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, 1996
Commission File Number 0-20142
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, 1997.
Common stock, $5.00 par value - $47,120,134
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of January 31, 1996.
1,365,801 shares, common stock, $5.00 par value
Documents incorporated by reference
1) Proxy statement for 1997 Annual Meeting - Part III <PAGE>
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. Business 1-23
ITEM 2. Properties 23-24
ITEM 3. Legal Proceedings 24
ITEM 4. Submission of Matters to a
Vote of Security Holders 24
PART II
ITEM 5. Market for the Registrant's Securities
and Related Stockholder Matters 24-25
ITEM 6. Selected Financial Data 25-27
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 27-31
ITEM 8. Financial Statements and
Supplementary Data 31-58
ITEM 9. Changes in and disagreements with Accountants
on Accounting and Financial Disclosure 58
PART III
ITEM 10. Directors and Executive Officers
of the Registrant 58
ITEM 11. Executive Compensation 58
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 59
ITEM 13. Certain Relationships and Related
Transactions 59
PART IV
ITEM 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 59-60
<PAGE>
PART I
ITEM 1. Business
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 131 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>
PART I, Continued
ITEM 1. Business, Continued
Consolidated Average Balances
The following is a presentation of average assets, liabilities and
equity of the Company for the years ended December 31, 1996 and 1995,
with respect to each major category of assets, liabilities and equity.
AVERAGE ASSETS
(dollars in thousands)
Year Ended Year Ended
December 31, 1996 December 31, 1995
Interest Earning
Deposits with Banks $ 3,300 $ 3,800
Taxable Investment Securities 51,400 36,000
Non-Taxable Investment Securities 27,400 22,600
Federal Funds Sold 1,500 3,500
Net Loans 152,000 142,900
Total Earning Assets 235,600 208,800
Other Assets 16,700 16,400
Total Assets $252,300 $225,200
AVERAGE LIABILITIES AND EQUITY
(dollars in thousands)
Non-Interest Bearing
Deposits $ 27,900 $ 26,300
Interest Bearing Deposits:
Savings 45,700 48,100
NOW Accounts 33,200 32,400
Money Market Accounts 12,100 13,000
Time Deposits 87,400 72,000
Federal Home Loan Bank Borrowings 2,500 1,400
Securities Sold Under Agreement to
Repurchase 11,400 3,100
Other Liabilities 1,400 1,400
Federal Funds Purchased 1,200 500
Total Liabilities 222,800 198,200
Common Stock 6,800 3,400
Additional Paid in Capital 1,500 4,400
Retained Earnings 21,200 19,200
Total Equity 29,500 27,000
Total Liabilities
and Equity $252,300 $225,200
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Analysis of Net Interest Earnings
The following is a presentation of an analysis of the net interest
earnings of the Company for years ended December 31, 1996 and 1995,
respectively, with respect to each major category of interest-earning
assets and interest-bearing liabilities:
Year Ended December 31, 1996
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest-Earning
Deposits with Banks $ 3,300 $ 192 5.81%
Taxable Investment Securities 51,400 3,517 6.84%
Non-Taxable Investment
Securities <F1> 27,400 2,043 7.46%
Federal Funds Sold 1,500 82 5.46%
Net Loans <F2><F3> 152,000 13,955 9.18%
Total Earning Assets $235,600 $19,789 8.40%
Liabilities
Savings Deposits $ 45,700 $ 1,292 2.82%
Now Deposits 33,200 583 1.75%
Money Market Deposits 12,100 344 2.84%
Time Deposits 87,400 4,671 5.34%
Federal Home Loan Bank
Borrowings 2,500 158 6.32%
Repurchase Agreements 11,400 718 6.30%
Federal Funds Purchased 1,200 76 6.33%
Total Interest-Bearing
Liabilities $193,500 $ 7,842 4.05%
Interest Income/Earning Assets 8.40%
Interest Expense/Earning Assets 3.33%
Net Yield 5.07%
[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 $820,000.
<F3> Includes Loan Fees Totaling $62,000 and discount revenue of
336,000.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Analysis of Net Interest Earnings, Continued
Year Ended December 31, 1995
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
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 <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%
[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>
PART I, Continued
ITEM 1. Business, Continued
Rate/Volume Analysis of Net Interest Income
The effect on interest income, 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, 1996 and
1995, appear in their entirety on the following page.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
December 31, 1996 compared with December 31, 1995
(dollars in thousands)
Changes in net interest income as a result of:
Total
Volume Rate Change
Interest earned on:
Interest-earning
deposits with banks $ (29) $ (3) $ (32)
Taxable Investment
Securities 1,022 104 1,126
Non-Taxable
Investment Securities 371 (76) 295
Federal Funds Sold (122) (10) (132)
Net Loans 869 (566) 303
Total Interest Income 2,111 (551) 1,560
Interest paid on:
Interest-bearing
deposits 887 404 1,291
Change in net interest
income $1,224 $ (955) $ 269
December 31, 1995 compared with December 1994
(dollars in thousands)
Changes in net interest income as a result of:
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 (199) 25
Federal Funds Sold 58 78 136
Net Loans 451 1,258 1,709
Total Interest Income 1,155 1,165 2,320
Interest paid on
Interest-bearing
deposits 375 1,609 1,984
Change in net interest
income $ 780 $ (444) $ 336
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Investments
Investment securities comprised approximately 33% of the Bank's
assets at December 31, 1996, with loans comprising approximately 58%
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>
PART I, Continued
ITEM 1. Business, Continued
Investments, Continued
The following tables present, at December 31, 1996 and 1995, the book
value and market values of both the available for sale (AFS) and the
held to maturity (HTM) categories of the Bank's investments. The
table also indicates the amount of investments due in (i) one year or
less, (ii) one to five years, (iii) five to ten years, and (iv) over
ten years.
1996 1995
Investment Book Market Avg. Book Market Avg.
Category Value Value Yield Value Value Yield
(dollars in thousands) (dollars in thousands)
Available-for-Sale Investments:
Obligations of U.S.
Treasury and other U.S.
