SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or Section 15(D) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File Number 2-94863
CANANDAIGUA NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
New York 16-1234823
(State of Incorporation) (IRS Employer Identification No.)
72 South Main Street, Canandaigua, NY 14424
(Address of principal executive offices) (Zip Code)
(716) 394-4260
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 240,000 shares $50
par common
Indicate by check mark whether the Registrant (1) 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 (or for such shorter period that the Registrant was
required to file such reports), and (2) been subject to such filing
requirements
for the past 90 days. Yes [X] No [ ]
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(#229.405) is contained in registrant's definitive proxy statement incorporated
herein by reference in Part III of this Form 10-K.
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of January 31, 1997.
Common Stock, $50.00 par value - described on page 9 of 1996 Annual
Report and incorporated herein by reference.
Number of shares outstanding of the Registrant's shares of common stock
as of January 31, 1996. 161,658 shares, common stock, $50.00 par value
<PAGE>
Certain portions of the documents listed below have been incorporated by
reference into the indicated Part of this Form 10-K.
(1) Portions of the Annual Report to Stockholders
for the year ended December 31, 1996 Part I, Item 2
(2) Notice of Annual Meeting of Stockholders Part II, Items 5 & 8
and Proxy Statement dated February 26, 1997 Part III, Items 10-13
(3) Index of Exhibits Part II, Item 5
Page 31
<PAGE>
CANANDAIGUA NATIONAL CORPORATION
FORM 10-K
INDEX
Page Number
PART I.
Item 1. Business 4-18
Item 2. Properties 19
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
PART II.
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation 21-26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in Disagreements with Accountants on Accounting
and Financial Disclosure 26
PART III.
Item 10. Directors and Executive Officers of
the Registrant 27, 28
Item 11. Executive Compensation 28-30
Item 12. Security Ownership of Certain
Beneficial Owners and Management 30
Item 13. Certain Relationships and Related Transactions 31
PART IV.
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 32
Signatures 33, 34
<PAGE>
PART I
Item 1. Business
Canandaigua National Corporation
The Canandaigua National Corporation, referred to as The Corporation, was
organized on October 31, 1984, and registered under the Bank Holding Company
Act of 1956, for the purpose of becoming a one-bank holding company. The
formation of the bank holding company was consummated on May 31, 1985, through
the exchange of 80,000 shares of Canandaigua National Corporation $50 par value
common stock for all of the outstanding shares of The Canandaigua National Bank
and Trust Company. The one-bank holding company serves as a means of
increasing the scope of banking and financial services in the market area
served by The Canandaigua National Bank and Trust Company. The Corporation
acquired Greater Funding of New York, Inc. (GFNYI) d/b/a Greater Funding, the
Mortgage Company during 1996 BY purchasing its remaining 66.3% shares not owned
by the Company. GFNYI offers mortgage products that the bank is not licensed
to offer, therefore offering their customer base a larger range of products.
GFNYI is engaged in underwriting and funding mortgages in western New York
State. GFNYI typically resells residential mortgages to entities, which
service the loans. The Bank will remain the principal source of the
Corporation's operating revenue and net income.
The Canandaigua National Bank and Trust Company
The Canandaigua National Bank and Trust Company ("Bank") was incorporated
under the laws of The United States of America as a national bank in 1887.
Since that time, Bank has operated as a national banking association doing
business at several locations in Ontario County and at its Branch locations in
the town of Mendon and Village of Pittsford in Monroe County, New York.
As of December 31, 1996, Bank had total assets of approximately
$360,623,000; total stockholders' equity of approximately $39,119,000; and
total deposits of approximately $307,966,000. Its deposits are insured through
the Bank Insurance Fund by the Federal Deposit Insurance Corporation.
Bank engages in a full service commercial and consumer banking and trust
business. Bank, with its main office at 72 South Main Street, Canandaigua, New
York, provides services to its customers through its network of ten branches
which include drive-in facilities and customer Bank communication terminals.
Bank's full service offices are located in Ontario County and in the town of
Mendon and Village of Pittsford in Monroe County, New York.
Bank's services include accepting time, demand and savings deposits, NOW
accounts, regular savings accounts, money market certificates, investment
certificates, fixed rate certificates of deposit and club accounts. Its
services also include making secured and unsecured commercial and consumer
loans, financing commercial transactions either directly or through regional
industrial development corporations, making construction and mortgage loans
and the renting of safe deposit facilities. Additional services include
making residential mortgage loans, revolving credit loans with overdraft
checking protection, small business loans, and student loans. Bank's
business loans include seasonal, credit, collateral, and term loans. Trust
services provided by Bank include services as executor and trustee under
<PAGE>
Item 1. Business
The Canandaigua National Bank and Trust Company - continued
wills and deeds, as guardian and custodian and as trustee and agent for
pension, profit sharing, individual retirement account and other employee
benefit trusts as well as various investment, pension and estate planning
services. Trust services also include service as transfer agent and registrar
of Canandaigua National Corporation stock and as paying agent for various bond
issues and as escrow agent. In 1995 the Bank formed a subsidiary (CNB
Operating Subsidiary No.1, Inc.). The primary business of this company is to
sell life insurance to individuals. This company is an agency only. During
1996 the Bank purchased the Burlingham Agency, Inc. The primary business of
this company is to sell life insurance to individuals. This company is an
agency only. The Bank purchased Burlingham Agency to gain access to an already
established business with a customer base. By this purchase the Bank can offer
a full line of products.
