SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ending September 30, 1996
Commission file number 0-20142
BATH NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-1185097
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
44 Liberty Street, Bath, NY 14810
(Address of principal executive offices) (zip code)
(607) 776-9661
(Registrant's telephone number, including area code)
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 (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 ______
The number of shares outstanding of the issuer's Common Stock, $5 par
value was 1,365,801 shares as of September 30, 1996.<PAGE>
<PAGE>
TABLE OF CONTENTS
Page Number
PART I. FINANCIAL INFORMATION 1 - 5
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 6
ITEM 2. Changes in Securities 6
ITEM 3. Defaults upon Senior Securities 6
ITEM 4. Submission of Matters to a vote 6
of Security Holders
ITEM 5. Other Information 6
ITEM 6. Exhibits and Reports Form 8-K 6
PART III. MANAGEMENTS DISCUSSION AND ANALYSIS 7 - 10
<PAGE>
<PAGE>
<TABLE>
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATION STATEMENTS OF CONDITION
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,754,200 $ 10,218,600
Interest Bearing Deposits in other banks 3,151,300 3,535,300
Securities
Held to maturity, approx. market value
9/96 $19,917,600 20,000,000 0
Available for Sale 70,046,100 64,936,600
Total Investments 90,046,100 64,936,600
Loans (Gross) 157,039,500 150,504,200
LESS: Allowance for loan losses 1,650,000 1,650,000
Premises and equipment-Net 5,128,500 5,110,200
Interest Receivable 2,028,100 1,775,100
Other Assets 1,076,000 735,500
TOTAL ASSETS $267,573,700 $235,165,500
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 30,580,100 $ 27,397,000
Savings 43,761,800 46,510,300
NOW Accounts 32,826,500 32,376,100
Money Market deposit accounts 10,517,300 13,300,700
Time deposits (in denominations of
100,000 or more) 26,955,500 16,222,800
Other time accounts 65,443,800 61,953,100
Total Deposits 210,085,000 197,760,000
Federal Funds Purchased 1,900,000 2,150,000
Repurchase Agreements 21,791,300 1,070,900
FHLB Borrowings 2,000,000 3,000,000
Other liabilities 2,073,600 2,630,800
TOTAL LIABILITIES $237,849,900 $206,611,700
STOCK HOLDERS' EQUITY:
Preferred Stock: $10 par value;
300,000 shares authorized,
Common Stock: $5.00 par value;
1,500,000 shares authorized.
issued 12/31/95 1,366,234 shares
issued 9/30/96 1,365,801 shares <F1> 6,829,100 6,831,200
Surplus 1,494,800 1,507,900
Undivided profits 21,708,400 19,966,400
Unrealized gain - (loss) investments (308,500) 248,300
TOTAL STOCKHOLDER'S EQUITY 29,723,800 28,553,800
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $267,573,700 $235,165,500
</TABLE>
[FN]
<F1> All capital account data restated to reflect two for one stock split.
See notes to condensed unaudited consolidated financial statements.
