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, 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 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, 1999, 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 - 12
<PAGE>
PART I, FINANCIAL INFORMATION
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
JUNE 30, 1999 AND DECEMBER 31, 1998
June 30, December 31,
ASSETS 1999 1998
Cash and due from banks $ 9,183,200 $ 12,009,200
Interest Bearing Dep.
in other banks 99,200 396,400
Securities Held-to-Maturity approx.
market value 6/99 $19,918,800 20,000,000 20,000,000
Available-For-Sale 59,925,400 66,571,200
Total Investments 79,925,400 86,571,200
Federal Funds Sold 2,350,000 -0-
Loans Gross 194,628,600 187,767,800
LESS: Allowance for loan losses 1,708,500 1,650,000
Premises and equipment-Net 5,246,600 5,462,100
Interest Receivable 2,351,400 2,351,900
Other Assets 2,431,500 2,568,700
TOTAL ASSETS $294,507,400 $295,477,300
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand 35,016,000 35,030,100
Savings 44,463,800 43,039,600
NOW Accounts 36,123,600 36,145,800
Money Market deposit accounts 10,647,500 11,384,100
Time deposits (in denominations of
100,000 or more) 24,406,600 18,894,000
Other time accounts 78,236,100 80,111,000
TOTAL DEPOSITS $228,893,600 $224,604,600
Federal Funds Purchased -0- 2,150,000
Borrowings Federal Home Loan Bank 5,000,000 5,000,000
Repurchase Agreements 27,283,600 28,090,800
Other Liabilities 2,648,800 5,108,900
TOTAL LIABILITIES $263,826,000 $264,954,300
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:
6/99 - 1,365,801,12/98 - 1,365,801 6,829,000 6,829,000
Surplus 1,494,700 1,494,700
Undivided profits 23,828,400 22,839,200
Unrealized gain/loss - Investments 20,400 851,200
Treasury Stock <F1> (1,491,100) (1,491,100)
TOTAL STOCKHOLDER'S EQUITY $ 30,681,400 $ 30,523,000
TOTAL EQUITY AND LIABILITIES $294,507,400 $295,477,300
[FN]
<F1> 37,953 shares recorded at cost as of 6/99, 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 AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998.
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
INTEREST INCOME:
Int. and fees on loans $4,035,300 $3,663,200 $ 8,009,400 $ 7,282,700
Int. on fed. funds sold 16,500 84,700 23,000 146,400
Int. on Inv. Securities:
US Treas. & Gov. Agency 494,700 534,200 1,019,400 1,090,400
Municipal Obligations 435,900 432,800 873,600 878,400
Taxable Municipal 6,300 29,400 12,600 58,600
Mort. Backed Securities 245,700 270,300 495,600 582,400
Int. Bearing Due From 2,200 13,800 5,900 33,700
Other 24,200 19,600 46,300 39,700
Total Investment Income 1,225,500 1,384,800 2,476,400 2,829,600
Total Interest Income 5,260,800 5,048,000 10,485,800 10,112,300
INTEREST EXPENSE:
Interest on Deposits 1,733,100 1,925,300 3,453,900 3,783,300
Int. on short term bor. 103,400 3,900 207,400 7,700
Int. on repur. agreem. 408,500 360,600 814,800 725,300
Total Interest Expense 2,245,000 2,289,800 4,476,100 4,516,300
NET INTEREST INCOME: 3,015,800 2,758,200 6,009,700 5,596,000
Prov. loan loss (recov.) 120,000 90,900 235,000 179,700
Net int. income after
Prov. for loan losses 2,895,800 2,667,300 5,774,700 5,416,300
OTHER OPERATING INCOME:
Service charges 240,400 202,000 475,400 390,200
Trust department fees 5,300 6,900 19,500 18,300
Invest. gains (losses) -0- 100 -0- (10,300)
Other 233,500 96,800 396,800 141,900
Total other operat inc. 479,200 305,800 891,700 540,100
OTHER OPERATING EXPENSES:
Salaries & emp benefit 1,187,200 1,118,100 $ 2,371,400 2,250,800
Net occupancy expense
of premises 227,600 204,600 446,700 401,300
Depreciation 140,300 125,000 270,800 240,100
Other 557,400 583,200 1,096,700 1,152,800
Total other oper. exp. 2,112,500 2,030,900 4,185,600 4,045,000
INCOME BEFORE INCOME TAXES1,262,500 942,200 2,480,800 1,911,400
INCOME TAXES (benefit) 355,700 188,800 694,700 413,700
NET INCOME $ 906,800 $ 753,400 $ 1,786,100 $ 1,497,700
EARNINGS PER COMMON SHARE .69 .56 1.35 1.12
DIVIDENDS DECLARED PER
COMMON SHARE .30 .25 .60 .45
<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, 1999 and 1998, respectively,
with respect to each major category of interest-earning assets and interest-
bearing liabilities:
Six Months Ended June 30, 1999
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 175 $ 6 6.86%
Taxable Securities 46,358 1,574 6.79%
Non-Taxable Securities 36,912 1,329 7.20%
Federal Funds Sold 880 23 5.23%
Loans 190,512 8,064 8.47%
Total Int-Earning Assets $274,837 $ 10,996 8.01%
Liabilities
NOW's & Money Market Accts. $ 47,190 $ 408 1.73%
