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, 1997
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.
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of January 31, 1998 was $53,863,920.
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of March 1, 1998.
1,339,913 shares, common stock, $5.00 par value.
Documents incorporated by reference
1) Portions of Annual Report to Stockholders for the year ended
December 31,1997 - Parts I & II
2) Portions of Proxy statement for 1998 Annual Meeting - Part III
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. Business 1-25
ITEM 2. Properties 25
ITEM 3. Legal Proceedings 25
ITEM 4. Submission of Matters to a
Vote of Security Holders 26
PART II
ITEM 5. Market for the Registrant's Securities
and Related Stockholder Matters 26-27
ITEM 6. Selected Financial Data 27-29
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 29-33
ITEM 8. Financial Statements and
Supplementary Data 33-57
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 58
ITEM 13. Certain Relationships and Related
Transactions 58
PART IV
ITEM 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 59
<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 is registered under
the Bank Holding Company Act of 1956. A separate subsidiary, BNC
Financial Services, was incorporated during 1997 to sell annuities,
life insurance and mutual funds. It has transacted no business to
date.
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 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"), has approximately 148
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.
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,
Erwin, Corning, Wayland, Hornell, Atlanta, Naples and Bath, New York
from which the Bank draws principally all of its business. In
addition, a grocery store branch in Watkins Glen is scheduled to open
the first quarter of 1998.
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, 1997, 1996 and
1995 with respect to each major category of assets, liabilities and
equity.
AVERAGE ASSETS
(dollars in thousands)
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
Interest Earning
Dep. with Banks $ 2,200 $ 3,300 $ 3,800
Taxable Invest. Sec. 58,200 51,400 36,000
Non-Tax. Inv. Sec. 33,700 27,400 22,600
Federal Funds Sold 2,900 1,500 3,500
Net Loans 159,300 152,000 142,900
Total Earning Assets 256,300 235,600 208,800
Other Assets 15,900 16,700 16,400
Total Assets $272,200 $252,300 $225,200
AVERAGE LIABILITIES AND EQUITY
(dollars in thousands)
Non-Int. Bearing
Deposits $ 29,400 $ 27,900 $ 26,300
Interest Bear. Dep.
Savings 43,700 45,700 48,100
NOW Accounts 34,500 33,200 32,400
Money Market Acct 10,900 12,100 13,000
Time Deposits 98,000 87,400 72,000
Federal Home Loan
Bank Borrowings 600 2,500 1,400
Securities Sold Under
Agree. to Repurch. 21,500 11,400 3,100
Other Liabilities 1,900 1,400 1,400
Federal Funds Purch. 300 1,200 500
Total Liabilities 240,800 222,800 198,200
Common Stock 6,800 6,800 3,400
Add. Paid in Capital 1,500 1,500 4,400
Retained Earnings 23,100 21,200 19,200
Total Equity 31,400 29,500 27,000
Total Liabilities
and Equity $272,200 $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, 1997, 1996 and
1995, respectively, with respect to each major category of interest-
earning assets and interest-bearing liabilities:
Year Ended December 31, 1997
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest-Earning
Deposits with Banks $ 2,200 $ 127 5.77%
Taxable Investment Securities 58,200 4,118 7.08%
Non-Taxable Investment
Securities <F1> 33,700 1,629 7.34%
Federal Funds Sold 2,900 156 5.38%
Net Loans <F2><F3> 159,300 14,736 9.25%
Total Earning Assets $256,300 $20,766 8.44%
Liabilities
Savings Deposits $ 43,700 $ 1,207 2.76%
Now Deposits 34,500 606 1.76%
Money Market Deposits 10,900 316 2.90%
Time Deposits 98,000 5,331 5.44%
Federal Home Loan Bank
Borrowings 600 32 5.33%
Repurchase Agreements 21,500 1,372 6.38%
Federal Funds Purchased 300 19 6.33%
Total Interest-Bearing
Liabilities $209,500 $ 8,883 4.24%
Interest Income/Earning Assets 8.44%
Interest Expense/Earning Assets 3.47%
Net Yield 4.97%
[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 $661,000.
<F3> Includes Loan Fees Totaling $60,000.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Analysis of Net Interest Earnings, Continued
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 5.82%
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 5.47%
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 2.83%
Now Deposits 33,200 583 1.76%
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 3.32%
Net Yield 5.08%
[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.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Analysis of Net Interest Earnings, Continued
The following is a presentation of an analysis of the net interest
earnings of the Company for years ended December 31, 1995
respectively, with respect to each major category of interest-earning
assets and interest-bearing liabilities:
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 <F1><F2><F3> 142,900 13,652 9.55%
Total Earning Assets $208,800 $ 18,229 8.73%
Liabilities
Savings Deposits $ 48,100 $ 1,458 3.03%
Now Deposits 32,400 567 1.75%
Money Market Deposits 13,000 400 3.07%
Time Deposits 72,000 3,856 5.36%
Federal Home Loan Bank
Borrowings 1,400 70 5.00%
Repurchase Agreements 3,000 170 5.66%
Federal Funds Purchased 500 30 6.00%
Total Interest-Bearing
Liabilities 170,400 6,551 3.84%
Interest Income/Earning Assets 8.73%
Interest Expense/Earning Assets 3.14%
Net Yield 5.59%
[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.
<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, 1997 and
1996, appear in their entirety on the following page.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
December 31, 1997 compared with December 31, 1996
(dollars in thousands)
Changes in net interest income as a result of:
Total
Volume Rate Change
Interest earned on:
Interest-earning
deposits with banks $ (64) $ (1) $ (65)
Taxable Investment
Securities 465 136 601
Non-Taxable
Investment Securities 470 (38) 432
Federal Funds Sold 77 (3) 74
Net Loans 670 111 781
Total Interest Income 1,618 205 1,823
Interest paid on:
Interest-bearing
deposits 648 393 1,041
Change in net interest
income $ 970 $ (188) $ 782
December 31, 1996 compared with December 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
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Investments
Investment securities comprised approximately 34% of the Bank's
assets at December 31, 1997, with loans comprising approximately 61%
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, 1997, 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.
