SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ending June 30, 1998
Commission file number 0-20142
BATH NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-1185097
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
44 Liberty Street, Bath, NY 14810
(Address of principal executive offices) (zip code)
(607)-776-9661
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No _
The number of shares outstanding of the issuer's Common Stock, $5 par
value was 1,365,801 shares as of June 30, 1998, of which 37,953 are
classified as Treasury Stock.
<PAGE>
TABLE OF CONTENTS
Page Number
PART I. FINANCIAL INFORMATION 1 - 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 8
ITEM 2. Changes in Securities 8
ITEM 3. Defaults upon Senior Securities 8
ITEM 4. Submission of Matters to a Vote
of Security Holders 8
ITEM 5. Other Information 8
ITEM 6. Exhibits and Reports Form 8-K 8
PART III. MANAGEMENTS DISCUSSION AND ANALYSIS 9 - 11
<PAGE>
PART I, FINANCIAL INFORMATION
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
JUNE 30, 1998 AND DECEMBER 31, 1997
June 30, December 31,
ASSETS 1998 1997
Cash and due from banks $ 10,827,600 $ 7,453,600
Interest Bearing Dep.
in other banks 886,700 1,477,800
Securities Held-to-Maturity approx.
market value 6/98 $20,387,600 20,000,000 20,000,000
Available-For-Sale 68,262,200 69,030,900
Total Investments 88,262,200 89,030,900
Federal Funds Sold 8,900,000 400,000
Loans Gross 169,289,800 164,659,200
LESS: Allowance for loan losses 1,650,000 1,650,000
Premises and equipment-Net 5,583,800 5,625,900
Interest Receivable 2,262,300 2,310,100
Other Assets 983,200 2,426,500
TOTAL ASSETS $285,345,600 $271,734,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand 31,544,800 31,218,800
Savings 42,869,800 41,781,900
NOW Accounts 35,095,800 33,030,100
Money Market deposit accounts 10,949,600 10,572,700
Time deposits (in denominations of
100,000 or more) 22,042,900 19,620,000
Other time accounts 81,184,100 75,818,100
TOTAL DEPOSITS $223,687,000 $212,041,600
FHLB bank borrowings 5,000,000 0
Repurchase Agreements 22,616,600 23,840,900
Other Liabilities 2,785,100 4,714,100
TOTAL LIABILITIES $254,088,700 $240,596,600
STOCKHOLDERS' EQUITY:
Preferred Stock:
$10 par value 300,000 shares
authorized - -
Common Stock:
$5.00 par value, 1,500,000 shares
authorized; issued and outstanding:
6/98 - 1,365,801,12/97 - 1,365,801 6,829,000 6,829,000
Surplus 1,494,700 1,494,700
Undivided profits 23,713,900 22,816,100
Unrealized gain/loss - Investments 710,400 736,900
Treasury Stock (37,953 shares
as of June 1998) (1,491,100) (739,300)
TOTAL STOCKHOLDER'S EQUITY $ 31,256,900 $ 31,137,400
TOTAL EQUITY AND LIABILITIES $285,345,600 $271,734,000
See notes to condensed unaudited consolidated financial statements.
