<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 June 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 --------------------
Commission File Number: 0-15025
-------
PROGRESSIVE BANK, INC.
----------------------
(Exact name of registrant as specified in its charter)
New York 14-1682661
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Route 52, Fishkill, New York 12524
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 897-7400
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 7, 1997: 3,820,934 shares.
<PAGE>
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996.............................................. 1
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 1997 and June 30, 1996................... 2
Consolidated Statements of Shareholders' Equity for the
Six Months Ended June 30, 1997 and June 30, 1996................... 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and June 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
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)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks.............................................................. $ 18,121 15,070
Federal funds sold................................................................... 21,300 30,500
Securities:
Available for sale, at fair value.................................................. 132,302 137,792
Held to maturity, at amortized cost (fair value of
$86,966 in 1997 and $72,315 in 1996)............................................. 87,323 72,614
---------- ------------
Total securities................................................................. 219,625 210,406
---------- ------------
Loans, net:
Mortgage loans..................................................................... 518,124 517,077
Other loans........................................................................ 78,639 75,708
Allowance for loan losses.......................................................... (9,833) (9,231)
---------- ------------
Total loans, net................................................................. 586,930 583,554
---------- ------------
Accrued interest receivable.......................................................... 6,408 6,068
Other real estate, net............................................................... 1,388 2,270
Premises and equipment, net.......................................................... 9,573 10,323
Deferred income taxes, net........................................................... 5,692 6,134
Intangible assets.................................................................... 8,056 8,755
Other assets......................................................................... 1,730 2,100
---------- ------------
TOTAL ASSETS..................................................................... $ 878,823 875,180
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Savings and time deposits.......................................................... $ 732,311 736,579
Demand deposits.................................................................... 65,586 57,622
Accrued expenses and other liabilities............................................. 5,784 8,437
---------- ------------
TOTAL LIABILITIES................................................................ 803,681 802,638
---------- ------------
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.................................................................. 54,882 51,882
Treasury stock, at cost (607,065 shares in 1997
and 603,315 shares in 1996)...................................................... (10,582) (10,416)
Net unrealized gain on securities available for sale, net of taxes................. 535 769
---------- ------------
TOTAL SHAREHOLDERS' EQUITY....................................................... 75,142 72,542
---------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................... $ 878,823 875,180
---------- ------------
---------- ------------
</TABLE>
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)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- --------- ---------
INTEREST AND DIVIDEND INCOME:
Mortgage loans.......................................................... $ 11,492 10,458 22,812 20,949
Other loans............................................................. 1,824 1,609 3,642 3,119
Securities.............................................................. 3,692 3,917 7,140 6,412
Federal funds sold and other............................................ 258 1,111 651 1,299
--------- --------- --------- ---------
Total interest and dividend income.................................... 17,266 17,095 34,245 31,779
--------- --------- --------- ---------
INTEREST EXPENSE:
Deposits................................................................ 8,605 8,762 17,172 16,105
Other borrowings........................................................ -- 21 -- 51
--------- --------- --------- ---------
Total interest expense................................................ 8,605 8,783 17,172 16,156
--------- --------- --------- ---------
Net interest income................................................... 8,661 8,312 17,073 15,623
Provision for loan losses................................................. 500 600 1,100 900
--------- --------- --------- ---------
Net interest income after provision for loan losses................... 8,161 7,712 15,973 14,723
--------- --------- --------- ---------
OTHER INCOME:
Deposit service fees.................................................... 555 608 1,132 1,203
Other service fees...................................................... 190 177 385 327
Net gain (loss) on securities........................................... 15 (194) 15 (194)
Net gain on sales of loans.............................................. 79 18 144 108
Other non-interest income............................................... 73 70 156 141
--------- --------- --------- ---------
Total other income.................................................... 912 679 1,832 1,585
--------- --------- --------- ---------
Net interest and other income......................................... 9,073 8,391 17,805 16,308
--------- --------- --------- ---------
OTHER EXPENSE:
Salaries and employee benefits.......................................... 2,713 2,669 5,559 5,121
Occupancy and equipment................................................. 698 755 1,387 1,487
Net cost of other real estate........................................... 106 245 94 299
Amortization of intangible assets....................................... 349 306 698 306
Other non-interest expense.............................................. 1,520 1,995 2,913 3,395
--------- --------- --------- ---------
Total other expense................................................... 5,386 5,970 10,651 10,608
--------- --------- --------- ---------
Income before income taxes............................................ 3,687 2,421 7,154 5,700
Income tax expense (benefit).............................................. 1,475 (513) 2,839 844
--------- --------- --------- ---------
Net income............................................................ $ 2,212 2,934 4,315 4,856
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per common share(1)............................................ $ 0.58 0.74 1.13 1.23
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding(1)............................. 3,817 3,945 3,821 3,945
--------- --------- --------- ---------
--------- --------- --------- ---------
</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.