1997 1996
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 $ 6,008 $ 5,990 4.75% $10,511 $10,421 6.27%
1 - 5 years 4,333 4,323 7.63% 5,336 5,354 6.54%
5 - 10 years 987 1,001 7.09% 21 21 7.37%
Over 10 years - - - - - -
Obligations of States and
Political subdivisions
0 - 1 year $ 982 $ 986 5.99% $ 1,036 $ 1,051 6.85%
1 - 5 years 14,756 15,067 5.10% 9,849 9,942 4.56%
5 - 10 years 18,932 19,666 5.28% 18,806 19,125 4.90%
Over 10 years 1,367 1,433 5.70% 1,355 1,360 5.17%
Other Securities
0 - 1 year $ 444 $ 446 8.76% 10,534 10,181 9.45%
1 - 5 years 7,445 7,436 6.83% 6,749 6,694 8.25%
5 - 10 years 2,017 2,126 7.58% 3,198 3,348 9.23%
Over 10 years 11,928 11,948 7.24% 3,628 3,631 7.94%
Total AFS Securit. $69,199 $70,422 $71,023 $71,128
Held-to-Maturity Investments:
Agency
1 - 5 years $20,000 $20,539 % $20,000 $20,329 7.69%
Total Securities $89,199 $90,961 $91,023 $91,457
Certain amounts in 1996 have been restated to reflect correct
classification.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Investments, Continued
1995
Investment Book Market Avg.
Category Value Value Yield
(rounded in thousands)
Obligations of U.S.
Treasury and other U.S.
Agencies and Corporations:
0 - 1 year $10,475 $10,423 6.83%
1 - 5 years 7,387 7,431 6.26%
5 - 10 years 21 22 6.09%
Over 10 years
Obligations of States and
Political subdivisions
0 - 1 year $ 2,313 2,351 6.49%
1 - 5 years 5,803 5,897 4.92%
5 - 10 years 15,558 15,768 4.73%
Over 10 years 845 869 5.46%
Other Securities
0 - 1 year 8,772 8,717 5.14%
1 - 5 years 4,758 4,840 8.31%
5 - 10 years 6,096 6,201 9.02%
Over 10 years 2,430 2,418 7.94%
Total Securities $64,458 $64,937
Yields are computed on a tax equivalent basis using a marginal tax
rate of 34%.
As of December 31, 1997, a total of $69,556,886 of investments were
pledged to secure public deposits. There were no securities
classified as Held-To-Maturity in 1995.
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
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, 1997, loans secured
by real estate comprised 51% of the total loan portfolio. At
December 31, 1997 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 1997 1996 1995 1994 1993
Commercial, Financial
Agricultural $ 45,466 $ 38,224 $ 38,325 $ 31,520 $27,197
Real Estate Mortgage 83,872 84,131 78,666 82,217 71,969
Installment Loans 31,805 33,244 29,765 24,097 25,512
to Individuals
All Other 3,516 2,492 3,247 3,945 2,809
Sub-Total 164,659 158,091 150,003 141,779 127,487
Allowance for Loan
Losses 1,650 1,650 1,650 1,725 1,600
Loans - Net $163,009 $156,441 $148,353 $140,054 $125,887
<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, 1997
stated in thousands of dollars:
Years To Maturity
Loan Type 1 or less 1 - 5 Over 5 Total
Commercial, Financial,
and Agricultural $ 8,968 $14,144 $22,354 $45,466
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, 1997, stated in thousands of dollars:
Loans due after 1 year with predetermined $10,538
Interest Rates
Loans due after 1 year with floating
Interest Rates $25,960
<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:
Type of Loan 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
Loans accounted
for on non-
accrual basis $661,000 $820,000 $435,000 $454,000 $189,000
Number of loans 9 13 9 17 10
Accruing Loans
Past due 90 Days
or more as to
principal or
interest payments 330,000 321,000 209,000 324,000 776,000
Number of loans 47 38 17 17 31
Loans not included
above which
are troubled debt
restructuring <F1> ---- ---- ---- 290,000 355,000
Number of loans 0 0 0 2 3
[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, 1997 would have
included approximately $43,200 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 1997
for the non-accrual loans.
The Bank maintains a problem loan report. As of December 31, 1997,
there were no individual loans identified which would materially
impact the Bank.
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)
1997 1996 1995 1994 1993
Allowance balance
at beginning
of the year $ 1,650 $ 1,650 $ 1,725 $ 1,600 $ 1,650
Loans Charged Off:
Real Estate 0 0 0 9 0
Commercial,
Financial &
Agricultural 134 191 212 59 115
Installment Loans
to Individuals 166 111 146 180 118
Credit Cards 81 47 31 28 38
Total 381 349 389 276 271
Recoveries of Loans
Previously Charged Off:
Real Estate 0 0 17 0 0
Commercial,
Financial &
Agricultural 34 14 96 40 82
Installment Loans
to Individuals 49 62 65 271 101
Credit Cards 3 4 4 13 3
Total 86 80 182 324 186
Additions charged to
Operations 295 269 132 77 35
Allowance Balance at
end of the year $ 1,650 $ 1,650 1,650 1,725 1,600
Average loans $160,200 $152,000 142,900 137,700 122,100
Ratio of net
charge-offs during
the period to
average loans during
the period .18% .18% .15% -.03% .07%
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Summary of Loan Loss Experience, Continued
At December 31, 1997, the allowance balance was allocated as follows:
% of loans
Amount in each type
Loan Type (in thousands) to total loans
Commercial, Financial
and Agricultural $1,200 27.63%
Real Estate - Mortgage 45 50.94%
Installment loans to individuals 400 19.32%
All Other 5 2.11%
Total $1,650 100.00%
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%
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Summary of Loan Loss Experience, Continued
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 25.53%
Real Estate - Mortgage 50 52.45%
Installment loans to individuals 500 19.85%
All Other 0 2.17%
Total $1,650 100.00%
At December 31, 1994, the allowance balance was allocated as follows:
% of loans
Amount in each type
Loan Type (in thousands) to total loans
Commercial, Financial
and Agricultural $1,175 22.24
Real Estate - Mortgage 50 57.99%
Installment loans to individuals 500 17.00%
All Other 0 2.77
Total $1,725 100.00%
At December 31, 1993, the allowance balance was allocated as follows:
% of loans
Amount in each type
Loan Type (in thousands) to total loans
Commercial, Financial
and Agricultural $1,050 21.33%
Real Estate - Mortgage 50 56.45%
Installment loans to individuals 500 20.01%
All Other 0 2.21%
Total $1,600 100.00%
<PAGE>
PART I, Continued
ITEM 1. Business, Continued
Loan Loss Reserve, Continued
In considering the adequacy of the Bank's allowance for possible loan
losses and, thus, the amount of additions to the allowance charged to
operating expense in 1997, management has focused on the fact that as
of December 31, 1997, 28% of outstanding loans are in the category of
commercial loans. Commercial loans are generally considered by
management as having greater risk than other categories of loans in
the Bank's loan portfolio.