<PAGE>
<TABLE>
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $3,414,200 $3,301,500 $ 9,977,800 $ 9,733,700
Int. on federal funds sold 13,900 44,200 65,100 209,500
Int. on investment securities:
US Treasury & Govern. Agency 638,600 297,900 1,201,600 698,900
State and Municipal Obligat. 388,500 321,100 1,091,600 938,200
Taxable Municipal 39,900 48,700 133,100 147,600
Mortgaged Backed Securities 371,500 276,000 1,073,700 812,800
Interest Bearing due from 47,800 60,500 148,200 165,100
Other 14,700 14,700 43,200 44,800
Total Interest Income 4,929,100 4,364,600 13,734,300 12,750,600
INTEREST EXPENSE:
Interest Deposits 1,756,900 1,643,900 5,113,200 4,603,100
Int. short term borrowings 55,600 45,000 195,200 45,400
Interest on repurch agreemts 316,200 70,200 367,100 143,200
Total Interest Expense 2,128,700 1,759,100 5,675,500 4,791,700
NET INTEREST INCOME 2,800,400 2,605,500 8,058,800 7,958,900
Prov. loan losses (recovery) 117,600 34,400 182,300 129,600
Net interest income after
provision for loan losses 2,682,800 2,571,100 7,876,500 7,829,300
OTHER OPERATING INCOME:
Service charges 204,400 167,200 558,600 500,100
trust department fees 11,700 17,000 28,800 21,300
Investment gains (losses) (32,400) 1,300 (21,600) 600
Other 155,700 133,900 431,500 386,800
Total other operating income 339,400 319,400 997,300 908,800
OTHER OPERATING EXPENSES:
Salaries & emp benefits 975,200 978,300 2,879,400 2,888,900
Net occupancy expense of
premises 168,700 147,600 504,600 430,900
Depreciation 99,000 102,000 293,200 306,000
Other 466,200 407,100 1,495,000 1,406,100
Total other oper. expenses 1,709,100 1,635,000 5,172,200 5,031,900
INCOME BEFORE INCOME TAXES 1,313,100 1,255,500 3,701,600 3,706,200
INCOME TAXES (benefit) 398,600 447,000 1,141,600 1,251,000
NET INCOME $ 914,500 $ 808,500 $2,560,000 $2,455,200
EARNINGS PER COMMON SHARE<F1> .67 .60 1.87 1.81
DIVIDENDS DECLARED PER COMMON SHARE .20 .20 .60 .58
</TABLE>
See notes to condensed unaudited consolidated financial statements.
[FN]
<F1> All per share data adjusted for a two for one stock split 4/24/96. <PAGE>
<PAGE>
<TABLE>
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited)
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 2,560,000 $ 2,455,200
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 293,200 306,000
Provision for loan losses 182,300 129,600
Loan origination costs deferred (66,800) 12,700
Bond premium amortized and (discount accrued) 134,000 158,000
(Gain) or Loss on sale of investments 21,600 (1,000)
(Increase) or Decrease in interest receivable (253,000) (395,900)
Increase or (Decrease in other liabilities (557,200) (1,103,300)
(Increase) or Decrease in other assets (340,500) 556,200
Net cash provided by operating activities 1,973,600 2,117,500
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing securities 9,684,500 3,812,900
Proceeds from sales of investment securities 2,895,000 927,300
Purchases of investment securities (38,327,800) (24,682,900)
(Increase) or decrease in federal funds sold 0 (650,000)
Increase or (decrease) in federal funds purchased (250,000) 0)
Increase or (decrease) in repurchase agreements 20,720,400 4,250,000
Net decrease in interest bearing
deposits in other banks 384,000 (601,900)
Principal collected on loans 35,005,100 24,466,700
Loans made to customers (41,722,700) (27,300,100)
Capital expenditures (311,500) (472,600)
Net cash used or provided in investing
activities (11,923,000) (20,250,600)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW, MMDA
& savings accounts (1,898,400) (1,954,100)
Proceeds from sale of
certificates of deposit 36,867,200 27,426,300
Payments for maturing
certificates of deposit (22,643,800) (11,322,100)
Dividends paid (840,000) (393,000)
Proceeds from Borrowings (1,000,000) 3,000,000
Net cash provided by financing activities 10,485,000 16,757,100
NET DECREASE IN CASH AND CASH EQUIVALENTS 535,600 (1,376,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 10,218,600 $10,607,800
CASH AND CASH EQUIVALENTS AT END OF NINE MONTHS $ 10,754,200 $ 9,231,800
</TABLE>
<PAGE>
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995. (Unaudited)
---------------------------------------------------------------------------
1. GENERAL
The accounting and reporting policies followed by Bath National
Corporation (BNC), a bank holding company, and its subsidiary, Bath
National Bank (BNB), in the preparation of the accompanying interim
financial statements conform with generally accepted accounting
principles and with general practice within the banking industry.
The accompanying financial statements are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of
financial position and results of operations for the interim periods
have been made. Such adjustments are of a normal recurring nature.
The results of operations for the nine month period ended 9-30-96 are not
necessarily inductive of the results to be expected for the full year.
2. INVESTMENT SECURITIES
Investment securities classified held to maturity are stated at cost plus
discount accrued and premium amortized. The carrying value, fair market
value and unrealized loss are as follows:
Fair
Book Market Unreal. Unreal.