Bank has a relatively stable deposit base and no material amount of
deposits are obtained from a single depositor or group of depositors (including
federal, state and local governments). Bank has not experienced any
significant seasonal fluctuations in the amount of its deposits nor does Bank
rely on foreign sources of funds or income.
Territory Served and Competition
All phases of Bank's business are highly competitive. Bank's market area
is generally Ontario County, with concentration in the Canandaigua, New York
area. Bank competes with local commercial banks as well as other commercial
banks with branches in Bank's market area as well as federal savings and loan
associations and non-bank banks and credit unions. Bank considers its
competition to be Chase Manhattan Bank, N.A., Key Bank, National Bank of
Geneva, Community Bank, N.A., and WCTA Federal Credit Union located in
Canandaigua, New York and Sears Financial Network Center and Fleet Bank,
located in Rochester, New York.
Bank, along with other commercial banks, competes with respect to its
lending activities as well as in attracting demand deposits, with savings
banks, savings and loan associations, insurance companies, regulated small loan
companies, non-bank banks and credit unions. Bank also competes with
insurance companies, investment counseling firms, mutual funds and other
business firms and individuals in corporate trust and investment management
services.
Bank is generally competitive with all financial institutions in its
service area with respect to interest rates paid on time and savings deposits
and interest rates charged on loans and service charges on deposit accounts.
Bank employed 204 people as of December 31, 1996.
<PAGE>
Supervision and Regulation
Canandaigua National Corporation is incorporated under the laws of the
State of New York and is directly supervised by the Federal Reserve Bank under
the laws governing one-bank holding companies. In addition, the Corporation
reports to the Securities and Exchange Commission under the laws governing
corporations with registered securities.
As a national bank and member of the Federal Reserve System, the Bank is
subject to regulations of the Comptroller of the Currency and the Board of
Governors of the Federal Reserve System. As an insured bank under the Federal
Deposit Insurance Act, Bank is also regulated by the Federal Deposit Insurance
Corporation. Representatives of the Comptroller of the Currency regularly
conduct examinations of Bank's affairs and records, and Bank must furnish
quarterly reports to the Comptroller.
Government Monetary Policies and Economic Controls
The earnings of Bank are affected by the policies of regulatory
authorities including the Comptroller of the Currency, the Board of Governors
of the Federal Reserve System and the Federal Deposit Insurance Corporation.
An important function of the Federal Reserve System is to regulate the money
supply and interest rates. Among the instruments used to implement these
objectives are open market operations in U.S. Government Securities, changes in
reserve requirements against member bank deposits, and changes in the federal
discount rate. These instruments are used in varying combinations to influence
overall growth and distribution of bank loans, investments and deposits, and
their use may also affect interest rates charged on loans or paid for deposits.
The policies and regulations of the Federal Reserve Board have had, and
will probably continue to have, a significant effect on Bank's deposits, loans
and investment growth, as well as the rate of interest earned and paid, and are
expected to affect Bank's operations in the future. The effect of such
policies and regulations, if any, upon the future business and earnings of Bank
cannot accurately be predicted.
Consolidated Financial and Statistical Data
A detailed review of the business activities of the Corporation and Bank
is presented in the following pages.
