECTION 4. ADJOURNMENT OF SHAREHOLDERS' MEETINGS. If a quorum is not
present at any Annual of Special Meeting of Shareholders, the Shareholders
present, in person or by proxy, may be the affirmative vote of a majority of the
voting power of the shares represented at such Meeting and entitled to vote
thereat, adjourn to such future time as shall be agreed upon by them, and notice
of such adjournment shall be given to the Shareholders not present or
represented at the Meeting.
SECTION 5. NOTICE OF MEETINGS. Notice, in writing, of the time and
place of each Meeting of Shareholders, the person or persons calling such
Meeting and the purpose thereof shall be given to each Shareholder of record
entitled to vote at such Meeting, not less than ten days nor more than fifty
days before such Meeting. Such notice shall be given by, or at the direction
of, the President or Secretary or other person or persons calling such Meeting,
by leaving such notice with the Shareholder at his residence or his usual place
of business or by mailing a copy thereof to him at his last known post office
address as shown on the records of the Corporation. No such notice need be
given to any Shareholder who attends such Meeting in person without protesting
prior to or at the
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commencement of such meeting or who waives such notice in writing executed and
filed with the Secretary of the Corporation either before or after the Meeting.
The Secretary shall cause any such waiver to be filed with, or entered upon, the
records of the Meeting.
SECTION 6. QUORUM. The holders of shares entitled to vote present in
person or by proxy at any meeting of Shareholders shall constitute a quorum for
such Meeting provided that in no event shall such quorum consist of less than
one-third of the shares eligible to vote at that Meeting. If a specified item
of business is required to be voted on by a class or classes, the holders of the
shares of such class or classes shall constitute a quorum for the transaction of
such specified item of business, provided at least one-third of the shares of
any such class or classes, respectively, eligible to vote are represented at
that Meeting.
SECTION 7. VOTING. Each holder of record of shares of Common Stock and
of any Serial Preferred Stock, which has been vested with voting power by the
Board of Directors of the Corporation, shall be entitled to one vote for each
share of such stock held. At all elections of Directors, the voting shall be by
ballot. The Board of Directors, or, if the Board shall not have made the
appointment, the Chairman presiding at any meeting of the Shareholders, shall
have power to appoint two or more persons to act as inspectors or tellers, to
receive, canvass, and report the votes cast by the Shareholders at such Meeting;
but no candidate for the office of Director shall be appointed as inspector or
teller at any meeting for the election of Directors.
SECTION 8. PROXIES. All proxies shall be in writing and shall be filed
with the Secretary of the Corporation before being voted. A proxy shall not be
valid after eleven months from its date of execution unless it specifies a
greater length of time for which it is to continue in force. The attendance at
any Meeting by a Shareholder who shall have previously given a proxy applicable
thereto shall not, as such, have the effect of revoking the proxy. The
Corporation may treat any duly executed proxy as not revoked and in full force
and effect until it receives a duly executed instrument revoking it, or a duly
executed proxy bearing a later date.
SECTION 9. NOTICE FOR NOMINATIONS AND PROPOSALS.
(a) Nominations for the election of Directors and proposals for any
new business to be taken up at any Annual or Special Meeting of
stockholders may be made by the Board of Directors of the Corporation or by
any stockholder of the Corporation entitled to vote generally in the
election of Directors. In order for a stockholder of the Corporation to
make any such nominations and/or proposals, he or she shall give notice
thereof in writing, delivered or mailed by first class United States mail,
postage prepaid, to the Corporate Secretary of the Corporation not less
than thirty days nor more than sixty days prior to the date of any such
meeting; provided, however, that if less than forty days' notice of the
meeting is given to stockholders, such written notice shall be delivered or
mailed, as prescribed, to the Corporate Secretary of the Corporation not
later than the close of business on the tenth day following the day on
which notice of the meeting was mailed to stockholders. Each such notice
given by a stockholder with respect to nominations for the
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election of directors shall set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in such notice,
(ii) the principal occupation or employment of each such nominee, and
(iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee. In addition, the stockholder
making such nomination shall promptly provide any other information
reasonably requested by the Corporation.
