SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or Section 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 2-80325
BATH NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-1185097
(State of Incorporation) (I.R.S. Employer
Identification No.)
44 Liberty Street
Bath, New York 14810
(Address of principal (zip code)
executive offices)
(607) 776-9661
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock Par Value $5 per Share
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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to the Form 10-K.
Not Applicable
State the aggregate market value of the voting stock held by non-
affiliates of the registrant as of January 31, 1996.
Common stock, $5.00 par value - $40,987,020
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of January 31, 1996.
683,117 shares, common stock, $5.00 par value
Documents incorporated by reference
1) Proxy statement for 1996 Annual Meeting - Part III
<PAGE>
TABLE OF CONTENTS <PAGE>
PART I PAGE
ITEM 1. Business 1-23
ITEM 2. Properties 23
ITEM 3. Legal Proceedings 23
ITEM 4. Submission of Matters to a
Vote of Security Holders 23
PART II
ITEM 5. Market for the Registrant's Securities
and Related Stockholder Matters 24
ITEM 6. Selected Financial Data 24-25
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 26-29
ITEM 8. Financial Statements and
Supplementary Data 29-54
ITEM 9. Changes in and disagreements with Accountants
on Accounting and Financial Disclosure 54
PART III
ITEM 10. Directors and Executive Officers
of the Registrant 55
ITEM 11. Executive Compensation 55
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 55
ITEM 13. Certain Relationships and Related
Transactions 55
PART IV
ITEM 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 55-56
<PAGE>
PART I
ITEM 1. Business <PAGE>
Bath National Corporation (BNC or the "Company") is a one bank
holding company which was incorporated in 1982, and registered under
the Bank Holding Company Act of 1956. BNC has no non-bank affiliates.
The Company functions primarily as the holder of stock of BNB
(described below) and assists in the management of BNB as appropriate.
The Company is a legal entity separate and distinct from BNB. The
right of the Company to participate in any distribution of the assets
or earnings of BNB is subject to the principal claims of creditors of
BNB, except to the extent that claims, if any, of the Company itself as
a creditor may be recognized. BNC derives all of its income from
dividends paid to it by the Bank.
Bath National Bank (BNB or "the Bank"), BNC's only subsidiary, has
approximately 134 employees. BNB is a full service commercial bank,
with trust powers. The Bank offers personal and business checking
accounts, savings accounts, money market checking accounts, various
types of certificates of deposit, commercial loans,
consumer/installments loans, real estate loans, safe deposit boxes and
provides such services as banking by mail, drive up teller service,
night depository, money orders, bond coupon redemptions, cashier and
travelers checks, credit cards, direct deposit of social security
funds, wire transfers and automatic teller services (ATM's). The Bank
also offers individual retirement accounts. The Bank is a member of
the Federal Deposit Insurance Corporation to the extent permitted by
law. BNB is included in the Company's consolidated financial
statements.
The following discussion of the business of the Company (primarily that
of BNB) contains certain statistical information concerning the
Company's operations.
Market Area and Competition:
The primary market areas of the Bank include Dundee, Hammondsport,
Wayland, Hornell, Atlanta, Naples and Bath, New York from which the
Bank draws principally all of its business.
The area has a well developed system of financial institutions,
including banks, savings and loan associations, and credit unions.
The Bank encounters aggressive competition for both deposit and loan
customers. The Bank is required to compete with financial institutions
which are subsidiaries of larger bank holding companies. The financial
institutions located in the Bank's market area offer all of the
services which the Bank offers. Neither the Company nor the Bank has
any foreign operations.
<PAGE>
<TABLE>
Consolidated Average Balances
The following is a presentation of average assets, liabilities and
equity of the Company for the years ended December 31, 1995 and 1994,
with respect to each major category of assets, liabilities and equity. <PAGE>
AVERAGE ASSETS
(dollars in thousands)
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
<S> <C> <C>
Interest Earning
Deposits with Banks $ 3,800 $ 4,300
Taxable Investment Securities 36,000 29,100
Non-Taxable Investment Securities 22,600 20,000
Federal Funds Sold 3,500 2,000
Net Loans 142,900 137,700
Total Earning Assets 208,800 193,100
Other Assets 16,400 16,500
Total Assets $225,200 $209,600
AVERAGE LIABILITIES AND EQUITY
(dollars in thousands)
Non-Interest Bearing
Deposits $ 26,300 $ 25,600
Interest Bearing Deposits:
Savings 48,100 50,600
NOW Accounts 32,400 36,300
Money Market Accounts 13,000 17,400
Time Deposits 72,000 51,500
Federal Home Loan Bank Borrowings 1,400 0
Securities Sold Under Agreement to
Repurchase 3,100 0
Other Liabilities 1,400 1,200
Federal Funds Purchased 500 1,300
Total Liabilities 198,200 183,900
Common Stock 3,400 3,200
Additional Paid in Capital 4,400 3,500
Retained Earnings 19,200 19,000
Total Equity 27,000 25,700
Total Liabilities
and Equity $225,200 $209,600
</TABLE>
<PAGE>
<TABLE>
The following is a presentation of an analysis of the net interest
earnings of the Company for years ended December 31, 1995 and 1994,
respectively, with respect to each major category of interest-earning
assets and interest-bearing liabilities:
<CAPTION>
Year Ended December 31, 1995
(dollars in thousands)
Interest <PAGE>
Average Earned Average
Assets Amount or Paid Yield or Rate
<S> <C> <C> <C>
Interest-Earning
Deposits with Banks $ 3,800 $ 224 5.89%
Taxable Investment Securities 36,000 2,391 6.64%
Non-Taxable Investment
Securities <F1> 22,600 1,748 7.73%
Federal Funds Sold 3,500 214 6.11%
Net Loans <F1><F2><F3> 142,900 13,652 9.55%
Total Earning Assets $208,800 $ 18,229 8.73%
Liabilities
Savings Deposits $ 48,100 $ 1,458 3.03%
Now Deposits 32,400 567 1.75%
Money Market Deposits 13,000 400 3.07%
Time Deposits 72,000 3,856 5.36%
Federal Home Loan Bank
Borrowings 1,400 70 5.00%
Repurchase Agreements 3,000 170 5.66%
Federal Funds Purchased 500 30 6.00%
Total Interest-Bearing
Liabilities 170,400 6,551 3.84%
Interest Income/Earning Assets 8.73%
Interest Expense/Earning Assets 3.14%
Net Yield 5.59%
</TABLE>
[FN]
<F1>Non-Taxable interest is stated on a tax-equivalent basis, using a
marginal tax rate of 34%.
<F2> Net Loans includes non-accrual loans of $435,000.
<F3> Includes Loan Fees Totaling $65,000 and discount revenue of
345,000.
<PAGE>
<TABLE>
Analysis of Net Interest Earnings, Continued
<CAPTION>
Year Ended December 31, 1994
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
<S> <C> <C> <C>
Interest-Earning <PAGE>
Deposits with Banks 4,300 259 6.02%
Taxable Investment Securities 29,100 1,906 6.55%
Non-Taxable Investment
Securities <F1> 20,000 1,723 8.61%
Federal Funds Sold 2,000 78 3.90%
Net Loans <F2><F3> 137,700 11,943 8.67%
Total Earning Assets $193,100 $15,900 8.24%
Liabilities
Savings Deposits 50,600 1,513 2.99%
Now Deposits 36,300 664 1.82%
Money Market Deposits 17,400 454 2.61%
Time Deposits 51,500 1,876 3.64%
Federal Funds Purchased 1,300 60 4.61%
Total Interest-Bearing
Liabilities $157,100 $4,567 2.91%
Interest Income/Earning Assets 8.24%
Interest Expense/Earning Assets 2.36%
Net Yield 5.88%
</TABLE>
[FN]
<F1> Non-Taxable interest is stated on a tax-equivalent basis, using a
marginal tax rate of 34%.
<F2> Net Loans includes non-accrual loans of $454,000.
<F3> Includes Loan Fees Totaling $49,000.
<PAGE>
Rate/Volume Analysis of Net Interest Income
The effect on interest income (not on a tax equivalent basis),
interest expense, and net interest income in the periods indicated,
of changes in average balances (volume) and changes in rate from the
corresponding prior period is shown in the tabulation on the
following page. The effect of a change in average balance has been
determined by applying the average rate in the earlier period to the
change in average balances. Changes resulting from rate variance
from the prior period have been determined by applying the average
volume in their earlier period to the change in average rate from the
earlier to the later period. Changes in interest due to both rate
and volume have been allocated to changes due to volume and changes
due to rate based on the percentage relationship of such variances to
each other. The final column entitled "Total Change" indicates the
total change in the gross interest income or expense over the prior
year as indicated in the later year's statement of income.
The Rate/Volume Analysis for the years ended December 31, 1995 and
1994, appear in their entirety on the following page.
<PAGE>
<TABLE>
December 31, 1995 compared with December 31, 1994
(dollars in thousands)
<CAPTION>
Changes in net interest income as a result of:
<S> <C> <C> <C>
Total
Volume Rate Change
Interest earned on:
Interest-earning
deposits with banks $ (30) $ (5) $ (35)
Taxable Investment
Securities 452 33 485
Non-Taxable
Investment Securities 224 (207) 17
Federal Funds Sold 58 78 136
Net Loans 451 1,206 1,657
Total Interest Income 1,155 1,105 2,260
Interest paid on:
Interest-bearing
deposits 375 1,609 1,984
Change in net interest
income $ 780 $ (504) $ 276
</TABLE>
<TABLE>
December 31, 1994 compared with December 1993
(dollars in thousands)
<CAPTION>
Changes in net interest income as a result of:
<S> <C> <C> <C>
Total
Volume Rate Change
Interest earned on:
Interest-earning
deposits with banks $ (33) $ (28) $ (61)
Taxable Investment
Securities (741) (129) (870)
Non-Taxable
Investment Securities 453 (291) 162
Federal Funds Sold (41) 19 (22)
Net Loans 1,338 123 1,461
Total Interest Income 976 (306) 670
Interest paid on
Interest-bearing
deposits 38 (144) (106)
Change in net interest
income $ 938 $ (162) $ 776
</TABLE>
<PAGE>
Investments
Investment securities comprised approximately 27% of the Bank's
assets at December 31, 1995, with loans comprising approximately 64%
of total assets. The Bank invests primarily in obligations of the
United States or its agencies or obligations guaranteed as to
principal and interest by the United States or its agencies, tax
exempt municipal securities and certificates of deposit issued by
other financial institutions. The Bank's policy is to invest in
highly rated bonds. The Bank also enters into Federal Funds
transactions with its principal correspondent bank, and acts as a net
seller of such funds. The sale of Federal Funds amounts to a short-
term loan from the Bank to another bank.
A tabulation of the Bank's investments is included in its entirety on
the following page. <PAGE>
<PAGE>
<TABLE>
The following table presents, at December 31, 1995 and 1994, the book
value and market value of the Bank's investments. The table also
indicates the amount of investments due in (1) one year or less, (ii)
one to five years, (iii) five to ten years, and (iv) over ten years.
<CAPTION>
1995 1994
Investment Book Market Avg. Book Market Avg.
Category Value Value Yield Value Value Yield
(rounded in thousands) (rounded in thousands)
Obligations of U.S.
Treasury and other U.S.