Value Value Gain Loss Net
Agencies 20,000,000 19,917,600 0 (82,400) (82,400)
<TABLE>
Investment securities classified as available for sale are stated at fair
market value. The carrying value, fair market value and unrealized
gain/loss for those securities are as follows:
<CAPTION>
Fair
Book Market Unreal. Unreal.
Value Value Gain Loss Net
<S> <C> <C> <C> <C> <C>
U.S. Treasury &
Agencies 17,111,100 16,812,800 10,800 (309,100) (298,300)
States & Political
Subdivisions 31,933,900 32,198,800 409,200 (144,300) 264,900
Mortgage Back 20,530,100 19,965,500 61,000 (625,600) (564,600)
Securites
Equity Securites 1,069,000 1,069,000 - - -
Total 70,644,100 70,046,100 481,000 (1,079,000) (598,000)
</TABLE>
<PAGE>
3. ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of the
relative risks inherent in the loan portfolio and, on an annual basis,
generally exceeds the amount of net loan losses charged against the
allowance.
Balance - January 1, 1996 $ 1,650,000
Charge offs (243,300)
Recoveries 61,000
Provision charged to income 182,300
Balance - September 30, 1996 1,650,000
4. INCOME TAXES
Provision for deferred income taxes are made as a result of timing
differences between financial and taxable income. These differences
relate principally to depreciation of bank premises and equipment,
accretion of discounts on investment securities and provisions for loan
losses.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
There were no reports filed on Form 8-K
ITEM 6. Exhibits and Reports on Form 8-K
N/A
<PAGE>
Discussions and Analysis of Financial Condition and Result of Operations <PAGE>
(Interim) (Unaudited)
Bath National Corporation has one subsidiary bank (Bath National Bank).
There are no non-banking subsidiaries.
Liquidity and Capital Resources:
Bath National Bank has signed a letter of intent to purchase First State
Bank, Canisteo (FSB). Total assets of FSB are approximately $37 million at
September 30, 1996. BNB's capital ratio is expected to decrease from 11.27%
to 10% upon consummation of the acquisition which is anticipated as of the
end of the first quarter 1997. The acquisition will provide more liquidity
to BNB due to the low loan to deposit ratio at FSB and the availability of
additional short term investments.
No other trends, demands, commitments, events or uncertainties likely to
result in any significant deficiencies or increases in liquidity have been
noted.
Liquidity is an important factor in the financial condition of Bath
National Corporation and affects its ability to meet the borrowing needs and
deposit withdrawal requirements of its customers. Assets, consisting
principally of loans and investment securities, are funded by customer
deposits.
The investment portfolio is one of Bath National Bank's primary sources
of liquidity. Maturities of securities and principal payments on mortgage
backed securities provide a constant flow of funds which are available for
cash needs. Interest bearing deposits in other financial institutions
maturing within one year total $1.6 million. Also, high quality securities
are readily marketable and provide a steady flow of funds. At September 30,
1996 loans with an aggregate balance of $12.5 million and securities of $5.0
million were due to mature in one year or less. Additional funds flow from
payments on installment and revolving credit loans. Bath National Bank's
liquidity also continues to be enhanced by a relatively stable deposit base.
On September 30, 1996, the loan to deposit ratio was 75% and the ratio of
loans to core deposits (excluding certificates of deposit of $100,000 or
more) was 86%.
In addition to the source of liquidity referred to above, Bath National
Bank may borrow from the Federal Reserve Bank in the event of a short term
liquidity deficiency. The bank also has an agreement with our correspondent
bank to borrow overnight federal funds. During 1996, the bank had an
average net daily federal funds sold of $ .3 million.
Bath National Bank is a member of the Federal Home Loan Bank (FHLB)
system. Based on the current level of stock ownership, Bath National Bank is
authorized to borrow up to $9.7 million. As of September 30, 1996 the bank
has borrowed $2.0 million against this line of credit.