Management considers loans to finance 1-4 family, owner occupied
property to have minimal risk due to the fact that these loans
represent conventional residential real estate mortgages where the
amount of the original loan does not exceed 80% of the appraised
value of the collateral.
The Bank's Board of Directors monitors the loan portfolio monthly to
enable it to evaluate the adequacy of the allowance for loan losses
quarterly and to implement its policy of identification and isolation
of potential problem loans. The loans are rated and the reserve
established based on an assigned rating. The provision for loan
losses charged to operating expenses is based on this established
reserve. Factors considered by the Board in rating the loans include
delinquent loans, underlying collateral value, payment history,
financial condition of the borrowers, and local and general economic
conditions affecting collectibility.
While no assurance can be given, management believes that losses
during 1998 will be no more than the losses during 1997. 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 Year Ended
12/31/97 12/31/96 12/31/95
Amount Rate Amount Rate Amount Rate
Deposit Category (dollars in thousands)
Non-Interest Bearing
Demand Deposits $29,400 N/A $27,900 N/A $26,300 N/A
NOW Deposits 34,500 1.76% 33,200 1.75% 32,400 1.73%
Money Market Dep. 10,900 2.90% 12,100 2.84% 13,000 3.07%
Savings Deposits 43,700 2.77% 45,700 2.82% 48,100 3.04%
Time Deposits 98,000 5.44% 87,400 5.34% 72,000 5.36%
(including
Certificates of Dep.)
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 $12,100 $ 3,400 $ 4,100 $ 800
<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,
1997 1996 1995
Return on Average Assets <F1> 1.30% 1.37% 1.50%
Return on Average Equity <F2> 11.26% 11.69% 12.51%
Dividend Payout Ratio <F3> 76% 42% 48%
Equity to Assets Ratio <F4>
(Average) 11.54% 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 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 $17.8 million. In addition, the Bank has
a borrowing line with a correspondent bank in the amount of $2
million. Other sources of liquidity include repayment of loans, sale
of loans and securities maturing within one year, although the
usefulness of such securities for liquidity purposes is limited to
the extent that such securities are pledged. 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
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, Wayland and Erwin, New York. These
branches are equipped with both ATM's and teller stations. All of
the offices, with the exception of our Atlanta, Hammondsport and Penn
Yan Offices, have drive-up teller facilities.
The Company's offices are located in the Bank's main office.
Employees
The Bank presently employs approximately 148 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 qualified 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, 1997 3.00% 11.12% 8.00% 21.31%
For year ended
December 31, 1996 3.00% 11.56% 8.00% 22.27%
For year ended
December 31, 1995 3.00% 11.96% 8.00% 22.57%
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, 1998, the Bank could have declared
aggregate dividends of approximately $4.6 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
The significant accounting policies of the Bank are documented in Note 1
of the finacial statements.
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 ten full service facilities
located in Bath, Hammondsport, Atlanta, Naples, Wayland, Dundee, Penn
Yan, Hornell and Erwin, New York. In addition, the Bank also
operates one seasonal office. The seasonal office is located in the
Wayland-Cohocton Central School. 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. The bank
leases the building for our Penn Yan and Erwin Offices.
The carrying value of property for BNC on a consolidated basis as of
December 31, 1997 and 1996 is included on page 49 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.
<PAGE>
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 1997 and 1996, restated to reflect a two for one
stock split on April 24, 1996, follows:
1997 1996
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
High 38 39 39 40 30 32 35 37
Low 37 38 38 39 30 32 35 34
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 to the extent
the company is aware of such trades.
B. Holders of Common Stock
As of January 29, 1998, the approximate number of holders of record
of the Company's common stock was 644.
C. Dividends
For 1997 and 1996 the Company paid quarterly cash dividends,
amounting to a total for the year of $2.00 and $1.05 per share 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.
<PAGE>
PART II, Continued
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters, Continued
C. Dividends, Continued
(its only source of income) by banking regulations. Generally,
dividends may be declared and paid in cash or property only out of
the retained earnings of the Bank. Dividends may not be declared or
paid at any time that a bank does not have the paid in capital and
appropriate retained earnings as required by law. Dividends may not
be paid without prior approval of the regulator in excess of
specified amounts as may be fixed by banking regulations to ensure
that banks maintain an adequate capital structure.
ITEM 6. Selected Financial Data
The data appearing on the following page represent selected
consolidated financial data of the Company for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 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>
PART II, Continued
ITEM 6. Selected Financial Data, Continued
1997 1996 1995 1994 1993
Condensed Statements
of Income (in
thousands, except per
share data)
Interest Income <F1> $ 21,680 $ 19,982 $ 18,431 $ 16,351 $ 15,451
Interest Expense
Deposits 7,447 6,891 6,280 4,506 4,669
Interest Expense
Borrowings 1,436 952 271 61 4
Net Interest Income 12,797 12,139 11,880 11,784 10,778
Loan Loss Provision 295 269 132 77 35
Net Interest Income
After Loan Loss
Provision 12,502 11,870 11,748 11,707 10,743
Other Operating
Income <F3> 1,108 993 898 856 974
Other Operating
Expenses 7,762 7,140 6,973 6,738 6,248
Income Before
Income Tax 5,848 5,723 5,673 5,825 5,469
Tax Equivalent
Adjustment 930 779 668 590 505
Income Taxes 1,384 1,496 1,627 1,815 1,658
Net Income $ 3,534 $ 3,448 $ 3,378 $ 3,420 $ 3,306
Per Share Data <F2>
Book Value 23.12 22.23 20.90 18.69 18.90
Cash Dividends 2.00 1.05 1.20 2.51 1.00
Net Income 2.61 2.52 2.49 2.66 2.64
Weighted Average
Common Shares 1,354,869 1,365,832 1,354,492 1,285,762 1,251,662
Balance Sheet Data
(in thousands, except
number of outstanding
shares) at
December 31
Assets $271,734 $269,238 $235,165 $209,158 $199,202
Securities (Book Val.) 89,198 91,022 64,937 43,878 51,840
Loans, Net 163,009 156,441 148,353 140,054 125,887
Deposits 212,042 208,473 197,760 180,866 170,235
Equity $ 31,137 $ 30,363 $ 28,554 $ 25,181 $ 24,125
Common Shares
Outstanding 1,365,801 1,365,801 1,366,234 1,346,780 1,276,960
Treasury Stock 19,203 - - - -
<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.
<F3> Discount Revenue was reclassified from Other Operating Income to
Interest for the years 1996 through 1993.