(b) Each such notice given by a stockholder to the Corporate
Secretary with respect to business proposals to be brought before a meeting
shall set forth in writing as to each matter: (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation which
are beneficially owned by the stockholder; and (iv) any material interest
of the stockholder in such business. Notwithstanding anything in the
Certificate to the contrary, no new business shall be conducted at the
meeting except in accordance with the procedures set forth in this Section.
(c) The Chairman of the Annual or Special Meeting of stockholders
may, if the facts warrant, determine and declare to such meeting that a
nomination or proposal was not made in accordance with the foregoing
procedure, and, if he should so determine, he shall so declare to the
meeting and the defective nomination or proposal shall be disregarded and
laid over for action at the next succeeding Special or Annual Meeting of
the stockholders taking place thirty days or more thereafter. This
provision shall not require the holding of any adjourned or Special Meeting
of stockholders for the purpose of considering such defective nomination or
proposal.
ARTICLE II
SHARES
SECTION 1. CERTIFICATES OF SHARES. Certificates of shares shall be in a
form adopted by the Board of Directors and shall be signed by the President or a
Vice-President, and by the Secretary, or an Assistant Secretary and shall be
attested by the Corporate Seal. Each Certificate shall set forth upon the face
thereof, (1) the name of the Corporation, (2) a statement that the Corporation
is organized under the laws of the State of New York, (3) the name of the person
or persons to whom issued, (4) the number, class and designation of series, if
any, of shares which such Certificate represents and (5) the par value of each
share represented by such Certificate. If certificates are signed by a Transfer
Agent, acting on behalf of the Corporation, or a Registrar, the signatures of
the officers of the Corporation may be facsimile.
SECTION 2. TRANSFER AGENT. The Board of Directors shall have power to
appoint one or more Transfer Agents and Registrars for the transfer and
registration of certificates of shares of any
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class, and may require that share certificates shall be countersigned and
registered by one or more of such Transfer Agents and Registrars.
SECTION 3. TRANSFER OF SHARES. Shares of capital stock of the
Corporation shall be transferable on the books of the Corporation only by the
holder of record thereof in person or by a duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares.
SECTION 4. LOST CERTIFICATES. In case any certificate for the shares of
the Corporation shall be lost, stolen, or destroyed, the Corporation may require
such proof of the fact and such indemnity to be given to it and to its Transfer
Agent and Registrar, if any, as shall be deemed necessary or advisable by it.
SECTION 5. HOLDER OF RECORD. The Corporation shall be entitled to treat
the holder of record of any shares as the holder thereof in fact and shall not
be bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law.
SECTION 6. CLOSING OF BOOKS. The Board of Directors shall have the
power to close the share transfer books of the Corporation for a period not
exceeding fifty days preceding the date of any Meeting of Shareholders or the
date for payment of any dividend or the date for the allotment of rights or the
date when any change or conversion or exchange of shares shall go into effect;
provided that in lieu of closing the share transfer books, the Board of
Directors may fix in advance a date, not exceeding fifty days preceding the date
of any Meeting of Shareholders, or the date for the payment of any dividend or
the date for allotment or rights, or the date when any change or conversion or
exchange of shares shall go into effect, as a record date for the determination
of the Shareholders entitled to notice of and to vote at any such Meeting, or
entitled to receive payment of any such dividends, or any such allotment of
rights, or to exercise the rights in respect to any such change, conversion or
exchange of shares, and in such case only Shareholders of record on the date so
fixed shall be entitled to such notice of and to vote at such Meeting, or to
receive payment of such dividend, or allotment of rights, or exercise of such
rights, as the case may be, and notwithstanding any transfer of any shares on
the books of the Corporation after any such record date fixed as herein
provided.
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ARTICLE III
DIRECTORS
SECTION 1. MANAGEMENT OF CORPORATION. The property, business, and
affairs of the Corporation shall be managed and controlled by its Board of
Directors each of whom shall be at least 18 years of age and need not be a
Shareholder.