Agencies and Corporations:
0 - 1 year $20,770 $20,329 6.27% $18,352 $18,233 6.83%
1 - 5 years 10,303 10,239 6.54% 10,012 10,085 6.26%
5 - 10 years 1,982 1,968 7.37% 4,775 4,661 6.09%
Over 10 years 947 950 6.97%
Obligations of States and
Political subdivisions
0 - 1 year $ 1,036 $ 1,051 6.85% $ 2,313 $ 2,351 6.49%
1 - 5 years 9,849 9,942 4.56% 5,803 5,897 4.92%
5 - 10 years 18,806 19,125 4.90% 15,558 15,768 4.73%
Over 10 years 1,355 1,360 5.17% 845 869 5.46%
Other Securities
0 - 1 year $ 275 $ 273 9.45% 895 907 5.14%
1 - 5 years 1,782 1,809 8.25% 2,133 2,186 8.31%
5 - 10 years 1,237 1,401 9.23% 1,342 1,562 9.02%
Over 10 years 2,681 2,681 7.94% 2,430 2,418 7.94%
Total AFS Securit. $71,023 $71,128 $64,458 $64,937
Held-to-Maturity Investments:
Agency
1 - 5 years $20,000 $20,329 7.69% N/A N/A
Total Securities $91,023 $91,457 $64,458 $64,937
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Investments, Continued
Yields are computed on a tax equivalent basis using a marginal tax
rate of 34%.
A total of $33,374,000 of investments was pledged to secure public
deposits.
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, 1996, loans secured
by real estate comprised 53% of the total loan portfolio. At
December 31, 1996 none of the real estate loans were being held
specifically for resale in the secondary market.
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:
Year Ended December 31,
(dollars in thousands)
Loan Type 1996 1995
Commercial, Financial and
Agricultural $ 38,224 $ 38,325
Real Estate - Mortgage 84,131 78,666
Installment Loans to Individuals 33,244 29,765
All Other 2,492 3,247
Sub-Total 158,091 150,003
Allowance for Loan Losses 1,650 1,650
Loans - Net $156,441 $148,353
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Loans Outstanding, Continued
Maturity Distribution and Interest Sensitivity:
The following tabulation presents an analysis of maturities of
Commercial, Financial, and Agricultural loans as of December 31, 1996
stated in thousands of dollars:
Years To Maturity <PAGE>
Loan Type 1 or less 1 - 5 Over 5 Total
Commercial, Financial,
and Agricultural $ 8,188 $11,267 $18,769 $38,224
Demand loans, loans having no stated schedule of repayments and no
stated maturity are reported as due in one year or less.
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, 1996, stated in thousands of dollars:
Loans due after 1 year with predetermined $ 9,982
Interest Rates
Loans due after 1 year with floating
Interest Rates $ 20,054
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Non-Performing Loans and Leases:
The following table presents, for the period indicated, the aggregate
amount of non-accrual, past due and restructured loans:
Year Ended Year Ended
Type of Loan 12/31/96 12/31/95
Loans accounted for on non-accrual
basis $820,000 $435,000
Number of loans 13 9
Accruing Loans Past due 90 Days
or more as to principal or
interest payments 18,000 209,000
Number of loans 38 17
Loans not included above which
are troubled debt restructuring <F1> ---- ----
Number of loans 0 0
[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, 1996 would have
included approximately $71,500 of 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 1996
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>
PART I, Continued
ITEM 1. Business, Continued
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.
Year Ended December 31,
(dollars in thousands)
1996 1995
Allowance balance at beginning
of the year $ 1,650 $ 1,725
Loans Charged Off:
Real Estate 0 0
Commercial, Financial & Agricultural 191 212
Installment Loans to Individuals 111 146
Credit Cards 47 31
Total 349 389
Recoveries of Loans Previously Charged Off:
Real Estate 0 17
Commercial, Financial & Agricultural 14 96
Installment Loans to Individuals 62 65
Credit Cards 4 4
Total 80 182
Additions charged to
Operations 269 132
Allowance Balance at end of the year 1,650 $ 1,650
Average loans $152,000 $142,900
Ratio of net charge-offs during the
period to Average loans during
the period .18% .15%
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Summary of Loan Loss Experience, Continued
At December 31, 1996, the allowance balance was allocated as follows:
% of loans
Amount in each type
Loan Type (in thousands) to total loans
Commercial, Financial
and Agricultural $1,100 24.18%
Real Estate - Mortgage 50 53.22%
Installment loans to individuals 500 21.03%
All Other 0 1.57%
Total $1,650 100.00%
At December 31, 1995, the allowance balance was allocated as follows:
% of loans
Amount in each type
Loan Type (in thousands) to total loans
Commercial, Financial
and Agricultural $1,100 25.55%
Real Estate - Mortgage 50 52.44%
Installment loans to individuals 500 19.84%
All Other 0 2.17%
Total $1,650 100.00%
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 1996, management has focused on the fact that as
of December 31, 1996, 37% 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.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Loan Loss Reserve, Continued
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 1997 will be no more than the losses during 1996. 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>
PART I, Continued
ITEM 1. Business, Continued
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,
employees of businesses and local municipalities 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.
The following table presents, for the periods indicated, the average
amount of and average rate paid on each of the major deposit
categories:
Year Ended Year Ended
12/31/96 12/31/95
Amount Rate Amount Rate
Deposit Category (dollars in thousands)
Non-Interest Bearing Demand
Deposits $27,900 $27,400
NOW Deposits 33,200 1.75% $32,400 1.73%
Money Market Deposits 12,100 2.84% $13,000 3.07%
Savings Deposits 45,700 2.82% $48,100 3.04%
Time Deposits 87,400 5.34% $72,000 5.36%
(including certificates of deposit)
The following presents time certificates of deposit of $100,000 or
more and amounts of their maturities (amounts in thousands):
Maturity
3 Months Over
or 3-6 6-12 12
Less Months Months Months
Time Certificates of Deposit $15,255 $9,234 $2,113 $961
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
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:
Year Ended
December 31,
1996 1995
Return on Average Assets <F1> 1.37% 1.50%
Return on Average Equity <F2> 11.69% 12.51%
Dividend Payout Ratio <F3> 42% 48%
Equity to Assets Ratio <F4>
(Average) 11.69% 11.99%
[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
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 $11.7 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 $9.7 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. 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
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Liquidity and Asset/Liability Management, Continued
of the more volatile interest rate environment. The continuing
deregulation of the banking industry has greatly increased the
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 pages 29 and 30 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 and Hammondsport Offices, have
drive-up teller facilities.
The Company's offices are located in the Bank's main office.
Employees
The Bank presently employs approximately 131 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
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Employees, Continued
including life insurance, health benefits and participation in a
profit sharing plan/401k plan.
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 (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 Board
possesses cease and desist powers over bank holding companies if
their actions represent unsafe or unsound practices or violations of
law.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Supervision and Regulation, Continued
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 Board
to be so closely related to banking as to be a 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 weight 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-
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Supervision and Regulation, Continued
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.
Both the risk-based capital guidelines and the leverage ratios 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 OCC's CAMELS
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.
