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, 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 par
value was 1,365,801 shares as of September 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 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, 1999 AND DECEMBER 31, 1998
September 30, December 31,
1999 1998
ASSETS
Cash and due from banks $ 11,486,600 $12,009,200
Interest Bearing Deposits in other banks 99,100 396,400
Securities Held-to-Maturity 0 20,000,000
Available-for-Sale 77,746,700 66,571,200
Total Investments 77,746,700 86,571,200
Loans (Gross) 196,671,800 187,767,800
LESS: Allowance for loan losses 1,859,900 1,650,000
Premises and equipment-Net 5,114,800 5,462,100
Interest Receivable 2,125,400 2,351,900
Other Assets 2,758,000 2,568,700
TOTAL ASSETS $294,142,500 $295,477,300
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 36,874,400 $ 35,030,100
Savings 44,155,300 43,039,600
NOW Accounts 35,569,800 36,145,800
Money Market deposit accounts 8,300,800 11,384,100
Time deposits (in denominations of
100,000 or more) 21,833,400 18,894,000
Other time accounts 76,559,600 80,111,000
TOTAL DEPOSITS 223,293,300 224,604,600
Federal Funds Purchased 400,000 2,150,000
FHLB Borrowings 25,000,000 5,000,000
Repurchase Agreements 11,882,400 28,090,800
Other liabilities 2,664,000 5,108,900
TOTAL LIABILITIES 263,239,700 264,954,300
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
1999 - 1,365,801 December 1998 1,365,801 6,829,000 6,829,000
Surplus 1,494,700 1,494,700
Undivided profits 24,452,400 22,839,200
Unrealized gain/(loss) - Investments (382,200) 851,200
Treasury Stock <F1> (1,491,100) (1,491,100)
TOTAL STOCKHOLDER'S EQUITY 30,902,800 30,523,000
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $294,142,500 $295,477,300
See notes to condensed unaudited consolidated financial statements.
[FN]
<F1> 37,953 shares recorded at cost as of 9/99, 37,953 shares as of 12/98
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
INTEREST INCOME:
Interest and fees on loans $4,156,100 $3,704,700 $12,165,500 $11,011,600
Int. on federal funds sold 47,200 129,100 70,200 275,500
Int. on investment securit:
US Treasury & Govern. Agency 154,300 547,100 1,173,700 1,637,500
Municipal Obligations 477,800 448,400 1,351,400 1,326,800
Taxable Municipal 6,300 20,500 18,900 79,100
Mortgaged Backed Securities 402,300 263,500 897,900 845,900
Interest Bearing due from 1,900 9,900 7,800 43,600
Trust Preferred 44,400 -0- 44,400 -0-
Other 20,300 22,700 66,600 62,400
Total Investment Income 1,154,500 1,441,200 3,630,900 4,270,800
Total Interest Income 5,310,600 5,145,900 15,796,400 15,282,400
INTEREST EXPENSE:
Interest Deposits 1,720,800 1,894,800 5,174,700 5,678,100
Int. on short term borrow. 287,900 80,000 495,300 87,700
Interest on repurchase agree 144,400 383,500 959,200 1,108,800
Total Interest Expense 2,153,100 2,358,300 6,629,200 6,874,600
NET INTEREST INCOME 3,157,500 2,787,600 9,167,200 8,407,800
Prov. loan loss (recovery) 210,000 105,000 445,000 284,700
Net Int. Income After
Provision for Loan Losses 2,947,500 2,682,600 8,722,200 8,123,100
OTHER OPERATING INCOME:
Service charges 247,600 204,900 723,000 595,100
Trust department fees 22,000 16,200 41,500 34,500
Invest. gains (losses) -0- (3,400) 0 (13,700)
Other 263,500 161,800 660,300 294,300
Total other operating income 533,100 379,500 1,424,800 910,200
OTHER OPERATING EXPENSES:
Salaries & emp benefits 1,198,700 1,107,100 3,570,100 3,357,900
Net occupancy expense of
premises 238,000 209,500 684,700 610,800
Depreciation 134,900 141,500 405,700 381,600
Other 510,800 485,700 1,607,500 1,653,300
Total other oper. expenses 2,082,400 1,943,800 6,268,000 6,003,600
INCOME BEFORE INCOME TAXES 1,398,200 1,118,300 3,879,000 3,029,700