Savings Deposits 43,774 549 2.51%
Time Deposits 101,583 2,497 4.92%
Total Int-Bearing Deposits $192,547 $ 3,454 3.59%
Repurchase Agreements $ 27,910 $ 815 5.84%
Federal Funds Purchased 1,780 54 6.07%
Federal Home Loan Bank
Borrowings 5,000 153 6.12%
Total Int-Bearing Liabilities $227,237 $ 4,476 3.94%
Net Interest Income FTE $ 6,520 4.75%
Less Tax-Equivalent Adjustment $ 510
Net Interest Income $ 6,010
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST-EARNINGS, Continued
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 $ (584)
Net Interest Income $ 5,596
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (Unaudited)
June 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 1,786,100 1,497,700
ADJUSTMENT TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 270,800 240,100
Provision for loan losses 235,000 179,700
FASB 115 effect & Deferred tax 1,100 2,000
Loan origination costs deferred 11,600 (52,600)
Bond premium amortized and (discount accrued) 76,400 76,600
(Increase) or Decrease in interest receivable 500 47,800)
Increase or (Decrease) in other liabilities (1,906,200) (1,911,300)
(Increase) or Decrease in other assets 137,200 1,443,300
(Gain)/Loss on Investments -0- 10,300
Net cash provided by operating activities $ 612,500 $ 1,533,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing securities 4,934,700 3,308,400
Proceeds from sales of securities 395,000 7,916,200
Purchases of securities (145,000) (10,587,000)
(Increase) or decrease in federal funds sold (2,350,000) (8,500,000
Increase or (decrease) in federal funds purchased (2,150,000) 0
Increase of (decrease) in repurch. agreements (807,200) (1,224,300)
Net (increase) or decrease in interest bearing
deposits in other banks 297,200 591,100
Principal collected on loans 34,170,400 23,886,500
Loans made to customers (41,219,300) (28,644,200)
Capital expenditures (55,300) (198,000)
Net cash used or provided in investing
activities (6,929,500) (13,451,300)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase or (decrease) in demand deposits
NOW, MMDA and savings accounts 651,300 3,856,500
Proceeds from sale of
certificates of deposit 22,595,400 16,386,200
Payments for maturing
certificates of deposit (18,957,700) (8,597,300)
Dividends paid (798,000) (602,000)
Purchase of Treasury Stock -0- (751,700)
Borrowings from FHLB -0- 5,000,000
Net cash provided by financing activities 3,491,000 15,291,700
NET INCREASE IN CASH AND CASH EQUIVALENTS (2,826,000) 3,374,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,009,200 7,453,600
CASH AND CASH EQUIVALENTS AT END OF SIX MONTHS $9,183,200 $10,827,600
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1999. (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 six month period ended 6/30/99 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 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 $19,918,800 $ - $ 81,200 $ 81,200
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 $ 6,029,800 $ 5,881,400 $ 2,600 $ 151,000 $ (148,400)
Corporate Bonds 195,000 186,600 -0- 8,400 (8,400)
Municipal
Obligations 36,571,800 36,969,200 517,800 120,400 397,400
Mortgaged
Backed Sec. 15,249,600 15,037,300 36,100 248,400 (212,300)
Equity Secur. 1,850,900 1,850,900 -0- -0- -0-
TOTAL $59,897,100 $59,925,400 $ 556,500 $ 528,200 $ 28,300
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1998 AND 1999. (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, 1999 $1,650,000
Charge offs:
Installments 92,800
Commercial 117,000
Credit Cards 18,900
(228,700)
Recoveries:
Installments 38,200
Commercial 8,700
Credit Cards 5,300
52,200
Provision Loan Loss 235,000
Balance - June 30, 1999 $1,708,500
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 28, 1999. The following directors
were elected:
NAME TERM VOTES FOR VOTES AGAINST ABSTAIN
Robert H. Cole 3 years 1,308,636 -0- -0-
Herbert Fort 3 years 1,298,342 10,294 -0-
Patrick Sullivan 3 years 1,308,636 -0- -0-
Alan J. Wilcox 3 years 1,308,636 -0- -0-
Appointment of Urbach,
Kahn & Werlin as
Certified Public
Accountants 1,308,636 -0- -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
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 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 $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
June 30, 1999 loans with an aggregate balance of $36 million and
securities of $8.1 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, 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 95%.