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
<CAPTION>
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INTEREST INCOME:
Int. and fees on loans $3,703,100 $3,640,900 $ 7,362,200 $ 7,160,200
Int. on fed. funs sold 84,700 40,800 146,400 85,200
Int. on Inv. Securities:
US Treas. & Gov. Agency 534,200 624,600 1,090,400 1,251,600
Municipal Obligations 432,800 403,000 878,400 782,700
Taxable Municipal 29,400 39,300 58,600 78,300
Mort. Backed Securities 270,300 374,300 582,400 737,900
Int. Bearing Due From 13,800 36,400 33,700 75,100
Other 19,600 16,100 39,700 32,300
Total Interest Income $5,087,900 $5,175,400 $10,191,800 $10,203,300
INTEREST EXPENSE:
Interest on Deposits $1,925,300 $1,858,700 $ 3,783,300 $ 3,653,900
Int. on short term bor. 3,900 8,900 7,700 37,600
Int. on repur. agreem. 360,600 333,500 725,300 671,500
Total Interest Expense $2,289,800 $2,201,100 $ 4,516,300 $ 4,363,000
NET INTEREST INCOME: $2,798,100 $2,974,300 $ 5,675,500 $ 5,840,300
Prov. loan loss (recov.) 90,900 37,500 179,700 166,600
Net int. income after
Prov. for loan losses 2,707,200 2,936,800 5,495,800 5,673,700
OTHER OPERATING INCOME:
Service charges $ 202,000 $ 198,400 $ 390,200 $ 391,700
Trust department fees 6,900 5,300 18,300 17,100
Invest. gains (losses) 100 (25,200) (10,300) (25,200)
Other 50,800 43,200 77,200 77,300
Total other operat inc. $ 259,800 $ 221,700 $ 475,400 $ 460,900
OTHER OPERATING EXPENSES:
Salaries & emp benefit $1,118,100 $1,062,700 $ 2,250,800 $ 2,155,100
Net occupancy expense
of premises 204,600 159,400 401,300 315,800
Depreciation 125,000 100,000 240,100 197,000
Other 577,100 495,500 1,167,600 956,900
Total other oper. exp. $2,024,800 $1,817,600 $ 4,059,800 $ 3,624,800
INCOME BEFORE INCOME TAXES 942,200 1,340,900 1,911,400 2,509,800
INCOME TAXES (benefit) 188,800 418,300 413,700 760,600
NET INCOME $ 753,400 $ 922,600 $ 1,497,700 $ 1,749,200
EARNINGS PER COMMON SHARE .56 .67 1.12 1.28
DIVIDENDS DECLARED PER
COMMON SHARE .25 .20 .45 .40
</TABLE>
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST EARNINGS
The following is a presentation of an analysis of the net interest earnings
of the company for the six months ended June 30, 1998 and 1997, respectively,
with respect to each major category of interest-earning assets and interest-
bearing liabilities:
Six Months Ended June 30, 1998
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 1,191 $ 34 5.71%
Taxable Securities 50,855 1,771 6.97%
Non-Taxable Securities 37,135 1,335 7.19%
Federal Funds Sold 5,408 146 5.40%
Loans 165,156 7,410 8.98%
Total Int-Earning Assets $259,745 $ 10,696 8.24%
Liabilities
NOW's & Money Market Accts. $ 45,505 $ 456 2.01%
Savings Deposits 42,152 576 2.74%
Time Deposits 101,483 2,751 5.43%
Total Int-Bearing Deposits $189,140 $ 3,783 4.00%
Repurchase Agreements $ 23,060 $ 725 6.29%
Federal Funds Purchased 88 3 6.82%
Federal Home Loan Bank
Borrowings 166 5 6.03%
Total Int-Bearing Liabilities $212,454 $ 4,516 4.26%
Net Interest Income FTE $ 6,180 4.76%
Less Tax-Equivalent Adjustment $ (504)
Net Interest Income $ 5,676
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST-EARNINGS, Continued
Six Months Ended June 30, 1997
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 2,648 $ 75 5.68%
Taxable Securities 61,573 2,100 6.82%
Non-Taxable Securities 32,347 1,291 8.00%
Federal Funds Sold 3,260 85 5.22%
Loans 158,668 7,128 9.00%
Total Int-Earning Assets $258,496 $10,679 8.26%
Liabilities
NOW's & Money Market Accts. $ 46,172 $ 464 2.02%
Savings Deposits 44,136 603 2.74%
Time Deposits 96,982 2,586 5.34%
Total Int-Bearing Deposits $187,290 $ 3,653 3.90%
Repurchase Agreements $ 21,175 $ 672 6.36%
Federal Funds Purchased 368 11 5.98%
Federal Home Loan Bank
Borrowings 1,066 26 4.88%
Total Int-Bearing Liabilities $209,899 $ 4,362 4.15%
Net Interest Income FTE $ 6,317
Less Tax-Equivalent Adjustment $ 477
Net Interest Income $ 5,840
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (Unaudited)
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 1,497,700 1,749,200
