SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ending March 31, 1999
Commission file number 0-20142
BATH NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-1185097
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
44 Liberty Street, Bath, NY 14810
(Address of principal executive offices) (zip code)
607)-776-9661
Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
The number of shares outstanding of the issuer's Common Stock, $5.00
par value was 1,365,801 shares as of March 31, 1999, of which 37,953
are classified as Treasury Stock.
<PAGE>
TABLE OF CONTENTS
Page No
PART I. FINANCIAL INFORMATION 1 - 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 9
ITEM 2. Changes in Securities 9
ITEM 3. Defaults upon Senior Securities 9
ITEM 4. Submission of Matters to a Vote
of Security Holders 9
ITEM 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
PART III. MANAGEMENT'S DISCUSSION AND ANALYSIS 10 - 13
<PAGE>
PART I, FINANCIAL INFORMATION
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
MARCH 31, 1999 AND DECEMBER 31, 1998 (Unaudited)
March 31, December 31,
1999 1998
ASSETS
Cash and due from banks $ 11,130,800 $ 12,009,200
Interest Bearing Deposits
in other banks 99,300 396,400
Securities Held-to-Maturity
approx. market value 3/99
$20,156,300, 12/98 $20,268,800 20,000,000 20,000,000
Available-For-Sale 64,928,700 66,571,200
Total Investments 84,928,700 86,571,200
Loans, Gross 191,053,300 187,767,800
Less: Allowance for loan loss 1,651,600 1,650,000
Premises and equipment-Net 5,361,300 5,462,100
Interest Receivable 2,178,600 2,351,900
Other Assets 2,327,900 2,568,700
TOTAL ASSETS $295,428,300 $295,477,300
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 33,678,100 $ 35,030,100
Savings 43,876,400 43,039,600
NOW accounts 35,165,600 36,145,800
Money market deposit accounts 11,672,800 11,384,100
Time deposits (in denominations
of $100,000 or more) 23,423,900 18,894,000
Other time accounts 77,980,500 80,111,000
TOTAL DEPOSITS 225,797,300 224,604,600
Federal Funds Purchased 3,150,000 2,150,000
Borrowings Federal Home Loan Bank 5,000,000 5,000,000
Repurchase Agreements 27,963,000 28,090,800
Other liabilities 2,720,600 5,108,900
TOTAL LIABILITIES $264,630,900 $264,954,300
STOCKHOLDERS' EQUITY:
Preferred stock:
$10 par value, 300,000 shares
authorized - -
Common stock:
$5 par value, 1,500,000 shares
authorized; issued and outstanding
12/98 - 1,365,801 shares,
3/99 - 1,365,801 shares 6,829,000 6,829,000
Surplus 1,494,700 1,494,700
Undivided profits 23,320,300 22,839,200
Unrealized gain/loss - Investments 644,500 851,200
Treasury Stock <F1> (1,491,100) (1,491,100)
TOTAL STOCKHOLDERS' EQUITY 30,797,400 30,523,000
TOTAL EQUITY AND LIABILITIES $295,428,300 $295,477,300
<PAGE>
[FN]
<F1>37,953 shares recorded at cost as of 3/99, 37,953 shares as of
12/98
See notes to condensed unaudited consolidated financial statements.
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
Three Months Ended
March 31,
1999 1998
INTEREST INCOME:
Interest and fees on loans $3,974,100 $3,619,500
Interest on federal funds sold 6,500 61,700
Interest on investment securities:
US Treasury and Gov. Agencies 524,700 556,200
Municipal obligations 437,700 445,600
Taxable Municipals 6,300 29,200
Mortgage backed securities 249,900 312,100
Interest Bearing due from 3,700 19,900
Other 22,100 20,100
Total Investment Income 1,250,900 1,444,800
Total Interest & Fees Income 5,225,000 5,064,300
INTEREST EXPENSE:
Interest on Deposits 1,720,800 1,858,000
Repurchase Agreement 406,300 364,700
Interest on short-term borrowings 104,000 3,800
Total Interest Expense 2,231,100 2,226,500
Net Interest Income 2,993,900 2,837,800
Provision for loan losses (recoveries) 115,000 88,800
Net interest income after provision
for loan losses 2,878,900 2,749,000
OTHER OPERATING INCOME:
Service charges 235,000 188,200
Trust department fees 14,200 11,400
Investment gains (losses) 0 (10,400)
Other 163,300 45,100
Total other operating income 412,500 234,300
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,184,200 1,132,700
Occupancy 219,100 196,700
Depreciation 130,500 115,100
Other operating expenses 539,300 569,600
Total other operating expenses 2,073,100 2,014,100
INCOME BEFORE INCOME TAXES 1,218,300 969,200
INCOME TAXES 339,000 224,900
