SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ending September 30, 1998
Commission file number 0-20142
BATH NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-1185097
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
44 Liberty Street, Bath, NY 14810
(Address of principal executive offices) (zip code)
(607) 776-9661
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ______
The number of shares outstanding of the issuer's Common Stock, $5 par
value was 1,365,801 shares as of September 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 8
of Security Holders
ITEM 5. Other Information 8
ITEM 6. Exhibits and Reports Form 8-K 8
PART III. MANAGEMENT'S DISCUSSION AND ANALYSIS 9 - 11
<PAGE>
PART I. FINANCIAL INFORMATION
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATION STATEMENTS OF CONDITION
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
September 30, December 31,
1998 1997
ASSETS
Cash and due from banks $ 10,456,000 $ 7,453,600
Interest Bearing Deposits in other banks 490,500 1,477,800
Securities Held-to-Maturity approx.
market value 9/98 $20,434,000 20,000,000 20,000,000
Available-for-Sale 68,461,400 69,030,900
Total Investments 88,461,400 89,030,900
Federal Funds Sold 4,825,000 400,000
Loans (Gross) 174,725,500 164,659,200
LESS: Allowance for loan losses 1,693,700 1,650,000
Premises and equipment-Net 5,506,300 5,625,900
Interest Receivable 2,133,400 2,310,100
Other Assets 851,600 2,426,500
TOTAL ASSETS $285,756,000 $271,734,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 34,206,600 $ 31,218,800
Savings 42,112,200 41,781,900
NOW Accounts 34,061,800 33,030,100
Money Market deposit accounts 10,610,700 10,572,700
Time deposits (in denominations of
100,000 or more) 17,508,200 19,620,000
Other time accounts 81,918,500 75,818,100
TOTAL DEPOSITS 220,418,000 212,041,600
FHLB Borrowings 5,000,000 0
Repurchase Agreements 25,491,600 23,840,900
Other liabilities 2,801,700 4,714,100
TOTAL LIABILITIES 253,711,300 240,596,600
STOCK HOLDERS' EQUITY:
Preferred Stock: $10 par value;
300,000 shares authorized,
Common Stock: $5 par value;
1,500,000 shares authorized;
issued and outstanding: September
1998 - 1,365,801 December 1997 1,365,801 6,829,000 6,829,000
Surplus 1,494,700 1,494,700
Undivided profits 24,230,600 22,816,100
Treasury Stock (37,953 shares
as of September 1998) (1,491,100) (739,300)
Unrealized gain/(loss) - Investments 981,500 736,900
TOTAL STOCKHOLDER'S EQUITY 32,044,700 31,137,400
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $285,756,000 $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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997.
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
INTEREST INCOME:
Interest and fees on loans $3,704,700 $3,667,100 $11,011,600 $10,827,300
Int. on federal funds sold 129,100 35,900 275,500 121,100
Int. on investment securit:
US Treasury & Govern. Agency 547,100 627,000 1,637,500 1,878,600
Municipal Obligations 448,400 412,800 1,326,800 1,195,500
Taxable Municipal 20,500 37,700 79,100 116,000
Mortgaged Backed Securities 263,500 352,700 845,900 1,090,600
Interest Bearing due from 9,900 32,600 43,600 107,700
Other 22,700 16,200 62,400 48,500
Total Interest Income 5,145,900 5,182,000 15,282,400 15,385,300
INTEREST EXPENSE:
Interest Deposits 1,894,800 1,909,700 5,678,100 5,563,600
Int. on short term borrow. 80,000 13,100 87,700 50,700
Interest on repurchase agree 383,500 334,900 1,108,800 1,006,400
Total Interest Expense 2,358,300 2,257,700 6,874,600 6,620,700
NET INTEREST INCOME 2,787,600 2,924,300 8,407,800 8,764,600
Prov. loan loss (recovery) 105,000 65,700 284,700 232,300
Net Int. Income After
Provision for Loan Losses 2,682,600 2,858,600 8,123,100 8,532,300
OTHER OPERATING INCOME:
Service charges 204,900 197,000 595,100 588,700
Trust department fees 16,200 13,500 34,500 30,600
Invest. gains (losses) (3,400) 5,300 (13,700) (19,900)
Other 161,800 51,600 294,300 128,900
Total other operating income 379,500 267,400 910,200 728,300
OTHER OPERATING EXPENSES:
Salaries & emp benefits 1,107,100 1,145,700 3,357,900 3,300,800
Net occupancy expense of
premises 209,500 167,500 610,800 483,300
Depreciation 141,500 105,100 381,600 302,100
Other 485,700 522,700 1,653,300 1,479,600
Total other oper. expenses 1,943,800 1,941,000 6,003,600 5,565,800
INCOME BEFORE INCOME TAXES 1,118,300 1,185,000 3,029,700 3,694,800
INCOME TAXES (benefit) 269,300 346,000 683,000 1,106,600
NET INCOME $ 849,000 $ 839,000 $2,346,700 $2,588,200
EARNINGS PER COMMON SHARE [FN] .64 .63 1.76 1.91
DIVIDENDS DECLARED PER COMMON SHARE .25 .20 .70 .60
<F1> Earnings per share data is based on average weighted shares outstanding.
