SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ending September 30, 1997
Commission file number 0-20142
BATH NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-1185097
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
44 Liberty Street, Bath, NY 14810
(Address of principal executive offices) (zip code)
(607) 776-9661
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ______
The number of shares outstanding of the issuer's Common Stock, $5 par
value was 1,365,801 shares as of September 30, 1997, of which 19,203 are
classified as Treasury Stock.<PAGE>
<PAGE>
TABLE OF CONTENTS
Page Number
PART I. FINANCIAL INFORMATION 1 - 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 8
ITEM 2. Changes in Securities 8
ITEM 3. Defaults upon Senior Securities 8
ITEM 4. Submission of Matters to a vote 8
of Security Holders
ITEM 5. Other Information 8
ITEM 6. Exhibits and Reports Form 8-K 8
PART III. MANAGEMENT'S DISCUSSION AND ANALYSIS 9 - 11
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATION STATEMENTS OF CONDITION
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
September 30, December 31,
1997 1996
ASSETS
Cash and due from banks $ 10,646,900 $ 9,859,200
Interest Bearing Deposits in other banks 1,676,900 2,956,500
Securities Held-to-Maturity approx.
market value 9/97 $20,575,600 20,000,000 20,000,000
Available-for-Sale 73,053,400 71,128,900
Total Investments 93,053,400 91,128,900
Loans (Gross) 163,669,400 158,241,300
LESS: Allowance for loan losses 1,650,000 1,650,000
Premises and equipment-Net 5,125,600 5,060,700
Interest Receivable 2,084,400 2,389,100
Other Assets 794,700 1,251,900
TOTAL ASSETS $275,401,300 $269,237,600
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 29,455,300 $ 29,137,000
Savings 42,586,200 43,491,400
NOW Accounts 33,947,900 31,556,500
Money Market deposit accounts 10,905,600 10,467,400
Time deposits (in denominations of
100,000 or more) 25,507,200 27,563,200
Other time accounts 74,378,400 66,257,300
TOTAL DEPOSITS 216,780,600 208,472,800
FHLB Borrowings 0 2,000,000
Federal Funds Purchased 3,000,000 3,825,000
Repurchase Agreements 21,301,900 21,928,900
Other liabilities 2,449,400 2,648,300
TOTAL LIABILITIES 243,531,900 238,875,000
STOCK HOLDERS' EQUITY:
Preferred Stock: $10 par value;
300,000 shares authorized,
Common Stock: $5.00 par value;
1,500,000 shares authorized;
issued and outstanding: September
1997 - 1,365,801, December 1996
1,366,234 6,829,000 6,829,000
Surplus 1,494,800 1,494,800
Undivided profits 23,755,400 21,980,200
Treasury Stock (19,203 shares at
$739,300 as of September 1997) (739,300) -
Unrealized gain/(loss) - Investments 529,500 58,600
TOTAL STOCKHOLDER'S EQUITY 31,869,400 30,362,600
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $275,401,300 $269,237,600
See notes to condensed unaudited consolidated financial statements.
