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 March 31, 1998
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, $5.00
par value was 1,365,801 shares as of March 31, 1998, of which 25,888
are classified as Treasury Stock.
<PAGE>
TABLE OF CONTENTS
Page No
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
of Security Holders 8
ITEM 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
PART III. MANAGEMENT'S DISCUSSION AND ANALYSIS 9 - 11
<PAGE>
PART I, FINANCIAL INFORMATION
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
MARCH 31, 1998 AND DECEMBER 31, 1997 (Unaudited)
March 31, December 31,
1998 1997
ASSETS
Cash and due from banks $ 9,288,700 $ 7,453,600
Interest Bearing Deposits
in other banks 1,081,100 1,477,800
Securities Held-to-Maturity
approx. market value 3/98 20,000,000 20,000,000
$20,472,600, 12/97 $20,329,400
Available-For-Sale 67,565,200 69,030,900
Total Investments 87,565,200 89,030,900
Federal Funds Sold 9,325,000 400,000
Loans, Gross 164,954,300 164,659,200
Less: Allowance for loan loss 1,650,000 1,650,000
Premises and equipment-Net 5,531,500 5,625,900
Interest Receivable 2,012,200 2,310,100
Other Assets 657,800 2,426,500
TOTAL ASSETS $278,765,800 $271,734,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 33,015,700 $ 31,218,800
Savings 42,133,600 41,781,900
NOW accounts 33,334,100 33,030,100
Money market deposit accounts 10,050,600 10,572,700
Time deposits (in denominations
of $100,000 or more) 23,628,100 19,620,000
Other time accounts 79,633,400 75,818,100
TOTAL DEPOSITS 221,795,500 212,041,600
Repurchase Agreements 22,793,700 23,840,900
Other liabilities 2,849,800 4,714,100
TOTAL LIABILITIES $247,439,000 $240,596,600
STOCKHOLDERS' EQUITY:
Preferred stock:
$10 par value, 300,000 shares
authorized - -
Common stock:
$5 par value, 1,500,000 shares
authorized; issued and outstanding
12/97 - 1,365,801 shares,
3/98 - 1,365,801 shares 6,829,000 6,829,000
Surplus 1,494,700 1,494,700
Undivided profits 23,292,500 22,816,100
Unrealized gain/loss - Investments 717,300 736,900
Treasury Stock <F1> (1,006,700) (739,300)
TOTAL STOCKHOLDERS' EQUITY 31,326,800 31,137,400
TOTAL EQUITY AND LIABILITIES $278,765,800 $271,734,000
[FN]
<F1> 25,888 shares recorded at cost as of 3/98, 19,203 shares as of
12/97
See notes to condensed unaudited consolidated financial statements.
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
Three Months Ended
March 31,
1998 1997
INTEREST INCOME:
Interest and fees on loans $3,595,200 $3,519,300
Interest on federal funds sold 61,700 44,400
Interest on investment securities:
US Treasury and Gov. Agencies 556,200 627,000
Municipal obligations 491,500 379,700
Taxable Municipals 29,200 39,000
Mortgage backed securities 312,100 363,600
Interest Bearing due from 19,900 38,700
Other 20,100 16,200
Total Interest Income 5,085,900 5,027,900
INTEREST EXPENSE:
Interest on Deposits 1,858,000 1,795,200
Repurchase Agreement 364,700 338,000
Interest on short-term borrowings 3,800 28,700
Total Interest Expense 2,226,500 2,161,900
Net Interest Income 2,859,400 2,866,000
Provision for loan losses (recoveries) 88,800 129,100
Net interest income after provision
for loan losses 2,770,600 2,736,900
OTHER OPERATING INCOME:
Service charges 188,200 193,300
Trust department fees 11,400 11,800
Investment gains (losses) (10,400) 0
Other 26,400 34,100
Total other operating income 215,600 239,200
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,132,700 1,092,400
Occupancy 196,700 156,400
Depreciation 115,100 97,000
Other operating expenses 572,500 461,400
Total other operating expenses 2,017,000 1,807,200
INCOME BEFORE INCOME TAXES 969,200 1,168,900
INCOME TAXES 224,900 342,300
NET INCOME $ 744,300 $ 826,600
EARNINGS PER COMMON SHARE $ .56 $ .61
DIVIDENDS DECLARED PER COMMON SHARE $ .20 $ .20
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST EARNINGS
The following is a presentation of an analysis of the net interest
earnings of the company for the three months ended March 31, 1998
and 1997, respectively, with respect to each major category of
interest-earning assets and interest-bearing liabilities:
Three Months Ended March 31, 1998
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 1,406 $ 20 5.69%
Taxable Securities 52,094 917 7.05%
Non-Taxable Securities 36,647 748 8.17%
Federal Funds Sold 4,575 62 5.42%
Loans 164,071 3,619 8.83%
Total Interest-Earning
Assets $258,793 $5,366 8.30%
Liabilities
NOW's & Money Market Accts. $ 46,448 $ 231 1.99%
Savings Deposits 41,590 282 2.72%
Time Deposits 88,130 1,345 6.11%
Total Interest-Bearing
Deposits $176,168 $1,858 4.22%
Repurchase Agreements 23,272 367 6.31%
Federal Funds Purchased 162 2 4.94%
Total Interest-Bearing
Liabilities $199,602 $2,227 4.47%