2
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PROGRESSIVE BANK, INC. AND SUBSIDIARY
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK NET
--------------------------- 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.............................. -- -- 4,315 -- -- 4,315
Cash dividends declared ($0.34 per
share)................................ -- -- (1,300) -- -- (1,300)
Stock options exercised................. 11,250 -- -- (15) 196 -- 181
Purchases of treasury stock............. (15,000) -- -- -- (362) -- (362)
Net change in unrealized gain on
securities available for sale, net of
taxes................................. -- -- -- -- (234) (234)
-------------- ----------- ----------- ----------- --------- ----- ---------
Balance at June 30, 1997................ 3,820,934 $ 4,428 25,879 54,882 (10,582) 535 75,142
-------------- ----------- ----------- ----------- --------- ----- ---------
-------------- ----------- ----------- ----------- --------- ----- ---------
Balance at December 31, 1995............ 3,942,441 $ 4,428 25,879 44,880 (7,655) 1,126 68,658
Net income.............................. -- -- 4,856 -- -- 4,856
Cash dividends declared ($0.27 per
share)(1)............................. -- -- (1,052) -- -- (1,052)
Stock options exercised................. 60,846 -- -- (212) 968 -- 756
Purchases of treasury stock............. (33,000) -- -- -- (621) -- (621)
Net change in unrealized gain on
securities available for sale, net of
taxes................................. -- -- -- -- (758) (758)
-------------- ----------- ----------- ----------- --------- ----- ---------
Balance at June 30, 1996................ 3,970,287 $ 4,428 25,879 48,472 (7,308) 368 71,839
-------------- ----------- ----------- ----------- --------- ----- ---------
-------------- ----------- ----------- ----------- --------- ----- ---------
</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)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JUNE 30,
---------------------
<S> <C> <C>
1997 1996
--------- ----------
OPERATING ACTIVITIES:
Net income................................................................................ $ 4,315 4,856
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses............................................................. 1,100 900
Provision for losses on other real estate............................................. -- 225
Depreciation expense.................................................................. 434 494
Net (gain) loss on securities and loans............................................... (159) 86
Amortization of net premiums (discounts) on securities................................ 51 (63)
Amortization of net deferred loan origination fees.................................... (76) (335)
Net increase in accrued interest receivable........................................... (340) (1,583)
Gain on sales of premises and equipment............................................... (186) --
Gain on sales of other real estate.................................................... (403) (72)
Amortization of intangible assets..................................................... 698 306
Net decrease in accrued expenses and other liabilities................................ (2,653) (9,474)
Other, net............................................................................ 944 3,484
--------- ----------
Net cash provided by (used in) operating activities................................. 3,725 (1,176)
--------- ----------
INVESTING ACTIVITIES:
Purchases of securities:
Securities available for sale......................................................... (28,596) (107,655)
Securities held to maturity........................................................... (26,587) (45,147)
Proceeds from principal payments, maturities and calls of securities:
Securities available for sale......................................................... 33,727 23,010
Securities held to maturity........................................................... 11,803 5,786
Proceeds from sales of securities available for sale...................................... -- 5,953
Disbursements for loan originations, net of principal collections......................... (10,260) (18,994)
Proceeds from sales of loans.............................................................. 5,066 1,808
Purchases of premises and equipment....................................................... (148) (1,306)
Proceeds from sales of premises and equipment............................................. 650 --
Proceeds from sales of other real estate.................................................. 2,256 496
--------- ----------
Net cash used in investing activities............................................... (12,089) (136,049)
--------- ----------
FINANCING ACTIVITIES:
Increase in deposits from acquisition of branches, net of premium paid.................... -- 143,030
Net increase in deposits, exclusive of acquisition........................................ 3,696 11,974
Cash dividends paid on common stock....................................................... (1,300) (1,052)
Net proceeds on exercises of stock options................................................ 181 756
Purchases of treasury stock............................................................... (362) (621)
--------- ----------
Net cash provided by financing activities........................................... 2,215 154,087
--------- ----------
Net (decrease) increase in cash and cash equivalents........................................ (6,149) 16,862
Cash and cash equivalents at beginning of period............................................ 45,570 37,893
--------- ----------
Cash and cash equivalents at end of period.................................................. $ 39,421 54,755
--------- ----------
--------- ----------
SUPPLEMENTAL DATA:
Interest paid............................................................................. $ 19,222 15,874
Income taxes paid, net of refunds received................................................ 2,859 1,585
Loans transferred to other real estate.................................................... 1,121 2,487
Loans originated to finance sales of other real estate.................................... 170 327
--------- ----------
--------- ----------
</TABLE>
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 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 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 (1) certain
financial and descriptive information about its reportable
operating segments (as defined)
5
<PAGE>
and (2) 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 $878.8 million at June 30, 1997 as compared
to $875.2 million at December 31, 1996, an increase of $3.6 million or 0.4%.