<PAGE>
PART I, Continued
<TABLE>
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $3,555,700 $3,504,400 $10,715,900 $10,253,400
Int. on federal funds sold 35,900 13,900 121,100 65,100
Int. on investment securit:
US Treasury & Govern. Agency 627,000 638,600 1,878,600 1,201,600
Municipal Obligations 524,200 388,500 1,306,900 1,091,600
Taxable Municipal 37,700 39,900 116,000 133,100
Mortgaged Backed Securities 352,700 371,500 1,090,600 1,073,700
Interest Bearing due from 32,600 47,800 107,700 148,200
Other 16,200 14,700 48,500 43,200
Total Interest Income 5,182,000 5,019,300 15,385,300 14,009,900
INTEREST EXPENSE:
Interest Deposits 1,909,700 1,756,900 5,563,600 5,113,200
Int. on short term borrow. 13,100 55,600 50,700 195,200
Interest on repurchase agree 334,900 316,200 1,006,400 367,100
Total Interest Expense 2,257,700 2,128,700 6,620,700 5,675,500
NET INTEREST INCOME 2,924,300 2,890,600 8,764,600 8,334,400
Prov. loan loss (recovery) 65,700 117,600 232,300 182,300
Net Int. Income After
Provision for Loan Losses 2,858,600 2,773,000 8,532,300 8,152,100
OTHER OPERATING INCOME:
Service charges 197,000 204,400 588,700 558,600
Trust department fees 13,500 11,700 30,600 28,800
Invest. gains (losses) 5,300 (32,400) (19,900) (21,600)
Other 51,600 65,500 128,900 155,900
Total other operating income 267,400 249,200 728,300 721,700
OTHER OPERATING EXPENSES:
Salaries & emp benefits 1,145,700 975,200 3,300,800 2,879,400
Net occupancy expense of
premises 167,500 168,700 483,300 504,600
Depreciation 105,100 99,000 302,100 293,200
Other 522,700 466,200 1,479,600 1,495,000
Total other oper. expenses 1,941,000 1,709,100 5,565,800 5,172,200
INCOME BEFORE INCOME TAXES 1,185,000 1,313,100 3,694,800 3,701,600
INCOME TAXES (benefit) 346,000 398,600 1,106,600 1,141,600
NET INCOME $ 839,000 $ 914,500 $2,588,200 $2,560,000
EARNINGS PER COMMON SHARE <F1> .63 .67 1.91 1.87
DIVIDENDS DECLARED PER COMMON SHARE .20 .20 .60 .60
<FN>
<F1> Earnings per share data is based on average weighted shares
outstanding
</TABLE>
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST EARNING
The following is a presentation of an analysis of the net interest earnings
of the company for the nine months ended September 30, 1997 and 1996,
respectively, with respect to each major category of interest-earning
assets and interest-bearing liabilities:
Nine Months Ended September 30, 1997
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 2,456 $ 108 5.86%
Taxable Securities 58,702 3,134 7.12%
Non-Taxable Securities 33,115 1,818 7.31%
Federal Funds Sold 3,065 121 5.27%
Loans 159,198 10,885 9.12%
Total Int-Earning Assets $256,536 $16,066 8.35%
Liabilities
NOW's & Money Market Accts. 45,988 701 2.04%
Savings Deposits 44,122 911 2.76%
Time Deposits 97,774 3,952 5.40%
Total Int-Bearing Deposits $187,884 $ 5,564 3.96%
Repurchase Agreements 21,030 1,006 6.39%
Federal Funds Purchased 386 18 6.23%
Federal Home Loan Bank
Borrowings 751 33 5.87%
Total Int-Bearing Liabilities $210,051 $ 6,621 4.22%
Interest Rate Spread (tax
equivalent basis) 4.37%
Net Interest Income FTE $ 9,445
Net Interest Margin (tax
equivalent basis) 4.91%
Less Tax-Equivalent Adjustment $ 680
Net Interest Income $ 8,765 <PAGE>
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST-BEARINGS, Continued
Nine Months Ended September 30, 1996
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 3,394 $ 148 5.80%
Taxable Securities 48,434 2,451 6.75%
Non-Taxable Securities 26,457 1,482 7.48%
Federal Funds Sold 1,700 65 5.11%
Loans 152,087 10,431 9.15%
Total Int-Earning Assets $232,072 $14,577 8.39%
Liabilities
NOW's & Money Market Accts. $ 45,875 $ 704 2.05%
Savings Deposits 46,114 983 2.85%
Time Deposits 85,707 3,426 5.34%
Total Int-Bearing Deposits $177,696 $ 5,113 3.84%
Repurchase Agreements 7,755 367 6.32%
Federal Funds Purchased 1,402 65 6.18%
Federal Home Loan Bank
Borrowings 2,701 130 6.41%
Total Int-Bearing Liabilities $189,554 $ 5,675 3.99%
Interest Rate Spread (tax
equivalent basis) 4.40%
Net Interest Income FTE $ 8,902
Net Interest Margin (tax
equivalent basis) 5.12%
Less Tax-Equivalent Adjustment $ 568