Agencies and Corporations:
<S> <C> <C> <C> <C> <C> <C>
0 - 1 year $18,352 $18,233 6.83% $ 4,640 $ 4,406 6.79%
1 - 5 years 10,012 10,085 6.26% 8,726 8,158 6.01%
5 - 10 years 4,775 4,661 6.09% 5,004 4,383 6.16%
Over 10 years 21 19 7.19%
Obligations of States and
Political subdivisions
0 - 1 year $ 2,313 2,351 6.49% $ 2,349 $ 2,373 6.56%
1 - 5 years 5,803 5,897 4.92% 5,661 5,677 5.74%
5 - 10 years 15,558 15,768 4.73% 11,624 10,669 4.70%
Over 10 years 845 869 5.46% 1,287 1,184 5.34%
Other Securities
0 - 1 year 895 907 5.14% 135 135 7.41%
1 - 5 years 2,133 2,186 8.31% 3,150 3,127 7.90%
5 - 10 years 1,342 1,562 9.02% 1,343 1,399 9.01%
Over 10 years 2,430 2,418 7.94% 2,304 2,333 8.90%
Total Securities $64,458 $64,937 $46,244 $43,863
</TABLE>
Yields are computed on a tax equivalent basis using a marginal tax
rate of 34%.
A total of $45,230 of investments was pledged to secure public
deposits.
<PAGE>
Loan Portfolio:
The bank engages in a full complement of lending activities,
including commercial, consumer/instalment, real estate loans and
accounts receivable financing. At December 31, 1995, loans secured
by real estate comprised 52% of the total loan portfolio. At
December 31, 1995 none of the real estate loans were being held
specifically for resale in the secondary market.
<TABLE>
Loans Outstanding:
The following table presents various categories of loans contained in
the Bank's loan portfolio on the dates indicated and the total amount
of all categories on these dates:
<CAPTION>
Year Ended December 31,
(dollars in thousands)
<S> <C> <C>
Loan Type 1995 1994
Commercial, Financial and
Agricultural $ 38,325 $ 31,520
Real Estate - Mortgage 78,666 82,217
Installment Loans to Individuals 29,765 24,097
All Other 3,247 3,945
Sub-Total 150,003 141,779
Allowance for Loan Losses 1,650 1,725
Loans - Net $148,353 $140,054
</TABLE>
<TABLE>
Maturity Distribution and Interest Sensitivity:
The following tabulation presents an analysis of maturities of loans
as of December 31, 1995, stated in thousands of dollars:
<CAPTION>
Years To Maturity
<S> <C> <C> <C> <C>
Loan Type 1 or less 1 - 5 Over 5 Total
Commercial, Financial,
and Agricultural $ 7,941 $15,330 $15,054 $38,325
</TABLE>
Demand loans, loans having no stated schedule of repayments and no
stated maturity are reported as due in one year or less.
<PAGE>
The following is a presentation of an analysis of sensitivities of
commercial, financial and agricultural loans to changes in interest
rates as of December 31, 1995, stated in thousands of dollars:
[S] [C]
Loans due after 1 year with predetermined $ 8,874
Interest Rates
Loans due after 1 year with floating
Interest Rates $ 21,510 <PAGE>
<PAGE>
<TABLE>
Non-Performing Loans and Leases:
The following table presents, for the period indicated, the aggregate
amount of non-accrual, past due and restructured loans:
<CAPTION>
<S> <C> <C>
Year Ended Year Ended
Type of Loan 12/31/95 12/31/94
Loans accounted for on non-accrual
basis $435,000 $454,000
Number of loans 9 17
Accruing Loans Past due 90 Days
per more as to principal or
interest payments 209,000 324,000
Number of loans 17 17
Loans not included above which
are troubled debt restructuring <F1> ---- 290,000
Number of loans 0 2
</TABLE>
[FN]
<F1> These are loans whose terms have been restructured to provide a
reduction or deferral of interest or principal because of a
deterioration in the financial position of the borrower.
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest income becomes
doubtful. When a loan is reclassified to non-accrual status, all
accrued interest is immediately charged against current income.
Accrual of interest on such loans is resumed only when, in
management's judgment, the collection of said loan is probable. At
that time, any accrued interest previously written off is restored
through current income. Payments received on non-accrual loans are
applied to principal.
Interest income for the year ended December 31, 1995 would have
included approximately $60,100 interest income for the above non-
accrual loans if they had kept current in accordance with their
original terms. No interest income was included in income for 1995
for the non-accrual loans.
The Bank has not identified significant potential problem loans which
cause management to have serious doubts as to the ability of such
borrowers to comply with the present loan repayment terms.
The Bank has no foreign loans.
There are no concentrations of credit.
<PAGE>
<TABLE>
Summary of Loan Loss Experience:
An analysis of the loan loss experience is furnished in the following
table for the periods indicated, as well as the allocation of the
allowance for loan losses. Loans are presented net of unearned
income.
<CAPTION>
Year Ended December 31,
(dollars in thousands)
1995 1994
<S> <C> <C>
Allowance balance at beginning
of the year $ 1,725 $ 1,600
Loans Charged Off:
Real Estate 9
Commercial, Financial & Agricultural 212 59
Installment Loans to Individuals 146 180
Credit Cards 31 28
Total 389 276
Recoveries of Loans Previously Charged Off
Real Estate 17
Commercial, Financial & Agricultural 96 40
Installment Loans to Individuals 65 271
Credit Cards 4 13
Total 182 324
Additions charged to
Operations 132 77
Allowance Balance at end of the year 1,650 $ 1,725
Average loans $142,900 $137,700
Ratio of net charge-offs during the
period to Average loans during
the period .0015% -.03%
</TABLE>
<PAGE>
<TABLE>
At December 31, 1995, the allowance balance was allocated as follows:
<CAPTION>
% of loans
Amount in each type
Loan Type (in thousands) to total loans
<S> <C> <C>
Commercial, Financial
and Agricultural $1,100 26.87%
Real Estate - Mortgage 50 52.61%
Installment loans to individuals 500 18.35%
All Other 2.17%
Total $1,650 100.00%
</TABLE>
<TABLE>
At December 31, 1994, the allowance balance was allocated as follows:
<CAPTION>
% of loans
Amount in each type
Loan Type (in thousands) to total loans
<S> <C> <C>
Commercial, Financial <PAGE>
and Agricultural $1,175 21.33%
Real Estate - Mortgage 50 57.99%
Installment loans to individuals 500 17.00%
All Other 3.68%
Total $1,725 100.00%
</TABLE>
<PAGE>
Loan Loss Reserve:
In considering the adequacy of the Bank's allowance for possible loan
losses and, thus, the amount of additions of the allowance charged to
operating expense in 1995, management has focused on the fact that as
of December 31, 1995, 26% of outstanding loans are in the category of
commercial loans. Commercial loans are generally considered by
management as having greater risk than other categories of loans in
the Bank's loan portfolio.
Management considers loans to finance 1-4 family, owner occupied
property to have minimal risk due to the fact that these loans
represent conventional residential real estate mortgages where the
amount of the original loan does not exceed 80% of the appraised
value of the collateral.
The Bank's Board of Directors monitors the loan portfolio monthly to
enable it to evaluate the adequacy of the allowance for loan losses
quarterly and to implement its policy of identification and isolation
of potential problem loans. The loans are rated and the reserve
established based on an assigned rating. The provision for loan
losses charged to operating expenses is based on this established
reserve. Factors considered by the Board in rating the loans include
delinquent loans, underlying collateral value, payment history,
financial condition of the borrowers, and local and general economic
conditions affecting collectibility.
While no assurance can be given, management believes that losses
during 1996 will be no more than the losses during 1995. Although
management of the Company believes that the allowance (as
supplemented by projected provisions and recoveries) is adequate to
absorb anticipated losses, there can be no assurance that the Company
will not sustain losses in any given period which could be
substantial in relation to the size of the allowance or in relation
to the estimates set forth above.
<PAGE>
Deposits
The bank offers a wide range of commercial and consumer deposit
accounts, including non-interest bearing checking accounts, money
market checking accounts (consumer and commercial), individual
retirement accounts, time certificates of deposit and regular savings
accounts. The sources of deposits are residents, businesses and
employees of businesses within the Bank's market area.
The Bank pays competitive interest rates on time and savings
deposits. In addition, the Bank utilizes a service charge fee
schedule competitive with other financial institutions in the Bank's
market area, covering such matters as maintenance fees on checking
accounts, per item processing fees on checking accounts, returned
check charges and the like.
<TABLE>
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the major deposit
categories:
<CAPTION>
Year Ended Year Ended
12/31/95 12/31/94
<S> <C> <C> <C> <C>
Amount Rate Amount Rate
Deposit Category (dollars in thousands)
Non-Interest Bearing Demand
Deposits $27,400 $25,600
NOW Deposits 32,400 1.73% $36,300 1.82%
Money Market Deposits 13,300 3.07% $17,400 2.61%
Savings Deposits 46,500 3.04% $50,600 2.99%
Time Deposits 78,100 5.36% $51,500 3.64%
(including certificates of deposit)
</TABLE>
<TABLE>
The following presents time certificates of deposit (amounts in
thousands) of $100,000 or more and amounts of their maturities:
<CAPTION>
Maturity
3 Months Over
or 3-6 6-12 12
Less Months Months Months
<S> <C> <C> <C> <C>
Time Certificates of Deposit $9,713 $3,674 $2,552 $611
</TABLE>
<PAGE>
<TABLE>
Return on Equity and Assets
Returns on average consolidated assets and average consolidated
equity for the periods indicated and certain other data are as
follows:
<CAPTION>
Year Ended
December 31,
1995 1994
<S> <C> <C>
Return on Average Assets <F1> 1.50% 1.64%
Return on Average Equity <F2> 12.51% 13.83%
Dividend Payout Ratio <F3> 57% 94%
Equity to Assets Ratio <F4>
(Average) 11.99% 12.26%
<FN>
<F1>Net income divided by average assets
<F2>Net income divided by average equity
<F3>Dividends declared per share divided by net income per share
<F4>Average equity divided by average assets
</TABLE>
Liquidity and Asset/Liability Management
Liquidity is the capacity of a banking enterprise to meet customer
loan demand, depositor withdrawals and other financial obligations.
The most immediate and efficient source of liquidity for the Bank is
a $11.5 million line of credit with the Federal Home Loan Bank of NY.
Based upon the current level of stock ownership, the Bank is
authorized to borrow up to $6.8 million. In addition, the Bank has a
borrowing line with a correspondent bank in the amount of $2 million.
Other sources of liquidity include repayment of loans, sale of loans
and securities maturing within one year, although the usefulness of
such securities for liquidity purposes is limited to the extent that
such securities are pledged. See Note 3 of Notes to Consolidated
Financial Statements. Day to day changes in cash needs caused by
flows of customer funds in and out of the Bank are generally
reflected in adjustments to the federal funds position.
Liquidity is managed on the liability side mainly by the Company's
ability to attract sources of funds (such as large denomination
certificates of deposit) to supplement maturing earning assets.