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:
TIER I TOTAL RISK
LEVERAGE RATIO BASED CAPITAL RATIO
Required Company Required Company
Minimum Ratio Minimum Ratio
For year ended
December 31, 1996 3.00% 11.29% 8.00% 21.39%
For year ended
December 31, 1995 3.00% 11.96% 8.00% 22.57%
For year ended
December 31, 1994 3.00% 12.26% 8.00% 20.26%
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
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Supervision and Regulation, Continued
interpreted by regulation) for that year and the retained net profits
(as defined) for the preceding two years less any required transfers
to surplus. As of January 1, 1997, the Bank could have declared
aggregate dividends of approximately $4.0 million without the
approval of regulatory authorities.
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
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Governmental Policies and Legislation, Continued
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
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
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.
On January 1, 1995, the Bank adopted the provisions of SFAS 114 and
SFAS 118. 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.
In January 1994, the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115). SFAS 115
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Significant Accounting Policies, Continued
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.
"Held-to-Maturity" securities for which the Bank has the positive
intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income
over the period to maturity.
"Trading" account assets are held for resale in anticipation of short
term market movements. Trading account assets, consisting of debt
and money market instruments, are stated at fair value. Gains and
losses, both realized and unrealized, are included in other income.
"Available-for-Sale" securities consist of bonds, notes, debentures
and certain equity securities not classified as trading securities
nor as held to maturity securities.
Unrealized holding gains and losses, net of tax, on available for
sale securities are reported as a net amount in a separate component
of stockholders' equity until realized.
Gains and losses on the sale of available for sale securities are
determined using the specific identification method.
Premiums and discounts are recognized in interest income over the
period to maturity.
The Bank has classified all its securities as "Available-for-Sale"
with the exception of certain U.S. Government & Agency Securities,
sold under an agreement to repurchase with an amortized cost of
$20,000,000 as of December 31, 1996.
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) full service
facilities located in Bath, Hammondsport, Atlanta, Naples, Wayland,
Dundee and Hornell, New York. In addition, the Bank also operates
two (2) seasonal offices. One office is located in the Wayland-
Cohocton Central School and the other is located at the Windmill Farm
Market between Penn Yan and Dundee, New York. The main office is
located at 44 Liberty Street, Bath, New York. 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.
<PAGE>
PART I, Continued
ITEM 2. Properties, Continued
The carrying value of property for BNC on a consolidated basis as of
December 31, 1996 and 1995 is included on page 47 of this 10-K
document.
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
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 is no established public trading market for the Company's
common stock.
The range of high and low bid information (in dollars) for each full
quarterly period for 1996 and 1995, restated to reflect a two for one
stock split on April 24, 1996, follows:
1996 1995
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
High 30 32 35 37 25 30 30 30
Low 30 32 35 34 25 30 30 30
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 &
Partners, and trades between holders of Common Stock.
B. Holders of Common Stock
As of January 29, 1997, the approximate number of holders of record
of the Company's common stock was 628.
C. Dividends
For 1995 and 1996 the Company paid quarterly cash dividends,
amounting to a total for the year of $1.20 and $1.05 respectively.
These dividends have been restated to reflect a two for one stock
split on April 24, 1996.
The Bank is restricted in its ability to pay dividends to the Company
(its only source of income) by banking regulations. Generally,
<PAGE>
PART II, Continued
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters, Continued
C. Dividends, Continued
dividends may be declared and paid in cash or property only out of
the retained earnings of the Bank. Dividends may not be declared or
paid at any time that a bank does not have the paid in capital and
appropriate retained earnings as required by law. Dividends may not
be paid without prior approval of the regulator in excess of
specified amounts as may be fixed by banking regulations to ensure
that banks maintain an adequate capital structure.
ITEM 6. Selected Financial Data
The data appearing on the following page represent selected
consolidated financial data of the Company for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 and are derived from the
Company's consolidated financial statements. These data should be
read in conjunction with the Company's consolidated financial
statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included
elsewhere herein and are qualified in their entirety thereby and by
other detailed information elsewhere in this Form 10K.<PAGE>
<PAGE>
PART II, Continued
ITEM 6. Selected Financial Data, Continued
1996 1995 1994 1993 1992
Condensed Statements
of Income (in
thousands, except per
share data)
Interest Income <F1>$ 19,457 $ 17,881 $ 15,911 $ 15,155 $ 15,398
Interest Expense
Deposits 6,891 6,280 4,506 4,669 5,943
Interest Expense
Borrowings 952 271 61 4 3
Net Interest Income 11,614 11,330 11,344 10,482 9,452
Loan Loss Provision 269 132 77 353 413
Net Interest Income
After Loan Loss
Provision 11,345 11,198 11,267 10,447 9,039
Other Operating
Income 1,518 1,448 1,296 1,270 972
Other Operating
Expenses 7,140 6,973 6,738 6,248 6,101
Income Before
Income Tax 5,723 5,673 5,825 5,469 3,910
Tax Equivalent
Adjustment 779 668 590 505 422
Income Taxes (benefit) 1,496 1,627 1,815 1,658 1,119
Net Income $ 3,448 $ 3,378 $ 3,420 $ 3,306 $ 2,369
Per Share Data <F2>
Book Value 22.23 20.90 18.69 18.90 17.23
Cash Dividends 1.05 1.20 2.51 1.00 .82
Net Income 2.52 2.49 2.66 2.64 1.94
Weighted Average
Common Shares 1,365,832 1,354,492 1,285,762 1,251,662 1,220,906
Balance Sheet Data
(in thousands, except
number of outstanding
shares) at
December 31
Assets 269,238 235,165 209,158 199,202 191,201
Securities 90,060 64,937 43,878 51,840 51,105
Loans, Net 156,441 148,353 140,054 125,887 118,588
Deposits 208,473 197,760 180,866 170,235 168,388
Equity 30,363 28,554 25,181 24,125 21,424
Common Shares
Outstanding 1,365,801 1,366,234 1,346,780 1,276,960 1,243,056
<PAGE>
PART II, Continued
ITEM 6. Selected Financial Date, Continued
[FN]
<F1> Presented on a tax equivalent basis utilizing a marginal tax rate
of 34%.
<F2> All per share data has been restated to reflect a two-for-one
stock split on April 24, 1996.
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 its ability to meet the borrowing needs and
deposit withdrawal requirements of its customers. Assets, consisting
principally of loans and investment securities, are funded by
customer deposits.
The investment portfolio is one of 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 $1.5 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,
1996 loans with an aggregate balance of $11.9 million and securities
of $4.2 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, 1996, 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 87%.
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 1996, the Bank had an
average daily net federal funds sold of $.3 million. The Bank is
also a member of, and has a line of credit with, 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 $9.7 million under
this line. The Bank borrowed an average of $2.0 million during 1996
against this line of credit.