Total securities increased by $9.2 million, consisting of a $14.7 million
increase in securities held to maturity and a $5.5 million decrease in
securities available for sale. The increase in securities held to maturity
primarily reflects $26.6 million in purchases of fixed rate seven- and
fifteen-year balloon mortgage-backed securities, partially offset by principal
paydowns of $11.8 million. The decrease in securities available for sale
primarily reflects maturities, calls, and principal paydowns of $33.7 million,
partially offset by $28.6 million in purchases of U.S. government agencies and
U.S. Treasury notes.
Net loans totaled $586.9 million at June 30, 1997, compared to $583.6
million at December 31, 1996, an increase of $3.3 million or 0.6%. The
residential mortgage segment of the loan portfolio increased $4.8 million (net
of loan sales to the secondary market of $5.0 million) from $429.2 million at
December 31, 1996 to $434.0 million at June 30, 1997. The commercial mortgage
segment of the loan portfolio decreased $4.8 million or 6.0%, from $81.1 million
at December 31, 1996 to $76.3 million at June 30, 1997. The construction
mortgage segment of the loan portfolio increased $896,000 or 10.1%, from $8.9
million at December 31, 1996 to $9.8 million at June 30, 1997. Other loans
increased $2.8 million or 3.9% during the first six months of 1997 from $72.5
million to $75.3 million, primarily due to increases in business installment
loans and automobile financing.
The $3.7 million increase in deposits during the first six months of 1997
was primarily attributable to increases of $27.9 million in money market
accounts and $8.0 million in demand deposits, partially offset by decreases of
$25.2 million in time deposits and $4.8 million in savings accounts.
Shareholders' equity at June 30, 1997 was $75.1 million, an increase of $2.6
million or 3.6% from December 31, 1996. This increase primarily reflects net
income of $4.3 million, partially offset by cash dividends of $1.3 million.
Shareholders' equity, as a percent of total assets, was 8.55% at June 30, 1997
compared to 8.29% at December 31, 1996. Book value per share increased to $19.67
at June 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
JUNE 30, 1997 JUNE 30, 1996
--------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- --------- ----------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1)...................... $ 519,556 11,492 8.85% $ 483,213 10,458 8.66%
Other loans (1)......................... 75,036 1,824 9.72 65,168 1,609 9.88
Mortgage-backed securities (2).......... 125,495 2,141 6.82 116,148 2,017 6.95
U.S. Treasury and agencies, corporate
and other securities (2,3)............. 98,603 1,551 6.29 120,907 1,900 6.29
Interest on income tax refund........... -- -- -- -- 420 --
Federal funds sold...................... 18,793 258 5.49 57,230 691 4.83
--------- --------- ----- --------- ----------- -----
Total interest-earning assets......... 837,483 17,266 8.25% 842,666 17,095 8.11%
Non-interest-earning assets............... 45,615 43,783
--------- --------- ----- --------- ----------- -----
Total assets........................ $ 883,098 $ 886,449
--------- --------- ----- --------- ----------- -----
--------- --------- ----- --------- ----------- -----
Interest-bearing liabilities:
Time deposits........................... $ 354,216 4,717 5.33% $ 406,980 5,555 5.46%
Other deposits (4)...................... 379,161 3,888 4.10 332,489 3,207 3.86
Other borrowings........................ -- -- -- 1,462 21 5.75
--------- --------- ----- --------- ----------- -----
Total interest-bearing liabilities.. 733,377 8,605 4.69% 740,931 8,783 4.74%
Non-interest-bearing liabilities.......... 75,487 74,799
--------- --------- ----- --------- ----------- -----
Total liabilities................... 808,864 815,730
Shareholders' equity...................... 74,234 70,719
--------- --------- ----- --------- ----------- -----
Total liabilities and
shareholders'equity............... $ 883,098 $ 886,449
--------- --------- ----- --------- ----------- -----
--------- --------- ----- --------- ----------- -----
Net earning balance....................... $ 104,106 $ 101,735
--------- --------- ----- --------- ----------- -----
--------- --------- ----- --------- ----------- -----
Net interest income....................... 8,661 8,312
--------- --------- ----- --------- ----------- -----
--------- --------- ----- --------- ----------- -----
Interest rate spread (5,7)................ 3.56% 3.37%
Net yield on interest-