ADJUSTMENT TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 240,100 197,000
Provision for loan losses 179,700 166,600
FASB 115 effect & Deferred tax 2,000 2,200
Loan origination costs deferred (52,600) (37,800)
Bond premium amortized and (discount accrued) 76,600 79,500
(Increase) or Decrease in interest receivable 47,800 (7,300)
Increase or (Decrease) in other liabilities (1,911,300) (486,200)
(Increase) or Decrease in other assets 1,443,300 507,300
(Gain)/Loss on Investments 10,300 25,200
Net cash provided by operating activities $ 1,533,600 $ 2,195,700
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing securities 3,308,400 2,842,900
Proceeds from sales of securities 7,916,200 1,118,100
Purchases of securities (10,587,000) (6,264,600)
(Increase) or decrease in federal funds sold (8,500,000) 0
Increase or (decrease) in federal funds purchased 0 (2,300,000)
Increase of (decrease) in repurch. agreements (1,224,300) (1,381,300)
Net (increase) or decrease in interest bearing
deposits in other banks 591,100 491,800
Principal collected on loans 23,886,500 18,745,500
Loans made to customers (28,644,200)(21,119,300)
Capital expenditures (198,000) (232,500)
Net cash used or provided in investing
activities (13,451,300) (8,099,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase or (decrease) in demand deposits
NOW, MMDA and savings accounts 3,856,500 4,606,100
Proceeds from sale of
certificates of deposit 16,386,200 22,389,000
Payments for maturing
certificates of deposit (8,597,300)(19,994,100)
Dividends paid (602,000) (546,000)
Purchase of Treasury Stock (751,700) (422,100)
Repayment of FHLB borrowings 0 (1,000,000)
Borrowings from FHLB 5,000,000 0
Net cash provided by financing activities 15,291,700 5,032,900
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,374,000 (870,800)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,453,600 9,859,200
CASH AND CASH EQUIVALENTS AT END OF SIX MONTHS $10,827,600 $ 8,988,400
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1998. (Unaudited)
- ---------------------------------------------------------------------------
1. GENERAL
The accounting and reporting policies followed by Bath National
Corporation, a bank holding company, and its subsidiary, Bath National
Bank, in the preparation of the accompanying interim financial
statements conform with generally accepted accounting principles and
with general practice within the banking industry.
The accompanying financial statements are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of
financial position and results of operations for the interim periods
have been made. Such adjustments are of a normal recurring nature.
The results of operations for the six month period ended 6/30/98 are
not necessarily inductive of the results to be expected for the full
year.
2. INVESTMENT SECURITIES
Investment securities held-to-maturity are stated at cost plus discount
accrued and less premium amortized.
The carrying value and market value of those securities classified
as held-to maturity are as follows:
Fair Gross
Book Market Unrealized
Value Value Gain Loss Net
Agencies $20,000,000 $20,387,600 $387,600 $ - $387,600
Investment securities classified as available-for-sale are stated at
fair market value. The carrying value, fair market value, and
unrealized gain/loss for those securities are as follows:
Fair Gross
Book Market Unrealized
Value Value Gain Loss Net
U.S. Treasury
and other US
agencies $10,596,200 $10,604,000 $ 36,700 $(28,900) $ 7,800
Corporate Bonds 193,800 193,800 - - -
Municipal
Obligations 39,081,700 40,190,100 1,112,800 (4,400) 1,108,400
Mortgaged
Backed Sec. 15,574,100 15,636,300 111,100 (48,900) 62,200
Equity Secur. 1,638,000 1,638,000 - - -
TOTAL $67,083,800 $68,262,200 $1,260,600 $ 82,200 $ 1,178,400
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997 AND 1998. (Unaudited)
3. ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of the
relative risks inherent in the loan portfolio and, on an annual basis,
generally exceeds the amount of net losses charged against the
allowance.