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The purpose of this section is to focus on relevant business events
and information provided in this Annual Report. For a full
understanding of this discussion, reference should be made to the
Consolidated Financial Statements and Notes, thereto, and the
Consolidated Financial Highlights herein and statistical data
included under Item 1 of this form 10K.
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. 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, 1997 loans with an aggregate balance
of $31.9 million and securities of $7.4 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, 1997, the loan to deposit ratio was 78% 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 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 1997, the Bank had an
average daily net federal funds sold of $2.5 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 $17.8 million under
this line. The Bank borrowed an average of $.9 million during 1997
<PAGE>
PART II, Continued
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Liquidity and Capital Resources, Continued
against this line of credit.
At December 31, 1997, banking regulations required conformity with a
minimum risk based capital standard of 8%. The Bank's risk based
capital level as of December 31, 1997 is approximately 20%. Neither
the Company nor the Bank had any material commitments for capital
expenditures as of December 31, 1997. 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.
The banking industry is particularly concerned about the upcoming
millennium and the computer glitches associated with the year 2000.
The bank has addressed the issue by creating a task force charged
with identifying and addressing the issues associated with year 2000.
Management does not anticipate that year 2000 will have a material
effect upon bank operations. The bank feels that the total cost of
the year 2000 issue will not exceed $75,000.
The Company has repurchased 19,203 shares of stock at a price equal
to the then current market value at the time of acquisition. The
shares are being recorded on the cost basis and have not yet been
retired. The Board of Directors believes the repurchase of this
stock was an excellent investment opportunity for the company and
its shareholders in light of the Company's strong capital position.
Results of Operations
Fiscal 1997 Compared with Fiscal 1996
Total Bank assets continued to grow from $269.2 million at year end
1996 to $271.7 million at year end 1997. Loan demand increased from
$156.4 million to $163.1 million or 4.3%. Deposits increased from
$208.5 million to $212.0 million.
Net income increased from $2.52 per share in 1996 to $2.61 per share
in 1997. Although the net yield on earnings assets continues to
decline (from 5.05% in 1996 to 4.96% in 1997), increased loan
activity is expected to provide a basis for improvement in 1998.
Net loan losses were higher than anticipated for 1997. Bankruptcy
losses continue to plague the banking industry in general.
Salaries and employee benefits expense increased significantly in
1997 compared to 1996. This increase is primarily due to the
duplication of positions resulting from the impending retirement of
four officers of the bank. While management expects salaries to
remain approximately the same in 1998, additional employees have been
hired to staff the Erwin and Watkins Glen offices.
For detailed information concerning changes in operating income and
operating assets refer to Item 1, which includes statistical data.
<PAGE>
PART II, Continued
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
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.
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, 1997, 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, 1997:
Earning Assets:
Federal Funds Sold 400
Loans 46,700 4,700 8,600 15,400 53,500 35,900
Securities 14,300 6,400 700 2,700 43,300 24,500
Total Earning Assets 61,400 11,100 9,300 18,100 96,800 60,400
Interest Bearing Liab.
Money Market Demand 10,600
Interest Bearing
Deposits 33,000
Certificates of Deposit
Under $100,000 6,600 11,800 15,800 27,500 14,200
$100,000 and over 7,600 4,300 2,400 4,800 500
Savings Accounts 41,800
Securities Sold
Agreement to Repurch. 5,100 300 18,500
FHLB Borrowings
Federal Funds Purch.
104,700 16,100 18,500 32,300 33,200
Total Int. Bear. Liab.
Incremental Gap <F1> (43,300) (5,000) (9,200)(14,200) 63,600
Cumulative Gap <F2> (43,300)(48,300)(57,500)(71,700) (8,100)
Sensitivity Gap <F3> .59 .69 .50 .56 2.91
Cumulative Sensit. <F4> .59 .60 .59 .58 .96
[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, 1997 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 statement of financial condition 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>
BATH NATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
December 31, 1997
<PAGE>
Bath National Corporation and Subsidiary
Contents
Independent Auditor's Report 35
Financial Statements
Consolidated statements of financial condition 36
Consolidated statements of income . . . . . . . . . . . . . 37
Consolidated statements of stockholders' equity . . . . . . 38
Consolidated statements of cash flows 39
Notes to consolidated financial statements 40-57
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, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997.
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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted
accounting principles.
URBACH KAHN & WERLIN PC
Albany, New York
February 20, 1998
<PAGE>
Bath National Corporation
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
1997 1996
Assets
Cash and due from banks $ 7,453,597 $ 9,859,230
Interest bearing deposits in other banks 1,477,829 2,956,541
Securities 89,030,914 90,060,159
Loans, net 163,009,225 156,440,628
Premises and equipment, net 5,625,903 5,060,702
Accrued interest receivable 2,310,129 2,389,093
Other 2,826,444 2,471,400
$271,734,041 $269,237,753
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Demand $ 31,218,815 $ 29,137,046
Savings 41,781,937 43,491,468
NOW accounts 33,030,029 31,556,534
Money market accounts 10,572,735 10,467,440
Time deposits ($100,000 or more) 19,620,007 27,563,196
Other time accounts 75,818,040 66,257,286
212,041,563 208,472,970
Federal funds purchased - 3,825,000
Securities sold under agreements to
repurchase 23,840,977 21,928,937
Borrowed funds - 2,000,000
Other 4,714,097 2,648,253
240,596,637 238,875,160
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, 1,365,801
shares issued in 1997, and issued and
outstanding in 1996 6,829,005 6,829,005
Additional paid in capital 1,494,678 1,494,678
Undivided profits 22,816,135 21,980,350
Unrealized appreciation on available-
for-sale securties, net 736,902 58,560
Treasury stock (19,203 shares in
1997) (739,316) -
31,137,404 30,362,593
$271,734,041 $269,237,753
See Notes to Consolidated Financial Statements.