NET INCOME $ 879,300 $ 744,300
EARNINGS PER COMMON SHARE $.66 $ .56
DIVIDENDS DECLARED PER COMMON SHARE $.30 $ .20
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST EARNINGS
The following is a presentation of an analysis of the net interest
earnings of the company for the three months ended March 31, 1999
and 1998, respectively, with respect to each major category of
interest-earning assets and interest-bearing liabilities:
Three Months Ended March 31, 1999
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 252 $ 4 6.35%
Taxable Securities 47,464 803 6.77%
Non-Taxable Securities 37,157 665 7.16%
Federal Funds Sold 447 5 4.48%
Loans 188,603 4,006 8.50%
Total Interest-Earning
Assets $273,923 $5,483 8.01%
Liabilities
NOW's & Money Market Accts. $ 48,936 $ 210 1.72%
Savings Deposits 43,158 268 2.49%
Time Deposits 100,115 1,242 4.97%
Total Interest-Bearing
Deposits $192,209 $1,720 3.58%
Federal Home Loan Borrowings 5,000 75 6.00%
Repurchase Agreements 28,120 408 5.81%
Federal Funds Purchased 2,122 28 5.28%
Total Interest-Bearing
Liabilities $227,451 $2,231 3.93%
Net Interest Income $3,252 4.75%
Less Tax-Equivalent Adjustment $ 258
Net Interest Income $2,994
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST-EARNINGS, Continued
Three Months Ended March 31, 1998
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 1,406 $ 20 5.69%
Taxable Securities 52,094 917 7.05%
Non-Taxable Securities 36,647 678 7.40%
Federal Funds Sold 4,575 62 5.42%
Loans 164,071 3,644 8.89%
Total Interest-Earning
Assets $258,793 $5,321 8.23%
Liabilities
NOW's & Money Market Accts. $ 46,448 $ 231 1.99%
Savings Deposits 41,590 282 2.72%
Time Deposits 88,130 1,345 6.11%
Total Interest-Bearing
Deposits $176,168 $1,858 4.22%
Repurchase Agreements 23,272 367 6.31%
Federal Funds Purchased 162 2 4.94%
Total Interest-Bearing
Liabilities $199,602 $2,227 4.47%
Net Interest Income 3,094 4.79%
Less Tax-Equivalent Adjustment 256
Net Interest Income $2,838
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 879,300 $ 744,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 130,500 115,100
Provision for loan losses 115,000 88,800
FAS-115 Effect 700 13,100
Loan origination costs deferred 19,000 (9,000)
Bond premium amortized and (discount accrued) 38,700 107,700
(Gain) or loss on Sale of Investments 0 10,300
(Increase) or Decrease in interest
receivable 173,300 297,900
Increase or (Decrease) in other
liabilities (2,250,500) (1,864,300)
(Increase) or Decrease in other assets 240,800 1,768,700
Net cash provided by operating activities (653,200) 1,272,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing investment securities 1,259,400 1,125,000
Proceeds from sales of investment securities 0 7,380,100
Purchases of investment securities 0 (7,190,000)
(Increase) or decrease in federal funds sold 0 (8,925,000)
Increase or (decrease) in federal funds pur. 1,000,000 0
Increase or (decrease) in Repurchase Agmts. (127,800) (1,047,200)
Net in interest bearing deposits
in other banks 297,100 396,700
Principal collected on loans 16,706,300 10,752,800
Loans made to customers (20,124,200) (11,127,600)
Capital expenditures (29,700) (20,700)
Net cash (used) or provided in
investing activities (1,018,900) (8,655,900)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW
MMDA, & savings accounts (1,206,700) 1,930,500
Proceeds from sales of certificates of dep. 12,091,100 11,071,000
Payments for maturing certificates
of deposit (9,691,700) (3,247,700)
Dividends paid (399,000) (268,000)
Purchase of Treasury Stock 0 (267,400)
Net cash provided by financing activities 793,700 9,218,400
NET INCREASE OR (DECREASE) IN CASH AND
CASH EQUIVALENTS (878,400) 1,835,100
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 12,009,200 7,453,600
CASH AND CASH EQUIVALENTS AT
END OF THREE MONTHS $11,130,800 $ 9,288,700
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998. (Unaudited)
1. GENERAL
The accounting and reporting policies followed by Bath National
Corporation, a bank holding company, and its subsidiaries, Bath
National Bank and BNC Financial Services, in the preparation of
the accompanying interim financial statements conform with
generally accepted accounting principles and with general
practice within the banking industry.