At December 31, 1996, banking regulations required conformity with a
minimum risk based capital standard of 8%. The Bank's risk based
capital level was approximately 21%. Neither the Company nor the
Bank had any material commitments for capital expenditures as of
<PAGE>
PART II, Continued
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Liquidity and Capital Resources, Continued
December 31, 1996. The adequacy of the Bank's capital is reviewed on
an ongoing basis with reference to the size, composition and quality
of the Bank's resources. An adequate capital base is important for
continued growth, expansion and added protection against unexpected
losses.
During 1996, the Company signed a letter of intent to acquire the
First State Bank of Canisteo for cash. Subsequently, the acquisition
plans were cancelled due to the failure of each party to sign a
definitive agreement.
Fiscal 1996 Compared with Fiscal 1995
Total Bank assets grew from $235.1 million at year end 1995 to $269.2
million at year end 1996, an increase of 14.5%. Approximately $18.5
million of this growth in assets is attributable to a growth strategy
employed which leverages the bank's capital. Bath National Bank
entered into a securities sold with an agreement to repurchase "repo"
transaction with Salomon Brothers which had the effect of increasing
both assets and liabilities by $18.5 million.
Loan demand continues to increase with net loans increasing from
$148.3 million in 1995 to $156.4 million in 1996 or 5.4%.
Deposits also continued to grow, realizing an increase of 5.4%, from
$197.7 million in 1995 to $208.5 million at year end 1996.
Net income increased from $2.49 per share in 1995 to $2.52 per share
in 1996. Net interest income grew only modestly due to interest
"spread" pressures. Since most of the growth in deposits during 1996
were in the time deposits area, the average cost of funds increased
at a greater rate than did the average earnings rate. The provision
for loan losses increased by $136,000 from 1995 to 1996. Bank
Management expects the loan losses in 1997 will be significantly
less.
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%.
<PAGE>
PART II, Continued
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Fiscal 1995 Compared with Fiscal 1994, Continued
Total deposits increased from $180.9 million in 1994 to $197.7
million in 1995. 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 in 1994 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.
Interest Sensitivity Analysis
The following table sets forth the maturity distribution of the
Company's interest-earning assets and interest bearing liabilities as
of December 31, 1996, 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 advanced 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.
<PAGE>
PART II, Continued
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Interest Sensitivity Analysis, Continued
Interest Rate Sensitivity Analysis
(dollars in thousands)
0-30 31-90 91-180 181-365 1 - 5 Over 5
As of
December 31, 1996:
Earning Assets:
Federal Funds Sold 500
Loans 56,889 2,553 4,571 8,805 45,246 38,377
Securities 14,287 2,759 4,036 2,470 43,410 23,098
Total Earning Assets 71,676 5,312 8,607 11,275 88,656 61,475
Interest Bearing Liab.
Money Market Demand 10,467
Interest Bearing
Deposits 31,557
Certificates of Deposit
Under $100,000 6,441 10,682 14,714 18,877 15,543
$100,000 and over 8,645 6,611 9,233 2,113 961
Savings Accounts 43,491
Securities Sold
Agreement to Repurch. 2,630 799 18,500
FHLB Borrowings
Federal Funds Purch. 4,825 1,000
Total Int. Bear. Liab.108,056 17,293 24,746 21,990 35,004
Incremental Gap <F1> (36,380)(11,981)(16,139)(10,715) 53,652 61,475
Cumulative Gap <F2> (36,380)(48,361)(64,500)(75,215)(21,563) 39,912
Sensitivity Gap <F3> .66 .31 .35 .51 2.53
Cumulative Sensit. <F4> .66 .61 .57 .56 .90
[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.
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 and a change in the
interest rate environment is rarely precise. Although the Company
currently is "liability sensitive", within one year after December
31, 1996 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.
<PAGE>
PART II, Continued
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
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
This section contains the consolidated financial statements and
report of independent auditors.
<PAGE>
<PAGE>
BATH NATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996 <PAGE>
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 34
FINANCIAL STATEMENTS
Consolidated statements of financial condition 35
Consolidated statements of income 36
Consolidated statements of stockholders' equity 37
Consolidated statements of cash flows 38-39
Notes to consolidated financial statements 40-58<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Bath National Corporation
We have audited the accompanying consolidated statements of financial
condition of Bath National Corporation and subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. 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 and
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, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1996, 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 Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", as of January 1, 1994. <PAGE>
URBACH KAHN & WERLIN PC
Albany, New York
February 21, 1997
<PAGE>
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and 1995
ASSETS 1996 1995
Cash and due from banks $ 9,859,230 $ 10,218,648
Interest bearing deposits in other banks 2,956,541 3,535,338
Securities 90,060,159 64,130,934
Loans, net 156,440,628 148,353,049
Premises and equipment, net 5,060,702 5,110,156
Accrued interest receivable 2,389,093 1,775,135
Other 2,471,400 2,042,287
$269,237,753 $235,165,547
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 29,137,046 $ 27,398,470
Savings 43,491,468 46,510,131
NOW accounts 31,556,534 32,376,060
Money market accounts 10,467,440 13,300,657
Time deposits ($100,000 or more) 27,563,196 16,222,821
Other time accounts 66,257,286 61,953,180
208,472,970 197,761,319
Federal funds purchased 3,825,000 2,150,000
Securities sold under agreements to
repurchase 21,928,937 1,070,856
Borrowed funds 2,000,000 3,000,000
Other 2,648,253 2,629,610
238,875,160 206,611,785
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 300,000
shares authorized; none issued - -
Common stock, $5 par value, 1,500,000
shares authorized; issued and
outstanding: 1996 - 1,365,801 shares,
1995 - 683,117 shares 6,829,005 3,415,585
Additional paid in capital 1,494,678 4,923,490
Undivided profits 21,980,350 19,966,387
Unrealized appreciation on
available-for-sale securities, net 58,560 248,300
30,362,593 28,553,762
$269,237,753 $235,165,547
See Notes to Consolidated Financial Statements.