Closely related to the concept of liquidity is the management of the
Company's asset/liability mix and interest rate sensitivity. The
Board of Directors of the Company has the overall responsibility for
the implementation, communication, coordination and control of the
asset/liability and interest rate sensitivity policies for the
Company and the Bank. These policies are implemented by an
Asset/Liability Management Committee which is charged with the
responsibility of assuring balance sheet flexibility primarily with
respect to liquidity and interest rate sensitivity. Current,
prospective and unanticipated liquidity requirements are provided for
by attempting to preserve the high quality of marketable assets, by
managing the maturity structure of those assets and by maintaining
discretionary access to short-term funding sources. The Management
of interest rate sensitive asset and liability differentials,
referred to as "gaps", has become increasingly important as a result
of the more volatile interest rate environment. The continuing
deregulation of the banking industry has greatly increased the
<PAGE>
Liquidity and Asset/Liability Management, Continued
interest rate sensitivity of the Company's deposit base and has made
the monitoring of the "gap" between interest rate sensitive assets
and liabilities critical to continued profitability. It is
management's policy to seek to achieve a relatively balanced interest
rate sensitivity position, with a goal of achieving stability in
earnings performance, regardless of interest rate volatility.
The table on page 28 under the caption "Interest Rate Sensitivity
Analysis" provides information on interest sensitive assets and
liabilities.
Correspondent Banking
Correspondent banking involves the provision of services by one bank
to another bank which cannot provide that service for itself from an
economic or practical standpoint. The Bank is required to purchase
correspondent services offered by larger banks, including purchase of
federal funds, security safekeeping, investment services, and wire
transfer services.
Data Processing
The Bank's installation includes a full complement of hardware and
software to enable the Bank to provide total processing of its own
work on a daily basis with the exception of complete ATM processing.
The Bank utilizes a service center as its link to the ATM Networks.
Facilities
The Bank's main office is located in a freestanding building built on
property located in Bath, New York. The Bank has a drive through
teller facility adjacent to its main office. The Bank owns a branch
in Bath, which in addition to drive through teller facilities, houses
its Electronic Data Processing installation and Mortgage Department.
The Bank also operates branch offices in Dundee, Hammondsport,
Hornell, Atlanta, Naples and Wayland, New York. These branches are
equipped with both ATM's and teller stations. All of the offices,
with the exception of our Atlanta Office, have drive-up teller
facilities.
The Company's offices are located in the Bank's main office.
The construction of our Naples Office was completed during 1995 and
was opened for business on January 2, 1996.
Employees
The Bank presently employs approximately 134 persons on a full-time
equivalent basis, including four senior officers. It is anticipated
that the Bank will hire additional persons as needed on a full-time
basis, including additional tellers and customer service
representatives.
The Bank offers certain fringe benefits to its full time employees
including life insurance, health benefits and participation in a
profit sharing plan/401k plan.
<PAGE>
Monetary Policies
The results of operations of the Bank are affected by credit policies
of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board
include open market operations in US Government securities, changes
in the discount rate on member bank borrowings and changes in reserve
requirements against member bank deposits. In view of changing
conditions in the national economy and in the money markets, as well
as the effect of action by monetary and fiscal authorities, including
the Federal Reserve Board, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or the
business and earnings of the Bank.
Supervision and Regulation
The Company and the Bank operate in a highly regulated environment,
with their business activities governed by statutes, regulations and
administrative policies. The business activities of the Company and
the Bank are closely supervised by a number of regulatory agencies,
including the Board of Governors of the Federal Reserve System
("Federal Reserve Board") in the case of the Company, and in the case
of the Bank, the Office of the Comptroller of the Currency
("Comptroller") and the Federal Deposit Insurance Corporation
("FDIC").
The Company is regulated by the Federal Reserve Board under the
Federal Bank Holding Company Act of 1956, as amended.
A bank holding company must obtain Board approval before acquiring,
directly or indirectly, ownership or control of any voting shares of
a bank or bank holding company if, after such acquisition, it would
own or control 5% or more of such shares (unless it already owns or
controls a majority of such shares). Board approval must also be
obtained before any bank or bank holding company merges or
consolidates with another bank holding company. Furthermore, any
acquisition by a bank holding company of 5 percent or more of the
voting shares, or of all or substantially all of the assets, of a
bank located in another state is subject to approval provided in the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
A bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with the
extension of credit or the lease or the sale of any property or the
furnishing of services. The subsidiary bank of a bank holding
company is also subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to the bank holding
company or any of its subsidiaries, thereof, and on the taking of
such stocks or securities as collateral for loans, The Federal
Reserve Board possesses cease and desist powers over bank holding
companies if their actions represent unsafe or unsound practices or
violations of law.
A bank holding company is generally prohibited from acquiring more
than five percent of any class of voting securities of any company
which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However,
there are certain activities which have been identified by the
Federal Reserve Board to be so closely related to banking as to be a
<PAGE>
Supervision and Regulations, Continued
proper incident thereto and thus permissible for bank holding
companies provided that the Federal Reserve Board has notice of or
has consented to the acquisition.
In addition to the traditional activities of banks such as lending
and accepting deposit functions, the Bank is permitted to engage in,
by way of example, the following types of activities: acting as
investment or financial advisor to subsidiaries and certain outside
companies; leasing personal and real property or acting as a broker
with respect thereto; providing management consulting advice to
non-affiliated banks and non-bank depository institutions; providing
consumer financial counseling services; operating collection agencies
and credit bureaus; providing data processing and data transmission
services; acting as an insurance agent or underwriter with respect to
limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; providing certain types of courier services; and
underwriting and dealing in obligations of the United States, the
states and their political subdivisions.
The Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the
Comptroller, respectively, which generally parallel each other. In
1989, the Federal Reserve Board issued new risk-based capital
guidelines for bank holding companies which make regulatory capital
requirements more sensitive to differences in risk profiles of
various banking organizations. These capital adequacy guidelines
issued by the Federal Reserve Board are applied to bank holding
companies on a consolidated basis with the banks owned by the holding
company. These new requirements were phased in over a three year
period. The new guidelines provided that by the end of 1990, banking
organizations must have had capital (as defined in the new rules)
equivalent to 7.25% of weighted risk assets. By the end of 1992,
when the guidelines became fully effective, banking organizations
were required to have capital equivalent to 8% of risk assets. The
risk weights assigned to assets are based primarily on credit risk.
Depending upon the riskiness of a particular asset, it is assigned to
a risk category. For example, securities with an unconditional
guarantee by the United States Government are assigned to the lowest
risk category, whereas a risk weight of 50% is assigned to loans
secured by owner-occupied, one to four family residential mortgages.
The aggregate amount of assets assigned to each risk category is
multiplied by the risk wight assigned to that category to determine
the weight values, which are added together to determine total risk-
weighted assets.
The Federal Reserve Board and the Comptroller have each issued
minimum capital leverage ratios to be used in tandem with the risk-
based guidelines in assessing the overall capital rules. Bank
holding companies and national banks are required to maintain a ratio
of 3% "Tier 1" capital to total assets (net of goodwill). "Tier 1"
capital includes common stockholder's equity, non-cumulative
perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries.
<PAGE>
Supervision and Regulation Continued
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements, applicable only to top-rated banking
institutions. Institutions operating at or near these levels are
expected to have well-diversified risk, excellent asset quality, high
liquidity, good earnings and in general, have to be considered strong
banking organizations, rating composite 1 under the CAMEL rating
system for banks or the BOPEC rating system for bank holding
companies. Institutions with a lower rating and institutions with
high levels of risk or experiencing or anticipating significant
growth would be expected to maintain ratios 100 to 200 basis points
above the stated minimums.
<TABLE>
The Company's ratio of capital to assets, as defined by the
regulations, as of the end of each of its last three fiscal years has
been as follows:
<CAPTION>
TIER I TOTAL RISK
LEVERAGE RATIO BASED CAPITAL RATIO
Required Company Required Company
Minimum Ratio Minimum Ratio
<S> <C> <C> <C> <C>
For year ended
December 31, 1995 3.00% 12.13% 8.00% 20.33%
For year ended
December 31, 1994 3.00% 12.26% 8.00% 20.26%
For year ended
December 31, 1993 3.00% 11.78% 8.00% 18.54%
</TABLE>
The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state
legislation.
The Bank is subject to supervision by the Comptroller and the Federal
Deposit Insurance Corporation. Various federal and state laws and
regulations apply to many aspects of the operations of the Bank,
including capital adequacy, reserves on deposits, loans, investments,
mergers and acquisitions, and the establishment of branch offices and
facilities. Restrictions on rates of interest payable by banks on
deposits have been essentially eliminated. The capital adequacy
guidelines of the Comptroller are substantially the same as those of
the Federal Reserve Board.
All of the revenue of the Company available for the payment of
dividends on the Common Stock results from amounts paid to the
Company by the Bank. The Bank is required by Federal law to obtain
governmental approval for the payment of dividends to the Company if
the total of all dividends declared by the Bank in any year will
exceed the total of the Bank's net profits (as defined and interpreted
by regulation) for that year and the retained net profits (as
defined) for the proceeding two years less any required transfers to
surplus. As of January 1, 1996 the Bank could have declared aggregate
dividends of approximately $3.5 million without the approval of
regulatory authorities.
<PAGE>
Supervision and Regulation Continued
The Comptroller has authority to prohibit a national bank from
engaging in conduct which, in his opinion, constitutes an unsafe or
unsound practice in conducting its business. Thus, depending upon
the financial condition of the bank in question and other factors,
the Comptroller may assert that the payment of dividends or other
funds from a subsidiary bank to a bank holding company could
constitute, under certain circumstances, an unsafe or unsound banking
practice. In addition, the capital guidelines of the Federal Reserve
Board, the Comptroller and FDIC could limit the amount of dividends
which the Company may pay in the future. Furthermore, regulatory
pressures to reclassify and charge off loans and to establish
additional loan loss reserves can have the effect of reducing current
operating earnings and thus impairing an institution's ability to pay
dividends.
If at any time, the Federal Reserve Board believes that an activity
of the Company constitutes a serious risk to the financial safety,
soundness, or stability of the Bank or the Company, and is
inconsistent with sound banking principles or the purposes of the Bank
Holding Company Act, the Federal Reserve Board may require the
Company to terminate the activity or to terminate control over the
Bank.
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) was enacted. Among other things,
FDICIA requires FDIC to establish a risk-based assessment system for
FDIC deposit insurance. FDICIA also contains provisions limiting
certain activities and business methods of depository institutions,
including limiting the acceptance of brokered deposits by certain
depository institutions; placing restrictions on the terms of "bank
investment contracts that may be offered by depository institutions.
Finally, FDICIA provides for expanded regulation of depository
institutions and their affiliates, including parent holding
companies, by such institutions' appropriate Federal banking
regulator, and requires the appropriate Federal banking regulator to
take "prompt corrective action" with respect to a depository
institution if such institution does not meet certain capital
adequacy standards.
Governmental Policies and Legislation
The policies of regulatory authorities, including the Federal Reserve
Board and the FDIC, have had a significant effect on the operating
results of commercial banks in the past and are expected to do so in
the future. An important function of the Federal Reserve System is
to regulate aggregate bank credit and money through such means as
open market dealing in securities, establishment of the discount rate
on member bank borrowings, and changes in reserve requirements
against member bank deposits. Policies at these agencies may be
influenced by many factors, including inflation, unemployment, short-
term changes in the international trade balance, and fiscal policies
of the United States Government.