Net Interest Income $ 8,334 <PAGE>
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
September 30,
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 2,588,200 $ 2,560,000
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 302,000 293,200
Provision for loan losses 232,300 182,300
FAS-115 effect 2,900 0
Loan origination costs deferred (44,500) (66,800)
Bond premium amortized and (discount accrued) 107,700 134,000
(Gain) or Loss on sale of investments 19,900 21,600
(Increase) or Decrease in interest receivable 304,700 (253,000)
Increase or (Decrease) in other liabilities (498,000) (557,200)
(Increase) or Decrease in other assets 457,200 (340,500)
Net cash provided by operating activities 3,472,400 1,973,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing securities 3,035,000 9,684,500
Proceeds from sales of investment securities 2,387,400 2,895,000
Purchases of investment securities (6,704,400) (38,327,800)
(Increase) or decrease in federal funds sold 0 0
Increase or (decrease) in federal funds purchased (825,000) (250,000)
Increase or (decrease) in repurchase agreements (627,000) 20,720,400
Net decrease in interest bearing
deposits in other banks 1,279,600 384,000
Principal collected on loans 28,329,900 35,005,100
Loans made to customers (33,945,800) (41,722,700)
Capital expenditures (366,900) (311,500)
Net cash used or provided in investing
activities (7,437,200) (11,923,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) or increase in demand
deposits, NOW, MMDA & savings accounts 2,242,700 (1,898,400)
Proceeds from sale of
certificates of deposit 38,003,000 36,867,200
Payments for maturing
certificates of deposit (31,937,900) (22,643,800)
Dividends paid (816,000) (840,000)
Purchase of Treasury Stock (739,300) 0
Repayment of FHLB borrowings (2,000,000) (1,000,000)
Net cash provided by financing activities 4,752,500 10,485,000
NET DECREASE IN CASH AND CASH EQUIVALENTS 787,700 535,600
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,859,200 10,218,600
CASH AND CASH EQUIVALENTS AT END OF NINE MONTHS $10,646,900 $ 10,754,200
<PAGE>
<PAGE>
PART I, CONTINUED
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996. (Unaudited)
---------------------------------------------------------------------------
1. GENERAL
The accounting and reporting policies followed by Bath National
Corporation (BNC), a bank holding company, and its subsidiary, Bath
National Bank (BNB), in the preparation of the accompanying interim
financial statements conform with generally accepted accounting
principles and with general practice within the banking industry.
The accompanying financial statements are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of
financial position and results of operations for the interim periods
have been made. Such adjustments are of a normal recurring nature.
The results of operations for the nine month period ended 9-30-97 are not
necessarily inductive of the results to be expected for the full year.
2. INVESTMENT SECURITIES
Investment securities classified held-to-maturity are stated at cost plus
discount accrued and less premium amortized. The carrying value, fair
market value and unrealized gain/(loss) are as follows:
Fair
Book Market Unreal. Unreal.
Value Value Gain Loss Net
Agencies 20,000,000 20,575,600 575,600 -0- 575,600
Investment securities classified as available-for-sale are stated at fair
market value. The carrying value, fair market value and unrealized
gain/(loss) for those securities are as follows:
Fair
Book Market Unreal. Unreal.
Value Value Gain Loss Net
U.S. Treasury &
Agencies 14,573,200 14,548,500 73,700 (98,400) (24,700)
States & Political
Subdivisions 36,910,000 37,903,400 1,005,100 (11,700) 993,400
Mortgage Back
Securities 19,600,100 19,508,000 98,600 (190,700) (92,100)
Equity Securities 1,093,500 1,093,500 - - -
Total 72,176,800 73,053,400 1,177,400 (300,800) 876,600
<PAGE>
PART I, Continued
3. ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of the
relative risks inherent in the loan portfolio and, on an annual basis,
generally exceeds the amount of net loan losses charged against the
allowance.