INCOME TAXES (benefit) 377,300 269,300 1,072,000 683,000
NET INCOME $1,020,900 $ 849,000 $2,807,000 $2,346,700
EARNINGS PER COMMON SHARE .76 .64 2.11 1.76
DIVIDENDS DECLARED PER COMMON SHARE .30 .25 .90 .70
<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, 1999 and 1998,
respectively, with respect to each major category of interest-earning
assets and interest-bearing liabilities:
Nine Months Ended September 30, 1999
(dollars in thousands)
Interest
Average Earned Average
Assets Amount or Paid Yield or Rate
Interest Bearing Due
From Banks $ 150 $ 8 7.09%
Taxable Securities 43,846 2,202 6.68%
Non-Taxable Securities 37,884 2,053 7.21%
Federal Funds Sold 1,847 70 5.04%
Loans 192,242 12,250 8.48%
Total Int-Earning Assets $275,969 $16,583 7.99%
Liabilities
NOW's & Money Market Accts. 46,608 607 1.73%
Savings Deposits 44,180 840 2.53%
Time Deposits 101,651 3,728 4.88%
Total Int-Bearing Deposits $192,439 $ 5,175 3.58%
Repurchase Agreements 22,583 959 5.65%
Federal Funds Purchase 1,196 55 6.11%
Federal Home Loan Bank
Borrowings 10,201 440 5.74%
Total Int-Bearing Liabilities $226,419 $ 6,629 3.89%
Net Interest Income FTE $ 9,954 4.80%
Less Tax-Equivalent Adjustment $ (787)
Net Interest Income $ 9,167
<PAGE>
PART I, Continued
ANALYSIS OF NET INTEREST-BEARINGS, Continued
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 Purchased 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
BATH NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited)
September 30,
1999 1998
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $2,807,000 $ 2,346,700
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 405,700 381,600
Provision for loan losses 445,000 284,700
FAS-115 effect 2,700 816,900
Loan origination costs deferred 13,600 (175,200)
Bond premium amortized and (discount accrued) 107,500 120,900
(Gain) or Loss on sale of investments 0 13,700
(Increase) or Decrease in interest receivable 226,500 176,700
Increase or (Decrease) in other liabilities (1,622,600) (2,075,400)
(Increase) or Decrease in other assets (189,300) 1,574,900
Adjustment to loan reserve 0 43,700
Net cash provided by operating activities 2,196,100 3,509,200
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing securities 4,482,100 3,474,200
Proceeds from sales of investment securities 23,250,000 9,578,600
Purchases of investment securities (21,070,800) (13,025,500)
(Increase) or decrease in federal funds sold 0 (4,425,000)
Increase or (decrease) in federal funds purchased(1,750,000) 0
Increase or (decrease) in repurchase agreements (16,208,400) 1,650,700
Net decrease in interest bearing
deposits in other banks 297,300 987,300
Principal collected on loans 46,597,900 35,804,400
Loans made to customers (55,750,600) (45,980,200)
Capital expenditures (58,400) (262,000)
Net cash used or provided in investing
activities (20,210,900) (12,197,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) or increase in demand
deposits, NOW, MMDA & savings accounts (699,300) 4,387,800
Proceeds from sale of
certificates of deposit 33,681,400 25,530,500
Payments for maturing
certificates of deposit (34,293,400) (21,541,900)
Dividends paid (1,196,500) (934,000)
Purchase of Treasury Stock 0 (751,700)
Borrowings from FHLB 20,000,000 5,000,000
Net cash provided by financing activities 17,492,200 11,690,700
NET INCREASE IN CASH AND CASH EQUIVALENTS (522,600) 3,002,400
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,009,200 7,453,600
CASH AND CASH EQUIVALENTS AT END OF NINE MONTHS $11,486,600 $ 10,456,000
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998. (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 9-30-99 are not
necessarily inductive of the results to be expected for the full year.