<PAGE>
Bath National Corporation
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Interest income:
Loans $14,720,856 $14,066,916 $13,784,990
Securities
Held-to-maturity
U.S. Government and agency
obligations 1,538,000 730,550 -
State and municipal obligations - - 956,712
Available-for-sale
U.S. Government and agency
Obligations 2,355,672 2,725,582 2,330,407
State and municipal obligations 1,784,057 1,343,952 192,448
Federal funds sold 156,219 81,539 213,699
Deposits in other banks and stocks 195,583 254,709 284,974
Total interest income 20,750,387 19,203,248 17,763,230
Interest expense:
Deposits 7,447,411 6,891,164 6,280,052
Borrowings 1,436,903 952,038 270,513
Total interest expense 8,884,314 7,843,202 6,550,565
Net interest income 11,866,073 11,360,046 11,212,665
Provision for loan losses 295,468 268,793 132,484
Net interest income after
provision for loan losses 11,570,605 11,091,253 11,080,181
Noninterest income:
Service charges 784,299 762,002 652,036
Net realized gains (losses) on sale of
available-for-sale securities 33,218 (21,653) 20,894
Other 292,161 252,930 225,040
Total other income 1,109,678 993,279 897,970
Noninterest expenses:
Salaries and employee benefits 4,400,690 3,806,366 3,751,460
Occupancy 1,092,288 1,058,539 975,644
Other 2,269,957 2,275,164 2,245,485
Total other expenses 7,762,935 7,140,069 6,972,589
Income before income taxes 4,917,348 4,944,463 5,005,562
Income taxes 1,383,784 1,496,384 1,627,000
Net Income $3,533,564 $3,448,079 $3,378,562
Net Income per Common Share $2.61 $2.52 $2.49
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
Bath National Corporation
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
[---------- COMMON STOCK ----------] Net Unrealized
<CAPTION> Net Unrealized
Appreciation
(Depreciation) on Total
Number of Add. Undivided Available-for-Sale Treasury Stockholders
Shares Amount Paid in Cap.Profits Securities Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 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, - - - - 1,066,074 - 1,066,074
net of taxes of $774,880
Net income - 1995 - - - 3,378,562 - - 3,378,562
Cash dividends declared - - - (1,628,343) - - (1,628,343)
($1.20 per common share)
Dividends reinvested 9,727 48,635 506,975 - - - 555,610
Balance, December 31, 1995 683,117 3,415,585 4,923,49 0 19,966,387 248,300 - 28,553,762
2-for-1 stock split 683,117 3,415,585 (3,415,585) - - - -
Fractional shares (433) (2,165) (13,227) - - - (15,392)
repurchased
Changes in unrealized
appreciation on available - - - - (189,740) - (189,740)
for-sale securities, net of
taxes of $181,310
Net income - 1996 - - - 3,448,079 - - 3,448,079
Cash dividends 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
Purchase of treasury stock - - - - - (739,316) (739,316)
(19,203 shares)
Changes in unrealized
appreciation on available- - - - - 678,342 - 678,342
for-sale securities, net of
taxes of $437,286
Net income - 1997 - - - 3,533,564 - - 3,533,564
Cash dividends declared - - - (2,697,779) - - (2,697,779)
($2.00 per common share)
Balance, December 31, 1997 1,365,801 $6,829,005 $1,494,678 $22,816,135 $ 736,902 $(739,316) 31,137,404
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Bath National Corporation
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash Flows From Operating Activities
Net income $3,533,564 $ 3,448,079 $ 3,378,562
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 437,578 409,581 451,943
Provision for loan losses 295,468 268,793 132,484
Deferred taxes 388,092 19,481 -
Loan origination costs deferred (69,465) (72,635) 3,917
Bond premium amortized and discount
Accreted 140,080 175,703 218,043
Losses (gains) on sale of investments (33,218) 21,653 (20,894)
Loss on disposed assets - - 35,216
Changes in:
Interest receivable 78,964 (613,958) (291,364)
Other assets 19,050 (459,293) (104,138)
Other liabilities (645,534) 180,474 (581,394)
Net cash provided by operating
Activities 4,144,579 3,377,878 3,222,375
Cash Flows From Investing Activities
Proceeds from calls and maturities of - - 75,000
held-to-maturity securities
Proceeds from sales and maturities of
available-for-sale securities 9,949,448 13,926,729 9,644,906
Purchases of held-to-maturity securities - (20,000,000) (333,346)
Purchases of available-for-sale
securities (7,911,437)(20,424,362)(27,996,216)
Federal funds purchased/sold (4,225,000) 1,675,000 4,650,000
Net (increase) decrease in interest
bearing deposits in other banks 1,478,712 578,797 (114,053)
Increase in loans, net (6,794,600) (8,283,737) (8,435,384)
Capital expenditures (976,873) (329,947) (883,947)
Net cash used in investing
Activities (8,479,750)(32,857,520)(23,393,040)
Cash Flows From Financing Activities
Proceeds from Federal Home Loan Bank
borrowings - - 3,000,000
Repayments of Federal Home Loan Bank
borrowings (2,000,000) (1,000,000) -
Net increase in securities sold under
repurchase agreements 1,912,040 20,858,081 1,070,856
Purchase of treasury stock (739,316) - -
Increase in deposits 3,568,593 10,711,651 16,782,676
Dividends paid, net of reinvestments in
1995 (811,779) (1,449,508) (1,072,733)
Net cash provided by financing
Activities 1,929,538 29,120,224 19,780,799
Net decrease in cash and due from banks (2,405,633) (359,418) (389,866)
Cash and due from banks:
Beginning of year 9,859,230 10,218,648 10,608,514
End of year $7,453,597 $ 9,859,230 $10,218,648
Supplemental Disclosures of Cash Flow
Information
Interest paid $9,023,686 $7,415,700 $ 6,471,600
Income taxes paid $1,531,283 $1,698,800 $ 1,761,700
Dividends payable (included in other
liabilities) 1,886,000 615,000 681,000
Shares of common stock issued under the
dividend reinvestment program in lieu
of cash dividends of $555,610 in 1995 - - 9,727
See Notes to Consolidated Financial Statements.
<PAGE>
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. Management determines
the appropriate classification of securities at the time
of purchase.
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. The Bank did not hold any trading
account assets at December 31, 1997 and 1996.
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.
Available-for-Sale
Available-for-sale securities consist of bonds, notes,
debentures, and certain equity securities not
classified as trading or 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>
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
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.
Accounting for loan impairments is governed by Statement
of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" (SFAS 114) and
SFAS 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosure," which amended
SFAS 114. 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.
<PAGE>
Note 1. Summary of Significant Accounting Policies, Continued
Loans and Allowance for Loan Losses, Continued
As a matter of policy, the Bank generally places
impaired loans on nonaccrual status and recognizes
interest income on such loans only on a cash basis upon
receipt of interest payments from the borrower. Accrual
of interest is discontinued on a loan when management
believes, after considering economics, business
conditions and collection efforts, that the borrower's
financial condition is such that collection of interest
is doubtful, or after three months of nonpayment,
whichever is earlier. Uncollectible interest previously
accrued is charged off. Income is subsequently
recognized only to the extent cash payments are received
until, in management's judgment, the borrower's ability
to make periodic interest and principal payments is back
to normal, in which case the loan is returned to accrual
status.