earning assets (margin)(6,7)............ 4.14% 3.95%
--------- --------- ----- --------- ----------- -----
--------- --------- ----- --------- ----------- -----
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
----------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1)...................... $ 520,364 22,812 8.77% $ 482,554 20,949 8.68%
Other loans (1)......................... 74,088 3,642 9.83 62,480 3,119 9.98
Mortgage-backed securities (2).......... 124,147 4,242 6.83 102,269 3,495 6.83
U.S. Treasury and agencies, corporate
and other securities (2,3)............ 92,717 2,898 6.25 92,156 2,917 6.33
Interest on income tax refund........... -- -- -- -- 420 --
Federal funds sold...................... 24,691 651 5.27 35,775 879 4.91
--------- ----------- ----- --------- ----------- -----
Total interest-earning assets......... 836,007 34,245 8.19% 775,234 31,779 8.20%
Non-interest-earning assets............... 45,834 40,661
--------- ----------- ----- --------- ----------- -----
Total assets........................ $ 881,841 $ 815,895
--------- ----------- ----- --------- ----------- -----
--------- ----------- ----- --------- ----------- -----
Interest-bearing liabilities:
Time deposits........................... $ 362,308 9,623 5.31% $ 373,338 10,263 5.50%
Other deposits (4)...................... 372,641 7,549 4.05 300,465 5,842 3.89
Other borrowings........................ -- -- -- 1,844 51 5.53
--------- ----------- ----- --------- ----------- -----
Total interest-bearing liabilities.. 734,949 17,172 4.67% 675,647 16,156 4.78%
Non-interest-bearing liabilities.......... 73,222 70,216
--------- ----------- ----- --------- ----------- -----
Total liabilities................... 808,171 745,863
Shareholders' equity...................... 73,670 70,032
--------- ----------- --- --------- ----------- ---
Total liabilities and
shareholders' equity.............. $ 881,841 $ 815,895
--------- ----------- ----- --------- ----------- -----
--------- ----------- ----- --------- ----------- -----
Net earning balance....................... $ 101,058 $ 99,587
--------- ----------- ----- --------- ----------- -----
--------- ----------- ----- --------- ----------- -----
Net interest income....................... 17,073 15,623
--------- ----------- ----- --------- ----------- -----
--------- ----------- ----- --------- ----------- -----
Interest rate spread (5,7).. 3.52% 3.42%
Net yield on interest-
earning assets (margin)(6,7)............ 4.08% 4.03%
--------- ----------- ----- --------- ----------- -----
--------- ----------- ----- --------- ----------- -----
</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 three and six months ended June 30, 1996 was 3.18% and 3.31%,
respectively, and margin was 3.75% and 3.92%, respectively.
7
<PAGE>
RESULTS OF OPERATIONS
GENERAL
The Company's net income was $2.2 million or $0.58 per share for the quarter
ended June 30, 1997, as compared to $2.9 million or $0.74 per share for the same
three-month period in 1996. For the six-month period ended June 30, 1997, the
Company earned $4.3 million or $1.13 per share as compared to $4.9 million or
$1.23 per share for the same period in 1996. The decreases in net income for the
three- and six-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 $349,000, or 4.2%, to $8.7 million for the
three-month period ended June 30, 1997 and $1.5 million, or 9.3%, for the
six-month period when compared to the same periods in 1996. The increases in net
interest income for the quarter and six months ended June 30, 1997 were
primarily due to increases in interest on loans, partially offset by decreases
in interest on federal funds sold and other interest income for the three-month
period and an increase in interest expense for the six-month period. For the
three-month period ended June 30, 1997, the Company's interest rate spread
widened by 19 basis points primarily reflecting the increase in the average
yield on interest-earning assets and the decrease in the average cost of
interest-bearing liabilities. The Company's net interest margin also widened by
19 basis points, primarily a result of the change in interest rate spread. For
the six-month period, the Company's interest rate spread widened by 10 basis
points primarily as a result of the decrease in the average cost of
interest-bearing liabilities. The increases in the spread and margin for the
three- and six-month periods would have been greater without the impact of the
interest on income tax refunds as described in note 7 to the table on page 7.