<PAGE>
I. Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential
<TABLE>
A. Average Balance Sheet (In Thousands)
<CAPTION>
Average Assets 1996 1995 1994
<S> <C> <C> <C>
Cash & Due from Banks $ 15,059 $ 13,392 $ 14,178
Securities:
U.S. Government Securities 32,180 32,479 28,438
Obligations of States and
Political Subdivisions: Tax Exempt 28,370 28,349 30,402
Taxable 912 1,131 899
Other 11,386 12,706 13,703
Federal Funds Sold 7,184 12,023 14,689
Loans 227,781 209,280 202,622
Allowance for Loan Losses (2,388) (2,213) (2,213)
Premises & Equipment - net 8,764 8,269 8,087
Other Assets 5,411 5,354 4,507
________ ________ _______
Total $334,659 $320,770 315,312
</TABLE>
<TABLE>
<CAPTION>
Average Liabilities & Stockholders' Equity
<S> <C> <C> <C>
Deposits:
Interest Bearing Demand $ 33,695 $ 32,989 $ 37,913
Non-interest Bearing Demand 50,801 46,967 44,566
Savings 112,494 118,300 137,669
Other Time 96,965 84,746 61,151
_______ _______ _______
Total 293,955 283,002 281,299
Short-term Borrowings and
Securities Sold Under Agreements
to Repurchase 651 0 8
Borrowing from FHLB 1,001 1,304 0
Other Liabilities 1,218 477 970
_____ _______ _______
Total Liabilities 296,825 284,783 282,277
Stockholders' Equity 37,834 35,987 33,035
________ ________ ________
Total $334,659 $320,770 $315,312
</TABLE>
<PAGE>
<TABLE>
B. Average Rates and Yields (Dollars In Thousands)
1996 1995
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INT. RATE BALANCE INT. RATE
<CAPTION>
Interest Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
U.S. Gov't. Securities 32,180 1,968 6.12% $ 32,479 $ 1,865 5.74%
Obligations of States
& Political
Subdivisions-Tax Exempt 28,370 1,332 4.70% 28,349 1,395 4.92%
Taxable 912 58 6.36% 1,131 64 5.66%
Federal Funds Sold 7,184 389 5.42% 12,023 697 5.80%
Loans (1)(2) 227,781 21,046 9.24% 209,280 19,998 9.56%
Other Securities 11,386 712 6.25% 12,023 812 6.75%
_______ ______ _______ ______
Total Interest
Earning Assets $307,813 $25,505 8.29% $295,285 $24,831 8.41%
_______ ______ ____ _______ ______ ____
Interest Bearing Liabilities:
Demand Deposits 33,695 $ 457 1.36% $ 32,989 $ 601 1.82%
Savings 112,494 3,075 2.73% 118,300 3,570 3.02%
Other Time 96,965 5,203 5.37% 84,746 4,614 5.44%
Short-term Borrowings and
Securities Sold Under
Agreements to
Repurchase 0 0 0% 0 0 0%
Borrowing from FHLB 1,001 25 2.50% 477 11 2.31%
Fed Funds Purchased 651 37 5.68%
_______ ______ ____ _______ _____
Total Interest
Bearing Liabilities $244,806 $8,797 3.59% $236,512 $8,796 3.72%
_______ ______ ____ _______ ______ ____
Net Interest Income $16,708 $16,035
______ ______
Net Yield 4.70% 4.69%
____ ____
Net Interest Income
to Earning Assets 5.43% 5.43%
____ ____
</TABLE>
(1) Non-accrual loans are included in the average loan balance.
(2) Loan interest includes fees on loans of $753,171, $610,946, and $758,214
in 1996, 1995, and 1994 respectively.
(3) Yields for securities were calculated based on amortized cost of securities.
<PAGE>
<TABLE>
Average Rates and Yields-continued (Dollars in Thousands)
1994
AVERAGE
AVERAGE YIELD/
BALANCE INT. RATE
<CAPTION>
Interest Earning Assets:
<S> <C> <C> <C>
U.S. Gov't. Securities $ 28,438 $ 1,378 4.85%
Obligations of States
& Political
Subdivisions-Tax Exempt 30,402 1,376 4.53%
Taxable 899 55 6.12%
Federal Funds Sold 14,689 558 3.80%
Loans (1)(2) 202,622 17,654 8.71%
Other Securities 13,703 868 6.33%
_______ ______
Total Interest
Earning Assets $290,753 $21,889 7.53%
_______ ______ ____
Interest Bearing Liabilities:
Demand Deposits $ 37,913 $ 724 1.91%
Savings 137,669 3,568 2.59%
Other Time 61,151 2,837 4.64%
Short-term Borrowings and
Securities Sold Under
Agreements to
Repurchase 8 0 0%
Borrowing from FHLB 0 0 0%
_______ ______
Total Interest Bearing Liabilities $236,741 $ 7,129 3.01%
_______ ______ ____
Net Interest Income $14,760
______
Net Yield 4.52%
____
Net Interest Income to Earning Assets 5.08%
____
</TABLE>
<PAGE>
<TABLE>
C. Rate/Volume Analysis (Dollars In Thousands)
<CAPTION>
1996 vs 1995 1995 vs 1994
Increase (Decrease) Average Average Average Average Average Average
Due to Change In: Volume Rate Total Volume Rate Total
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Loans $1,725 $ (677) $ 1,048 $ 580 1,764 2,344
Federal Funds Sold (265) (43) (308) (101) 240 139
Investment Securities:
U.S. Gov't Securities (17) 120 103 196 291 487
Obligations of State
and Political
Subdivision-Exempt 1 (64) (63) (93) 112 19
-Taxable (13) 7 (6) 14 (5) 9
Other (42) (58) (100) (106) 50 (56)
______ _______ _______ _____ ____ ____
Total Interest
Income 1,389 (715) 674 490 2,452 2,942
Interest Expense:
Deposits:
Interest Bearing
Demand 13 (157) (144) (94) (29) (123)
Savings (170) (325) (495) (502) 504 2
Other Time 657 (68) 589 1,094 683 1,777
Borrowing from FHLB 13 1 14 0 11 11
Federal Funds Purchased 37 0 37
_____ ____ _____ ____ ____ ____
Total Interest
Expense 550 (549) 1 (498) 1,169 1,667
_____ _____ _____ ___ ___ ___
Net Interest Income $ 839 $ (166) $ 673 $ 428 $1,283 $1,275
</TABLE>
Note: Volume changes are computed by multiplying the volume difference by
the prior year's rate. Rate changes are computed by multiplying the rate
difference by the prior year's balance.