<PAGE>
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Interest income:
Loans $13,541,792 $13,235,400 $11,943,514
Securities
Held-to-maturity
U.S. Government and agency
obligations 730,550 - -
State and municipal obligations - 956,712 1,133,757
Available-for-sale
U.S. Government and agency
obligations 2,725,582 2,330,407 1,838,356
State and municipal obligations 1,343,952 192,448 -
Federal funds sold 81,539 213,699 78,000
Deposits in other banks and stocks 254,709 284,974 326,996
Total interest income 18,678,124 17,213,640 15,320,623
Interest expense:
Deposits 6,891,164 6,280,052 4,506,048
Borrowings 952,038 270,513 60,645
Total interest expense 7,843,202 6,550,565 4,566,693
Net interest income 10,834,922 10,663,075 10,753,930
Provision for loan losses 268,793 132,484 76,798
Net interest income after
Provision for loan losses 10,566,129 10,530,591 10,677,132
Noninterest income:
Service charges 762,002 652,036 673,036
Net realized gains (losses) on sale
of available-for-sale securities (21,653) 20,894 (44,209)
Other 778,054 774,630 667,905
Total other income 1,518,403 1,447,560 1,296,732
Noninterest expenses:
Salaries and employee benefits 3,806,366 3,751,460 3,460,987
Occupancy 1,058,539 975,644 1,010,934
Other 2,275,164 2,245,485 2,266,223
Total other expenses 7,140.069 6,972,589 6,738,144 <PAGE>
Income before income taxes 4,944,463 5,005,562 5,235,720
Income taxes 1,496,384 1,627,000 1,815,239
NET INCOME $ 3,448,079 $ 3,378,562 $ 3,420,481
NET INCOME PER COMMON SHARE $2.52 $2.49 $2.66
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Common Stock
Net Unrealized
<CAPTION>
Appreciation
(Depreciation) Total
Number Additional on Available- Stock-
of Paid in Undivided for-sale holders'
Shares Amount Capital Profits Securities Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 638,480 $3,192,400 $2,907,923 $18,024,810 $ - $24,125,133
Adjustment to recognize
unrealized appreciation on
available-for-sale securities,
net of taxes of $396,310 - - - - 594,463 594,463
Change in unrealized
depreciation on available-for-
sale securities, net of tax
benefit of $941,490 - - - - (1,412,237) (1,412,237)
Sale of common stock 300 1,500 10,800 - - 12,300
Net income - 1994 - - - 3,420,481 - 3,420,481
Cash dividend declared ($2.51
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
appreciation on available-for-
sale securities, net of taxes
of $774,880 - - - - 1,066,074 1,066,074
Net income - 1995 - - - 3,378,562 - 3,378,562
Cash dividend declared ($1.20
per common share) - - - (1,628,343) - (1,628,343)
Dividends reinvested 9,727 48,635 506,975 - - 555,610
Balance, December 31, 1995 683,117 3,415,585 4,923,490 19,966,387 248,300 28,553,762<PAGE>
2-for-1 stock split 683,117 3,415,585 (3,415,585) - - -
Fractional shares repurchased (433) (2,165) (13,227) - - (15,392)
Changes in unrealized
appreciation on available-for-
sale securities, net of taxes
of $181,310 - - - - (189,740) (189,740)
Net income - 1996 - - - 3,448,079 - 3,448,079
Cash dividend declared ($1.05
per common share) - - - (1,434,116) - (1,434,116)
Balance, December 31, 1996 1,365,801 $6,829,005 $1,494,678 $21,980,350 $ 58,560 $30,362,593
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
BATH NATIONAL CORPORATION <PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,448,079 $ 3,378,562 $ 3,420,481
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 409,581 451,943 461,569
Provision for loan losses 268,793 132,484 125,000
Deferred taxes (benefits) 19,481 - (59,109)
Loan origination costs deferred (72,635) 3,917 (27,031)
Bond premium amortized and
discount accreted 175,703 218,043 184,280
Losses (gains) on sale of
investments 21,653 (20,894) 44,209
Loss on disposed assets - 35,216 -
Changes in:
Interest receivable (613,958) (291,364) 72,641
Other assets (459,293) (104,138) (562,654)
Other liabilities 180,474 (581,394) (381,068)
Net cash provided by
operating activities 3,377,878 3,222,375 3,278,318
CASH FLOWS FROM INVESTING ACTIVITIES
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 13,926,729 9,644,906 17,028,619
Purchases of held-to-maturity
securities (20,000,000) (333,346) (2,503,976)
Purchases of available-for-sale
securities (20,424,362)(27,996,216) (6,021,934)
Federal funds purchased/sold 1,675,000 4,650,000 (2,450,000)
Net (increase) decrease in interest
bearing deposits in other banks 578,797 (114,053) 1,650,661
Increase in loans, net (8,283,737) (8,435,384) (5,785,127)
Capital expenditures (329,947) (883,947) (489,856)
Net cash paid in acquisition of bank - - (787,758)
Net cash provided by (used in)
investing activities (32,857,520)(23,393,040) 2,450,601
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Federal Home Loan Bank
borrowings - 3,000,000 -
Repayments of Federal Home Loan Bank
borrowings (1,000,000) - -
Net increase in securities sold
under repurchase agreements 20,858,081 1,070,856 -
Proceeds from sale of common stock - - 12,300
Increase (decrease) in deposits 10,711,651 16,782,676 (3,357,043)
Fractional shares repurchase (15,392) - -
Dividends paid, net of reinvestments (1,434,116) (1,072,733) (1,558,281)
Net cash provided by (used in)
financing activities 29,120,224 19,780,799 (4,903,024)
Net increase (decrease) in cash and
due from banks (359,418) (389,866) 825,895
Cash and due from banks:
Beginning of year 10,218,648 10,608,514 9,782,619
End of year $ 9,859,230 $10,218,648 $10,608,514
See Notes to Consolidated Financial Statements.
<PAGE>
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid $ 7,415,700 $ 6,471,600 $ 4,478,600
Income taxes paid $ 1,698,800 $ 1,761,700 $ 2,030,800
Shares of common stock issued
under the dividend reinvestment
program in lieu of cash
dividends of $0, $555,610, and
$1,670,842 in 1996, 1995 and
1994, respectively - 9,727 34,610
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
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 accounting and financial reporting
policies of the entities are in accordance with generally accepted
accounting principles and general practices within the banking
industry.
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.
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
Trading account assets are held for resale in anticipation of short
term market movements. Trading account assets, consisting of debt
and money market instruments, are stated at fair value. Gains and
losses, both realized and unrealized, are included in other income.
Held-to-Maturity<PAGE>
Securities for which the Bank has the positive intent and ability to
hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income over the period to
maturity.
Available-for-Sale
Available-for-sale securities consist of bonds, notes, debentures,
and certain equity securities not classified as trading securities
nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-
sale securities are reported as a net amount in a separate component
of stockholders' equity until realized.
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies, Continued
Securities, Continued
Available-for-Sale, Continued
Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
Premiums and discounts are recognized in interest income over the
period to maturity.
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.
In addition, various regulatory agencies, as an integral part of<PAGE>
their examination process, periodically review the Company's
allowance for losses on loans. Such agencies may require the Company
to recognize additions to the allowances based on their judgments of
information available to them at the time of their examination.