The United States Congress has periodically considered and adopted
legislation which has resulted in, and could result in, further
deregulation of both banks and financial institutions. Such
legislation could modify or eliminate geographic restrictions on
banks and bank holding companies and could modify or eliminate
current prohibitions against the Company's engaging in one or more
<PAGE>
Supervision and Regulation, Continued
non-banking activities. Such legislative changes could place the
Company in more direct competition with other financial institutions,
including mutual funds, securities brokerage firms, insurance
companies and investment banking firms. No assurance can be given as
to whether any additional legislation will be adopted and as to the
effect of such legislation on the business of the Company.
Significant Accounting Policies
In January 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. The
adoption of FAS109, which did not have a material effect on the
Bank's financial statements, changed the Bank's method of accounting
for income taxes from the deferred method to an asset and liability
approach.
The Bank provides certain health care benefits for all retired
employees that meet eligibility requirements. Effective January 1,
1993, the Bank adopted financial accounting Standards Board Statement
No. 106 Employer Accounting for Postretirement Benefits other than
pensions to account for its share of the cost of those benefits.
Under that Statement, the Bank's share of the estimated costs that
will be paid after retirement is generally being accrued by charges
to expense over the employees' active service periods to the dates
they are fully eligible for benefits, except that the Bank's unfunded
cost that existed at January 1, 1993 is being accrued primarily in a
straight-line manner that will result in its full accrual by 2013.
Prior to 1993, the Bank expensed its share of costs as they were
paid.
The adoption of SFAS 106 in 1993 resulted in a pre-tax charge to 1993
earnings of $88,210 ($.14 per share) to reflect the annual expense
for postretirement benefits on an accrual basis, and a pre-tax charge
to 1994 earnings of $132,888. The charge for 1995 is $127,000.
The accumulated postretirement benefit obligation was determined
using a discount rate of 8.0 percent, and a health care cost trend
rate of approximately 6.0 percent.
Increasing the assumed health care cost trend rates by one percentage
point in each year and holding all other assumptions constant, would
increase the accumulated postretirement benefit obligation as of
December 31, 1995 by approximately $20,221.
In January 1995, the Bank adopted Statement of Financial Accounting
Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment
of a Loan, requires impaired loans to be measured on the present value
of expected future cash flows discounted at the loan's effective
interest rate, or as an expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. A loan is impaired when it is probable the creditor will
be unable to collect all contractual principal and interest payments
due in accordance with the terms of the loan agreement. The Bank's
adoption of SFAS 114 did not have a material effect on its financial
statements.
<PAGE>
Significant Accounting Policies Continued
In January 1994, the Bank adopted the Financial Accounting Standards
Board Statement No. 115S, Accounting for Investments in Debt and Equity
Securities. The statement established accounting and reporting
standards for investments in debt securities and investments in
equity securities that have readily determinable fair values. The
Statement requires that those investments are to be classified in
three categories as follow:
"Held to Maturity" when the investor has the positive intent and
ability to hold debt securities to maturity.
"Trading" when the investor acquires debt and equity securities
principally for the purpose of selling them in the near term.
"Available for Sale" when the investor has not classified debt and
equity securities as either held to maturity or trading.
The Bank has classified all its securities as "Available for Sale".
ITEM 2. Properties
BNC occupies space at the main banking office of BNB. No real
properties are owned or leased by BNC.
The Bank's operations are conducted from eight (8) facilities
located in Bath, Hammondsport, Atlanta, Naples, Wayland,
Dundee and Hornell, New York. The main office is located at 44
Liberty Street, Bath. All administrative functions of the Bank are
conducted at the main office. There is a drive-up facility adjacent
to the main bank at 44 Liberty Street. There is another drive-up,
walk-up facility at West Washington Street, Bath. BNB owns both the
buildings and underlying real estate on all of its property.
<TABLE>
Premises and Equipment
At December 31, 1995 and 1994, premises and equipment consist of:
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 502,389 $ 424,642
Buildings and improvements 5,729,351 5,084,691
Furniture and equipment 2,452,549 2,264,370
Total 8,684,289 7,773,703
Less accumulated depreciation 3,574,133 3,118,924
Premises and equipment, net 5,110,156 4,654,779
</TABLE>
Depreciation expense was $393,354, $371,513 and $371,513 for the
years ended December 1995, 1994 and 1993, respectively. <PAGE>
ITEM 3. Legal Proceedings
There are no material legal proceedings pending, or to the knowledge
of management, threatened against the Company or the Bank.
ITEM 4. Submission Matters to a Vote of Security Holders
None
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
A. Market Information
During the period covered by this report and as of the date hereof,
there has been and is no established public trading market for the
Company's common stock.
<TABLE>
The range of high and low bid information (in dollars) for each full
quarterly period for 1995 and 1994 follows:
<CAPTION>
1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
High 50 60 60 60 43 46 48 50
Low 50 60 60 60 43 46 48 50
</TABLE>
The high and low bid information represent the price paid for shares
of stock of the Company by investors purchasing through the Company's
market makers, First Albany Corporation and Sandler O'Neill's
Partners, and trades between holders of Common Stock.
B. Holders of Common Stock
As of January 29, 1996, the approximate number of holders of record
of the Company's common stock was 568.
C. Dividends
For 1995 and 1994 the Company paid quarterly cash dividends,
amounting to a total for the year of $2.40 and $5.00 respectively.
The Bank is restricted in its ability to pay dividends to the Company
(its only source of income) by banking regulations. Generally,
dividends may be declared and paid in cash or property only out of
the retained earnings of the Bank. Dividends may not be declared or
paid at any time that a bank does not have the paid in capital and
appropriate retained earnings as required by law. Dividends may not
be paid without prior approval of the regulator in excess of
specified amounts as may be fixed by banking regulations to ensure
that banks maintain an adequate capital structure.
ITEM 6. Selected Financial Data
The data appearing on the following page represent selected
consolidated financial data of the Company for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991 and are derived from the
Company's consolidated financial statements. These data should be
read in conjunction with the Company's consolidated financial
statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included
elsewhere herein and are qualified in their entirety thereby and by
other detailed information elsewhere in this Form 10K.
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Condensed Statements
of Income (in
thousands, except per
share data)
Interest Income <F1> $ 18,229 $ 15,911 $ 15,155 $ 15,398 $ 16,726
Interest Expense
Deposits 6,280 4,506 4,669 5,943 8,454
Interest Expense
Borrowings 271 61 4 3 3
Net Interest Income 11,678 11,344 10,482 9,452 8,269
Loan Loss Provision 132 77 35 413 586
Net Interest Income
After Loan Loss
Provision 11,546 11,267 10,447 9,039 7,683
Other Operating
Income 888 1,296 1,270 972 777
Other Operating
Expenses 6,761 6,738 6,248 6,101 5,813
Income Before
Income Tax 5,673 5,825 5,469 3,910 2,647
Tax Equivalent
Adjustment 668 590 505 422 547
Income Taxes (benefit) 1,627 1,815 1,658 1,119 515
Net Income 3,378 3,420 3,306 2,369 1,585
Per Share Data <F2>
Book Value 41.80 37.39 37.78 34.46 32.24
Cash Dividends 2.40 5.00 2.00 1.65 1.50
Net Income 4.99 5.32 5.28 3.88 2.65
Weighted Average
Common Shares 677,246 642,881 625,831 610,453 596,444
Balance Sheet Data
(in thousands, except
share amount) at
December 31
Assets 235,165 209,158 199,202 191,201 182,129
Investment Securities 64,937 43,878 51,840 51,105 54,352
Loans, Net 148,854 140,054 125,887 118,588 105,460
Deposits 197,760 180,866 170,235 168,388 161,515
Shareholders' Equity 28,554 25,181 24,125 21,424 19,567
Common Shares
Outstanding 683,117 673,390 638,480 621,528 606,766
<FN>
<F1> Presented on a tax equivalent basis utilizing a marginal tax rate
of 34%. 1989 thru 1992 restated to reflect tax equivalent basis.
<F2> All per share data has been restated to reflect a two-for-one
stock split April 15, 1992.
</TABLE>
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources:
Management has not identified any trends, demands, commitments,
events or uncertainties that will result in or are reasonably likely
to result in any material decreases or increases in the Company's
liquidity.
Liquidity is an important factor in the financial condition of the
Company and affects it's 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 the Company's primary sources of
liquidity. The Company's primary sources of liquidity are federal
funds sold and purchased. Other resources of liquidity include
repayment of loans and sale of loans. 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 $1.0 million. Also, high quality securities are readily
marketable and provide another level of liquidity. Maturities in the
loan portfolio also provide a steady flow of funds. At December 31,
1995 loans with an aggregate balance of $13.2 million were due to
mature in one year or less. Additional funds flow from payments on
instalment and revolving credit loans and from a historically high
level of net operating earnings. The Company's liquidity also
continues to be enhanced by a relatively stable deposit base. At
December 31, 1995, the loan to deposit ratio was 76% and the ratio of
loans to core deposits (excluding certificates of deposit of $100,000
or more) was 83%.
In addition to the sources of liquidity above, the Bank may
borrow from the Federal Reserve Bank in the event of a short term
liquidity deficiency. The Bank also has an agreement with its
correspondent bank to borrow overnight federal funds. During 1995,
the Bank had an average daily federal funds sold of $3.5 million.
The Bank is also a member of the Federal Home Loan Bank of New York,
and based upon the current level of stock ownership, the Bank is
authorized to borrow up to $6.8 million. The Bank borrowed an
average of $2.0 million during 1995.
At December 31, 1995, banking regulations required conformity with a
minimum risk based capital standard of 8%. The Bank's risk based
capital level was approximately 20%. Neither the Company nor the
Bank had any material commitments for capital expenditures as of
December 31, 1995.
<PAGE>
Fiscal 1995 compared with Fiscal 1994
Total Bank assets grew from $209 million at year end 1994 to $235
million at year end 1995, or an increase of 12.4%, while equity
capital grew from $25.2 million to $28.6 million or an increase of
13.5% for this period. Growth in the Bank's assets can be
attributed to new deposits in the Naples Branch as well as a
significant increase in the Hammondsport balances. An advance from
the Federal Home Loan Bank of $3.0 million also increased total
assets.
Loan demand continued strong during 1995 with an increase from $140
million at December 31, 1994 to $148.3 million at December 31, 1995,
or an increase of 6%.
Total deposits increased from $180.9 million to $197.7 million. This
increase was primarily in the form of time deposits, which increased
by 31.4%.
An advance from Federal Home Loan Bank of $3 million was outstanding
as of December 31, 1995. This advance was matched specifically with
investments to better leverage the Bank's capital.
Net income decreased modestly from $3.42 million in 1994 to $3.38
million for 1995. Net interest income declined slightly due to
falling yields earned on prime rate loans and a decline in yields
earned on investments. Interest on deposits increased due to growth
in time deposits.
Other expenses increased from $6,738,100 to $6,972,600 during 1995
primarily due to the opening of our Naples Branch and necessary
staffing requirements.
FDIC insurance decreased from $410,000 in 1994 to $210,000 in 1995,
due primarily to the decrease in the assessment rate for banks with a
1A classification.
As discussed in more detail in Supervision and Regulation under
Item 1 above, the capital ratio continues strong at 11.96% for 1995,
as compared to 12.22% at December 31, 1994.
Fiscal 1994 compared with Fiscal 1993
The Bank's assets grew from $199.2 million at year end 1993 to $209.1
million at year end 1994. Loan demand has remained strong throughout
1994 with total outstanding loans growing from $125.8 million at year
end 1993 to $140 million at year end 1994.