The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
<PAGE>
<TABLE>
I. Securities Portfolio
<CAPTION>
A. Securities Portfolio, (at carrying value) including FHLB and FRB stock
(Dollars In Thousands)
------December 31--------
1996 1995 1994
<S> <C> <C> <C>
U.S. Government Obligations and Agencies $30,671 $31,955 $27,972
Mortgage backed Securities 325 310 283
Obligations of States and Political
Subdivisions: Exempt 29,365 26,321 29,921
Taxable 955 839 904
Other Securities 10,455 12,495 13,514
_______ _______ _______
Total $71,771 $71,920 $72,594
</TABLE>
<TABLE>
Securities Portfolio, including FHLB and FRB stock by Maturity with Weighted
Average Yield (Dollars In Thousands)
<CAPTION>
December 31, 1996
Within One Through Six Through Over
One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Obligations $18,921 6.09% $11,750 6.06% 0 0
Mortgage backed
Securities 9 8.45% 34 8.37% 44 8.21% 238 8.0%
US Gov't Agencies
Obligations of State
and Political
Subdivisions
Taxable: 0 0.00% 955 6.24% 0 0.00% 0
Exempt: 7,549 4.53% 14,686 4.48% 6,449 4.56% 681 4.98%
Other Securities 3,400 6.47% 4,966 6.45% 0 0.00% 2,089 %
_______ _______ ______ ______
Total $29,879 $32,391 $6,493 $3,008
</TABLE>
Note: (a) Securities with no stated maturity are included in the "Over Ten
Years" category.
(b) Yield on "States and Political Subdivisions" (non-taxable
investments) are not reflected on a tax equivalent basis.
<PAGE>
III. Loan Portfolio
The loan portfolio is comprised solely of domestic loans which are widely
diversified with no concentrations in an industry group or with borrowers
engaged in similar activities. The following summary shows the
classifications of loans by category.
<TABLE>
A. Types of Loans
<CAPTION>
December 31,
1996 1995 1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 27,503 28,326 32,442 30,367 27,672
Consumer
Auto 44,784 15,123 12,379 10,796 9,272
Other 9,925 9,146 14,511 12,501 13,290
Residential mortgage 101,349 86,641 83,018 78,315 86,094
Commercial mortgage 62,513 62,038 60,278 59,036 55,100
Other 11,437 8,770 8,121 7,288 3,523
________ ________ ________ ________ ________
Total 257,511 210,044 210,749 198,303 194,951
Less: Allowance for
loan losses 2,675 2,258 2,202 2,277 2,152
________ _______ _______ _______ _______
Loans, Net $254,836 207,786 208,547 196,026 192,799
</TABLE>
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table sets forth the maturities and sensitivity to changes in
interest rates of the loan portfolio exclusive of real estate mortgage and
installment loans as of December 31, 1996.
Remaining Maturity
Within One Through Over
One Year Five Years Five Years Total
(Dollars In Thousands)
Commercial, financial
and agricultural $10,268 $ 7,926 $9,309 $27,503
Loans maturing after one year:
With a predetermined interest
rate $ 8,729
With a floating or adjustable rate $ 8,506
The maturities set forth above are based upon contracted maturities. Demand
loans, overdrafts and certain time loans, the principal of which will be
renewed in whole or in part, are included in the "Within One Year"
classification. The loan policy encourages a repayment schedule to be set
up whenever possible.
<PAGE>
B. Maturities and Sensitivities of Loans to Changes
In Interest Rates - continued
Bank policy provides that a demand loan should not be renewed more than
once, with renewals at the then prevailing interest rates and with the
assurance the borrower demonstrates the ability to repay on maturity of the
loan.
The Bank provides standby letters of credit commitments which also provide
for availability of funds over a period of generally one year. All such
commitments have fixed expiration dates and may require the payment of a
fee.
The Bank extends lines of credit under which a customer may borrow for
various purposes such as letters of credit. The extension of these
commitments and lines of credit have been in the normal course of business.
In the opinion of Management, at December 31, 1996, there are no material
commitments to extend credit which represent unusual risks.
<TABLE>
C. Risk Elements
(1) Non-accrual, Past Due and Restructured Loans
The risk elements in the loan portfolio are disclosed in the following
schedule.