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
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies, Continued
Loans and Allowance for Loan Losses, Continued
probable that the borrower will not repay the loan according to the
original contractual terms of the loan agreement. On January 1,
1995, the Bank adopted the provisions of SFAS 114 and SFAS 118. 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.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at fair value
at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowances are included in noninterest
expense.<PAGE>
Real estate properties formally acquired in settlement of loans were
$150,700 and $501,120 at December 31, 1996 and 1995, respectively,
and are included in other assets.
Income Taxes
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes related primarily to differences between the
basis of available-for-sale securities, allowance for loan losses,
accumulated depreciation, and employee benefits for financial and
income tax reporting. Deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred tax assets and liabilities are
reflected at income tax rates applicable to the period in which the
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies, Continued
Income Taxes, Continued
deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through a provision for income
taxes.
Employee Benefit Plans
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.
Postretirement Benefits: The Bank provides certain health care
benefits for all retired employees that meet certain eligibility
requirements. 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 prior to the adoption of the plan is being accrued
primarily in a straight line manner.
Stock Split and Net Income Per Common Share
On March 21, 1996, the Board of Directors approved a two-for-one
common stock split, distributable on April 24, 1996 to stockholders
of record at the close of business on that date. All per share
amounts and numbers of shares in the consolidated financial
statements have been restated to reflect this split. In addition, an
amount equal to the $5 par value of the split shares has been
transferred from additional paid in capital to common stock.
Net income per common share is computed on the weighted average
number of shares outstanding during each year. The weighted average
number of shares outstanding were 1,365,832, 1,354,492 and 1,285,762<PAGE>
in 1996, 1995 and 1994, respectively.
Use of Estimates
The preparation of the Company'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.
Reclassifications
Certain items have been reclassified in the 1995 and 1994 financial
statements to conform with the 1996 presentation.
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $4,397,000 and $4,095,000 at December 31, 1996 and
1995, respectively.
Note 3. Securities
In January 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). 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 for
certain securities. This determination resulted in the transfer of
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.
The amortized cost and fair values of available-for-sale securities
as of December 31, 1996 are summarized as follows:
Gross Unrealized
Amortized
Cost Gains Losses Fair Value
U.S. Government and
agency securities $15,847,517 $ 57,084 $(128,067) $15,776,534
State and municipal
securities 31,047,869 485,831 (56,996) 31,476,704
Mortgage-backed and
related securities 21,264,901 81,180 (495,503) 20,850,578
Other 1,792,924 165,942 (2,523) 1,956,343<PAGE>
$69,953,211 $790,037 $(683,089) $70,060,159
The amortized cost and fair value of available-for-sale securities as
of December 31, 1996 by contractual maturity are shown below.
Expected maturities differ from contractual maturities in mortgage-
backed and related 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.
Amortized Fair
Cost Value
Due in one year or less $11,802,358 $11,725,462
Due after one year through five years 15,661,101 15,772,683
Due after five years through ten years 20,065,474 20,548,127
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Securities, Continued
Due after ten years 1,159,377 1,163,309
48,688,310 49,209,581
Mortgage-backed and related securities 21,264,901 20,850,578
$69,953,211 $70,060,159
The amortized cost and fair values of held-to-maturity securities as
of December 31, 1996 are summarized as follows:
Gross Unrealized
Amortized
Cost Gains Losses Fair Value
U.S. Government and agency
Securities $20,000,000 $329,400 $ - $20,329,400
The amortized cost and fair value of securities being held-to-
maturity as of December 31, 1996 by contractual maturity are shown
below.
Amortized Fair
Cost Value
Due after one year through five years $20,000,000 $20,329,400
The amortized cost and fair values of available-for-sale securities
as of December 31, 1995 are summarized as follows:
Gross Unrealized
Amortized
Cost Gains Losses Fair Value
U.S. Government and agency
securities $17,836,228 $114,950 $(124,681) $17,826,497
State and municipal <PAGE>
securities 24,507,677 461,267 (95,610) 24,873,334
Mortgage-backed and
related securities 18,906,944 153,572 (267,611) 18,792,905
Other 2,402,085 237,244 (1,131) 2,638,198
$63,652,934 $967,033 $(489,033) $64,130,934
The amortized cost and fair value of available-for-sale securities as
of December 31, 1995 by contractual maturity are shown below.
Expected maturities differ from contractual maturities in mortgage-
backed and related 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.
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Securities, Continued
Amortized Fair
Cost Value
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 and related securities 18,906,944 18,792,905
$63,652,934 $64,130,934
Proceeds from sales of securities during 1996, 1995 and 1994, which
were principally attributable to those available-for-sale, were
$6,867,918, $5,728,507 and $13,056,627, respectively, with gross
gains of $23,080, $23,839 and $151,694 and gross losses of $44,733,
$2,945 and $195,903 realized on those sales.
Securities with a carrying value of $66,136,796 and $45,320,394 and
market values of $65,875,690 and $45,448,421 at December 31, 1996 and
1995, respectively, were pledged to secure public deposits,
securities sold under agreements to repurchase, and for other
purposes as required or permitted by law.
Note 4. Loans, Net
The components of loans at December 31, 1996 and 1995 were as
follows:
1996 1995
Commercial $ 67,078,298 $ 67,125,378
Installment 20,145,787 20,021,766
Real estate mortgage 41,587,646 36,034,923
Home equity loans 19,150,743 18,011,383
Student 7,488,854 6,562,524
Credit card loans 1,939,241 1,619,651<PAGE>
Net deferred loan origination
costs and unearned discounts 700,059 627,424
158,090,628 150,003,049
Less allowance for loan losses 1,650,000 1,650,000
Loans, net $156,440,628 $148,353,049
Real estate mortgage and home equity loans consist of:
Mortgages with fixed rates $22,691,552
Mortgages with variable rates 18,896,094
Home equity loans with fixed rates 13,587,879
Home equity loans with variable rates 5,562,864
Total real estate secured loans $60,738,389
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans, Net
Changes in the allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 were as follows:
1996 1995 1994
Balance, beginning of year $1,650,000 $1,725,000 $1,600,000
Provision for loan losses 268,793 132,484 76,798
Recoveries credited to the allowance 80,752 181,180 324,481
Losses charged to the allowance (349,545) (388,664) (276,279)
Balance, end of year $1,650,000 $1,650,000 $1,725,000
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
$589,200 and $4,373,200 at December 31, 1996 and 1995, respectively.
The activity with respect to related parties for the year ending December 31,
1996 follows:
Aggregate amount beginning of period $ 4,373,200
New loans 595,000
Repayments (4,379,000)
Aggregate amount end of period $ 589,200
Note 5. Premises and Equipment
At December 31, 1996 and 1995, premises and equipment consist of:
1996 1995<PAGE>
Land $ 502,389 $ 502,389
Buildings and improvements 5,879,475 5,729,351
Furniture and equipment 2,628,736 2,452,549
Total 9,010,600 8,684,289
Less accumulated depreciation 3,949,898 3,574,133
Premises and equipment, net $5,060,702 $5,110,156
Depreciation expense was $379,401, $393,354 and $391,064 for the years ended
December 31, 1996, 1995 and 1994, respectively.