Premises and Equipment, Net
Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is provided over
the estimated useful lives using straight line and
accelerated methods.
Other Real Estate Owned
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.
Real estate properties formally acquired in settlement
of loans were not material in 1997 and 1996.
Income Taxes
Income taxes are provided for the tax effects of the
transactions reported in the financial statements and
consist of taxes currently due and deferred taxes, which
relate 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 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.
<PAGE>
Note 1. Summary of Significant Accounting Policies, Continued
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 a 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
1,354,869, 1,365,832, and 1,354,492 in 1997, 1996, and
1995, 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 1996 and
1995 financial statements to conform with the 1997
presentation.
Note 2. Cash and Due From Banks
The Bank is required to maintain reserve cash balances
with the Federal Reserve Bank. The total of those reserve
cash balances was approximately $2,938,000 and $4,397,000
at December 31, 1997 and 1996, respectively.
<PAGE>
Note 3. Securities
The amortized cost and fair values of available-for-sale
securities as of December 31, 1997 are summarized as
follows:
[-----Gross Unrealized -----]
Amortized
Cost Gains Losses Fair Value
U.S. Government and
agency securities $11,327,853 $ 66,558 $ 80,270 $11,314,141
State and municipal
securities 36,036,771 1,115,839 1,290 $37,151,320
Mortgage-backed and
related securities 19,059,605 139,891 123,490 19,076,006
Other 1,384,109 105,338 - 1,489,447
$67,808,338 $1,427,626 $205,050 $69,030,914
The amortized cost and fair value of available-for-sale
securities as of December 31, 1997 by contractual maturity
are shown below. For purposes of the maturity table,
mortgage-backed securities, which are not due at a single
maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of
underlying collateral. The mortgage-backed securities may
mature earlier than their weighted-average contractual
maturities because of principal prepayments.
Amortized Fair
Cost Value
Due in one year or less $ 7,433,678 7,421,825
Due after one year
through five years 26,533,877 26,825,357
Due after five years
Through ten years 21,935,923 22,792,461
Due after ten years 11,904,860 11,991,271
$67,808,338 $69,030,914
The amortized cost and fair values of held-to-maturity
securities as of December 31, 1997 are summarized as
follows:
[-----Gross Unrealized -----]
Amortized
Cost Gains Losses Fair Value
U.S. Government and
agency securities $20,000,000 $539,200 - $20,539,200
<PAGE>
The amortized cost and fair value of securities being held-
to-maturity as of December 31, 1997 by contractual
maturity are shown below.
Amortized Fair
Cost Value
Due after one year
Through five years $20,000,000 $20,539,200
Note 3. Securities, Continued
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
$69,953,211 $790,037 $683,089 $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
Proceeds from sales of securities during 1997, 1996 and
1995, which were principally attributable to those
available-for-sale, were $5,599,231, $6,867,918 and
$5,728,507, respectively, with gross gains of $58,983,
$23,080 and $23,839 and gross losses of $25,765, $44,733
and $2,945 realized on those sales.
Securities with a carrying value of $68,621,401 and
$66,136,796 and market values of $69,556,886 and
$65,875,690 at December 31, 1997 and 1996, respectively,
were pledged to secure public deposits, securities sold
under agreements to repurchase, and for other purposes as
required or permitted by law.
<PAGE>
Note 4. Loans, Net
The components of loans at December 31, 1997 and 1996 were
as follows:
1997 1996
Commercial $71,582,995 67,078,298
Installment 19,002,523 20,145,787
Real estate mortgage 41,788,215 41,587,646
Home equity loans 21,697,621 19,150,743
Student 7,932,328 7,488,854
Credit card loans 1,886,019 1,939,241
Net deferred loan
origination costs and
unearned discounts 769,524 700,059
164,659,225 158,090,628
Less allowance for loan losses 1,650,000 1,650,000
Loans, net $163,009,225 $156,440,628
Real estate mortgage and home equity loans consist of:
Mortgages with fixed rates $19,799,578
Mortgages with variable rates 21,988,637
Home equity loans with fixed rates 16,661,386
Home equity loans with variable rates 5,036,235
Total real estate loans $63,485,836
Changes in the allowance for loan losses for the years
ended December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
Balance, beginning of year $1,650,000 $1,650,000 $1,725,000
Provision for loan losses 295,469 268,793 132,484
Recoveries credited to the allowance 86,306 80,752 181,180
Losses charged to the allowance (381,775) (349,545) (388,664)
Balance, end of year $1,650,000 $1,650,000 $1,650,000
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 $675,000 and $589,000 at December 31, 1997 and
1996, respectively.
<PAGE>
Note 4. Loans, Net, Continued
The activity with respect to loans to related parties for
the year ending December 31, 1997 follows:
Aggregate amount beginning of period $589,000
New loans 280,000
Repayments (194,000)
Aggregate amount end of period $675,000
Note 5. Premises and Equipment
At December 31, 1997 and 1996, premises and equipment
consist of:
1997 1996
Land $ 502,389 $ 502,389
Buildings and improvements 6,161,265 5,879,475
Furniture 3,315,991 2,628,736
Total 9,979,645 9,010,600
Less accumulated depreciation 4,353,742 3,949,898
Premises and equipment, net $5,625,903 $5,060,702
Depreciation expense was $411,672, $379,401 and $393,354
for the years ended December 31, 1997, 1996 and 1995,
respectively.
Note 6. Deposits
A summary of deposit accounts at December 31, by maturity,
is as follows:
1997 1996
No contractual maturity $116,625,042 $114,661,724
Maturity within one year 80,899,368 77,592,337
Maturity after one year through five years 14,517,153 16,218,909
$212,041,563 $208,472,970
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.
<PAGE>
Note 7. Securities Sold Under Agreements to Repurchase, Continued
Information concerning securities sold under agreements to
repurchase is summarized as follows:
1997 1996
Average balance during the year $21,533,500 $11,374,200
Average interest rate during the year 6.2% 6.3%
Maximum month-end balance
during the year $23,841,000 $22,372,100
Securities underlying the agreements at year-end:
Carrying value
$28,086,000 $25,967,300
Estimated fair value
$28,136,500 $25,287,700
Note 8. Borrowed Funds
Borrowed funds represent advances from the Federal Home
Loan Bank. There were no advances at December 31, 1997.