Balance - January 1, 1997 $ 1,650,000
Less charge offs (303,300)
Recoveries 71,000
Provision charged to income 232,300
Balance - September 30, 1997 $ 1,650,000
4. INCOME TAXES
Provision for deferred income taxes are made as a result of timing
differences between financial and taxable income. These differences
relate principally to depreciation of bank premises and equipment,
accretion of discounts on investment securities and provisions for loan
losses.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
There were no reports filed on Form 8-K
ITEM 6. Exhibits and Reports on Form 8-K
N/A
<PAGE>
PART III. MANAGEMENT'S DISCUSSION AND ANALYSIS
Discussions and Analysis of Financial Condition and Result of Operations
(Interim) (Unaudited)
Bath National Corporation has one subsidiary bank (Bath National Bank).
There are no non-banking subsidiaries.
Liquidity and Capital Resources:
Management has not identified any trends, demands, commitments, events
or uncertainties likely to result in any significant deficiencies or
increases in liquidity.
Liquidity is an important factor in the financial condition of Bath
National Corporation and affects its ability to meet the borrowing needs and
deposit withdrawal requirements of its customers. Assets, consisting
principally of loans and investment securities, are funded by customer
deposits.
The investment portfolio is one of Bath National Bank's primary sources
of liquidity. Maturities of securities and principal payments on mortgage
backed securities provide a constant flow of funds which are available for
cash needs. Interest bearing deposits in other financial institutions
maturing within one year total $1.6 million. Also, high quality securities
are readily marketable and provide a steady flow of funds. At September 30,
1997 loans with an aggregate balance of $7.8 million and securities of $6.1
million were due to mature in one year or less. Additional funds flow from
payments on installment and revolving credit loans. Bath National Bank's
liquidity also continues to be enhanced by a relatively stable deposit base.
On September 30, 1997, 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 86%.
In addition to the sources of liquidity referred to above, Bath
National Bank may borrow from the Federal Reserve Bank in the event of a
short term liquidity deficiency. The bank also has an agreement with our
correspondent bank to borrow overnight federal funds. During 1997, the bank
had an average net daily federal funds sold of $2.7 million.
Bath National Bank is a member of the Federal Home Loan Bank (FHLB)
system. Based on the current level of stock ownership, Bath National Bank
is authorized to borrow up to $13.5 million. As of September 30, 1997 the
bank has borrowed overnight federal funds of $3.0 million against this
line of credit.
During the second quarter of 1997, the Board of Directors approved a
Treasury Stock repurchase program for up to 100,000 shares of Bath National
Corporation Stock. The amount to be paid per share is the market price as
provided by the corporation's market makers. Shares purchased total 19,203
with a cost of $739,300. Repurchase of common stock are accounted for under
the cost method, whereby shares repurchased are recorded in a contra-equity
account.