Balance - January 1, 1998 $1,650,000
Charge offs (209,000)
Recoveries 29,300
Provision charged to income 179,700
Balance - June 30, 1998 $1,650,000
4. INCOME TAXES
Provision for deferred income taxes are made as a result of timing
differences between financial and taxable income. These differences
relate principally to depreciation of bank premises and equipment,
market value adjustments on investment securities held as available-for-
sale, and provisions for loan losses.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of Bath National
Corporation was held April 29, 1998. The following directors
were elected:
NAME TERM VOTES FOR VOTES AGAINST ABSTAIN
Laverne H. Billings 3 years 1,099,183 3,800 -0-
Theodore P. Capron 3 years 1,101,143 1,840 -0-
Constance Manikas 3 years 1,098,783 4,600 -0-
Douglas L. McCabe 3 years 1,102,983 -0- -0-
Joseph F. Meade, Jr. 3 years 1,102,492 491 -0-
Appointment of Urbach,
Kahn & Werlin as
Certified Public
Accountants 1,102,793 200 -0-
ITEM 5. Other Information
There were no reports filed on Form 8-K
ITEM 6. Exhibits and Reports on Form 8-K
N/A
<PAGE>
PART III. MANAGEMENTS DISCUSSION AND ANALYSIS
Discussions and Analysis of Financial Condition and Result of Operations
(Interim) (Unaudited)
Bath National Corporation two subsidiaries; Bath National Bank and
Bath National Financial Services, a financial service subsidiary.
Liquidity and Capital Resources:
Management has not identified any trends, demands, commitments,
events or uncertainties likely to result in any significant deficiencies
or increases in liquidity.
Liquidity is an important factor in the financial condition of Bath
National Corporation and affects it's ability to meet the borrowing needs
and deposit withdrawal requirements of its customers. Assets, consisting
principally of loans and investment securities, are funded primarily by
customer deposits.
The investment portfolio is one of Bath National's primary sources of
liquidity. Maturities of securities and principal payments on mortgage
backed securities provide a constant flow of funds which are available for
cash needs. Interest bearing deposits in other financial institutions
maturing within one year total $.9 million. Also, high quality securities
are readily marketable and provide another level of liquidity. Maturities
in the loan portfolio also provide a steady flow of funds. At June 30,
1998 loans with an aggregate balance of $31.8 million and securities of
$10.9 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. Bath National's
liquidity also continues to be enhanced by a relatively stable deposit
base. On June 30, 1998, the loan to deposit ratio was 76% and the ratio
of loans to core deposits (excluding certificates of deposit of $100,000
or more) was 84%.
In addition to the sources of liquidity above, Bath National Bank may
borrow from the Federal Reserve Bank in the event of a short term
liquidity deficiency. The bank has established lines of credit available
with the Federal Home Loan Bank and Manufacturer s and Traders Bank in the
amount of $17.8 and $2.0 million respectively. The funds are priced at
the overnight federal funds rate. The bank had an average net daily
federal funds sold of $5.3 million during 1998.
During the second quarter of 1997, the Board of Directors approved a
treasury stock repurchase program for up to 100,000 shares of Bath
National Corporation Stock. The amount to be paid per share is the market
price as provided by the corporation's market makers. Total shares
purchased since the inception total 37,953 with a cost of $1,491,000.
Repurchase of common stock are accounted for under the cost method,
whereby shares repurchased are recorded in a contra-equity account.
<PAGE>
PART III, Continued
The Federal Reserve Board and Office of the Comptroller of the
Currency have guidelines as to the minimum risk based capital requirement
of community banks. This minimum is presently 8%.