SECTION 2. NUMBER, ELECTION AND TERM OF OFFICE. The Board of Directors
shall consist of not less than ten nor more than fifteen Directors. The number
of Directors at any time within such maximum and minimum shall be either the
number fixed by resolution of the Board of Directors or, in the absence of such
a resolution, the number of Directors elected at the preceding Annual Meeting of
Shareholders; provided, however, that such number may be increased or decreased
at any time by vote of the Directors. Reduction of the number of Directors
shall not, as such, cause the removal from office of any person then serving as
a Director of the Corporation or shorten the term of office of any such person.
Directors shall hold office for the time for which they are elected and until
their successors are duly elected and qualified. Any or all of the Directors
may be removed by the Shareholders at any time at any Annual or Special
Shareholders' Meeting with cause upon the affirmative vote of two-thirds of the
votes eligible to be cast at such Meeting. Removal for cause shall include
removal only because of a Director's personal dishonesty, incompetence, willful
or grossly negligent misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties including failure to attend
three or more consecutive Meetings of the Board of Directors, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease and desist order. In addition, any Director
may be removed by the Board of Directors at any time at any Regular or Special
Meeting of the Board of Directors if the Information Security Committee of the
Board of Directors has determined by a majority vote that such Director has
breached the Corporation's policy on confidential information in a manner which
justifies his removal from the Board of Directors, and not less than two-thirds
of all of the Directors, other than the Director in question, vote to so remove
the Director. A notice of such proposed action shall be sent to each Director
at least three days prior to any such Meeting. A Director shall not be elected
or re-elected who has reached the age of seventy (70).
SECTION 3. CLASSIFICATION OF BOARD. The Board of Directors shall be
divided into three classes in respect of term of office, each class to contain,
as near as may be, one-third of the whole number of the Board. Of the first
Board of Directors, the members of one class shall serve until the Annual
Meeting of Shareholders held in the year following their election, the members
of the second class shall serve until the Annual Meeting of Shareholders held
two years following their election, and the members of the third class shall
serve until the Annual Meeting of Shareholders held three years following their
election; provided, however, that in each case Directors shall continue to serve
until their successors shall be elected and shall qualify. At each Annual
Meeting of Shareholders following election of the first Board of Directors, one
class of Directors shall be elected to serve until
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the Annual Meeting of Shareholders held three years next following and until
their successors shall be elected and shall qualify.
SECTION 4. VACANCIES. Vacancies in the Board of Directors not exceeding
one-third of the entire Board shall be filled for the unexpired portion of the
term by vote of the Directors. All other vacancies shall be filled by election
by the Shareholders.
SECTION 5. REGULAR MEETINGS. Regular Meetings of the Board of Directors
shall be held at such time and place as may be specified from time to time by
resolution of the Board of Directors and notice thereof need not be given. If
no such resolution shall be in effect, Regular Meetings of the Board of
Directors shall be called in the manner hereinafter provided with respect to
Special Meetings of the Board of Directors.
SECTION 6. SPECIAL MEETINGS. Special Meetings of the Board of
Directors may be called by the Chairman of the Board or the President and shall
be called by the President upon written request of any two Directors. If the
President shall not call such Meetings with fifteen days after receipt of such
written request, the Directors making such request may call the Meeting. At
least two days oral or written notice of each Special Meeting stating the time
and place of the Meeting shall be given to each Director. No notice of
Directors' Meeting need be given to any Director who attends such Meeting in
person without protesting prior to or at the commencement of such Meeting, or
who waives such notice in writing executed and filed with the Secretary of the
Corporation, either before or after the Meeting. The Secretary shall cause any
such waiver to be filed with, or entered upon, the records of the Meeting.
SECTION 7. QUORUM AND VOTING REQUIREMENTS. A majority of the Directors
shall constitute a quorum. The affirmative vote of a majority of the Directors
present at a Meeting at which a quorum is present shall be required for action
by the Board of Directors on any matter.