The Federal Reserve Board and Office of the Comptroller of the Currency
have guidelines as to the minimum risk based capital requirement of
community banks. This minimum is presently 8.00%. Bath National
Corporation has primary capital at September 30, 1996 as follows:
<PAGE>
Components of Capital 9-30-96 9-30-95
Common Equity $29,723,800 $25,181,900
Allowance for loan losses 1,650,000 1,725,000
Subtotal 31,373,800 26,906,900
Less: Goodwill 323,700 347,900
TOTAL PRIMARY CAPITAL $31,050,100 $26,559,000
The company's capital to asset ratios for the third quarter of 1996 and
1995 are as follows:
TIER I LEVERAGE RISK BASED
Required Required
Minimum Actual Minimum Actual
September 30, 1995 3.00% 12.04% 8.00% 21.49%
September 30, 1996 4.00% 11.27% 8.00% 19.53%
Net Interest Income
Net interest income increased only slightly from 1995 to 1996. The
primary reason for the small increase was the additional interest expense
which increased by 18.7% (from $4.8 million in 1995 to $5.7 million in
1996) verses the increase in total interest income of 7.7% (from $12.7
million in 1995 to $13.7 million in 1996).
In addition, an increased investment in tax-exempt securities has the
effect of suppressing the net interest income, while increasing after tax
income. Tax exempt interest totalled $938,200 for the first nine months of
1995 versus $1,091,600 for the corresponding nine months of 1996.
In July 1996, the bank entered into a repurchase agreement totalling
$20 million with Salomon Brothers, Inc. The transaction had the effect of
decreasing the capital ratio from approximately 12% to approximately 11%,
while increasing net interest income $20,000 per month.
Provision for Loan Losses
The company's management recognizes the fact that there are risks of
loss involved in any lending function. Identifying the extent of the risk
for each loan category, and the probability that losses will be sustained
based on delinquency experience, is part of the overall plan for
establishing an Allowance for Loan Losses.
Bath National Bank recognized net loan charge offs totaling $129,600
for the nine months ended September 30, 1995 versus a net charge off of
$182,300 for the comparable nine months of 1996. The reserve for loan loss
totals $1,650,000. The Board of Directors has determined that $1,650,000
is a sufficient reserve for loan losses based on an analysis of past due
loans, historical data and specific identification of problem loans.
<PAGE>
Non-Performing Assets
The Bank's policy is to discontinue the accrual of interest on loans <PAGE>
(other than installment loans) for which principal and interest is past due
120 days or more and which are not fully collateralized. Such loans are
classified as non-accrual by BNB. This classification does not, however,
necessarily indicate that the principal of the loan is uncollectible, but
does warrant a review of the collectability. When a loan is placed on a
non-accrual basis, any unpaid interest accrued is reversed against current
income.
On September 30, 1996, total non-accruing assets were $427,400.
Collateral supporting the loans totals $473,000.
Non-Performing Loans
Non-performing loans are summarized as follows:
Other Real Estate $ 249,000
Non-accrual loans $ 427,400
Past due 90 days or more and still accruing $ 476,000
Total $1,152,400
Other Operating Income
Total service charge income increased from $500,000 to $558,000 due
primarily to an increase in monthly fees on club accounts and an increase
in our number of accounts as well.
Other Operating Expenses
FDIC insurance premiums decreased from $192,000 in 1995 to $2,000 in
1996 due to the change in assessments to banks which fund the bank
insurance fund. Other real estate owned expenses increased from $50,000 in
1995 to $160,000 in 1996 due to expenses associated with foreclosed
property.
No other material changes in other operating expenses are identified.
<PAGE> <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
BATH NATIONAL CORPORATION
DATE _________________ ___________________________________
Robert H. Cole, Sr.
President
DATE
Edward C. Galpin
Vice President and Treasurer
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,754,200
<SECURITIES> 90,046,100
<RECEIVABLES> 0
<ALLOWANCES> 1,650,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,104,100
<PP&E> 5,128,500
<DEPRECIATION> 293,200
<TOTAL-ASSETS> 267,573,700
<CURRENT-LIABILITIES> 5,973,600
<BONDS> 0
0
0
<COMMON> 6,829,100
<OTHER-SE> 22,894,700
<TOTAL-LIABILITY-AND-EQUITY> 267,573,700
<SALES> 0
<TOTAL-REVENUES> 13,734,300
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,172,200
<LOSS-PROVISION> 182,300
<INTEREST-EXPENSE> 5,675,500
<INCOME-PRETAX> 3,701,600
<INCOME-TAX> 1,141,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,560,000
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
</TABLE>