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Deposits
A summary of deposit accounts at December 31, by maturity, is as follows:
1996 1995
No contractual maturity $114,661,724 $119,604,109
Maturity within one year 77,592,337 64,908,427
Maturity after one year through
five years 16,218,909 13,248,783
$208,472,970 $197,761,319
Note 7. Securities Sold Under Agreements to Repurchase
Substantially, all securities sold under repurchase agreements were delivered
to the broker-dealers who arranged the transactions. The broker-dealers may
have sold, loaned, or otherwise disposed of such securities to other parties
in the normal course of their operations, and have agreed to resell to the
Bank substantially identical securities at the maturities of the agreements.
Agreements approximating $18,500,000 mature in July 1999. The balance of the
agreements mature in less than four months.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
1996 1995
Average balance during the year $11,374,200 $3,083,900
Average interest rate during the year 4.75% 5.05%
Maximum month-end balance during
the year $22,372,100 $5,650,000
Securities underlying the agreements
at year-end:
Carrying value $25,967,387 $2,933,781
Estimated fair value $26,287,794 $2,945,113
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Borrowed Funds
Borrowed funds represent advances from the Federal Home Loan Bank. The
advances at December 31, 1996 and 1995 are summarized as follows:
1996
Advance Interest Maturity
Amount Rate Date
$1,000,000 5.95% January 1997
1,000,000 5.99% July 1997
$2,000,000
1995
Advance Interest Maturity
Amount Rate Date
$1,000,000 5.90% July 1996
$1,000,000 5.95% January 1997
$1,000,000 5.99% July 1997
$3,000,000<PAGE>
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Income Taxes
A summary of the components of income taxes is as follows:
Years Ended December 31,
1996 1995 1994
Current Tax
Federal $1,097,485 $1,180,000 $1,366,348
State 379,418 447,000 508,000
Total current tax
expense 1,476,903 1,627,000 1,874,348
Deferred tax (benefit)
Federal and State 19,481 - (59,109)
Total provision for
income taxes $1,496,384 $1,627,000 $1,815,239
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:
Years Ended December 31,
1996 1995 1994
Statutory provision $1,681,117 $1,701,891 $1,784,124
Tax exempt interest (508,980) (436,560) (385,477)
State income tax, net of
federal benefit 250,416 295,020 335,280
Non deductible interest 57,800 49,310 32,656
Other 16,031 17,339 48,656
Total $1,496,384 $1,627,000 $1,815,239<PAGE>
Net deferred tax liabilities (classified as other liabilities) consist of the
following at December 31, 1996 and 1995:
1996 1995
Deferred tax liabilities:
Depreciation $ 550,670 $ 526,480
Deferred loan fees 336,029 301,164
Unrealized gain on available-
for-sale securities 50,400 229,700
937,099 1,057,344
Deferred tax assets:
Provision for loan losses 548,153 548,153
Employee benefits 337,891 296,308
886,044 844,461
Less valuation allowance - -
886,044 844,461
Net deferred tax liability $ (51,055) $ (212,883)
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. 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 $214,300,
$139,200 and $137,900 for 1996, 1995 and 1994, 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 $198,800, $232,400, and $181,100
for 1996, 1995, and 1994, respectively.
The Bank has severance compensation agreements with a number of Bank officers
which do not become effective unless there has been a change incontrol 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 five
times the aggregate annual compensation paid to the executive officers during
the calendar year immediately preceding the change in control.
Postretirement Benefits:
TheBank 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.
Postretirement benefit expense was $131,287, $127,706 and $132,888 for 1996,
1995 and 1994, respectively. <PAGE>
The components of the postretirement benefit cost are as follows:
1996 1995 1994
Service cost for benefits earned
during the year $26,690 $ 29,586 $ 29,850
Interest cost on accumulated
postretirement benefit obligation 70,005 64,117 65,385
Amortization of transition
obligation 26,514 26,514 26,514
Amortization of net loss 8,078 7,489 11,139
Net annual postretirement
benefit cost $131,287 $127,706 $132,888
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%.
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Employee Benefit Plans and Postretirement Benefits, Continued
Postretirement Benefits, Continued:
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, 1996 by
approximately $150,000 and increase the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost for 1996 by
approximately $23,700.
The following table sets forth the plan's funded status reconciled with the
amount shown on the Bank's balance sheet at December 31, 1996 and 1995:
Accumulated postretirement benefit obligation:
1996 1995
Retirees $489,213 $469,210
Fully eligible active plan participants 99,721 47,093
Other active plan participants 360,236 357,548
Accumulative postretirement benefit obligation
in excess of plan assets 949,170 873,851
Unrecognized transition obligation (424,239) (450,753)
Unrecognized net loss due to changes in
assumptions (202,852) (187,126)
Accrued postretirement benefit cost $322,079 $235,972
Note 11.Regulatory Matters
The Bank is subject to various regulatory capital requirementsadministered by
the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory-and possibly additional discretionary-actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meetspecific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of
Controller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-
based, and Tier 1 leverage ratios as set forth in the table. There
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Regulatory Matters, Continued
are no conditions or events since that notification that management believes
have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
For Capital
To Be Well
Actual Adequacy Purposes: Capitalized:
Amount Ratio Amount Ratio Amount Ratio
As of December
31, 1996:
Total Capital
(to Risk
Weighted Assets)$30,363,000 21.39% $11,357,000 >8.0% $14,196,000 >10.0%
Tier 1 Capital
(to Risk
Weighted Assets) 30,014,000 21.14% 5,679,000 >4.0% 8,518,000 > 6.0%
Tier 1 Capital
(to Average
Assets) 30,014,000 11.89% 10,094,000 >4.0% 12,617,000 > 5.0%
As of December
31, 1995:
Total Capital
(to Risk
Weighted Assets) 28,554,000 22.57% 10,122,000 >8.0% 12,652,000 >10.0%
Tier 1 Capital
(to Risk
Weighted Assets) 27,988,000 22.12% 5,061,000 >4.0% 7,561,000 > 6.0%
Tier 1 Capital
(to Average
Assets) 27,988,000 12.60% 8,886,000 >4.0% 11,108,000 > 5.0%<PAGE>
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 yearsmust
be approved by the Comptroller of the Currency. Under the formula, dividends
of approximately $3,956,000 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.
Note 12.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 standbyletters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheets.