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 $4.0 million respectively. The funds are priced at
the overnight federal funds rate. The bank had an average net daily
federal funds purchased of $900 thousand during 1999.
<PAGE>
PART III, Continued
Year 2000
During 1998, management advised its Board of Directors of the issues
surrounding the approach of January 1, 2000. Nearly all computer hardware
and software developed during the current century have been programmed
with two digit reference to each year. Such hardware and software, if not
upgraded by January 1, 2000, may become useless. Management has undergone
a five phase project to respond to this issue, with major emphasis upon
identifying all applications and data bases supporting the Bank's mission
critical applications. The five phases are awareness, assessment,
renovation, validation and implementation, and will seek to neutralize not
only the Bank's vulnerability, but to determine the financial capacity of
its vendors, determine alternate vendors, and evaluate the capacity of its
customers to respond to this challenge. A committee continues to direct
the Company's Year 2000 activities under the framework of the FFIEC's Five
Step Program. Testing of critical applications has been completed.
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, 1999 and June 30, 1998 as
follows:
Components of Capital 6-30-99 6-30-98
Equity Capital $30,661,000 $30,546,500
Less: Goodwill (257,200) (281,400)
Tier 1 Capital 30,403,800 30,265,100
Tier 2 Capital 1,708,500 1,650,000
Total Capital $32,112,300 $31,915,100
The company's capital to asset ratios as of June 30, 1998 and 1999 are as
follows:
TIER I LEVERAGE RATIO RISK BASED
Required Required
Minimum Actual Minimum Actual
June 30, 1998 4.00% 11.36% 8.00% 20.52%
June 30, 1999 4.00% 10.31% 8.00% 18.08%
Other Operating Income
Other operating income increased by $173,000 for the quarter ended
June 30, 1999 as compared to the second 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 second 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.
<PAGE>
PART III, Continued
Other Operating Expense
Net occupancy expense increased by $23,000 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 $26,000.
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 $8,000 loss for the second 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 $257,600 for the quarter ended June
30, 1999 as compared to the corresponding quarter of 1998. Earnings on
investment securities declined by approximately $159,000, while earnings
on loans increased by $372,000. 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 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 provision for loan losses totaling
$235,000 for the six months ended June 30, 1999 versus a provision for
loan loss of $179,700 for the comparable six months of 1998. The reserve
for loan loss totals $1,708,500. The Board of Directors has determined
that $1,708,500 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 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, 1999, total non-accruing assets were $730,000.
Collateral supporting the loans totals $840,000.
<PAGE>
PART III, Continued
NON PERFORMING LOANS
Non-performing loans are summarized as follows:
Other Real Estate $ 16,000
Non-accrual loans $ 730,000
Past due 90 days or more and still accruing $ 446,000
Total $1,192,000
<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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,183,200
<SECURITIES> 79,925,400
<RECEIVABLES> 0
<ALLOWANCES> (1,708,500)
<INVENTORY> 0
<CURRENT-ASSETS> 2,351,400
<PP&E> 5,246,600
<DEPRECIATION> 270,800
<TOTAL-ASSETS> 294,507,400
<CURRENT-LIABILITIES> 27,283,600
<BONDS> 0
0
0
<COMMON> 6,829,000
<OTHER-SE> 23,852,400
<TOTAL-LIABILITY-AND-EQUITY> 294,507,400
<SALES> 0
<TOTAL-REVENUES> 10,485,800
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,185,600
<LOSS-PROVISION> 235,000
<INTEREST-EXPENSE> 4,476,100
<INCOME-PRETAX> 2,480,800
<INCOME-TAX> 694,700
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,786,100
<EPS-BASIC> 1.35
<EPS-DILUTED> 1.35
</TABLE>