Net Interest Income $3,139 4.86%
Less Tax-Equivalent Adjustment $ 280
Net Interest Income $2,859
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST-EARNINGS, Continued
Three Months Ended March 31, 1997
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 2,755 $ 39 6.03%
Taxable Securities 59,434 1,047 7.05%
Non-Taxable Securities 31,363 577 7.36%
Federal Funds Sold 3,504 44 5.03%
Loans 157,817 3,536 8.97%
Total Interest-Earning
Assets $254,873 $5,243 8.23%
Liabilities
NOW's & Money Market Accts. $ 45,963 $ 230 2.00%
Savings Deposits 43,851 297 2.71%
Time Deposits 95,953 1,268 5.29%
Total Interest-Bearing
Deposits $185,767 $1,795 3.87%
Repurchase Agreements 21,704 338 6.23%
Federal Funds Purchased 481 7 5.84%
Federal Home Loan Bank
Borrowings 1,133 20 7.06%
Total Interest-Bearing
Liabilities $209,085 $2,160 4.14%
Net Interest Income 3,083 4.84%
Less Tax-Equivalent Adjustment 217
Net Interest Income $2,866
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 744,300 $ 826,600
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 302,000 97,000
Provision for loan losses 88,800 129,100
FAS-115 Effect 13,100 0
Loan origination costs deferred (9,000) (193,900)
Bond premium amortized and (discount accrued) 107,700 42,400
(Gain) or loss on Sale of Investments 10,300 0
(Increase) or Decrease in interest
receivable 297,900 286,400
Increase or (Decrease) in other
liabilities (1,864,300) (660,400)
(Increase) or Decrease in other assets 1,768,700 407,700
Net cash provided by operating activities 1,459,500 934,900
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing investment securities 1,125,000 1,527,700
Proceeds from sales of investment securities 7,380,100 0
Purchases of investment securities (7,190,000) (1,191,500)
(Increase) or decrease in federal funds sold (8,925,000) (925,000)
Increase or (decrease) in federal funds purch. 0 (3,825,000)
Increase or (decrease) in Repurchase Agmts. (1,047,200) (770,400)
Net in interest bearing deposits
in other banks 396,700 392,500
Principal collected on loans 10,752,800 9,538,900
Loans made to customers (11,127,600) (9,180,700)
Capital expenditures (207,600) (85,900)
Net cash (used) or provided in
investing activities (8,842,800) (4,519,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW
MMDA, & savings accounts 1,930,500 3,101,800
Proceeds from sales of certificates of dep. 11,071,000 14,919,000
Payments for maturing certificates
of deposit (3,247,700) 14,597,700)
Dividends paid (268,000) (273,100)
Purchase of Treasury Stock (267,400) 0
Repayment of FHLB borrowings 0 (1,000,000)
Net cash provided by financing activities 9,218,400 2,150,000
NET INCREASE OR (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,835,100 (1,434,500)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 7,453,600 9,859,200
CASH AND CASH EQUIVALENTS AT
END OF THREE MONTHS $ 9,288,700 $ 8,424,700
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997. (Unaudited)
1. GENERAL
The accounting and reporting policies followed by Bath National
Corporation, a bank holding company, and its subsidiary, Bath
National Bank, 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 three month period ended
3-31-98 are not necessarily inductive of the results to be
expected for the full year.
2. INVESTMENT SECURITIES
Investment securities held-to-maturity are stated at cost plus
discount accrued and premium amortized.
The carrying value and market value of those securities
classified as held to maturity are as follows:
Fair Gross
Book Market Unrealized
Value Value Gain Loss Net
Agencies 20,000,000 20,472,600 472,600 - 472,600
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 Gross
Book Market Unrealized
Value Value Gain Loss Net
U.S. Treasury
and other US
agencies 7,577,600 7,566,300 48,500 (59,800) (11,300)
States and
Political
Subdivisions 39,027,200 40,156,400 1,310,600 (181,400) 1,129,200
Mortgaged
Backed Sec. 18,185,500 18,258,700 202,600 (129,400) 73,200
Corporate Bonds 193,400 193,300 - (100) (100)
Equity Secur. 1,390,500 1,390,500 - - -
TOTAL 66,374,200 67,565,200 1,561,700 (370,700) 1,191,000
<PAGE>
PART I, continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1998 AND 1997. (Unaudited)
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, 1998 $1,650,000
Charge offs 103,300
Recoveries 14,500
Provision charged to income 88,800
Balance - March 31, 1998 $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.
5. PER SHARE DATA
The per share of common stock information is based upon the
weighted average number of shares outstanding during each period.
<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
None
ITEM 6. Exhibits and Reports on Form 8-K
There were no reports filed on Form 8-K.