<CAPTION>
December 31,
Non-Performing Assets 1996 1995 1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial &
agricultural $ 2,285 $ 1,640 $2,350 $1,151 $2,959
Real-estate 8,919 9,307 8,912 4,866 1,569
Consumer loans 75 0 0 0 0
______ ______ _____ _____ _____
Total non-performing loans 11,279 10,947 11,262 6,017 4,528
Other real estate owned 1,141 2,158 723 721 326
_______ _______ ______ ______ ______
Total non-performing assets $12,420 $13,105 $11,985 $6,738 $4,854
Non-performing loans to year
end loans 4.38% 5.21% 5.35% 3.03% 2.32%
Non-performing assets to year end
loans & other real estate owned 4.80% 6.24% 5.68% 3.40% 2.54%
</TABLE>
<PAGE>
<TABLE>
Item III. C. (continued)
<CAPTION>
Past Due 90 Days or More
and accruing 1996 1995 1994 1993 1992
<S> <C> <C> <C>. <C> <C>
Commercial, financial &
agricultural $ 0 $ 12 $ 4 $ 381 $ 721
Real estate 48 101 254 889 533
Consumer 28 55 44 69 77
____ ____ ______ ______ ______
Total past due 90 days
or more and accruing $ 76 $168 $ 302 $1,339 $1,331
1996 1995 1994 1993 1992
Restructured Loans $0 $0 $0 $393 $393
</TABLE>
The accrual of interest on commercial and real estate loans is
discontinued when the loans become 90 days delinquent or when, in management's
judgment, the collection of principal and interest is uncertain. Recognition
of interest income on non-accrual loans does not resume until management
considers principal and interest collectible. Installment loans are generally
charged off upon becoming 120 days past due.
Additional gross income of $841,000, $739,000, and $496,000 would have
been reported during 1996, 1995, and 1994, respectively, if the loans reported
above as non-accrual and restructured loans had been current in accordance with
the original terms.
(2) Potential Problem Loans
Loans which are not disclosed pursuant to Item III C. (1), but where known
information about credit problems of borrowers causes Management to have
serious doubts as to the ability of such borrowers to comply with present
loan repayment terms which may result in disclosure in Item III C. (1) above
amounted to $325,071 as of December 31, 1995. There were no potential problem
loans as of December 31, 1996.
<PAGE>
<TABLE>
IV. Summary of Loan Loss Experience
An analysis of the Allowance for Loan Losses and statistics
relating to the relationship of the Allowance and Charge-offs to Loans is
presented in the following summary.
<CAPTION>
Year Ended
December 31,
1996 1995 1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding
at end of year (1) $257,511 $210,044 $210,749 $198,303 $192,799
Average loans outstanding
during year (1) $227,781 $203,280 $202,622 $197,168 $196,680
Allowance for loan losses:
Balance at beginning
of year $ 2,258 $ 2,202 $ 2,277 $ 2,152 $ 1,888
Charge-offs
Commercial, financial
and agricultural 1,356 810 712 481 222
Installment 126 191 145 245 289
Real Estate Mortgage (2) 60 151 65 100 259
Credit Cards 95 77 89 69 43
_____ _____ ___ ___ ___
Total 1,637 1,229 1,011 895 813
Recoveries: (2)
Commercial, financial and
agricultural 216 90 82 218 121
Installment 253 118 143 132 131
Real Estate Mortgage 72 20 0 53 0
Credit Cards 23 26 12 17 25
____ ____ ____ ____ ____
Total 564 254 237 420 277
____ ____ ____ ____ ____
Net charge-offs (1073) (975) (774) (475) (536)
Provision charged
to expense 1,490 1,031 699 600 800
______ ______ ______ ______ ______
Balance at end of year $2,675 $2,258 $2,202 $2,277 $2,152
Ratio of net charge-offs
to average loans
outstanding .47% .47% .38% .24% .27%
</TABLE>
(1) Loans are shown net of unearned discount.
(2)Includes Residential and Commercial Mortgages.
<PAGE>
<TABLE>
IV. Summary of loan loss experience - continued
Allocation of allowance for loan losses
<CAPTION>
December 31
(Dollars in Thousands)
1996 1995 1994
% of % of % of
Loans to Loans to Loans to
Total Total Total
Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural (1) $1,873 35% $1,809 43% $1,534 44%
Real Estate Mortgage 115 40% 81 41% 160 40%
Consumer 540 21% 230 12% 360 13%
Other 0 0% 0 4% 0 3%
Unallocated 147 4% 138 N/A 148 N/A
_____ ___ _____ ___ _____ ___
Total $2,258 100% $2,258 100% $2,202 100%
</TABLE>
<TABLE>
<CAPTION>
December 31
(Dollars in Thousands)
1993 1992
% of % of
Loans to Loans to
Total Total
Amount Loans Amount Loans
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural (1) $1,560 45% $1,549 43%
Real Estate Mortgage 125 40% 100 44%
Consumer 421 12% 300 11%
Other 0 3% 0 2%
Unallocated 171 N/A 203 N/A
_____ ___ _____ ___
Total $2,277 100% $2,152 100%
</TABLE>
The determination of the allowance for loan losses is based on an analysis of
the loan portfolio and reflects an amount which, in management's judgment, is
adequate to provide for loan losses. This analysis is based on management's
periodic evaluation, which considers factors such as past loss experience,
identification of adverse conditions that may affect a borrower's ability to
repay, an assessment of current and expected economic conditions and the
estimated value of any underlying collateral. The allowance for loan losses is
applicable for any loan losses despite the allocation provided above. In
addition, future allocations may change due to circumstances inherent in the
loan portfolio
(1)Includes Commercial Mortgages.
<PAGE>
<TABLE>
V. Deposits
The following summary sets forth the average amounts of the various types of
deposits for December 31, 1996, 1995 and 1994, and the average rate paid on
each.