Bank customers have changed their investment strategies in order to
maximize their interest earnings, thus the change from lower yielding
NOW and money market accounts into time deposits, increasing the
average cost of funds to the Bank.
Earnings of $3.4 million for 1994 reflect a modest increase from
1993's $3.3 million. Investment losses during 1994 amount to
$44,000. These losses were taken in order to increase future income
and to recognize current tax benefits.
Net Interest Income on a fully tax equivalent basis (which adjusts
for the tax exempt status of income earned on municipal investments
to express such income as if it were taxable) for the year ended 1994
was $11,343, representing an increase of $897 or 8.5% over 1993.
This increase was largely attributable to increased loan volume and
the resulting higher yield on earning assets. <PAGE>
<PAGE>
Fiscal 1994 compared with Fiscal 1993 Continued
Other expenses increased from $6.2 million to $6.7 million. Included
in this other expense increase is an increase in salaries and
benefits of 5.52% from $3.3 million to $3.5 million. In addition,
expenses on Other Real Estate Owned increased from $30,000 in 1993 to
$141,000 in 1994. Property foreclosures and subsequent sales of this
property increased in 1994.
Interest Sensitivity Analysis
<TABLE>
The following table sets forth the maturity distribution of the
Company's interest-earning assets and interest bearing liabilities as
of December 31, 1995, the Company's interest rate sensitivity gap
(i.e. interest rate sensitive assets less interest rate sensitive
liabilities), the Company's cumulative interest rate sensitivity gap,
the Company's interest rate sensitivity ratio (i.e. interest rate
sensitive assets divided by interest rate sensitive liabilities) and
the Company's cumulative interest rate sensitivity ratio. The
following assumptions were used in preparation of this table:
variable rate loans are included in the period in which their next
scheduled rate adjustment is expected to take place; fixed rate loans
are assumed to be repaid in accordance with their contractual terms;
no prepayments are assumed on any loans; and securities are
included in the period in which they mature, or in the case of
variable rate securities, the period in which the next rate change is
anticipated.
<CAPTION>
Interest Rate Sensitivity Analysis
(dollars in thousands)
0-30 31-90 91-180 181-365 1 - 5 Over 5
As of December 31, 1995:
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans 54,707 2,542 4,544 6,535 40,894 40,781
Securities 8,298 2,289 6,984 5,961 20,498 20,907
Total Earning Assets 63,005 4,831 11,528 12,496 61,392 61,688
Interest Bearing Liab.
Money Market Demand 13,302
Interest Bearing
Deposits 32,372
Certificates of Deposit
Under $100,000 5,530 8,612 13,480 21,213 12,789
$100,000 and over 7,165 2,548 3,674 2,552 611
Savings Accounts 46,510
Securities Sold
Agreement to Repurch. 546 525
FHLB Borrowings
Federal Funds Purch. 2,150 1,000 2,000
Total Int. Bear. Liab.107,575 11,160 17,679 24,765 15,400
Incremental Gap <F1> (44,510) (6,329) (6,151)(12,269)(45,992)
Cumulative Gap <F2> (44,570)(50,899)(57,050)(69,319)(23,327)
Sensitivity Gap <F3> .58 .43 .65 .50 3.98
Cumulative Sensit. <F4> .58 .57 .63 .61 .87
<PAGE>
Interest Sensitivity Analysis Continued <PAGE>
<FN>
<F1> Total earning assets less total interest bearing liabilities for
each period.
<F2> Total earning assets less total interest bearing liabilities,
cumulative for periods.
<F3> Total earning assets divided by total interest bearing
liabilities.
<F4> Total earning assets divided by total interest bearing
liabilities cumulative for periods.
</TABLE>
Typically, a banking institution which is "liability sensitive" will
be expected to benefit from a decrease in interest rates and be
adversely impacted by an increase in interest rates. However,
because (as noted above) the repricing of assets and liabilities is
frequently subject to management discretion, the correlation between
an institution's interest sensitivity position an a change in the
interest rate environment is rarely precise. Although the Company
currently is "liability sensitive", within one year after December
31, 1995 a decline in interest rates would adversely impact the
Company to the extent that the Company determines not to make a
corresponding adjustment to the rates paid on NOW and money market
deposit accounts.
Inflation:
Inflation may effect financial institutions through impaired asset
growth, reduced earnings and substandard capital adequacy ratios.
Since the majority of assets and liabilities are monetary in nature,
variations in economic policies issued by the Federal Reserve Board
to control interest rates have a greater impact on the profitability
of a financial institution. The investment committee continually
monitors the rate sensitivity of its earning assets and interest
bearing liabilities to minimize any adverse effects on future
earnings.
Future Outlook:
The profitability of the Company, like all financial institutions, is
subject to the volatility of interest rates throughout the year. The
composition of the Company's balance sheet and the repricing
frequency of its interest bearing assets and liabilities have a
direct impact on the interest margin, a key indicator of
profitability. Since there will always be economic events and trends
that will influence the decision making of management, a main goal of
the Bank is controlling interest rate risk through managing the
interest sensitivity gap and by controlling the quality of assets
through credit policies and diversification. At this time,
management believes that the Company's balance sheet does not include
significant concentrations of assets or liabilities that would have a
material adverse affect on earnings.
ITEM 8. Financial Statements and Supplementary Data <PAGE>
<PAGE>
BATH NATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 32
FINANCIAL STATEMENTS
Consolidated balance sheets 33
Consolidated statements of income 34
Consolidated statements of stockholders' equity 35
Consolidated statements of cash flows 36-38
Notes to consolidated financial statements 39-54
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Bath National Corporation
We have audited the accompanying consolidated balance sheets of Bath
National Corporation and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts of
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Bath National Corporation and subsidiary as of December
31, 1995 and 1994 and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 3 to the consolidated financial
statements the Company changed its method of accounting for
investments to adopt the provisions of the Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" as of January 1, 1994.
URBACH, KAHN & WERLIN PC
Albany, New York
February 16, 1996
<PAGE>
<TABLE>
BATH NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 10,218,648 $ 10,608,514
Interest bearing deposits in other banks 3,535,338 3,421,285
Federal funds sold - 2,500,000
Securities 64,130,934 43,877,470
Loans, net 148,353,049 140,054,066
Premises and equipment, net 5,110,156 4,654,779
Accrued interest receivable 1,775,135 1,483,771
Other assets 2,042,287 2,558,738
$235,165,547 $209,158,623
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 27,398,470 $ 26,666,618
Savings 46,510,131 48,527,953
NOW accounts 32,376,060 30,676,100
Money market accounts 13,300,657 15,614,640
Time deposits ($100,000 or more) 16,222,821 7,600,104
Other time accounts 61,953,180 51,893,228
197,761,319 180,978,643
Federal funds purchased 2,150,000 -
Borrowed funds 3,000,000 -
Other liabilities 3,700,466 2,998,121
206,611,785 183,976,764
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 300,000
shares authorized; none issued - -
Common stock, $5 par value, 1,200,00
shares authorized; issued and
outstanding: 1995 - 683,117 shares,
1994 - 673,390 shares 3,415,585 3,366,950
Additional paid in capital 4,923,490 4,416,515
Undivided profits 19,966,387 18,216,168
Unrealized gain (loss) on securities
available for sale, net 248,300 (817,774)
28,553,762 25,181,859
$235,165,547 $209,158,623
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest income
Interest and fees on loans $13,235,400 $11,943,514 $10,482,152
Interest on federal funds sold 213,699 78,000 99,627
Interest on deposits in other banks <PAGE>
and stocks 284,974 326,996 330,595
Interest on securities
Held to maturity
Non-taxable 956,712 1,133,757 -
Available for sale
Non-taxable 192,448 - -
Taxable 2,330,407 1,838,356 -
Interest on non-taxable securities - - 972,216
Interest on taxable securities - - 2,765,405
Total interest income 17,213,640 15,320,623 14,649,995
Interest expense:
Interest on deposits 6,280,052 4,506,048 4,669,172
Interest on borrowings 270,513 60,645 4,164
Total interest expense 6,550,565 4,566,693 4,673,336
Net interest income 10,663,075 10,753,930 9,976,659
Provision for loan losses 132,484 76,798 34,721
Net interest income after
provision for loan losses 10,530,591 10,677,132 9,941,938
Other income:
Service charges 652,036 673,036 630,671
Trust department fees 23,137 17,802 37,936
Investment gains (losses) 20,894 (44,209) 67,389
Other operating income 751,493 650,103 533,904
Total other income 1,447,560 1,296,732 1,269,900
Other expenses:
Salaries and employee benefits 3,751,460 3,460,987 3,279,843
Occupancy 975,644 1,010,934 936,746
Other operating expenses 2,245,485 2,266,223 2,031,173
Total other expenses 6,972,589 6,738,144 6,247,762
Income before income taxes 5,005,562 5,235,720 4,964,076
Income taxes 1,627,000 1,815,239 1,657,800
NET INCOME $ 3,378,562 $ 3,420,481 $ 3,306,276
NET INCOME PER COMMON SHARE $4.99 $5.32 $5.28
DIVIDENDS PER COMMON SHARE $2.40 $5.00 $2.00
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 677,246 642,881 625,831
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
Common Stock
<CAPTION>
Net <PAGE>
Unrealized
Gain (Loss)
Number Additional on Securities
of Paid in Undivided Available for
Shares Amount Capital Profits Sale, Net Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 621,528 $3,107,640 $2,343,282 $15,973,288 $ - $21,424,210
Net income - - - 3,306,276 - 3,306,276
Dividends ($2.00 per common
share) - - - (1,254,754) - (1,254,754)
Dividends reinvested 16,952 84,760 564,641 - - 649,401
Balance, December 31, 1993 638,480 3,192,400 2,907,923 18,024,810 - 24,125,133
Adjustment to recognize
unrealized gains and losses
on securities available for
sale, net of income taxes
of $396,310 - - - - 594,463 594,463
Change in unrealized gains
and losses on securities
available for sale, net of
income tax benefit of $941,490 - - - - 1,412,237) (1,412,237)
Sale of common stock 300 1,500 10,800 - - 12,300
Net income - - - 3,420,481 - 3,420,481
Dividends ($5.00 per common share) - - - (3,229,123) - (3,229,123)
Dividends reinvested 34,610 173,050 1,497,792 - - 1,670,842
Balance, December 31, 1994 673,390 3,366,950 4,416,515 18,216,168 (817,774) 25,181,859
Change in unrealized gains
and losses on securities
available for sale, net of
income taxes of $774,880 - - - - 1,066,074 1,066,074
Net income - - - 3,378,562 - 3,378,562
Dividends ($2.40 per common share) - - - (1,628,343) - (1,628,343)
Dividends reinvested 9,727 48,635 506,975 - <PAGE>
- 555,610
Balance, December 31, 1995 683,117 $3,415,585 $4,923,490 $19,966,387 $ 248,300 $28,553,762
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
BATH NATIONAL CORPORATION
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,378,562 $ 3,420,481 $ 3,306,276
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 451,943 461,569 421,913
Provision for loan losses 132,484 125,000 34,721
Deferred taxes (benefits) - (59,109) 54,042
Loan origination costs deferred 3,917 (27,031) (69,403)
Bond premium amortized and
discount accreted 218,043 184,280 236,676
Losses (gains) on sale of
investments (20,894) 44,209 (67,389)
Loss on disposed assets 35,216 - -
Changes in:
Interest receivable (291,364) 72,641 304,436
Other assets (104,138) (562,654) (334,670)
Other liabilities (581,394) (381,068) 1,954,114
Net cash provided by
operating activities 3,222,375 3,278,318 5,840,716
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities
of investment securities - - 28,730,879
Purchases of investment securities - - (29,635,576)
Proceeds from calls and maturities
of held to maturity securities 75,000 1,809,972 -
Proceeds from sales and maturities
of available for sale securities 9,644,906 17,028,619 -
Purchases of held to maturity
securities (333,346) (2,503,976) -
Purchases of available for sale
securities (27,996,216) (6,021,934) -
Federal funds purchased/sold 4,650,000 (2,450,000) 1,500,000
Net (increase) decrease in interest
bearing deposits in other banks (114,053) 1,650,661 (221,752)
Increase in loans, net (8,435,384) (5,785,127) (7,264,056)
Capital expenditures (883,947) (489,856) (103,089)
Net cash paid in acquisition of bank - (787,758) -
Net cash provided by (used in)
financing activities (23,393,040) 2,450,601 (6,993,594)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Federal Home Loan Bank <PAGE>
borrowings 3,000,000 - -
Increase in other liabilities 1,070,856 - -
Proceeds from sale of common stock - 12,300 -
Increase (decrease) in deposits 16,782,676 (3,357,043) 1,846,358
Dividends paid, net of reinvestments (1,072,733) (1,558,281) (605,353)
Net cash provided by (used in)
financing activities 19,780,799 (4,903,024) 1,241,005
Net increase (decrease) in cash and
due from banks (389,866) 825,895 88,127
Cash and due from banks:
Beginning a year 10,608,514 9,782,619 9,694,492
End of year $10,218,648 $10,608,514 $ 9,782,619
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Years Ended December 31, 1995 and 1994
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the purposes of reporting cash flows, cash and due from banks include
cash on hand and amounts due from banks.