Advances at December 31, 1996 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
<PAGE>
Note 9. Income Taxes
A summary of the components of income taxes is as follows:
[--------------- Years Ended December 31, ---------------]
1997 1996 1995
Current Tax
Federal $ 653,011 $1,097,485 $1,180,000
State 342,681 379,418 447,000
Total current tax expense 995,692 1,476,903 1,627,000
Deferred tax
Federal and State 388,092 19,481 -
Total provision for income
taxes $1,383,784 $1,496,384 $1,627,000
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, ---------------]
1997 1996 1995
Statutory provision $1,671,898 $1,681,117 $1,701,891
Tax exempt interest (608,027) (508,980) (436,560)
State income tax, net of
federal benefit 226,169 250,416 295,020
Non deductible interest 80,956 57,800 49,310
interest
Other 12,788 16,031 17,339
Total $1,383,784 $1,496,384 $1,627,000
Net deferred tax liabilities (classified as other
liabilities) consist of the following at December 31, 1997
and 1996:
1997 1996
Deferred tax liabilities:
Depreciation $ 467,495 $550,670
Deferred loan fees 307,810 336,029
Unrealized gain on available-for-sale
securities 489,030 50,400
1,264,335 937,099
Deferred tax assets:
Provision for loan losses 502,464 548,153
Employee benefits 322,724 337,891
825,188 886,044
Less valuation allowance - -
825,188 886,044
Net deferred tax liability $ 439,147 $ 51,055
<PAGE>
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 $268,000, $214,300 and $139,200 for 1997,
1996 and 1995, 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 $208,700, $198,800, and
$232,400 for 1997, 1996, and 1995, respectively.
The Bank has severance compensation agreements with two
of its Bank officers which do not become effective
unless there has been a change in control of the Bank as
defined and the Bank terminates the officers'
employment. Under those conditions the Bank will pay, as
severance, a lump sum payment equal to five times the
aggregate annual compensation paid to the executive
officers during the calendar year immediately preceding
the change in control.
Postretirement Benefits:
The Bank provides health care benefits to retired
employees who meet specified age and service
requirements through a postretirement health care plan
in which both the bank and retiree share the cost. The
plan provides for substantially the same medical
insurance coverage as for active employees until their
death and is integrated with Medicare for those retirees
aged 65 or older.
Postretirement benefit expense was $124,180, $131,287
and $127,706 for 1997, 1996 and 1995, respectively.
The components of the postretirement benefit cost are as
follows:
1997 1996 1995
Service cost for benefits earned during the
year $ 26,798 26,690 29,586
Interest cost on accumulated post-retirement
benefit obligation 68,154 70,005 64,117
Amortization of transition obligation 26,514 26,514 26,514
Amortization of net loss 2,714 8,078 7,489
Net annual postretirement benefit cost $124,180 $131,287 $127,706
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>
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,
1997 by approximately $147,200 and increase the
aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for 1997 by
approximately $21,800.
The following table sets forth the plan's funded status
reconciled with the amount shown on the Bank's balance
sheet at December 31, 1997 and 1996:
Accumulated postretirement benefit obligation:
1997 1996
Retirees $462,156 $489,213
Fully eligible active plan participants 124,808 99,721
Other active plan participants 337,364 360,236
Accumulative postretirement benefit
obligation in excess of plan assets 924,328 949,170
Unrecognized transition obligation (397,725) (424,239)
Unrecognized net loss due to changes
in assumptions (125,437) (202,852)
Accrued postretirement benefit cost
(classified as other liabilities) $401,166 $322,079
Note 11. Regulatory Matters
The Bank is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum regulatory 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 the regulatory capital
adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific
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
risk-based capital and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of
Tier I capital to adjusted total assets (as defined).
Management believes, as of December 31, 1997, that the
Bank meets all capital adequacy requirements to which it
is subject.
<PAGE>
Note 11. Regulatory Matters, Continued
As of December 31, 1997, 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 I risk-based, and Tier I leverage ratios as
set forth in the table. There are no conditions or events
since that notification that management believes have
changed the institution's category.
The Bank's actual and required capital amounts and ratios
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes: To Be Well Capitalized:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Risk-Based
Capital (to Risk-
Weighted Assets) $31,757 21.3% $11,923 =>8.0% $14,904 =>10.0%
Tier I Capital
(to Risk-
Weighted Assets) 30,107 20.2% 5,962 =>4.0% 8,943 =>6.0%
Tier I Capital
(to Adjusted
Total Assets) 30,107 11.1% 10,832 =>4.0% 13,540 =>5.0%
As of December 31, 1996
Total Risk-Based
Capital (to Risk-
Weighted Assets) 31,635 22.3% 11,366 =>8.0% 14,207 =>10.0%
Tier I Capital
(to Risk-Weighted
Assets) 29,985 21.1% 5,683 =>4.0% 8,524 =>6.0%
Tier I Capital
(to Adjusted
Total Assets) 29,985 11.6% 10,373 =>4.0% 12,966 =>5.0%
</TABLE>
The Bank is restricted as to the amount of dividends which
can be paid. Dividends declared by national banks that
exceed net income (as defined) for the current year plus
retained net income for the preceding two years must be
approved by the Comptroller of the Currency. Under the
formula, dividends of approximately $4,600,000 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 standby letters of credit. These instruments
involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the statements of
financial condition.
<PAGE>
Note 12.Commitments and Contingencies, Continued
Financial instruments with off balance sheet risk,
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, 1997
is as follows (dollars in thousands):
Revolving open-end lines secured by 1-4 family residential
Properties $ 4,212
Credit card lines 5,007
Commercial real estate, construction and
land development 2,777
Commercial and similar letters of credit, net 254
Other unused commitments 11,975
$24,225
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.
Letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to
support private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to
customers. Collateral held varies as specified above and
is required in instances where the Bank deems necessary.
Concentrations of credit risk:
The Company and the Bank are located in the Southern
Tier of the Finger Lakes region of New York State. The
Bank grants commercial, consumer and residential loans
primarily to customers in Allegheny, Livingston,
Ontario, Schuyler, Steuben and Yates counties. The
Bank's loan portfolio consists primarily of commercial,
installment and real estate secured loans. A substantial
portion of its debtor's ability to honor their contracts
is dependent upon the economic conditions of the region.
<PAGE>
Note 12.Commitments and Contingencies, Continued
Concentrations of credit risk, continued:
All of the Bank's loans, commitments to extend credit,
and letters of credit have been granted to customers in
the Bank's market area. Investments in securities issued
by state and political subdivisions also involve
governmental entities within the Bank's market area. The
concentrations of credit by type of loan are set forth
in Note 4. The distribution of commitments to extend
credit approximates the distribution of loans
outstanding. Standby letters of credit were granted
primarily to commercial borrowers.