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST EARNING
The following is a presentation of an analysis of the net interest earnings
of the company for the nine months ended September 30, 1998 and 1997,
respectively, with respect to each major category of interest-earning
assets and interest-bearing liabilities:
Nine Months Ended September 30, 1998
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 1,014 $ 44 5.78%
Taxable Securities 50,323 2,624 6.94%
Non-Taxable Securities 37,275 2,017 7.20%
Federal Funds Sold 6,789 276 5.41%
Loans 167,043 11,086 8.83%
Total Int-Earning Assets $262,444 $16,047 8.14%
Liabilities
NOW's & Money Market Accts. 45,630 692 2.02%
Savings Deposits 42,314 874 2.75%
Time Deposits 101,161 4,112 5.41%
Total Int-Bearing Deposits $189,105 $ 5,678 4.00%
Repurchase Agreements 23,551 1,111 6.28%
Federal Funds Purchase 63 2 4.23%
Federal Home Loan Bank
Borrowings 1,795 84 6.23%
Total Int-Bearing Liabilities $214,514 $ 6,875 4.27%
Net Interest Income FTE $ 9,172 4.65
Less Tax-Equivalent Adjustment $ (764)
Net Interest Income $8,408
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST-BEARINGS, Continued
Nine Months Ended September 30, 1997
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 2,456 $ 108 5.86%
Taxable Securities 58,702 3,134 7.12%
Non-Taxable Securities 33,115 1,818 7.31%
Federal Funds Sold 3,065 121 5.27%
Loans 159,198 10,885 9.12%
Total Int-Earning Assets $256,536 $16,066 8.35%
Liabilities
NOW's & Money Market Accts. $ 45,988 $ 701 2.04%
Savings Deposits 44,122 911 2.76%
Time Deposits 97,774 3,952 5.40%
Total Int-Bearing Deposits $187,884 $ 5,564 3.96%
Repurchase Agreements 21,030 1,006 6.39%
Federal Funds Purchased 386 18 6.23%
Federal Home Loan Bank
Borrowings 751 33 5.87%
Total Int-Bearing Liabilities $210,051 $ 6,621 4.22%
Net Interest Income FTE $ 9,445 4.90%
Less Tax-Equivalent Adjustment $ 680
Net Interest Income $ 8,765
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
September 30,
1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 2,346,700 $ 2,588,200
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 381,600 302,000
Provision for loan losses 284,700 232,300
FAS-115 effect 816,900 2,900
Loan origination costs deferred (175,200) (44,500)
Bond premium amortized and (discount accrued) 120,900 107,700
(Gain) or Loss on sale of investments 13,700 19,900
(Increase) or Decrease in interest receivable 176,700 304,700
Increase or (Decrease) in other liabilities (2,075,400) (498,000)
(Increase) or Decrease in other assets 1,574,900 457,200
Adjustment to loan reserve 43,700 0
Net cash provided by operating activities 3,509,200 3,472,400
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing securities 3,474,200 3,035,000
Proceeds from sales of investment securities 9,578,600 2,387,400
Purchases of investment securities (13,025,500) (6,704,400)
(Increase) or decrease in federal funds sold (4,425,000) 0
Increase or (decrease) in federal funds purchased 0 (825,000)
Increase or (decrease) in repurchase agreements 1,650,700 (627,000)
Net decrease in interest bearing
deposits in other banks 987,300 1,279,600
Principal collected on loans 35,804,400 28,329,900
Loans made to customers (45,980,200) (33,945,800)
Capital expenditures (262,000) (366,900)
Net cash used or provided in investing
activities (12,197,500) (7,437,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) or increase in demand
deposits, NOW, MMDA & savings accounts 4,387,800 2,242,700
Proceeds from sale of
certificates of deposit 25,530,500 38,003,000
Payments for maturing
certificates of deposit (21,541,900) (31,937,900)
Dividends paid (934,000) (816,000)
Purchase of Treasury Stock (751,700) (739,300)
Repayment of FHLB borrowings 0 (2,000,000)
Borrowings from FHLB 5,000,000 0
Net cash provided by financing activities 11,690,700 4,752,500
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,002,400 787,700
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,453,600 9,859,200
CASH AND CASH EQUIVALENTS AT END OF NINE MONTHS $10,456,000 $ 10,646,900
<PAGE>
PART I, CONTINUED
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997. (Unaudited)
- ---------------------------------------------------------------------------
1. GENERAL
The accounting and reporting policies followed by Bath National
Corporation (BNC), a bank holding company, and its subsidiares, Bath
National Bank (BNB)and BNC Financial Services (BNCFS) in the preparation
of the accompanying interim financial statements conform with generally
accepted accounting principles and with general practice within the
banking industry.