The Company paid income taxes of $1,761,700, $2,030,810 and $1,061,990 in
1995, 1994 and 1993, respectively.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
In 1995, 1994 and 1993, the Company issued 9,727, 34,610 and 16,952 shares
of common stock under the dividend reinvestment program in lieu of cash
dividends of $555,610, $1,670,842 and $649,401, respectively.
Bath National Corporation purchased 100% of the common stock of Atlanta
National Bank in April 1994. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $14,888,339
Net cash paid 787,758
Liabilities assumed, principally deposits $14,100,581
See Notes to Consolidated Financial Statements.<PAGE>
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
General
Bath National Corporation (the "Company"), a bank holding company, and its
wholly owned subsidiary, Bath National Bank (the Bank), a federal-
chartered financial institution, are incorporated under the laws of New
York State. The Bank provides a variety of banking services to
individuals and businesses through its branch network. Its primary
lending products are commercial business, real estate mortgage, and
installment loans, and its primary deposit products are demand, savings,
and other time open accounts. The accounting and reporting policies of
the entities are in accordance with generally accepted accounting
principles and general practices within the banking industry.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All material intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the Company and Bank's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Trust Assets
Securities and other property held by the Bank's Trust Department in a
fiduciary or agency capacity are not included in the accompanying
consolidated financial statements since such items are not assets of the
Bank.
Securities
The Bank has investments in debt and other securities. Debt securities
consist primarily of obligations of the U.S. government, its agencies and
corporations, and state and municipal governments.
The Bank adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), as of January 1, 1994. SFAS 115 requires that
management determine the appropriate classification of securities at the
date of adoption, and thereafter at the date individual investment
securities are acquired, and that the appropriateness of such
classification be reassessed at each balance sheet date. Investments are
classifiable in the categories discussed below.
Trading account assets: Trading account assets are held for resale in
anticipation of short term market movements. Trading account assets are
stated at fair value. Gains and losses, both realized and unrealized, are
included in income.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies, Continued
Securities, Continued
Securities held to maturity and available for sale: Debt securities are
classified as held to maturity when the Bank has the positive intent and
ability to hold the securities to maturity. Held to maturity securities
are stated at amortized cost. Debt securities not classified as held to
maturity or trading are classified as available for sale. Available for
sale securities are stated at fair value, with unrealized gains and
losses, net of related deferred tax effects, reported as a separate
component of stockholders' equity.
The amortized cost of debt securities classified as held to maturity or
available for sale is adjusted for amortization of premiums and accretion
of discounts to maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. Interest on debt securities is
recognized in income as accrued. Realized gains and losses, including
losses from declines in value of specific securities determined by
management to be other-than-temporary, are included in income. Realized
gains and losses are determined on the basis of the specific securities
sold or matured.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, adjusted for net
deferred loan origination costs, unearned fees and discounts, and an
allowance for loan losses. Certain direct loan origination costs are
deferred and recognized as an adjustment to interest income over the
estimated life of the loans. Interest on loans is recognized over the
term of the loan and is calculated using the simple interest method on
principal amounts outstanding.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb potential losses inherent in
the loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances
for impaired loans are generally determined based on collateral values or
the present value of estimated cash flows. The allowance is increased by
a provision for loan losses, which is charged to expense and reduced by
charge-offs, net of recoveries. Changes in the allowance relating to
impaired loans are charged or credited to the provision for loan losses.
Because of uncertainties inherent in the estimation process, management's
estimate of credit losses inherent in the loan portfolio and the related
allowance may change in the near term. However, the amount of the change
that is reasonably possible cannot be estimated.
On May 31, 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS 114). SFAS 114 was amended by SFAS 118,
"Accounting by Creditors for Impairment of a loan - Income Recognition and
Disclosure." These Statements prescribe recognition criteria for loan
impairment, generally related to commercial type loans, and measurement
methods for certain impaired loans and all loans whose terms are modified
in troubled debt restructurings subsequent to the adoption of these
statements. A loan is considered impaired when it is probable that the
borrower will not repay the loan according to the original contractual
terms of the loan agreement. <PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies, Continued
Loans and Allowance for Loan Losses, Continued
On January 1, 1995, the Bank adopted the provisions of SFAS 114 and SFAS
118 and has provided the required disclosures. The effect of adoption of
these Statements was not material to the financial statements.
As a matter of policy, the Bank generally places impaired loans on
nonaccrual status and recognizes interest income on such loans only on a
cash basis upon receipt of interest payments from the borrower. Accrual
of interest is discontinued on a loan when management believes, after
considering economics, business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest is
doubtful, or after three months of nonpayment, whichever is earlier.
Uncollectible interest previously accrued is charged off. Income is
subsequently recognized only to the extent cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case the loan
is returned to accrual status.
Premises and Equipment, Net
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives using straight
line and accelerated methods.
Other Real Estate, Net
Real estate properties formally acquired in settlement of loans are
recorded at the lower of the loan value or the fair value of the property
received. Subsequent losses are reflected in operations when the initial
value recorded exceeds the current market value of the property. Real
estate properties formally acquired in settlement of loans were $501,120
and $260,689 at December 31, 1995 and 1994, respectively, and are included
in other assets.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the difference between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
Employee Benefit Plans <PAGE>
Retirement Benefits: The Bank has a defined contribution pension plan and
a profit sharing plan, with a salary deferral feature, for those employees
who meet the eligibility requirements set forth in the plans.
Contributions to the defined contribution plan are based on formula while
contributions to the profit sharing plan are at the discretion of the
board of directors.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies, Continued
Employee Benefit Plans, Continued
Postretirement Benefits: The Bank provides certain health care
benefits for all retired employees that meet eligibility
requirements. In January 1993, the Bank adopted Statement of
financial Accounting Standards Board Statement No. 106, "Employer
Accounting for Postretirement Benefits other than Pensions" (SFAS 106) to
account for its share of the cost of those benefits. Under that
Statement, the Bank's share of the estimated costs that will be paid after
retirement is generally being accrued by charges to expense over the
employees' active service periods to the dates they are fully eligible for
benefits, except that the Bank's unfunded cost that existed at January 1,
1993 is being accrued primarily in a straight line manner that will result
in its full accrual by 2013. Prior to 1993, the Bank expensed its share
of costs as they were paid. The effect of this change in accounting was
not material to the Bank's financial statements.
Net Income Per Common Share
Net income per common share is computed on the weighted average
number of shares outstanding during each year.
Reclassifications
Certain items have been reclassified in the 1994 and 1993 financial
statements to conform with the 1995 presentation.
Note 2. Cash and Due From Banks
The Bank is required to maintain reserve cash balances with the Federal
Reserve Bank. The total of those reserve cash balances was approximately
$4,095,000 at December 31, 1995.
Note 3. Securities
As discussed in Note 1, the Bank adopted SFAS 115 as of January 1, 1994.
The January 1, 1994 adjustment to the beginning balance for a change in
accounting method relating to unrealized gains and losses on securities
available for sale was an unrealized gain of $594,463 which is net of a
$396,310 deferred tax provision.
The Bank's management evaluated the investment portfolio during 1995 and
determined that the classification of available for sale most closely
matched the investment policy and goals of the Bank. This determination
resulted in the transfer of all securities from the held to maturity
classification as of December 1, 1995. The amortized cost of these
securities as of December 1, 1995 was $19,891,000. Unrealized gains and
losses were $364,000 and $83,000, respectively.<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Securities, Continued
<TABLE>
The amortized cost and fair value of securities available for sale as of
December 31, 1995 and summarized as follows:
<CAPTION>
Gross Unrealized
Amortized
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury Securities
and Obligations of U.S.
Government Agencies and
Corporations $17,836,228 $114,950 $(124,681) $17,826,497
Obligations of States and
Political Subdivisions 24,507,677 461,267 (95,610) 24,873,334
Other 2,402,085 237,244 (1,131) 2,638,198
Mortgage-Backed Securities 18,906,944 153,572 (267,611) 18,792,905
$63,652,934 $967,033 $(489,033) $64,130,934
</TABLE>
The amortized cost and fair value of securities available for sale as of
December 31, 1995 by contractual maturity are shown below. Expected
maturities differ from contractual maturities in mortgage-backed
securities because the mortgages underlying the securities may be called
or repaid without any penalties. Therefore, these securities are not
included in the maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $13,612,564 $13,608,039
Due after one year through five years 13,367,817 13,510,280
Due after five years through ten years 16,920,356 17,350,413
Due after ten years 845,253 869,297
44,745,990 45,338,029
Mortgage-backed securities 18,906,944 18,792,905
$63,652,934 $64,130,934
</TABLE>
<TABLE>
The amortized cost and fair values of securities being held to maturity at
December 31, 1994 are as follows:
<CAPTION>
Gross Unrealized
Amortized
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Obligations of States
and Political
Subdivisions $20,920,620 $126,282 $(932,123) $20,114,779
</TABLE>
<TABLE>
The amortized cost and fair value of securities being held to maturity at
December 31, 1994 by contractual maturity are shown below.
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 2,348,207 $ 2,372,341 <PAGE>
Due after one year through five years 5,661,689 5,676,351
Due after five years through ten years 11,623,924 10,881,705
Due after ten years 1,286,800 1,184,382
$20,920,620 $20,114,779
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Securities, Continued
<TABLE>
The amortized cost and fair values of securities available for sale as of
December 31, 1994 are summarized as follows:
<CAPTION>
Gross Unrealized
Amortized
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury Securities
and Obligations of U.S.