The accompanying financial statements are unaudited. In the
opinion of management, all adjustments necessary for a fair
presentation of financial position and results of operations for
the interim periods have been made. Such adjustments are of a
normal recurring nature.
The results of operations for the three month period ended
3-31-99 are not necessarily inductive of the results to be
expected for the full year.
2. INVESTMENT SECURITIES
Investment securities held-to-maturity are stated at cost plus
discount accrued and premium amortized.
The carrying value and market value of those securities
classified as held to maturity are as follows:
Fair Gross
Book Market Unrealized
Value Value Gain Loss Net
Agencies 20,000,000 20,156,300 156,300 - 156,300
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 9,033,400 9,004,600 18,300 (47,100) (28,800)
Municipals 37,227,100 38,466,100 1,254,500 (15,500) 1,239,000
Mortgaged
Backed Sec. 15,632,900 15,493,300 23,000(162,600) (139,600)
Corporate Bonds 195,000 193,000 - (2,000) (2,000)
Equity Secur. 1,771,700 1,771,700 - - -
TOTAL 63,860,100 64,928,700 1,295,800(227,200) 1,068,600
<PAGE>
PART I, continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1999 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 loan losses
charged against the allowance.
Balance - January 1, 1999 $1,650,000
Charge offs:
Instalments 52,000
Commercial 76,600
Credit Cards 12,900 (141,500)
Recoveries:
Instalments 19,500
Commercial 6,800
Credit Cards 1,800 28,100
Provision loan loss 115,000
Balance - March 31, 1999 $1,651,600
4. INCOME TAXES
Provision for deferred income taxes are made as a result of
timing differences between financial and taxable income. These
differences relate principally to depreciation of bank premises
and equipment, accretion of discounts on investment securities
and provisions for loan losses.
5. PER SHARE DATA
The per share of common stock information is based upon the
weighted average number of shares outstanding during each period.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
There were no reports filed on Form 8-K.
<PAGE>
PART III
Discussions and Analysis of Financial Condition and Result of
Operations
(Interim) (Unaudited)
The Bath National Corporation has two subsidiaries (Bath National
Bank)and BNC Financial Services, a financial service subsidiary.
Liquidity and Capital Resources
Management has not identified any trends, demands, commitments,
events or uncertainties likely to result in any significant
deficiencies or increases in liquidity.
Liquidity is an important factor in the financial condition of Bath
National Corporation and affects its ability to meet the borrowing
needs and deposit withdrawal requirements of its customers. Assets,
consisting principally of loans and investment securities, are funded
by customer deposits.
The investment portfolio is one of Bath National Corporation's
primary sources of liquidity. The Company's other primary sources of
liquidity are federal funds sold and purchased. Other sources of
liquidity include repayment of loans and sale of loans. Maturities
of securities and principal payments on mortgage backed securities
provide a constant flow of funds which are available for cash needs.
Interest bearing deposits in other financial institutions maturing
within one year total $100 thousand. Also, high quality securities
are readily marketable and provide another level of liquidity.
Maturities in the loan portfolio also provide a steady flow of funds.
At March 31, 1999 loans with an aggregate balance of $45.2 million
and securities of $29.9 million were due to mature in one year or
less. Additional funds flow from payments on installment and
revolving credit loans and from a historically high level of net
operating earnings. Bath National's liquidity also continues to be
enhanced by a relatively stable deposit base. On March 31, 1999, the
loan to deposit ratio was 85% and the ratio of loans to core deposits
(excluding certificates of deposit of $100,000 or more) was 94%.
In addition to the sources of liquidity above, Bath National Bank may
borrow from the Federal Reserve Bank in the event of a short term
liquidity deficiency.
The bank has established lines of credit available with Federal Home
Loan Bank and Manufacturers and Traders Bank in the amount of $17.8
million and $4.0 million, respectively, at the overnight federal
funds rate. The bank had an average net daily federal funds
purchased of $1.67 million during 1999.
During the second quarter of 1997, the Board of Directors approved a
Treasury Stock repurchase program for up to 100,000 shares. Total
shares purchased since the inception are 37,953 with a cost of
$1,491,000. Repurchase of common stock are accounted for under the
cost method.
<PAGE>
PART III, Continued
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 Federal Reserve Board and Office of the Comptroller of the
Currency have guidelines as to the minimum risk based capital
requirement of community banks. This minimum is presently 8.0%.