The accompanying financial statements are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of
financial position and results of operations for the interim periods
have been made. Such adjustments are of a normal recurring nature.
The results of operations for the nine month period ended 9-30-98 are not
necessarily inductive of the results to be expected for the full year.
2. INVESTMENT SECURITIES
Investment securities classified held-to-maturity are stated at cost plus
discount accrued and less premium amortized. The carrying value, fair
market value and unrealized gain/(loss) are as follows:
Fair
Book Market Unreal. Unreal.
Value Value Gain Loss Net
Agencies 20,000,000 20,434,000 434,000 - 434,000
Investment securities classified as available-for-sale are stated at fair
market value. The carrying value, fair market value and unrealized
gain/(loss) for those securities are as follows:
Fair
Book Market Unreal. Unreal.
Value Value Gain Loss Net
U.S. Treasury &
Agencies 10,017,900 10,033,200 42,800 (27,500) 15,300
Corporates 194,300 194,200 - (100) (100)
States & Political
Subdivisions 38,567,500 40,222,400 1,654,900 - 1,654,900
Mortgage Back
Securities 16,276,900 16,239,900 23,000 (60,000) (37,000)
Equity Securities 1,771,700 1,771,700 - - -
Total 66,828,300 68,461,400 1,720,700 (87,600) 1,633,100
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1998 AND 1997. (Unaudited)
3. ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of the
relative risks inherent in the loan portfolio and, on an annual basis,
generally exceeds the amount of net loan losses charged against the
allowance.
Balance - January 1, 1998 $ 1,650,000
Less charge offs (292,300)
Recoveries 51,300
Provision charged to income 284,700
Balance - September 30, 1998 $ 1,693,700
4. INCOME TAXES
Provision for deferred income taxes are made as a result of timing
differences between financial and taxable income. These differences
relate principally to depreciation of bank premises and equipment,
accretion of discounts on investment securities and provisions for loan
losses.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
There were no reports filed on Form 8-K
ITEM 6. Exhibits and Reports on Form 8-K
N/A
<PAGE>
PART III. MANAGEMENT'S DISCUSSION AND ANALYSIS
Discussions and Analysis of Financial Condition and Result of Operations
(Interim) (Unaudited)
Bath National Corporation has one subsidiary bank (Bath National Bank)
and one non-banking subsidiary (BNCFS), a financial service subsidiary.
Liquidity and Capital Resources:
Management has not identified any trends, demands, commitments, events
or uncertainties likely to result in any significant deficiencies or
increases in liquidity.
Liquidity is an important factor in the financial condition of Bath
National Corporation and affects its ability to meet the borrowing needs and
deposit withdrawal requirements of its customers. Assets, consisting
principally of loans and investment securities, are funded by customer
deposits.
The investment portfolio is one of Bath National 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 $.4 million. Also, high quality securities
are readily marketable and provide a steady flow of funds. At September 30,
1998 loans with an aggregate balance of $24.9 million and securities of $8.0
million were due to mature in one year or less. Additional funds flow from
payments on installment and revolving credit loans. Bath National Bank's
liquidity also continues to be enhanced by a relatively stable deposit base.
On September 30, 1998, the loan to deposit ratio was 79% and the ratio of
loans to core deposits (excluding certificates of deposit of $100,000 or
more) was 86%.