Government Agencies and
Corporations $ 9,163,524 $ - $ (637,667) $ 8,525,857
Other 2,493,205 88,706 (44,488) 2,537,423
Mortgage-Backed Securities 12,663,079 55,398 (824,907) 11,893,570
$24,319,808 $144,104 $(1,507,062) $22,956,850
</TABLE>
The amortized cost and fair value of securities available for sale as of
December 31, 1994 by contractual maturity are shown below. Expected
maturities differ from contractual maturities in mortgage-backed
securities because the mortgages underlying the securities may be called
or repaid without any penalties. Therefore, these securities are not
included in the maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 1,562,358 $ 1,460,315
Due after one year through five years 8,730,959 8,184,564
Due after five years through ten years 1,342,701 1,398,942
Due after ten years 20,711 19,459
11,656,729 11,063,280
Mortgage-backed securities 12,663,079 11,893,570
$24,319,808 $22,956,850
</TABLE>
Proceeds from sales of securities during 1995 and 1994, which were
principally attributable to those available for sale, and 1993 were
$5,728,507, $13,056,627 and $10,061,550, respectively, with gross gains of
$23,839, $151,694 and $68,462 and gross losses of $2,945, $195,903 and
$1,073 realized on those sales.
Securities with a carrying value of $45,320,394 and $36,172,000 and market
values of $45,448,421 and $34,308,660 at December 31, 1995 and 1994,
respectively, were pledged to secure public deposits and for other
purposes as required or permitted by law. <PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans, Net
<TABLE>
Major classifications of loans at December 31, 1995 and 1994 are
summarized as follows:
<CAPTION>
1995 1994
<S> <C> <C>
Commercial $ 67,125,378 $ 60,184,841
Installment 20,021,766 20,375,388
Real estate mortgage 36,034,923 36,248,951
Home equity loans 18,011,383 17,617,682
Student 6,562,524 5,403,084
Credit card loans 1,619,651 1,317,779
Net deferred loan origination
costs and unearned discounts 627,424 631,341
150,003,049 141,779,066
Less allowance for loan losses 1,650,000 1,725,000
Loans, net $148,353,049 $140,054,066
</TABLE>
<TABLE>
Real estate mortgage and home equity loans consist of:
<CAPTION>
<S> <C>
Mortgages with fixed rates $31,735,900
Mortgages with variable rates 4,299,023
Home equity loans with variable rates 12,171,819
Home equity loans with fixed rates 5,839,564
Total real estate secured loans $54,046,306
</TABLE>
<TABLE>
Changes in the allowance for loan losses for the years ended December 31,
1995, 1994 and 1993 were as follows:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year $1,725,000 $1,600,000 $1,650,000
Provision for loan losses 132,484 76,798 34,721
Losses charged to the allowance (388,664) (276,279) (270,931)
Recoveries credited to the allowance 181,180 324,481 186,210
Balance, end of year $1,650,000 $1,725,000 $1,600,000
</TABLE>
As a result of the adoption of SFAS 114, the allowance for loan losses
related to impaired loans is based on discounted cash flows using the
loan's initial effective interest rate or the fair value of the collateral
for certain loans where repayment of the loan is expected to be provided
solely by the underlying collateral (collateral dependent loans). The
Bank's impaired loans at December 31, 1995 are generally collateral
dependent. The Bank considers estimated costs to sell, on a discounted
basis, when determining the fair value of collateral in the measurement of
impairment if those costs are expected to reduce the cash flows available
to repay or otherwise satisfy the loans.
At December 31, 1995, the recorded investment in loans that were
considered to be impaired under SFAS 114 approximated $389,000 for which
there was no related allowance for loan losses.<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans, Net, Continued
The Bank has, and may be expected to have in the future, banking
transactions with directors, principal officers, their immediate families
and affiliated companies in which they are principal stockholders
(commonly referred to as related parties). The aggregate amount of loans
to related parties was $4,373,200 and $495,860 at December 31, 1995 and
1994, respectively.
<TABLE>
The activity with respect to loans to related parties for the year ending
December 31, 1995 follows:
<CAPTION>
<S> <C>
Aggregate amount beginning of period $ 495,860
New loans 3,917,500
Repayments (40,160)
Aggregate amount end of period $4,373,200
</TABLE>
Note 5. Premises and Equipment
<TABLE>
At December 31, 1995 and 1994, premises and equipment consist of:
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 502,389 $ 424,642
Buildings and improvements 5,729,351 5,084,691
Furniture and equipment 2,452,549 2,264,370
Total 8,684,289 7,773,703
Less accumulated depreciation 3,574,133 3,118,924
Premises and equipment, net $5,110,156 $4,654,779
</TABLE>
Depreciation expense was $393,354, $391,064 and $371,513 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Note 6. Deposits
<TABLE>
A summary of deposit accounts at December 31, by maturity, is as follows:
<CAPTION>
1995 1994
<S> <C> <C>
No contractual maturity $119,604,109 $121,514,269
Maturity within one year 64,908,427 44,954,389
Maturity after one year through
five years 13,248,783 14,507,842
Maturity after five years - 2,143
$197,761,319 $180,978,643 <PAGE>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Borrowed Funds
<TABLE>
Borrowed funds represent advances from the Federal Home Loan Bank. The
advances at December 31, 1995 are summarized as follows:
<CAPTION>
Advance Interest Maturity
Amount Rate Date
<C> <C> <C>
$1,000,000 5.90% July 1996
1,000,000 5.95% January 1997
1,000,000 5.99% July 1997
$3,000,000
</TABLE>
Note 8. Income Taxes
<TABLE>
A summary of the components of income taxes (benefit) is as follows:
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Current Tax
Federal $1,180,000 $1,366,348 $1,216,655
State 447,000 508,000 387,103
Total current tax
expense 1,627,000 1,874,348 1,603,758
Deferred tax (benefit)
Federal and State - (59,109) 54,042
Total provision for
income taxes $1,627,000 $1,815,239 $1,657,800
</TABLE>
<TABLE>
A reconciliation of the expected income tax expense, computed at the
federal statutory rate of 34%, to the income tax expense included in the
consolidated statements of income is as follows:
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Statutory provision $1,701,891 $1,784,124 $1,687,786
Tax exempt interest (436,560) (385,477) (330,553)
State income tax, net of
federal benefit 295,020 335,280 255,488
Non deductible interest 49,310 32,656 25,423
Other 17,339 48,656 19,656
Total $1,627,000 $1,815,239 $1,657,800 <PAGE>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS
Note 8. Income Taxes, Continued
<TABLE>
Net deferred tax assets (liabilities) (classified as other assets or
liabilities) consist of the following at December 31, 1995 and 1994:
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 526,480 $ 425,045
Deferred loan fees 301,164 253,239
Unrealized gain on available
for sale securities 229,700 -
1,057,344 678,284
Deferred tax assets:
Provision for loan losses 548,153 460,975
Unrealized loss on available
for sale securities - 545,180
Employee benefits 296,308 234,129
844,461 1,240,284
Less valuation allowance - -
844,461 1,240,284
Net deferred tax asset (Liability) $ (212,883) $ 562,000
</TABLE>
Note 9. Employee Benefit Plans and Postretirement Benefits
Employee Benefit Plans:
The Bank has a defined contribution pension plan for those employees who
meet the eligibility requirements set forth in the plan. Substantially
all of the Bank's full time employees are covered by the plan.
Contributions to the plan are based on a formula computation relating to
length of service and salary level. The Bank's defined contribution
pension plan expense was $139,200, $137,900 and $128,207 for 1995, 1994
and 1993, respectively.
The Bank also has a profit sharing plan, with a salary deferral feature,
for those employees who meet the eligibility requirements set forth in the
plan. Contributions to the plan are at the discretion of the Board of
Directors. Substantially all of the Bank's full time employees are
covered by the plan. The Bank's profit sharing plan expense was $232,400
and $181,100 for 1995 and 1994, respectively.
The Bank maintains a deferred compensation plan for an officer. The
estimated present value of the benefit obligation is $64,000 and is
included in other liabilities at December 31, 1995.
The Bank also has a deferred trustees fee plan which provides that
following ten years continuous service on the Board of Directors and after
attaining the age of sixty-two, certain directors leaving the Board are
entitled to receive a designated amount for a period of five years. The
estimated present value of the benefit obligation, included in other
liabilities, approximates $176,800 at December 31, 1995.
The Bank maintains an early retirement plan for former employees of a
previously acquired bank. The plan provides for monthly payments to be
made to the three participants for their lifetime. The estimated present
value of the benefit obligation, included in other liabilities, <PAGE>
approximates $33,200 at December 31, 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Employee Benefit Plans and Postretirement Benefits, Continued
Employee Benefit Plans, Continued
Finally, the Bank has entered into severance compensation agreements with
a number of Bank officers which do not become effective unless there has
been a change in control of the Bank as defined and the Bank terminates
the officers' employment. Under those conditions the Bank will pay, as
severance, a lump sum payment equal to three times the average of the
annual compensation paid to the executive officers during the previous
five years employment.
Postretirement Benefits:
The Bank provides health care benefits to retired employees who meet
specified age and service requirements through a postretirement health
care plan in which both the bank and retiree share the cost. The plan
provides for substantially the same medical insurance coverage as for
active employees until their death and is integrated with medicare for
those retirees aged 65 or older.
Effective January 1, 1993, the Bank adopted the provisions of Statements
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106), changing to the
accrual method of accounting for those benefits instead of the pay-as-you-
go basis used prior to the effective date. The Bank elected to amortize
the accumulated postretirement benefit obligation existing at the
effective date, considered to be prior service costs, over 20 years
beginning in 1993.
Postretirement benefit expense under SFAS 106 was $127,706 for 1995 and
$132,888 for 1994.
<TABLE>
The components of the postretirement benefit cost are as follows:
<CAPTION>
1995 1994
<S> <C> <C>
Service cost for benefits earned during
the year $ 29,586 $ 29,850
Interest cost on accumulated postretirement
benefit obligation 64,117 65,385
Amortization of transition obligation 26,514 26,514
Amortization of net loss 7,489 11,139
Net annual postretirement benefit cost $127,706 $132,888
</TABLE>
The accumulated postretirement benefit obligation was determined using a
weighted average discount rate of 8.0%, and a health care cost trend rate
of 6.0%.
Increasing the assumed health care cost trend rates by one percentage
point in each year and holding all other assumptions constant, would
increase the accumulated postretirement benefit obligation as of December
31, 1995 by approximately $146,530 and increase the aggregate of the
service and interest cost components of the net periodic postretirement
benefit cost for 1995 by approximately $26,374. <PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Employee Benefit Plans and Postretirement Benefits, Continued
<TABLE>
The following table sets forth the plan's funded status reconciled with
the amount shown on the Bank's balance sheet at December 31, 1995:
Accumulated postretirement benefit obligation:
<CAPTION>
<S> <C>
Retirees $469,210
Fully eligible active plan participants 47,093
Other active plan participants 357,548
Accumulative postretirement benefit obligation
in excess of plan assets 873,851
Unrecognized transition obligation (450,753)
Unrecognized net loss due to changes in assumptions (187,126)
Accrued postretirement benefit cost $235,972
</TABLE>
Note 10.Regulatory Capital Requirements
Federal regulatory agencies have adopted various capital standards for
financial institutions, including risk based capital standards. The
primary objectives of the risk based capital framework are to provide a
more consistent system for comparing capital positions of financial
institutions and to take into account the different risks among financial
institutions' assets and off balance sheet items.