Bath National Corporation had primary capital at March 31, 1999
and March 31, 1998 as follows:
Components of Capital 3-31-99 3-31-98
Equity Capital $30,152,900 $30,609,500
Less: Goodwill 263,200 287,400
Total Tier 1 Capital 29,889,700 30,322,100
Tier 2 Capital 1,651,600 1,650,000
TOTAL PRIMARY CAPITAL $31,541,300 $31,972,100
The Company's capital to asset ratios for the first quarter of 1999
and 1998 are as follows:
Leverage Risk Based
Required Required
Minimum Actual Minimum Actual
March 31, 1999 4.00% 10.49% 8.00% 18.17%
March 31, 1998 4.00% 11.01% 8.00% 21.07%
Other Operating Income
Other operating income increased by $178,000 for the quarter ended
March 31, 1999 as compared to the first quarter of 1998. Income
previously classified as loan income totaling $24,000 was
reclassified into other income in order to be consistent with
financial institution reporting guidelines. The remaining increase
was attributable to increases in; mortgage broker fees, commission
income from sales generated through BNC Financial Services, increased
cash surrender value in bank owned life insurance policies amounted
to $23,000 for the first quarter of 1999, premiums related to credit
insurance on loan originations and increases in VISA interchange due
to the Bank s increased involvement in the ATM networks.
Other Operating Expense
Net occupancy expense increased by $20,000 for the quarter due to two
new offices opened during 1998. Depreciation expense increased for
the comparable quarters by $15,000 due to the new computer system for
the bank, plus additional furniture and equipment for the new
offices. Other operating expenses decreased for the corresponding
period by $30,000. This decline was the result of decreases in;
office supplies, credit card processing fees, and a reduction in the
advertising budget. These decreases were netted against increased
expenses associated with; sponsorship fees due to the Bank s
increased involvement in the ATM network, telephone usage and Deluxe
charges. BNC Financial services reflects a $27,000 loss for
<PAGE>
PART III, Continued
Other Operating Expense, Continued
the first quarter of 1999. Costs associated with start up and fixed
salaries account for this loss. Net income for the year is projected
to be approximately $30,000.
Net Interest Income
Net interest income increased by $156,100 for the quarter ended March
31, 1999 as compared to the corresponding quarter of 1998. Earnings
on investment securities declined by approximately $194,000, while
earnings on loans increased by $355,000. A significant increase in
loans outstanding for the comparable quarters account for the
increase in loan income and the resulting decline in investment
income. Cost of funds remained stable for the comparable quarters.
Provision for Loan Losses
The Company's management is cognizant of the fact that there are
risks of loss involved in any lending function. Identifying the
extent of the risk for each loan category, and the probability that
losses will be sustained based on delinquency experience, is part of
the overall plan for establishing an Allowance for Loan Losses.
The Bank recorded net loan charge offs totaling $113,400 for the
quarter ended March 31, 1999 verses net loan charge offs
$88,800 for the comparable quarter of 1998. The reserve for loan
loss totals $1,651,600. The Board of Directors has determined that
$1,651,600 is a sufficient reserve for loan losses based on an
analysis of past due loans, historical data and specific
identification of problem loans.
Non-Performing Assets
The Bank's policy is to discontinue the accrual of interest on loans
(other than instalment loans) for which principal or interest is past
due 120 days or more and which are not fully collateralized. Such
loans are classified as non-accrual by BNB. This classification does
not, however, necessarily indicate that the principal of the loan is
uncollectible, but does warrant a review of the collectibility. When
a loan is placed on a non-accrual basis, any unpaid interest accrued
is reversed against current income.
On March 31, 1999, total non-accruing assets were $707,500.
Collateral supporting the loans totals approximately $717,500.
Non-Performing Loans
Non-performing loans are summarized as follows:
Other Real Estate $ 30,600
Non-accrual loans $707,500
Past due 90 days or more and still accruing $ 45,000
Total $783,100
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed by the
undersigned thereunto duly authorized.
BATH NATIONAL CORPORATION
_____________________________________ DATE
Douglas L. McCabe
President
_____________________________________ DATE
Edward C. Galpin
Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,130,800
<SECURITIES> 84,928,700
<RECEIVABLES> 0
<ALLOWANCES> 1,651,600
<INVENTORY> 0
<CURRENT-ASSETS> 2,178,600
<PP&E> 5,361,300
<DEPRECIATION> 130,500
<TOTAL-ASSETS> 295,428,300
<CURRENT-LIABILITIES> 31,113,000
<BONDS> 0
0
0
<COMMON> 6,829,000
<OTHER-SE> 23,968,400
<TOTAL-LIABILITY-AND-EQUITY> 295,428,300
<SALES> 0
<TOTAL-REVENUES> 5,225,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,073,100
<LOSS-PROVISION> 115,000
<INTEREST-EXPENSE> 2,231,100
<INCOME-PRETAX> 1,218,300
<INCOME-TAX> 339,000
<INCOME-CONTINUING> 879,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 879,300
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