In addition to the sources of liquidity referred to above, Bath National
Bank may borrow from the Federal Reserve Bank in the event of a short term
liquidity deficiency. The bank has established lines of credit available
with the Federal Home Loan Bank and Manufacturer s 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 $4.9 million.
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.
Management has begun the process of identifying and controlling the
risks associated with the year 2000 computer problem. Risk assessment,
testing, and customer awareness programs are presently on schedule. The
total estimated costs for the Bank s y2k program is considered immaterial
at approximately $25,000.
<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 8.00%. Bath National Corporation has
primary capital at September 30, 1998 and September 30, 1997 as follows:
Components of Capital 9-30-98 9-30-97
Equity Capital $31,063,200 $31,339,900
Less Goodwill 275,300 299,500
Tier 1 Capital 30,787,900 31,040,400
Tier 2 Capital 1,693,700 1,650,000
Total Capital $32,481,600 $32,690,400
The company's capital to asset ratios for the third quarter of 1998 and
1997 are as follows:
TIER I LEVERAGE RATIO RISK BASED
Required Required
Minimum Actual Minimum Actual
September 30, 1997 4.00% 11.80% 8.00% 22.43%
September 30, 1998 4.00% 11.03% 8.00% 20.17%
Net Interest Income
Net interest income declined by $136,700 for the quarter ended
September 30, 1998 as compared to the corresponding quarter of 1997.
Earnings on investment securities declined by approximately $75,000, while
earnings on loans increased by $38,000. Cost of funds increased by
$100,000 for the comparable quarters, due primarily to an increase in
repurchase agreements outstanding and FHLB borrowings.
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 $284,700
for the nine months ended September 30, 1998 versus a net charge off of
$232,300 for the comparable nine months of 1997. The reserve for loan loss
totals $1,693,700. The Board of Directors has determined that $1,693,700
is a sufficient reserve for loan losses based on an analysis of past due
loans, historical data and specific identification of problem loans.
Non-Performing Assets
The Bank's policy is to discontinue the accrual of interest on loans
(other than installment loans) for which principal and interest is past due
120 days or more and which are not fully collateralized. Such loans are
classified as non-accrual by BNB. This classification does not, however,
necessarily indicate that the principal of the loan is uncollectible, but
<PAGE>
PART III, Continued
does warrant a review of the collectability. When a loan is placed on a
non-accrual basis, any unpaid interest accrued is reversed against current
income.
On September 30, 1998, total non-accruing assets were $664,100.
Collateral supporting the loans totals $1,118,500.
Non-Performing Loans
Non-performing loans are summarized as follows:
Other Real Estate $ 45,500
Non-accrual loans $ 664,100
Past due 90 days or more and still accruing $ 477,000
Total $1,186,600
Other Operating Expenses
Salaries and benefits declined for the third quarter of 1998 as
compared to 1997 by $39,000. At the end of 1997, three key employees
retired, necessitating the hiring and training of their replacements. As a
result, these three positions were duplicated and the resulting salary
increase is reflected in 1997 amounts.
Net occupancy expense increased by $41,000 for the quarter due to two
new offices opened during 1998. Depreciation expense increased for the
comparable quarters by $36,000 due to the new computers system for the
bank, plus additional furniture and equipment for the new offices.
Other Operating Income
Other operating income increased by $112,000 for the quarter ended
September 30, 1998 as compared to the third quarter of 1997. Income
generated by mortgage broker fees account for the increase.
<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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,456,000
<SECURITIES> 88,461,400
<RECEIVABLES> 2,133,400
<ALLOWANCES> (1,693,400)
<INVENTORY> 0
<CURRENT-ASSETS> 2,133,400
<PP&E> 5,506,300
<DEPRECIATION> 381,600
<TOTAL-ASSETS> 285,756,000
<CURRENT-LIABILITIES> 9,793,300
<BONDS> 0
0
0
<COMMON> 6,829,000
<OTHER-SE> 25,215,700
<TOTAL-LIABILITY-AND-EQUITY> 285,756,000
<SALES> 0
<TOTAL-REVENUES> 15,282,400
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,003,600
<LOSS-PROVISION> 284,700
<INTEREST-EXPENSE> 6,874,600
<INCOME-PRETAX> 3,029,700
<INCOME-TAX> 683,000
<INCOME-CONTINUING> 2,346,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,346,700
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