SECTION 8. POWERS. The property, business and affairs of the
Corporation shall be managed by the Board of Directors, who may exercise all the
powers and do all things which may be exercised by or done by the Corporation
subject to the provisions of the Statutes of the State of New York, the
Certificate of Incorporation, these By-laws and any vote by the Shareholders.
SECTION 9.(a) COMMITTEES. The Board of Directors may designate three or
more Directors to constitute committees of the Board. Each such Committee shall
have and may exercise all of the authority of the Board of Directors, except as
shall be provided in the resolution establishing such Committee. Each such
Committee shall serve at the pleasure of the Board of Directors and shall keep
minutes of its proceedings which shall be reported to the Board of Directors.
SECTION 9.(b) No such Committee shall have authority as to the following
matters:
(i) The submission to Shareholders of any action that needs
Shareholders' approval.
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(ii) The filling of vacancies in the Board of Directors or in any
Committee.
(iii) The fixing of compensation of the Directors for serving on the
Board or any Committee.
(iv) The amendment or repeal of the By-laws or the adoption of new
By-laws.
(v) The amendment or repeal or any resolution of the Board which by its
terms shall not be so amendable or repealable.
(vi) The adoption of a plan of merger or consolidation.
(vii) The recommendation to the Shareholders of the sale or other
disposition of all or substantially all of the property and assets
of the Corporation.
(viii) The recommendation to the Shareholders of a voluntary dissolution
of the Corporation or a revocation of a dissolution.
(ix) The declaration of dividends or authorization of the issuance of
stock.
SECTION 10. TRANSACTION OF BUSINESS WITHOUT MEETING. Any corporate
action which can be authorized at a regularly constituted Meeting of the Board
of Directors or a Committee thereof may be authorized without such a Meeting,
provided that all of the Directors or all of the members of a Committee thereof,
as the case may be, consent in writing to such action. The Secretary of the
Corporation shall file such consents with the Minutes of the Meeting of the
Board of Directors or the appropriate committee, whichever the case shall be.
Members of the Board of Directors or any committee thereof may participate
in meetings by means of conference telephone or similar communications equipment
by which all persons participating in the meeting can hear and speak to each
other. Such participation shall constitute presence in person but shall not
constitute attendance for the purpose of compensation pursuant to Section 13 of
Article III.
SECTION 11. INDEMNIFICATION AND REIMBURSEMENT. The Corporation shall
indemnify a current or former Director, officer, employee or agent of the
Corporation or other person required or permitted to be indemnified under the
Corporation Law of New York, as now or hereafter amended, to the fullest extent
permitted by the provisions of such law.
SECTION 12. ADVISORY BOARDS. The Boards of Directors may designate three
or more persons to constitute Advisory Boards of the Corporation. Each such
Advisory Board shall undertake such projects as may be set forth in Board
resolutions and make recommendations to the Board with respect thereto. Each
Advisory Board shall keep minutes of its proceedings which shall be reported to
the Board of Directors. Each Advisory Board member may serve until the age of
75
7
<PAGE>
years, unless sooner removed for failure to attend five or more consecutive
Meetings or by action of the Advisory Board of which he is a member.
SECTION 13. COMPENSATION. Directors, and members of any committee of the
Board of Directors, shall be entitled to such reasonable compensation for their
services as directors and members of any such committee as shall be fixed from
time to time by resolution of the Board of Directors, and shall also be entitled
to reimbursement for any reasonable expenses incurred in attending such
meetings. The compensation of and expenses of directors may be paid on such
basis as is determined in resolutions of the Board of Directors. Any director
receiving compensation under these provisions shall not be barred from serving
the Corporation in any other capacity and receiving reasonable compensation for
such other services.
SECTION 14. NOMINATING COMMITTEE. The Board of Directors or a committee
appointed by the Board of Directors shall act as a nominating committee for
selecting the management nominees for election as Directors. Except in the case
of a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver written nominations
to the Secretary at least twenty days prior to the date of the Annual Meeting.