<CAPTION>
1996 1995 1994
Amount Rate Amount Rate Amount Rate
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand $ 50,801 -- $ 46,676 -- $ 44,566 --
Interest bearing demand 33,695 1.36% 32,989 1.82% 37,913 1.91%
Savings 112,494 2.73% 118,300 3.02% 137,669 2.59%
Other time 96,965 5.37% 84,746 5.45% 61,151 4.64%
________ ________ ________
Total $293,955 2.97% $282,711 3.11% $281,299 2.53%
</TABLE>
<TABLE>
The following table sets forth the time certificate of deposits of $100,000 or
greater, classified by the time remaining until maturity, which were on deposit
as of December 31, 1996.
<CAPTION>
1996
(In Thousands)
<S> <C>
Three months or less $36,203
Over three through six months 1,186
Over six through twelve months 1,204
Over twelve months 1,603
_______
Total $40,196
</TABLE>
<TABLE>
VI. Return on Equity and Assets
The following table sets forth certain ratios used in evaluating financial
position and results of operations.
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Return on average total assets .88% 1.26% 1.18%
Return on average equity 7.79% 10.88% 11.21%
Dividend payout ratio 47.98% 28.78% 26.07%
Average equity to total
average assets 11.31% 11.22% 10.48%
</TABLE>
<PAGE>
Item 2. Properties
Canandaigua National Corporation occupies space at the main office of the Bank.
No real property is owned by the Corporation. The Corporation leases real
property in Farmington, Mendon, Manchester, Victor (Eastview Mall), Pittsford,
under long-term renewable leases. The premises are sublet to the Bank for its
Farmington Branch Office.
The Bank's operations are conducted from nine offices located in Ontario
County, New York and two offices located in Monroe County, New York. The main
office of the Bank is a three-story structure located at 72 South Main Street,
Canandaigua, New York. The administrative, operational and electronic data
processing offices of the Bank are located in this facility. The Bank owns
branch offices which are located on the main street in Victor, New York;
Holcomb, New York; and Honeoye, New York. The Bank subleases space for branch
offices in Farmington, New York, at Wade's Supermarket located on Route 96; in
Canandaigua, New York at 709 South Main Street; in Shortsville-Manchester in
the Bliss Shurfine Foodmart; in the Town of Mendon, Monroe County, New York in
the Hitching Post Plaza in the Big-M Food Market; in Victor, New York in the
Eastview Mall and in Pittsford, New York at State Street. There are drive-in
facilities located at all offices except for the Eastview Mall and Pittsford
offices.
The Bank provides 24-hour banking services to Bank customers through automatic
teller facilities located at each office and through remote Automatic Teller
Machines located at the Finger Lakes Community College on Lincoln Hill in the
Town of Hopewell, New York, and at F.F. Thompson Hospital located on North
Parrish Street, Canandaigua, New York.
The carrying value of the properties as of December 31, 1996, which is required
to be included herein pursuant to Item 102 of Regulation S-K, is included under
the caption "Notes to Consolidated Financial Statements" set forth on pages 13
through 29 of the 1996 Annual Report to Stockholders and is incorporated herein
by reference.
Item 3. Legal Proceedings
The Company and its subsidiaries are not involved in any pending legal
proceeding other than routine legal proceedings undertaken in the ordinary
course of business. In the opinion of the management, after consultation with
counsel, the aggregate amount involved in such proceedings is not material to
the consolidated financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
NONE
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters
The information required to be included herein, pursuant to Item 201 of
Regulation S-K, is incorporated herein by reference from the pages of the 1996
Annual Report to Stockholders and proxy statement set forth below:
Required Information Annual Report Caption Annual Report Page
Market information "Common Stock Data" 30
Dividends "Common Stock Data" 30
"Stockholders' Equity" 11
Holdings: (At December 31, 1996, the Corporation had approximately 684
shareholders.) Information regarding beneficial ownership of the Corporation's
stock is set forth on pages 1, 2, 3, and 7 of the Corporation's proxy statement
and incorporated herein by reference.
Item 6. Selected Financial Data
<TABLE>
This table represents a summary of selected components of the Corporation's
consolidated financial statements for the five years ended December 31, 1996.
All information concerning the Corporation should be read in conjunction with
the consolidated financial statements and related notes.
<CAPTION>
Selected Financial Data
(Dollars in Thousands except per share data)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 16,708 16,035 14,760 14,018 13,598
Provision for Loan Losses $ 1,490 1,031 699 600 800
Non-Interest Income $ 3,914 3,393 3,268 3,469 3,157
Non-Interest Expense $ 15,147 12,684 12,022 12,195 11,542
Applicable Income Taxes $ 1,038 1,797 1,604 1,265 1,115
Net Income $ 2,947 3,916 3,703 3,427 3,298
Per Share Data:
Net Income $ 18.20 24.31 23.01 21.32 20.54
Cash Dividends $ 8.75 7.00 6.00 5.50 5.13
Balance Sheet Data:
Total Assets $360,623 317,209 $310,541 $314,640 $320,876
Total Equity $ 39,119 37,397 34,538 31,744 29,162
Average Assets $334,659 320,770 315,312 321,546 315,177
Average Equity $ 37,834 35,987 33,035 30,464 27,939
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The purpose of this discussion is to focus on information about
Canandaigua National Corporation's financial condition and results of
operations which is not otherwise apparent from the consolidated financial
statements in the annual report. Reference should be made to those statements
and the selected financial data presented elsewhere in this report for an
understanding of the following discussion and analysis.