Bath National Corporation had primary capital at June 30, 1998 and June
30, 1997 as follows:
Components of Capital 6-30-98 6-30-97
Common Equity $31,256,900 $31,137,400
Allowance for loan losses 1,650,000 1,650,000
Subtotal 32,906,900 32,787,400
Less: Goodwill 281,400 305,600
Less: Treasury Stock 1,491,100 422,100
Less: Unrealized Gain/Loss 710,400 736,900
TOTAL PRIMARY CAPITAL $30,424,000 $31,322,800
The company's capital to asset ratios as of June 30, 1997 and 1998 are as
follows:
TIER I LEVERAGE RATIO RISK BASED
Required Required
Minimum Actual Minimum Actual
June 30, 1997 4.00% 11.89% 8.00% 22.63%
June 30, 1998 4.00% 11.36% 8.00% 20.52%
Net Interest Income
Net interest income decreased by $176,000 for the three months ended June
30, 1998 as compared to the same three months of 1997. Additional costs
of deposits due to the special promotions for the new branch openings, as
well as a decline in investment earnings account for the decrease. As
rates have fallen, prepayments on mortgage related products have increased
dramatically, thus lowering the yields.
Net interest income for the six months ended June 30, 1998 decreased from
the June 30, 1997 amounts by $175,000. As the promotional time deposits
are renewed at the normal rates, and new loans are generated, net interest
income is expected to increase during the remaining months of 1998.
Provision for Loan Losses
The company's management recognizes the fact that there are risks of
loss involved in any lending function. Identifying the extent of the risk
for each loan category, and the probability that losses will be sustained
based on delinquency experience, is part of the overall plan for
establishing an Allowance for Loan Losses.
Bath National Bank recognized net loan charge offs totaling $209,000
for the six months ended June 30, 1998 versus a net charge off of $166,600
for the comparable six months of 1997. The reserve for loan loss totals
$1,650,000. The Board of Directors has determined that $1,650,000 is a
sufficient reserve for loan losses based on an analysis of past due loans,
historical data and specific identification of problem loans.
<PAGE>
PART III, Continued
Non-Performing Assets
The Bank's policy is to discontinue the accrual of interest on loans
(other than instalment loans and 1-4 family residential mortgages) for
which principal or interest is past due 120 days or more and which are not
fully collateralized. Such loans are classified as non-accrual by BNC.
This classification does not, however, necessarily indicate that the
principal of the loan is uncollectible, but does warrant a review of the
collectability. When a loan is placed on a non-accrual basis, any unpaid
interest accrued is reversed against current income.
On June 30, 1998, total non-accruing assets were $975,000.
Collateral supporting the loans totals $1,264,000.
NON PERFORMING LOANS
Non-performing loans are summarized as follows:
Other Real Estate $ 84,000
Non-accrual loans $ 975,000
Past due 90 days or more and still accruing $ 670,000
Total $1,729,000
Other Operating Expenses
Other Operating expense for the three months ended June 30, 1998,
increased by $215,000 or 11.8% over the three months ended June 30, 1997.
Costs associated with increasing loan generation as well as staffing costs
for the three new offices account for much of the increase. In addition,
occupancy expenses increased due to the additional three bank offices.
A new computer system for the bank was purchased during the first quarter.
Depreciation of this system, as well as depreciation for additional bank
equipment at the new offices, increases total operating expenses by
$25,000 per quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
BATH NATIONAL CORPORATION
DATE: ____________________ _________________________
Douglas L. McCabe
President
DATE: ____________________ _________________________
Edward C. Galpin Vice President
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,827,600
<SECURITIES> 88,262,200
<RECEIVABLES> 0
<ALLOWANCES> (1,650,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,262,300
<PP&E> 5,583,800
<DEPRECIATION> 240,100
<TOTAL-ASSETS> 285,345,600
<CURRENT-LIABILITIES> 6,328,000
<BONDS> 0
0
0
<COMMON> 6,829,000
<OTHER-SE> 25,208,600
<TOTAL-LIABILITY-AND-EQUITY> 285,345,600
<SALES> 0
<TOTAL-REVENUES> 10,191,800
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,059,800
<LOSS-PROVISION> 179,700
<INTEREST-EXPENSE> 4,516,300
<INCOME-PRETAX> 1,911,400
<INCOME-TAX> 413,700
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,497,700
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