Interest on loans increased by $1.2 million, or 10.4%, for the three-month
period and $2.4 million, or 9.9%, for the six-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.
Average mortgage loans and other loans increased by $46.2 million for the
three-month period ended June 30, 1997 and $49.4 million for the six-month
period when compared to the same periods in 1996.
Interest on mortgage-backed securities increased $124,000, or 6.1%, for the
three-month period and $747,000, or 21.4%, for the six-month period when
compared to the same periods in 1996, primarily due to increases in the average
balance outstanding due to additional security purchases.
Interest and dividends on U.S. Treasury and agencies, corporate and other
securities decreased by $349,000 for the three-month period ended June 30, 1997
and $19,000 for the six-month period when compared to the same periods in 1996.
The decrease for the three-month period primarily reflects a lower average
balance outstanding, due to maturities and calls, partially offset by purchases
of U.S. Treasury and agency securities, while the decrease for the six-month
period primarily reflects a decrease of 8 basis points in the average yield.
Interest on federal funds sold decreased $433,000 for the three-month
period ended June 30, 1997 and $228,000 for the six-month period when
compared to the same periods in 1996. The decrease for the three-month period
primarily reflects a $38.4 million decrease in the average balance
outstanding, offset somewhat by a 66 basis point increase in the average
yield. The decrease for the six-month period primarily reflects an $11.1
million decrease in the average balance outstanding, offset partially by a 36
basis point increase in the average yield.
The decrease in interest expense of $178,000 for the quarter ended June 30,
1997, compared to the same period in 1996, was due to a decrease in the average
balance of interest-bearing liabilities of $7.6 million, combined with a slight
decrease in the overall cost of funds.
The $1.0 million increase in interest expense for the six-months ended June
30, 1997, compared to the same period in 1996, was due primarily to an increase
in the average balance of interest-bearing liabilities of $59.3 million, 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 six-month periods ended June 30, 1997, the provision for
loan losses was $500,000 and $1.1 million, respectively, as compared to $600,000
and $900,000 for the comparable periods in 1996. The allowance for loan losses
represented 1.65% of total loans at June 30, 1997, compared to 1.56% a year
earlier, and 1.56% at December 31, 1996. Non-performing loans were $5.5 million,
or 0.93% of total loans, at June 30, 1997 compared to $6.2 million, or 1.12% of
total loans, at June 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
June 30, 1997, slow paying loans amounted to $4.3 million as compared to $3.4
million at June 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period............................................... $ 9,421 8,275 9,231 8,033
Provision charged to operations.............................................. 500 600 1,100 900
--------- --------- --------- ---------
9,921 8,875 10,331 8,933
--------- --------- --------- ---------
Loans charged-off:
Mortgage loans:
Residential.............................................................. (184) (167) (461) (381)
Commercial............................................................... (195) (41) (195) (41)
Construction and land.................................................... -- -- (41) --
Other loans:
Consumer................................................................. (57) (67) (168) (104)
Commercial............................................................... -- (5) -- (5)
--------- --------- --------- ---------
Total charge-offs...................................................... (436) (280) (865) (531)
--------- --------- --------- ---------
Recoveries:
Mortgage loans:
Residential.............................................................. 39 1 39 48
Commercial............................................................... 86 -- 86 31
Construction and land.................................................... 200 40 200 141
Other loans:
Consumer................................................................. 16 9 32 22
Commercial............................................................... 7 21 10 22
--------- --------- --------- ---------
Total recoveries....................................................... 348 71 367 264
--------- --------- --------- ---------
Net charge-offs.............................................................. (88) (209) (498) (267)
--------- --------- --------- ---------
Balance at end of period..................................................... $ 9,833 8,666 9,833 8,666
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio of net charge-offs to average total loans outstanding (annualized)..... (0.06%) (0.15%) (0.17%) (0.10%)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
10
<PAGE>
The following table sets forth information with respect to non-performing
assets and certain asset quality ratios at or for the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1996
--------- --------- -------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
NON-PERFORMING LOANS:
Mortgage loans:
Residential properties...................................................... $ 4,618 4,437 3,769
Commercial properties....................................................... 734 931 714
Construction and land....................................................... 102 828 215
--------- --------- ------
5,454 6,196 4,698
Other loans................................................................... 73 20 101
--------- --------- ------
Total non-performing loans (1)............................................ 5,527 6,216 4,799
Other real estate, net.......................................................... 1,388 1,910 2,270
--------- --------- ------
Total non-performing assets............................................... $ 6,915 8,126 7,069
--------- --------- ------
--------- --------- ------
Ratio of non-performing loans to total loans.................................... 0.93% 1.12% 0.81%
Ratio of non-performing assets to total assets.................................. 0.79 0.90 0.81
Ratio of allowance for loan losses to total non-performing loans................ 177.91 139.41 192.35
--------- --------- ------
--------- --------- ------
</TABLE>
- ------------------------
(1) Includes loans on non-accrual status of $5.5 million, $6.0 million and $4.6
million at June 30, 1997, June 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 also includes certain restructured loans that are current
in accordance with modified payment terms and, accordingly, are not included in
the preceding table. These restructured loans are loans for which concessions,
including reduction of interest rates to below-market levels or deferral of
payments, have been granted due to the borrowers' financial condition.