Provided such committee makes such nominations, no nominations for Directors
except those made by the nominating committee shall be voted upon at the Annual
Meeting unless other nominations by stockholders are made in writing and
delivered to the Secretary of the Corporation in accordance with the provisions
of the Corporation's Certificate of Incorporation.
ARTICLE IV
OFFICERS
SECTION 1. TITLES, ELECTION AND DUTIES. At the first Meeting of the
Board of Directors held after the Annual Meeting of Shareholders the Directors
shall appoint from among their number a Chairman, a President, and shall appoint
a Treasurer and a Secretary. The Board may also appoint, from time to time, a
Vice Chairman of the Board and one or more Vice-Presidents, Assistant Vice
Presidents, Assistant Treasurers, Assistant Secretaries, and such other officers
as the Directors deem expedient. Any two or more offices may be held by the
same person except the office of President and Secretary. The duties of the
officers of the Corporation shall be such as are imposed by these By-laws and,
from time to time, prescribed by the Directors.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all Meetings of the Directors and Shareholders. He shall have the
power to call Special Meetings of the Board of Directors at any time he may deem
it in the interest of the Corporation, and shall perform all other duties
usually pertaining to the Office of the Chairman of the Board.
SECTION 3. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if any, shall preside in the absence of the Chairman of the Board at all
Meetings of the Directors and
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Shareholders, and shall have such other duties as may be prescribed from time to
time by the Board of Directors or by the By-laws.
SECTION 4. PRESIDENT. The President shall be the Chief Executive and
Administrative Officer of the Corporation. In the absence of the Chairman of
the Board and the Vice Chairman of the Board, the President shall preside at all
Meetings of the Directors and Shareholders.
SECTION 5. VICE-PRESIDENTS. The Vice-President, if any, or if there
shall be more than one, the Vice-Presidents in the order of seniority or in any
other order determined by the Board of Directors shall, in the event of the
absence or disability of the President, perform the duties and exercise the
powers of the President. The Vice-President or Vice-Presidents shall assist the
President in the performance of his duties.
SECTION 6. TREASURER. The Treasurer shall keep the fiscal accounts of
the Corporation, including an account of all moneys received or disbursed. At
intervals of not more than twelve months, he shall prepare or have prepared for
the Corporation a balance sheet showing the financial condition of the
Corporation as of a date not more than fours months prior thereto, and a profit
and loss statement for the immediately preceding fiscal year, each of which
shall be deposited at the principal office of the Corporation and shall be kept
by the Corporation for at least ten years from such date. In addition, within
sixty days after the preparation of each such balance sheet and profit and loss
statement, the Corporation shall mail a copy thereof to each Shareholder of
record. The Treasurer may endorse, for and on behalf of the Corporation,
checks, notes and other obligations and shall deposit the same and all moneys
and valuables in the name of, and to the credit of, the Corporation in such
banks and depositories as the Board of Directors shall designate. The Treasurer
shall have custody of and shall have the power to endorse for transfer on behalf
of the Corporation, securities and other investment instruments owned by the
Corporation.
SECTION 7. ASSISTANT TREASURERS. The Assistant Treasurers, if any,
shall assist the Treasurer in the performance of his duties and shall carry out
the duties of the Treasurer whenever the Treasurer is unable to perform such
duties.
SECTION 8. SECRETARY. The Secretary shall keep the minutes of the
Meetings of Shareholders and Directors and shall give notice of all such
Meetings as required in these By-laws. The Secretary shall have custody of the
seal of the Corporation and all books, records and papers of the Corporation,
except those in the custody of the Treasurer or some other person authorized to
have custody and possession thereof by a resolution of the Board of Directors.
SECTION 9. ASSISTANT SECRETARIES. The Assistant Secretaries, if any,
shall assist the Secretary in the performance of his duties and shall carry out
the duties of the Secretary whenever the Secretary is unable to perform such
duties.
SECTION 10. COMPENSATION. The salaries of all officers shall be fixed by
the Human Resources Committee of the Board of Directors or by the Board of
Directors.
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SECTION 11. TERMS OF OFFICE. Each officer shall serve for the term for
which he is appointed and until his successor is duly appointed and qualified.