Liquidity and Interest Rate Sensitivity Management
Liquidity is defined as the ability to generate adequate amounts of cash
to meet the demand for cash from depositors who wish to withdraw funds,
borrowers who require funds to meet their credit needs, and the need for
operating funds and capital expansion.
Interest rate sensitivity management seeks to avoid fluctuating net
interest margins and to enhance consistent growth of net interest income
through periods of changing interest rates. Thus liquidity and interest rate
sensitivity must be jointly managed through asset/liability policy to provide
optimum results for the Corporation.
Asset liquidity is found in cash, federal funds sold, deposits with other
financial institutions, short term security holdings, and loan repayments. On
average for 1996, federal funds sold, cash and due from banks, and interest
bearing deposits with other banks totaled $22.2 million. The securities
portfolio is also an important source of liquidity. As of December 31, 1996,
approximately $29.9 million amortized cost of the portfolio will be mature in
one year or less. Combining these two major sources of liquidity, the
Corporation had $52.1 million of readily available assets, which is 15.6% of
average assets for 1996. Management believes that liquidity needs are
adequately addressed, but also has short term and long term borrowings
available from the Federal Reserve Bank and the Federal Home Loan Bank.
Interest rate sensitivity varies with different types of interest earning
assets and interest bearing liabilities. In general, short term interest
sensitive assets, such as loans tied to the prime rate, will have greater
sensitivity than fixed rate home mortgages or securities due in over one year.
Similarly, money market and passbook savings accounts have more sensitivity
than certificates of deposit maturing after one year. The Corporation has
chosen to limit both its asset and liability exposure in longer term time
frames so as to avoid large mismatches of assets and liabilities that could
cause large earnings swings.
During 1996, increased consumer lending which was not supported by deposit
growth but by short-term borrowings led to a decline in the Rate Sensitive
Assets/Rate Sensitive Liabilities equation. The Corporation believes this
mismatch will continue for sometime and is aware of its challenge to interest
rate risk.
<PAGE>
<TABLE>
The following chart indicates rate sensitivity at December 31, 1996:
<CAPTION>
INTEREST RATE SENSITIVITY GAPS
As of December 31, 1996
(In Thousands)
MATURITIES
0 - 3 4 - 12 1 - 5 Over 5
MONTHS MONTHS YEARS YEARS
<S> <C> <C> <C> <C>
Loans $ 90,214 2,903 115,686 48,708
Securities 9,372 20,507 32,391 9,501
________ ______ _______ ______
Interest-earning
assets $ 99,586 23,410 148,077 58,209
________ ______ _______ ______
Certificate of Deposits 51,567 29,388 30,718
Savings 63,502
Royal Blue Money Market 18,708
Now & Super Now 32,392
Money Market 24,600
Federal Funds Purchased 10,600
Short Term Borrowing FHLB 990
_______ ______ ______ ______
Interest-bearing
liabilities 202,269 29,388 30,718 0
_______ ______ ______ ______
Interest sensitivity
gap $(102,683) (5,978) 117,359 58,209
Interest-earning
assets 99,586 23,410 148,077 58,209
Interest-bearing
liabilities 202,269 29,388 30,718 0
_______ ______ _______ ______
Interest sensitivity
gap $(102,683) (5,978) 117,359 58,209
Rate Sensitive Assets
divided by Rate Sensitive
Liabilities 0.50 .80 4.82
</TABLE>
<PAGE>
The chart indicates that the Corporation was repricing $101.6 million more
of interest earning liabilities than interest bearing assets in the 0-3 month
range. This gap is not considered to be a problem, as a good portion of the
savings balances are not considered sensitive to rate change. However, the
Corporation will be challenged in a rising interest rate environment to
maintain its interest margins. For the 4-12 month period, the Corporation is
modestly liability sensitive, as $6.0 million more of interest bearing
liabilities are being repriced than interest earning assets. For the entire
one year range, the Corporation is repricing $107.6 million more interest
bearing liabilities than assets, or 32.68% of earning assets. This liability
sensitivity has increased from $58.3 million and 20.21% of earning assets last
year. The imbalance was due to the increase in short-term certificates of
deposit and short-term borrowings to fund loans with a longer maturity. The
Corporation is asset sensitive at $117.4 million for the one to five year
range, as interest earning assets increased $33.4 million from last year's
amounts, along with an interest bearing liabilities increase of $.6 million.
For the entire portfolio range, the Corporation is asset sensitive at
$68.0 million versus asset sensitivity of $61.3 million last year. With
interest rate forecasts continuing to suggest declines, our earnings should be
favorably impacted if we can continue to cut liability rates at the same pace
as earning assets. We will have some difficulty, however, as short term
liability rates are at or near historic lows. Continued declines could lead to
deposit outflows, as investors seek higher returns in other available products.