Restructured loans totaled $564,000 at June 30, 1997, compared to $1.3 million
at June 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 $836,000 at June 30, 1997
and $929,000 at December 31, 1996. Total impaired loans at June 30, 1997 consist
of (i) loans of $149,000 for which there was an allowance for loan impairment of
$28,000 determined in accordance with SFAS No. 114 and (ii) loans of $687,000
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 $813,000 and $883,000, respectively, for the three and six
months ended June 30, 1997 and $2.6 million and $2.8 million, respectively, for
the three and six months ended June 30, 1996. Interest income on impaired loans
is recognized on a cash basis and was not significant for the quarter and six
months ended June 30, 1997 and 1996.
At June 30, 1997, management has also identified approximately $1.8 million
in potential problem loans which represent loans having more than normal credit
risk. Although these loans are currently performing at June 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 June 30, 1997, other
income increased $233,000, or 34.3%, and for the six-month period increased
$247,000, or 15.6%, compared to the same periods in 1996.
Deposit service fees, the largest component of other income, decreased by
$53,000, or 8.7%, to $555,000 for the three-month period and $71,000, or 5.9%,
to $1.1 million for the six-month period, compared to the same periods in 1996.
Other service fees increased to $190,000 and $385,000 for the three-and
six-month periods ended June 30, 1997, as compared to $177,000 and $327,000 for
the same periods in 1996.
The $194,000 net loss on securities for both the three and six months ended
June 30, 1996 consists of the net realized loss on the sale of U.S. Treasury
securities. There have been no sales of securities classified as held to
maturity.
Net gain on sales of loans was $79,000 and $144,000 for the three- and
six-month periods ended June 30, 1997 compared to $18,000 and $108,000 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
$584,000, or 9.8%, for the three-month period ended June 30, 1997, primarily due
to a decrease of $139,000 in the net cost of other real estate and a $286,000
reduction in foreclosure and collection expense. Other expense increased
$43,000, or 0.4%, for the six-month period, compared to the same period in 1996,
primarily due to increases in salaries and employee benefits and amortization of
intangible assets, offset partially by a decrease in the net cost of other real
estate and a decline in other non-interest expense due primarily to a $186,000
gain on the sale of the Newburgh Operations building in January 1997.
Salaries and employee benefits, the largest component of other expense,
increased by $44,000, or 1.6%, to $2.7 million for the three-month period and
$438,000, or 8.6%, to $5.6 million for the six-month period, compared to the
same periods in 1996. The increases primarily reflect additional expense due to
the April 1996 acquisition of two branches, as well as the hiring of additional
staff and normal merit and promotional salary increases.
Occupancy and equipment expense decreased $57,000, or 7.5%, for the
three-month period ended June 30, 1997 and $100,000, or 6.7%, for the six-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 $139,000 for the three-month
period and $205,000 for the six-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, partial offset by increased
holding costs.
Amortization of intangible assets totaled $349,000 and $698,000 for the
three and six months ended June 30, 1997, compared to $306,000 for the three and
six months ended June 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 decreased $475,000, or 23.8%, for the three-month
period and $482,000, or 14.2%, for the six-month period when compared to the
same periods in 1996. The three-month period reduction primarily reflects
decreases in foreclosure and collection expense, checking account charges and
professional fees. For the six-month period, the decrease primarily reflects a
$186,000 gain on the sale of the Newburgh Operations building in January 1997.