Any officer may be removed by the Board of Directors at any time, but any such
removal shall be without prejudice to any contractual rights the person so
removed may have. Vacancies among the officers by reason of death, resignation
or other causes shall be filled by the Board of Directors.
ARTICLE V
SEAL
SECTION 1. DESIGN. The Corporate Seal of the Corporation shall be a
circular seal as follows:
(Affix Corporate Seal Here)
ARTICLE VI
AMENDMENTS
SECTION 1. ADOPTION, AMENDMENT AND REPEAL. By-laws may be amended,
repealed or adopted by the affirmative vote of three-quarters of all of the
votes eligible to be cast at a Meeting of Shareholders held to consider such
matter and new By-laws may also be adopted provided that the notice of any such
Meeting at which By-laws are to be adopted, amended or repealed shall include
notice of such proposed action. Any By-law may be amended, repealed or adopted
by the Directors by the affirmative vote of a majority of the Directors then
elected and qualified; but any By-law adopted by the Board of Directors may be
amended or repealed by Shareholder vote.
SECTION 2. RECORD OF CHANGES. Whenever a By-law is amended or repealed
or a new By-law is adopted, such action and the date on which it was taken shall
be noted on the original By-laws in the appropriate place or a new set of
By-laws shall be prepared incorporating such changes.
10
<PAGE>
ARTICLE VII
MISCELLANEOUS
SECTION 1. INCONSISTENCIES WITH CERTIFICATE OF INCORPORATION. In any
provision of these By-laws shall be found to be inconsistent with any provision
of the Certificate of Incorporation, as presently existing, or as from time to
time amended, the latter shall constitute the controlling authority.
SECTION 2. APPLICABLE GENDER. Where the use of the female gender would
be appropriate in framing these By-laws, it shall be deemed to be intended
alternatively to or in conjunction with the male gender.
11
<PAGE>
Exhibit 11
COMPUTATION OF NET INCOME PER COMMON SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
----------------------------------------
(In thousands, except per share amounts)
Net income. . . . . . . . . . . . . . . . $2,195 $2,545 $6,510 $7,401
Weighted average common shares (1, 2, 3). 3,825 3,916 3,822 3,935
Net income per common share (3) . . . . . $ 0.57 $ 0.65 $ 1.70 $ 1.88
(1) Outstanding common stock equivalents (stock options) did not have a
significant dilutive effect on the per share data for any of the periods
presented.
(2) Net of treasury stock.
(3) The 1996 amounts were adjusted for the three-for-two stock split completed
in December 1996. See note 2 to the consolidated interim financial
statements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,325
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,408
<INVESTMENTS-CARRYING> 115,425
<INVESTMENTS-MARKET> 115,564
<LOANS> 583,338
<ALLOWANCE> 9,603
<TOTAL-ASSETS> 884,617
<DEPOSITS> 800,664
<SHORT-TERM> 0
<LIABILITIES-OTHER> 6,710
<LONG-TERM> 0
0
0
<COMMON> 4,428
<OTHER-SE> 72,815
<TOTAL-LIABILITIES-AND-EQUITY> 884,617
<INTEREST-LOAN> 39,676
<INTEREST-INVEST> 10,725
<INTEREST-OTHER> 1,114
<INTEREST-TOTAL> 51,515
<INTEREST-DEPOSIT> 25,939
<INTEREST-EXPENSE> 25,939
<INTEREST-INCOME-NET> 25,576
<LOAN-LOSSES> 1,600
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 15,928
<INCOME-PRETAX> 10,782
<INCOME-PRE-EXTRAORDINARY> 10,782
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,510
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
<YIELD-ACTUAL> 4.07
<LOANS-NON> 7,652
<LOANS-PAST> 136
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 904
<ALLOWANCE-OPEN> 9,231
<CHARGE-OFFS> 1,703
<RECOVERIES> 475
<ALLOWANCE-CLOSE> 9,603
<ALLOWANCE-DOMESTIC> 9,603
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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