The Federal Reserve Board and Office of the Comptroller of the Currency
have guidelines as to the minimum risk based capital requirement of
community banks. This minimum is presently 8.00%. Bath National
Corporation has primary capital at September 30, 1997 as follows:
<PAGE>
PART III, Continued
Components of Capital 9-30-97 9-30-96
Common Equity $31,869,400 $29,723,800
Allowance for loan losses 1,650,000 1,650,000 <PAGE>
Subtotal 33,519,400 31,373,800
Less: Goodwill 300,000 341,800
Less: Treasury Stock 739,300 0
TOTAL PRIMARY CAPITAL $32,480,100 $31,032,000
The company's capital to asset ratios for the third quarter of 1997 and
1996 are as follows:
TIER I LEVERAGE RATIO RISK BASED
Required Required
Minimum Actual Minimum Actual
September 30, 1996 4.00% 11.27% 8.00% 19.53%
September 30, 1997 4.00% 11.80% 8.00% 22.43%
Net Interest Income
Net interest income on a fully tax equivalent basis (FTE) increased
from $8.9 million for the nine months ended September 30, 1996 to $9.4
million for the nine months ended September 30, 1997, reflecting an
increase of 5.6%. Similarly, net interest income for the three months
ended September 30, 1997 increased by $100,000 on a FTE basis or 3.23% over
the corresponding quarter of 1996. Although net interest income has
increased by the amounts indicated above, the net interest margin has
declined from 5.12% to 4.91% for the nine months of 1996 to 1997. This
decline is due to the higher costs associated with time deposits which
increased from an average balance of $85.7 million at 5.34% in 1996 to
$97.8 million at an average rate of 5.4% in 1997.
Provision for Loan Losses
The company's management recognizes the fact that there are risks of
loss involved in any lending function. Identifying the extent of the risk
for each loan category, and the probability that losses will be sustained
based on delinquency experience, is part of the overall plan for
establishing an Allowance for Loan Losses.
Bath National Bank recognized net loan charge offs totaling $232,300
for the nine months ended September 30, 1997 versus a net charge off of
$182,300 for the comparable nine months of 1996. The reserve for loan loss
totals $1,650,000. The Board of Directors has determined that $1,650,000
is a sufficient reserve for loan losses based on an analysis of past due
loans, historical data and specific identification of problem loans.
Non-Performing Assets
The Bank's policy is to discontinue the accrual of interest on loans
(other than installment loans) for which principal and interest is past due
120 days or more and which are not fully collateralized. Such loans are
classified as non-accrual by BNB. This classification does not, however,
necessarily indicate that the principal of the loan is uncollectible, but
does warrant a review of the collectability. When a loan is placed on a
non-accrual basis, any unpaid interest accrued is reversed against current
income.
On September 30, 1997, total non-accruing assets were $301,300.
Collateral supporting the loans totals $306,000.
<PAGE>
PART III, Continued
Non-Performing Loans
Non-performing loans are summarized as follows: <PAGE>
Other Real Estate $ 72,000
Non-accrual loans $ 301,300
Past due 90 days or more and still accruing $1,031,000
Total $1,404,300
Other Operating Expenses
Other operating expenses increased by $232,000 for the three months
ended September 30, 1997 or 13.5% over the comparable 1996 third quarter.
Salary expense increases account for the bulk of the increase. Additional
personnel hired for the Penn Yan Office, as well as new personnel hired to
replace retiring officers account for the increase. Salary expenses should
stabilize in the first quarter of 1998.
Other Operating Income
In order to more accurately reflect the return on loans, the Discount
Revenue was reclassified from the subcategory "Other" and moved to Interest
and Fees on Loans. The Discount Revenue for nine months ended 1997 and
1996 was $425,700 and $407,900 respectively.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the <PAGE>
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
BATH NATIONAL CORPORATION
DATE _________________ ___________________________________
Robert H. Cole, Sr.
President
DATE Edward C. Galpin
Vice President and Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,646,900
<SECURITIES> 93,053,400
<RECEIVABLES> 0
<ALLOWANCES> 1,650,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,879,100
<PP&E> 5,125,600
<DEPRECIATION> 302,100
<TOTAL-ASSETS> 275,401,300
<CURRENT-LIABILITIES> 5,449,400
<BONDS> 0
0
0
<COMMON> 6,829,000
<OTHER-SE> 25,040,400
<TOTAL-LIABILITY-AND-EQUITY> 275,401,300
<SALES> 0
<TOTAL-REVENUES> 15,385,300
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,565,800
<LOSS-PROVISION> 232,300
<INTEREST-EXPENSE> 6,620,700
<INCOME-PRETAX> 3,694,800
<INCOME-TAX> 1,106,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,588,200
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.91
</TABLE>