Line of credit:
The Bank has credit available from the Federal Home Loan
Bank and Manufacturers and Traders Bank in the amount of
$17,812,000 and $2,000,000, respectively, at the
overnight federal funds rate.
Note 13. Disclosures About Fair Value of Financial Instruments
The fair values shown below (in thousands) represent
management's estimates of values at which the various
types of the Bank's 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.
<TABLE>
[-------1997 -------] [-------1996-------]
Carrying Fair Carrying Fair
Amount Value Amount Value
<CAPTION>
<S> <C> <C> <C> <C>
Financial assets:
Cash and short term
investments $ 8,931 $ 8,931 $ 12,816 $ 12,816
Securities 89,031 89,570 90,060 90,390
Loans, net 163,009 170,048 156,441 157,340
$260,971 $268,549 $259,317 $260,546
Financial liabilities:
Deposits $212,042 $212,171 $208,473 $208,535
Federal funds purchased - - 3,825 3,825
Securities sold under
agreements to
repurchase 23,841 23,841 21,929 21,929
Borrowed funds - - 2,000 2,000
$235,883 $236,012 $236,227 $236,289
Unrecognized financial
instruments Commitments
to extend credit $ 24,225 $ 24,225 $ 24,214 $ 24,214
</TABLE>
<PAGE>
Note 13. Disclosures About Fair Value of Financial Instruments,
Continued
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
table:
Cash and short term investments:
For those short term instruments, the carrying amount is
a reasonable estimate of fair value.
Securities:
For 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.
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.
Securities sold under agreements to repurchase and
borrowed funds:
The carrying amounts of securities sold under agreements
to repurchase and borrowed funds approximate their fair
values.
Commitments to extend credit and standby letters of
credit:
The fair value of commitments is estimated using the
fees currently charged to enter into similar agreements,
taking into account the remaining terms of the
agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair
value also considers the difference between current
levels of interest rates and the committed rates. The
fair value of letters of credit is based on fees
currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting
date.
<PAGE>
Note 14.Parent Company Only Financial Information
Parent company (Bath National Corporation) only condensed
financial information is as follows:
Condensed Statements of Financial Condition
December 31, 1997 and 1996
1997 1996
Assets
Cash $ 1,297 $ 2,920
Dividend receivable 1,886,000 615,000
Investment in subsidiary 31,163,993 30,391,234
Total assets $33,051,290 $31,009,154
Liabilities and Stockholders'
Equity
Liabilities
Dividend payable $1,884,723 $ 614,610
Other liabilities 29,163 31,951
1,913,886 646,561
Stockholders' Equity
Common stock 6,829,005 6,829,005
Additional paid in capital 1,494,678 1,494,678
Undivided profits 22,816,135 21,980,350
Unrealized appreciation on
available-for-sale
securities, net 736,902 58,560
Treasury stock (739,316) -
31,137,404 30,362,593
Total liabilities and
stockholders' equity $33,051,290 $31,009,154
Condensed Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenue $ - $ - $ -
Expenses
Other operating expenses 2,165 1,835 4,728
Loss before equity in earnings of
subsidiary (2,165) (1,835) (4,728)
Equity in earnings of subsidiary 3,535,729 3,449,914 3,383,290
Net income $3,533,564 $3,448,079 $3,378,562
<PAGE>
Note 14.Parent Company Only Financial Information, Continued
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $3,533,564 $3,448,079 $3,378,562
Adjustments to reconcile net
income to net cash used in
operating activities:
Net earnings of subsidiary (3,535,729) (3,449,914) (3,383,290)
Change in other liabilities (2,788) (1,392) (3,740)
Net cash used in operating
activities (4,953) (3,227) (8,468)
Cash Flows from Investing Activities
Cash dividend received 2,170,316 1,506,000 1,623,000
Cash Flows from Financing Activities
Payments for purchase of
treasury stock (739,316) - -
Cash dividends paid (1,427,670) (1,500,135) (1,619,826)
Net cash used in (2,166,986) (1,500,135) (1,619,826)
financing activities
Net increase (decrease) in cash (1,623) 2,638 (5,294)
Cash, January 1 2,920 282 5,576
Cash, December 31 $ 1,297 $ 2,920 $ 282
</TABLE>
<PAGE>
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 1998 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 1998
Annual Meeting filed with the Securities and Exchange Commission
in March 1998 and which is incorporated herein by reference.
ITEM 12. Security Ownership of certain Beneficial Owners and
Management
Information under this Item 12 has been included in Registrant's
Proxy Statement, page 7, for its 1998 Annual Meeting filed with
the Securities and Exchange Commission in March 1998 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 1998 Annual
Meeting filed with the Securities and Exchange Commission in
March 1998 and which is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
A. Finacial 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 1997.
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.
D. Financial Statements Schedules
Financial Statements Schedules are omitted in this particular
section since the required information is inapplicable or
the required information is presented in the Consolidated
Finacial 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 day of , 1998.
BATH NATIONAL CORPORATION
By:
Douglas McCabe, President
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated all as of the day of 1998.
Principal Executive Officer:
_____________________________
Douglas McCabe, President
Chief Executive Officer and
Director
Principal Financial and Accounting Officer:
_______________________________________
Edward C. Galpin, Vice President,
Chief Financial Officer, and Director
Directors:
____________________________
Laverne H. Billings, Director
____________________________
Theodore P. Capron, Director
<PAGE>
________________________
Herbert Fort, Director
___________________________
Lisle E. Hopkins, Director
_________________________
Lawrence Howell, Director
______________________
Constance Manikas, Director
____________________________
Robert H. Cole, Director
_____________________
Joseph F. Meade, Jr., Director
___________________________
Freeman H. Smith, III, Director
___________________________
Patrick Sullivan, Director
___________________________
Alan J. Wilcox, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,453,597
<SECURITIES> 89,030,914
<RECEIVABLES> 0
<ALLOWANCES> 1,650,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,310,129
<PP&E> 5,625,903
<DEPRECIATION> 411,672
<TOTAL-ASSETS> 271,734,041
<CURRENT-LIABILITIES> 4,714,097
<BONDS> 0
0
0
<COMMON> 6,829,005
<OTHER-SE> 24,308,399
<TOTAL-LIABILITY-AND-EQUITY> 271,734,041
<SALES> 0
<TOTAL-REVENUES> 20,750,387
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,762,935
<LOSS-PROVISION> 295,468
<INTEREST-EXPENSE> 8,884,314
<INCOME-PRETAX> 4,917,348
<INCOME-TAX> 1,383,784
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,533,564
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.61
</TABLE>