INCOME TAX EXPENSE
For the three- and six-month periods ended June 30, 1997, income tax
expense was $1.5 million and $2.8 million, respectively. For the quarter
ended June 30, 1996, the Company recognized an income tax benefit of
$513,000, consisting of a benefit of $1.5 million from the settlement with
the Internal Revenue Service of audits
12
<PAGE>
of certain prior years' federal income tax returns, less a provision of $1.0
million or 40.8% of pre-tax income for the quarter. For the six-month period
ended June 30, 1996, income tax expense was $844,000.
The Company's net deferred tax assets were $5.7 million at June 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1997 1996 1997 1996 1996
--------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Return on assets:
Net income divided by average total assets (1)................. 1.00% 1.32% 0.98% 1.19% 1.09%
Return on equity:
Net income divided by average equity (1, 2).................... 11.92% 16.60% 11.71% 13.87% 13.11%
</TABLE>
- ------------------------
(1) Excluding the $1.5 million federal income tax benefit, return on assets for
the three and six months ended June 30, 1996 was 0.65% and 0.82%,
respectively, and the return on equity was 8.11% and 9.58%, respectively.
For the year ended December 31, 1996, if the $1.5 million federal income tax
benefit and a similar New York State tax benefit of $941,000 were excluded,
return on assets was 0.81% and return on equity was 9.68%.
(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
ratio (defined as the ratio of cash and due from banks, federal funds sold
and securities maturing within one year to total assets). At June 30, 1997,
the Company had a primary liquidity ratio of 7.01% 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 $797.9 million at
June 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
13
<PAGE>
sources. Pawling is a member of the Federal Home Loan Bank of New York
("FHLBNY") and, at June 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 June 30, 1997, Pawling had outstanding loan commitments and unadvanced
customer lines of credit totaling $91.6 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 June 30, 1997, Progressive's consolidated capital ratios exceeded the
FRB's minimum regulatory capital guidelines as follows:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL
---------------------------------------------
LEVERAGE CAPITAL TIER 1 TOTAL
------------------------ ------------------------ -------------------
AMOUNT(1) RATIO AMOUNT(1) RATIO AMOUNT(1) RATIO
----------- ----- ----------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Actual............... $ 66,582 7.6% $ 66,582 13.5% $ 72,779 14.8%
Minimum requirement.. 35,159 4.0 19,686 4.0 39,372 8.0
--------- --- --------- ---- --------- ---
Excess............... $ 31,423 3.6% $ 46,896 9.5% $ 33,407 6.8%
--------- --- --------- ---- --------- ---
--------- --- --------- ---- --------- ---
</TABLE>
- ------------------------
(1) For all capital amounts, actual capital excludes the Company's after-tax net
unrealized gain of $535,000 on securities available for sale and intangible
assets of $8.0 million.
At June 30, 1997, Pawling's capital ratios exceeded the FDIC's minimum
regulatory capital requirements as follows:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL
---------------------------------------------
LEVERAGE CAPITAL TIER 1 TOTAL
------------------------ ------------------------ -------------------
AMOUNT(1) RATIO AMOUNT(1) RATIO AMOUNT(1) RATIO
----------- ----- ----------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Actual............... $ 60,881 7.0% $ 60,881 12.4% $ 67,066 13.7%
Minimum requirement.. 34,935 4.0 19,645 4.0 39,290 8.0
--------- --- --------- ---- --------- ----
Excess............... $ 25,946 3.0% $ 41,236 8.4% $ 27,776 5.7%
--------- --- --------- ---- --------- ----
--------- --- --------- ---- --------- ----
</TABLE>
- ------------------------
(1) For all capital amounts, actual capital excludes Pawling's after-tax net
unrealized gain of $545,000 on securities available for sale and intangible
assets of $8.0 million.
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
14
<PAGE>
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 June
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 July 15, 1997, the Company's Board of Directors declared a dividend of 17
cents ($0.17) per common share, payable on August 29, 1997 to shareholders of
record as of July 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 -4.86% at June 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 will reprice before interest-earning assets,
it does not indicate the extent to which they will reprice. Therefore, at times,
a negative gap may not produce higher margins in a declining rate environment.
Due to the limitations inherent in the gap analysis, management augments
the asset/liability management process by using simulation analysis.
Simulation analysis estimates the impact on net interest income of
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.
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.
15
<PAGE>
The following table summarizes the Company's interest rate sensitive assets
and liabilities at June 30, 1997 according to the time periods in which they are
expected to reprice, and the resulting gap for each time period.