Risk based capital standards have been supplemented with requirements for
a minimum Tier 1 capital to asset ratio (leverage ratio). In addition,
regulatory agencies consider the published capital levels as minimum
levels and may require a financial institution to maintain capital at
higher levels.
<TABLE>
A comparison of the Bank's capital as of December 31, 1995 with the
minimum requirements is presented below:
<CAPTION>
Minimum
Actual Requirements
<S> <C> <C>
Tier 1 Risk based Capital 19.19% 4.00%
Total Risk based Capital 20.33% 8.00%
Leverage Ratio 11.96% 3.00%
</TABLE>
The Bank is restricted as to the amount of dividends which can be paid.
Dividends declared by national banks that exceed the net income (as
defined) for the current year plus retained net income for the preceding
two years must be approved by the Comptroller of the Currency. Under the
formula, dividends of approximately $3,993,000 may be paid without prior
regulatory approval. Regardless of formal regulatory restrictions, the
Bank may not pay dividends that would result in capital levels being
reduced below the minimum requirements shown above. <PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11.Commitments and Contingencies
Financial instruments with off balance sheet risk:
The Bank is party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets.
The Bank's exposure to credit loss in the event of non performance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as they do for on balance sheet
instruments.
<TABLE>
A summary of the Bank's commitments at December 31, 1995 is
as follows:
<CAPTION>
<S> <C>
Revolving open-end lines secured by
1-4 family residential properties $ 3,359,645
Credit card lines 4,096,394
Commercial real estate, construction
and land development 1,381,703
Commercial and similar letters of credit, net 272,860
Other unused commitments 10,200,922
$19,311,524
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on
a case by case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held varies but may
include accounts receivable, inventory, property, equipment, and income
producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
Collateral held varies as specified above and is required in instances
where the Bank deems necessary.
Concentrations of credit risk:
The Company and the Bank are located in the Southern Tier of the Finger
Lakes region of New York State. The Bank grants commercial, consumer and
residential loans primarily to customers in Allegheny, Livingston,
Ontario, Schuyler, Steuben and Yates counties. The Bank's loan portfolio
consists primarily of commercial, installment and real estate secured
loans. A substantial portion of its debtor's ability to honor their
contracts is dependent upon the economic conditions of the region.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11.Commitments and Contingencies, Continued
Concentrations of credit risk, continued:
All of the Bank's loans, commitments to extend credit, and standby letters
of credit have been granted to customers in the Bank's market area.
Investments in securities issued by state and political subdivisions also
involve governmental entities within the Bank's market area. The
concentrations of credit by type of loan are set forth in Note 4. The
distribution of commitments to extend credit approximates the distribution
of loans outstanding. Standby letters of credit were granted primarily to
commercial borrowers.
Line of Credit:
The Bank has credit available from the Federal Home Loan Bank in the
amount of $6,850,000 at the overnight federal funds rate.
Note 12.Disclosures About Fair Value of Financial Instruments
Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" (SFAS 107), requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market values are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not necessarily represent the underlying value of the
Bank.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and short term investments:
For those short term instruments, the carrying amount is a reasonable
estimate of fair value.
Securities:
For a securities held as investments, fair value equals quoted market
price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12.Disclosures About Fair Value of Financial Instruments, Continued
Loans, Net:
For certain homogeneous categories of loans, such as residential
mortgages, credit card receivables, and other consumer loans, fair value
is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair
value of other types of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposits:
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date.
The fair value of fixed maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
Commitments to extend credit and standby letters of credit:
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of letters of credit based on fees
currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties
at the reporting date.
<TABLE>
The estimated fair values of the Bank's financial instruments in
thousands, are as follows:
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and short term
investments $ 13,753 $ 13,753 $ 14,029 $ 14,029
Federal funds sold - - 2,500 2,500
Securities 64,130 64,130 43,877 43,072
Loans 150,003 150,327 141,779 139,053
Allowance for loan losses (1,650) - (1,725) -
$226,236 $228,210 $200,460 $198,654
Financial liabilities:
Deposits $197,761 $198,073 $180,866 $180,677
Federal funds purchased 2,150 2,150 - -
Borrowed funds 3,000 3,000 -
$202,911 $203,223 $180,866 $180,677
Unrecognized financial
instruments:
Commitments to extend
credit $ 19,311 $ 19,311 $ 14,094 $ 14,094
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13.Acquisitions
In April 1994, the Bank completed the purchase of Atlanta National Bank,
located in the Hamlet of Atlanta, Steuben County, New York. The
transaction added approximately $14 million deposits. The transaction has
been accounted for under the "purchase method" of accounting, whereby the
purchase price has been allocated to the underlying assets acquired and
the liabilities assumed based on their respective fair values at the date
of acquisition. Capitalized acquisition costs are categorized as
"goodwill" and are classified in "other assets" in the accompanying
consolidated balance sheet. Such amount is being amortized over a period
of fifteen years.
Note 14.Parent Company Only Financial Information
<TABLE>
Parent company (Bath National Corporation) only condensed financial
information is as follows:
CONDENSED BALANCE SHEETS
December 31, 1995 and 1994
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Cash $ 282 $ 5,576
Dividends receivable 681,000 1,230,000
Investment in subsidiary 28,586,061 25,210,697
Total assets $29,267,343 $26,446,273
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Dividend payable $ 680,238 $ 1,227,331
Other liabilities 33,343 37,083
713,581 1,264,414
STOCKHOLDERS' EQUITY
Common stock 3,415,585 3,366,950
Paid in capital 4,923,490 4,416,515
Retained earnings 19,966,387 18,216,168
Unrealized gains (losses) on available
for sale securities, net of related
tax included in investment in
subsidiary 248,300 (817,774)
28,553,762 25,181,859
Total liabilities and
stockholders' equity $29,267,343 $26,446,273
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14.Parent Company Only Financial Information, Continued
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenue $ - $ - $ -
Expenses
Other operating expenses 4,728 11,703 13,181
Loss before equity in earnings
of subsidiary (4,728) (11,703) (13,181)
Equity in earnings of subsidiary 3,383,290 3,432,184 3,319,457
Net income $3,378,562 $3,420,481 $3,306,276
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOW
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
CASH FLOWS FROM OPERATING 1995 1994 1993
ACTIVITIES
<S> <C> <C> <C>
Net income $ 3,378,562 $ 3,420,481 $ 3,306,276
Adjustments to reconcile net
income to net cash used in
operating activities:
Net earnings of subsidiary (3,383,290) (3,432,184) (3,319,457)
Change in other liabilities (3,740) (1,548) (3)
Net cash used in operating
activities (8,468) (13,251) (13,184)
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash dividend received 1,623,000 636,000 564,000
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shares sold - 12,300 -
Cash dividends paid (1,619,826) (632,195) (550,924)
Net cash used in financing
activities (1,619,826) (619,895) (550,924)
Net increase (decrease) in cash (5,294) 2,854 (108)
Cash, January 1 5,576 2,722 2,830
Cash, December 31 $ 282 $ 5,576 $ 2,722
</TABLE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
None <PAGE>
<PAGE>
Part III
ITEM 10. Directors and Executive Officers of the Registrant
Information under this Item 10 has been included in the Registrant's Proxy
Statement for its 1996 Annual Meeting filed with the Securities and
Exchange Commission in March 1996 and which has been incorporated herein
by reference.
ITEM 11. Executive Compensation
Information under this Item 11 has been included in the Registrant's Proxy
Statement for its 1996 Annual Meeting filed with the Securities and
Exchange Commission in March 1996 and which has been incorporated herein
by reference.
ITEM 12. Security Ownership of certain Beneficial Owners and
Management
Information under this ITEM 12 has been included in Registrant's Proxy
Statement for its 1996 Annual Meeting filed with the Securities and
Exchange Commission in March 1996 and which has been incorporated herein
by reference.
ITEM 13. Certain Relationships and Related Transactions
Information under this Item 13 has been included in the Registrant's Proxy
Statement for its 1996 Annual Meeting filed with the Securities and
Exchange Commission in March 1996 and which has been incorporated herein
by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
See Item 8.
<PAGE>
<PAGE>
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K, Continued
Financial Statements Schedules are omitted in this particular section
since the required information is inapplicable or the required information
is presented in the Consolidated Financial Statements and related Notes to
Consolidated Financial Statements presented as Item 8 in Part II.
3. Exhibits
The following exhibits are filed with this report.
S-K
Exhibit No. Description of Exhibit
3.1 Certificate of Incorporation*
3.2 By-Laws of Registrant*
4.1 Specimen Common Stock Certificate*
10.1 Deferred Compensation Agreement*
10.2 Severance Agreement of Robert H. Cole*
10.3 Early Retirement Plan - Officers*
10.4 Trustee Fee Plan*
22 Subsidiaries of the Registrant*
Registrant has only one subsidiary as follows:
Bath National Bank
Bath, New York
*Filed with Registrant's Form 10-K for the year ended December 31,
1991.
Reports on Form 8-K
No reports on form 8-K were required to be filed for the
fourth quarter of 1994.
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrant Which Have Not Registered
Securities Pursuant to Section 12 of the Act.
An annual report and proxy material have been sent to
security holders and furnished to the Securities and
Exchange Commission.<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized as of the
day of , 1996.
BATH NATIONAL CORPORATION
By:
Robert H. Cole, President
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated all as of the day of
1996.
Principal Executive Officer:
_____________________________
Robert H. Cole, President
Chief Executive Officer and
Director
Principal Financial and Accounting Officer
__________________________________________
Edward C. Galpin, Vice President,
Chief Financial Officer, and Director
Directors:
_______________________________
Laverne H. Billings, Director
_______________________________
Theodore P. Capron, Director <PAGE>
<PAGE>
______________________________
Herbert Fort, Director
_______________________________
Lisle E. Hopkins, Director
______________________________
Lawrence Howell, Director
______________________________
Constance Manikas, Director
_____________________________
Douglas McCabe, Director
______________________________
Joseph F. Meade, Jr., Director
_______________________________
Freeman H. Smith, III, Director
_______________________________
Patrick Sullivan, Director
_______________________________
Alan J. Wilcox, Director<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10218648
<SECURITIES> 64130934
<RECEIVABLES> 1775135
<ALLOWANCES> (1650000)
<INVENTORY> 0
<CURRENT-ASSETS> 3535338
<PP&E> 5110156
<DEPRECIATION> 393354
<TOTAL-ASSETS> 235165547
<CURRENT-LIABILITIES> 205611785
<BONDS> 0
0
0
<COMMON> 3415585
<OTHER-SE> 25138177
<TOTAL-LIABILITY-AND-EQUITY> 235165547
<SALES> 0
<TOTAL-REVENUES> 17213640
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6972589
<LOSS-PROVISION> (132484)
<INTEREST-EXPENSE> 6550565
<INCOME-PRETAX> 5005562
<INCOME-TAX> 1627000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3378562
<EPS-PRIMARY> 4.99
<EPS-DILUTED> 4.99
</TABLE>