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Commitments and Contingencies, Continued
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. A summary of the Bank's commitments at December 31, 1996 is as
follows:
Revolving open-end lines secured by
1-4 family residential properties $ 4,044,633
Credit card lines 4,795,792
Commercial real estate, construction
and land development 3,683,869
Commercial and similar letters of credit, net 285,860
Other unused commitments 11,541,035
$24,351,189
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: <PAGE>
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.
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.
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Disclosure About Fair Value of Financial Instruments
Line of Credit:
The Bank has credit available from the Federal Home Loan Bank and
Manufacturers and Traders Bank in the amount of $7,730,000 and $2,000,000,
respectively, at the overnight federal funds rate.
Fair value of financial instruments:
The fair values shown below represent management's estimates of values at
which the various types of financial instruments could be exchanged in
transactions between willing, unrelated parties. They do not necessarily
represent amounts that would be received or paid in actual trades of specific
financial instruments.
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
Cash and short term investments $ 12,816 $ 12,816 $ 13,753 $ 13,753
Securities 90,060 90,390 64,130 64,130
Loans, net 156,441 157,340 148,353 150,327
$259,317 $260,546 $226,236 $228,210
Financial Liabilities:
Deposits $208,473 $208,535 $197,761 $198,073
Federal funds purchased 3,825 3,825 2,150 2,150
Securities sold under agreements
to repurchase 21,929 21,929 1,071 1,071
Borrowed funds 2,000 2,000 3,000 3,000
$236,227 $236,289 $203,982 $204,294
Unrecognized financial instruments
Commitments to extend credit $ 24,214 $ 24,214 $ 19,311 $ 19,311
The specific estimation methods and assumptions used can have a substantial
impact on the resulting fair values of financial instruments. Following is a
brief summary of the significant methods and assumptions used in the above <PAGE>
table:
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>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13.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 chargedto
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 is based on fees currently charged for similar agreementsor
on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
Note 14.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.
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15.Parent Company Only Financial Information
Parent company (Bath National Corporation) only condensed financial
information is as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and 1995
ASSETS 1996 1995
Cash $ 2,920 $ 282
Dividend receivable 615,000 681,000
Investment in subsidiary 30,391,234 28,586,061
Total assets $31,009,154 $29,267,343
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Dividend payable $ 614,610 $ 680,238
Other liabilities 31,951 33,343
646,561 713,581
STOCKHOLDERS' EQUITY
Common stock 6,829,005 3,415,585
Additional paid in capital 1,494,678 4,923,490
Undivided profits 21,980,350 19,966,387
Unrealized appreciation on available-
for-sale securities, net 58,560 248,300
30,362,593 28,553,762
Total liabilities and
stockholders' equity $31,009,154 $29,267,343
CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994<PAGE>
1996 1995 1994
Revenue $ - $ - $ -
Expenses
Other operating expenses 1,835 4,728 11,703
Loss before equity in earnings
of subsidiary (1,835) (4,728) (11,703)
Equity in earnings of subsidiary 3,449,914 3,383,290 3,432,184
Net income $3,448,079 $3,378,562 $3,420,481
<PAGE>
BATH NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Parent Company Only Financial Information Continued
CONDENSED STATEMENTS OF CASH FLOW
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 3,448,079 $ 3,378,562 $ 3,420,481
Adjustments to reconcile net
income to net cash used in
operating activities:
Net earnings of subsidiary (3,449,914) (3,383,290) (3,432,184)
Change in other liabilities (1,392) (3,740) (1,548)
Net cash used in operating
activities (3,227) (8,468) (13,251)
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash dividend received 1,506,000 1,623,000 636,000
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shares sold - - 12,300
Cash dividends paid (1,500,135) (1,619,826) (632,195)
Net cash used in financing
activities (1,500,135) (1,619,826) (619,895)
Net increase (decrease) in cash 2,638 (5,294) 2,854
Cash, January 1 282 5,576 2,722
Cash, December 31 $ 2,920 $ 282 $ 5,576
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
None
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, included on pages 6 through 8, for its 1997 Annual Meeting filed
with the Securities and Exchange Commission in March 1997 and which is
incorporated herein by reference.
ITEM 11. Executive Compensation
Information under this Item 11 has been included in the Registrant's Proxy
Statement, pages 8 through 11, for its 1997 Annual Meeting filed with the
Securities and Exchange Commission in March 1997 and which is incorporated
herein by reference.
<PAGE>
PART III, Continued
ITEM 12. Security Ownership of certain Beneficial Owners and
Management
Information under this Item 12 has been included in Registrant's Proxy
Statement, page 7, for its 1997 Annual Meeting filed with the Securities and
Exchange Commission in March 1997 and which is 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, page 11, for its 1997 Annual Meeting filed with the Securities and
Exchange Commission in March 1997 and which is incorporated herein by
reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
A. Financial Statements, Financial Statement Schedules and Exhibits
1. Financial Statements
The information required under this section is located in Item 8 of
this 10-K report.
B. Reports on Form 8-K
No reports on form 8-K were required to be filed for the
fourth quarter of 1996. <PAGE>
<PAGE>
PART IV, Continued
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K, Continued
C. 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 and
incorporated herein by reference thereto.
** Submitted to the Securities Exchange Commission on or about March 22, 1996
in connection with Rule 14a-3.
D. Financial Statements Schedules <PAGE>
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.
<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 20th day of
March, 1997.
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 20th day of March,
1997.
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<PAGE>
Directors:
_____________________________
Laverne H. Billings, Director
______________________________
Theodore P. Capron, Director
<PAGE>
_________________________
Herbert Fort, Director
___________________________
Lisle E. Hopkins, Director
___________________________
Lawrence Howell, Director
_________________________
Constance Manikas, Director
_____________________________
Douglas McCabe, Director
__________________________
Joseph F. Meade, Jr., Director <PAGE>
____________________________
Freeman H. Smith, III, Director
_____________________________
Patrick Sullivan, Director
____________________________
Alan J. Wilcox, Director <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,859,230
<SECURITIES> 90,060,159
<RECEIVABLES> 0
<ALLOWANCES> 1,650,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,389,093
<PP&E> 5,060,702
<DEPRECIATION> 379,401
<TOTAL-ASSETS> 269,237,753
<CURRENT-LIABILITIES> 8,473,253
<BONDS> 0
0
0
<COMMON> 6,829,005
<OTHER-SE> 23,475,028
<TOTAL-LIABILITY-AND-EQUITY> 269,237,753
<SALES> 0
<TOTAL-REVENUES> 18,678,124
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,891,164
<LOSS-PROVISION> 268,793
<INTEREST-EXPENSE> 952,038
<INCOME-PRETAX> 4,944,463
<INCOME-TAX> 1,496,384
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,448,079
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
</TABLE>