<TABLE>
<CAPTION>
WITHIN ONE TO FIVE OVER FIVE
ONE YEAR YEARS YEARS
---------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Total interest-earning assets................................................ $ 462,927 302,276 65,789
Total interest-bearing liabilities........................................... 505,654 115,938 110,719
---------- ----------- -----------
(Deficiency) excess of interest-earning assets compared to interest-bearing
liabilities.............................................................. ($ 42,727) 186,338 (44,930)
---------- ----------- -----------
(Deficiency) excess as a percent of total assets........................... (4.86%) 21.20% (5.11%)
Cumulative (deficiency) excess as a percent of total assets................ (4.86%) 16.34% 11.23%
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
16
<PAGE>
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
The Company's Annual Meeting of Stockholders was held on April
24, 1997. 3,506,288 shares of Progressive Bank, Inc. common stock
were represented at the Annual Meeting in person or by proxy.
Stockholders voted in favor of the election of three nominees
for director. The voting results for each nominee were as follows:
VOTES IN FAVOR
NOMINEE OF ELECTION VOTES WITHHELD
------------------------------------ -------------- --------------
Thomas C. Aposporos................. 3,486,801 19,487
John J. Page........................ 3,489,571 15,717
David A. Swinden.................... 3,499,835 6,453
Stockholders voted to approve the amendment of the Company's
Certificate of Incorporation to include provisions that set forth
procedures for director nominations and new business proposals by
stockholders. 2,634,640 shares were voted in favor of the proposal,
115,820 shares were voted against the proposal, and 16,618 shares
abstained. There were 739,210 broker nonvotes on the matter.
Stockholders voted to approve the Progressive Bank, Inc. 1997
Employee Stock Option Plan. 2,026,578 shares were voted in favor of
the proposal, 638,813 shares were voted against the proposal, and
38,752 shares abstained. There were 802,145 broker nonvotes on the
matter.
Stockholders voted to ratify the appointment of KPMG Peat
Marwick LLP, independent certified public accountants, as the
Company's independent auditors for the fiscal year ending December
31, 1997. 3,490,202 shares were voted in favor of the proposal,
8,954 shares were voted against the proposal, and 7,132 shares
abstained. There were 0 broker nonvotes on the matter.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11, Computation of Net Income Per Common Share.
(b) Exhibit 27, Financial Data Schedule.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROGRESSIVE BANK, INC.
----------------------
(Registrant)
Date: August 7, 1997 /s/ Peter Van Kleeck
-------------------------------------
Peter Van Kleeck
President and Chief Executive Officer
Principal Executive Officer
Date: August 7, 1997 /s/ Robert Gabrielsen
-------------------------------------
Robert Gabrielsen, Treasurer
Principal Financial Officer and
Principal Accounting Officer
18
<PAGE>
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income................................................................. $ 2,212 $ 2,934 $ 4,315 $ 4,856
Weighted average common shares (1, 2, 3)................................... 3,817 3,945 3,821 3,945
Net income per common share(3)............................................. $ 0.58 $ 0.74 $ 1.13 $ 1.23
</TABLE>
- ------------------------
(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.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 18,121
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 21,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 132,302
<INVESTMENTS-CARRYING> 87,323
<INVESTMENTS-MARKET> 86,966
<LOANS> 596,763
<ALLOWANCE> 9,833
<TOTAL-ASSETS> 878,823
<DEPOSITS> 797,897
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,784
<LONG-TERM> 0
0
0
<COMMON> 4,428
<OTHER-SE> 70,714
<TOTAL-LIABILITIES-AND-EQUITY> 878,823
<INTEREST-LOAN> 26,454
<INTEREST-INVEST> 7,140
<INTEREST-OTHER> 651
<INTEREST-TOTAL> 34,245
<INTEREST-DEPOSIT> 17,172
<INTEREST-EXPENSE> 17,172
<INTEREST-INCOME-NET> 17,073
<LOAN-LOSSES> 1,100
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 10,651
<INCOME-PRETAX> 7,154
<INCOME-PRE-EXTRAORDINARY> 7,154
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,315
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 4.08
<LOANS-NON> 5,454
<LOANS-PAST> 73
<LOANS-TROUBLED> 564
<LOANS-PROBLEM> 1,810
<ALLOWANCE-OPEN> 9,231
<CHARGE-OFFS> 865
<RECOVERIES> 367
<ALLOWANCE-CLOSE> 9,833
<ALLOWANCE-DOMESTIC> 9,833
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