<PAGE>
PART III
Discussions and Analysis of Financial Condition and Result of
Operations
(Interim) (Unaudited)
The Bath National Corporation has two subsidiaries (Bath National
Bank)and Bath National Financial Services, a financial service
subsidiary.
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 Corporation's
primary sources of liquidity. The Company's other primary sources of
liquidity are federal funds sold and purchased. Other sources 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 $1.1 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 March 31, 1998 loans with an aggregate balance of $19.3 million
and securities of $5.3 million were due to mature in one year or
less. Additional funds flow from payments on installment and
revolving credit loans and from a historically high level of net
operating earnings. Bath National's liquidity also continues to be
enhanced by a relatively stable deposit base. On March 31, 1998, the
loan to deposit ratio was 74% and the ratio of loans to core deposits
(excluding certificates of deposit of $100,000 or more) was 83%.
In addition to the sources of liquidity above, Bath National Bank may
borrow from the Federal Reserve Bank in the event of a short term
liquidity deficiency.
The bank has established lines of credit available with Federal Home
Loan Bank and Manufacturers and Traders Bank in the amount of $17.8
million and $2.0 million, respectively, at the overnight federal
funds rate. The bank had an average net daily federal funds sold of
$4.4 million during 1998.
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.
<PAGE>
PART III, Continued
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 8.0%.
Bath National Corporation had primary capital at March 31, 1998 as
follows:
Components of Capital 3-31-98 3-31-97
Common Equity $31,326,800 $31,137,400
Allowance for loan losses 1,650,000 1,650,000
Subtotal 32,976,800 32,787,400
Less: Goodwill 287,400 311,600
Less: Treasury Stock 1,006,700 739,300
Less: Unrealized Gain/Loss 717,300 736,900
TOTAL PRIMARY CAPITAL $30,965,400 $30,999,600
The Company's capital to asset ratios for the first quarter of 1998
and 1997 are as follows:
Leverage Risk Based
Required Required
Minimum Actual Minimum Actual
March 31, 1998 4.00% 11.01% 8.00% 21.07%
March 31, 1997 4.00% 12.02% 8.00% 22.93%
Other Operating Income
No significant changes in other operating income are noted.
Investment losses totaling $10,400 were taken in the first quarter of
1998. Additional investment income earned by reinvesting the
proceeds will offset these losses during the balance of 1998.
Other Operating Expense
Occupancy expense increased from $156,400 in 1997 to $196,700 in
1998. Repairs and maintenance costs increased by $10,000 from the
corresponding first quarter of 1997, while janitorial service
accounts for an additional $6,000. Utilities, real estate taxes and
insurance related to the new offices in Penn Yan, Erwin and Watkins
Glen increased occupancy expense by $24,000.
Other operating expenses increased from $461,400 in the first quarter
of 1997 to $572,500 fro 1998. Office supplies costs increased by
$28,000, telephone by $17,000, postage increased by $10,000,
appraisal expenses by $17,000, and other real estate expense
increased by $10,000. All of the increases are due primarily to the
new offices opened during the first quarter of 1998 and Penn Yan,
which opened after the first quarter of 1997.
Net Interest Income
Net interest income remained at approximately $2,860,000 for the
first quarter of 1997 and 1998. Net interest income on a tax
equivalent basis, however, increased from $3,063,000 in 1997 to
$3,115,000 in 1998. Additional tax exempt income accounts for the
additional tax-equivalent adjustment.
<PAGE>
PART III, Continued
Provision for Loan Losses
The Company's management is cognizant of 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 recorded net loan charge offs totaling $103,300
for the quarter ended March 31, 1998 verses net loan charge offs
$129,100 for the comparable quarter of 1997. 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 instalment loans) for which principal or 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 collectibility. When
a loan is placed on a non-accrual basis, any unpaid interest accrued
is reversed against current income.
On March 31, 1998, total non-accruing assets were $900,600.
Collateral supporting the loans totals approximately $865,600.
Non-Performing Loans
Non-performing loans are summarized as follows:
Other Real Estate $ 97,800
Non-accrual loans $ 900,600
Past due 90 days or more and still accruing $ 736,000
Total $1,734,400
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed by the
undersigned thereunto duly authorized.
BATH NATIONAL CORPORATION
_____________________________________ DATE
Douglas L. McCabe
President
_____________________________________ DATE
Edward C. Galpin
Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,288,700
<SECURITIES> 87,565,200
<RECEIVABLES> 0
<ALLOWANCES> 1,650,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,012,200
<PP&E> 5,531,500
<DEPRECIATION> 115,100
<TOTAL-ASSETS> 278,765,800
<CURRENT-LIABILITIES> 7,143,500
<BONDS> 0
0
0
<COMMON> 6,829,000
<OTHER-SE> 24,787,200
<TOTAL-LIABILITY-AND-EQUITY> 278,765,800
<SALES> 0
<TOTAL-REVENUES> 5,085,900
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,017,000
<LOSS-PROVISION> 88,800
<INTEREST-EXPENSE> 2,226,500
<INCOME-PRETAX> 969,200
<INCOME-TAX> 224,900
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 744,300
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