2. INVESTMENT SECURITIES
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 6,227,700 6,076,400 1,400 (152,700) (151,300)
Corporates 195,000 187,100 -0- (7,900) (7,900)
States & Political
Subdivisions 41,007,900 41,192,400 439,900 (255,400) 184,500
Mortgage Back
Securities 25,607,900 25,094,900 32,000 (545,000) (513,000)
Trust Preferred 3,067,900 2,913,100 -0- (154,800) (154,800)
Equity Securities 2,282,800 2,282,800 -0- -0- -0-
Total 78,389,200 77,746,700 473,300 (1,115,800) (642,500)
<PAGE>
PART I, Continued
BATH NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 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:
Installments 105,300
Commercial 172,500
Credit Cards 26,200
304,000
Recoveries
Installments 50,200
Commercial 10,100
Credit Cards 8,600
68,900
Provision Loan Loss 445,000
Balance - September 30, 1999 $1,859,900
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 investments 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
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 $100 thousand. Also, high quality securities
are readily marketable and provide a steady flow of funds. At September 30,
1999 loans with an aggregate balance of $38.2 million and securities of $11.1
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, 1999, the loan to deposit ratio was 88% and the ratio of
loans to core deposits (excluding certificates of deposit of $100,000 or
more) was 98%.
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, Manufacturer s & Traders Bank and Key Bank
in the amount of $17.8 million, $2.0 million and $5.0 million respectively.
The funds are priced at the overnight federal funds rate. The bank had an
average net daily federal funds sold of $.7 million.
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, 1999 and September 30, 1998 as follows:
Components of Capital 9-30-99 9-30-98
Equity Capital $31,285,000 $31,063,200
Less Goodwill (251,200) (275,300)
Tier 1 Capital 31,033,800 30,787,900
Tier 2 Capital 1,859,900 1,693,700
Total Capital $32,893,700 $32,481,600
<PAGE>
PART III, Continued
The company's capital to asset ratios for the third quarter of 1999 and
1998 are as follows:
TIER I LEVERAGE RATIO RISK BASED
Required Required
Minimum Actual Minimum Actual
September 30, 1998 4.00% 11.03% 8.00% 20.17%
September 30, 1999 4.00% 10.52% 8.00% 18.29%
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 bee 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.
Net Interest Income
Net interest income increased by $370,000 for the quarter ended
September 30, 1999 as compared to the corresponding quarter of 1998.
Earnings on investment securities declined by approximately $288,000, while
earnings on loans increased by $451,000. 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
declined for the comparable quarters by $205,000.
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
$445,000 for the nine months ended September 30, 1999 versus a provision
for loan loss of $284,700 for the comparable nine months of 1998. The
reserve for loan loss totals $1,859,900. The Board of Directors has
determined that $1,859,900 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 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
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, 1999, total non-accruing assets were $702,800.
Collateral supporting the loans totals $759,000.
Non-Performing Loans
Non-performing loans are summarized as follows:
Other Real Estate $ -0-
Non-accrual loans $702,800
Past due 90 days or more and still accruing $118,400
Total $821,200
Other Operating Income
Other operating income increased by $154,000 for the quarter ended
September 30, 1999 as compared to the third quarter of 1998. The 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 $24,000
for the third 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 $29,000 for the quarter due to two
new offices opened during 1998. Other operating expenses increased for the
corresponding period by $25,000. BNC Financial Services reflects an $8,000
loss for the third quarter of 1999. Costs associated with start up and
fixed salaries account for this loss. Net income for BNC Financial
Services is projected to be approximately $30,000 for 1999.
<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> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,486,600
<SECURITIES> 77,746,700
<RECEIVABLES> 2,125,400
<ALLOWANCES> 1,859,900
<INVENTORY> 0
<CURRENT-ASSETS> 2,758,000
<PP&E> 5,114,800
<DEPRECIATION> 405,700
<TOTAL-ASSETS> 294,142,500
<CURRENT-LIABILITIES> 12,282,400
<BONDS> 0
0
0
<COMMON> 6,829,000
<OTHER-SE> 24,073,800
<TOTAL-LIABILITY-AND-EQUITY> 294,142,500
<SALES> 0
<TOTAL-REVENUES> 15,796,400
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,268,000
<LOSS-PROVISION> 445,000
<INTEREST-EXPENSE> 6,629,200
<INCOME-PRETAX> 3,879,000
<INCOME-TAX> 1,072,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,807,000
<EPS-BASIC> 2.11
<EPS-DILUTED> 2.11
</TABLE>