We may have to limit our liability rate decreases in order to continue to fund
the bank, and that may have a slightly negative impact on historic spreads.
Hopefully increasing lending will offset some of the decline.
Capital Resources
Total Stockholders' equity at December 31, 1996, was $39,119,000,
representing an increase of $1,722,000 (or 4.6%) over 1995. Primary capital,
defined as shareholders equity plus loan loss reserve, was $41,794,000 at
December 31, 1996, or 11.59% of average assets versus $39,655,000 or 12.50% of
average assets at December 31, 1995.
The Federal Reserve Board standards require banks and bank holding
companies to maintain capital based on "risk adjusted" assets so that
categories of assets with potentially higher credit risk will require more
capital backing than assets with lower risk. In addition, banks and bank
holding companies are required to maintain capital to support, on a risk-
adjusted basis, certain off balance sheet activities such as loan commitments
and interest rate swaps. Capital is classified into two tiers. Tier 1 capital
consists of common shareholders' equity, non-cumulative and cumulative
perpetual preferred stock, and minority interests less goodwill and less net
unrealized gain on securities available for sale. Tier 2 capital consists of
allowances for loan and lease losses, hybrid capital instruments, term
subordinated debt, and intermediate-term preferred stock. All banks are
required to meet a minimum ratio of 8% of qualifying total capital to risk
adjusted total assets with at least 4% Tier 1 capital.
<PAGE>
<TABLE>
The table below illustrates the Corporation's regulatory capital ratio
at December 31, 1996 and December 31, 1995:
<CAPTION>
1996 1995
(dollars in thousands)
<S> <C> <C>
Tier 1 Capital $ 39,119 $ 37,397
Tier 2 Capital $ 2,675 $ 2,258
Total Qualifying Capital $41,794 $ 39,655
Risk Adjusted Total Assets $247,846 $213,442
Tier 1 Risk Based Capital Ratio 15.70% 17.50%
Total Risk Based Capital Ratio 16.78% 18.55%
Leverage Ratio 11.11% 10.48%
</TABLE>
As shown in the table, the Corporation's Tier 1 Risk Based Capital has
grown 4.6%, and Total Risk Based Capital has increased 5.4% from year end 1995
levels.
The leverage ratio (Tier 1 Capital divided by total assets less goodwill)
must be at least 3%. The Corporation's leverage ratio was 11.11% as of
December 31, 1996.
The capital ratios of the Corporation are strongly in excess of minimum
regulatory requirements, indicating an ability to meet customer demand and
market competition, while providing sufficient earnings to strengthen the
capital base annually. The Corporation believes that its strong capital base
will allow it to continue a reasonable dividend payment.
Dividends
Payments of dividends by the Bank to the Company is limited or restricted
in certain circumstances. According to federal banking law, the approval of
the Office of the Comptroller of the Currency is required for the declaration
of dividends in any year which dividends exceed the total of net income for
that year plus retained income for the preceding two years. At December 31,
1996, approximately $7,094,000 was available for payment of dividends to the
Company.
Cash dividends for 1996 amounted to $1,414,000, an increase of $287,000 or
11.2% over the $1,127,000 paid in 1995. Dividends paid were 48.0% and 28.8% of
1996 and 1995 earnings respectively.
Results of Operations
Net interest income is the difference between interest received from
earning assets and interest paid on interest bearing liabilities. It is
affected by both the volume and rates applied to both earnings assets and
liabilities, and therefore, is an effective measurement of how well management
has balanced and reacted to the Corporation's interest rate sensitive assets
and liabilities.
<PAGE>
For the year ended December 31, 1996, the Corporation had $307.8 million
average earning assets, up $12.5 million or 4.2% from the year earlier.
Average interest bearing liabilities were $244.8 million for 1996, up $8.3
million or 3.5% from 1995. The increase in earning assets reflects the
expansion of our indirect product into the Rochester, NY area. Liability
growth has begun, due to the Company borrowing from the Federal Home Loan Bank
to fund the asset growth. While being mindful of the Corporation's customers'
needs, management was able to increase net interest income for 1996 to $16.7
million, up from $16.0 million for 1995, reflecting an increase of 4.38% for
1996.
The yield on interest earning assets was 8.29% in 1996, down from 8.41% in
1995. Cost of funds decreased, to 3.59% from 3.72% in 1995. Management
continued to stress the cost and size control of liabilities during 1996, and
therefore the net yield increased to 4.70% from 4.69% in 1995. Net interest
income as a percentage of earning assets (net interest rate margin) remained
the same at 5.43%, as the $673,000 increase in net interest income was derived
from successfully managing the changing interest rate environment during the
year, in conjunction with the previously mentioned increase in total earning
assets. Management believes these results are an indication that its interest
rate sensitivity planning is functioning well.
The provision for loan losses in 1996 was $1,490,000, up $459,000 from
1995. The allowance for loan loss as of December 31, 1996 was $2.7 million, or
1.03% of loans outstanding at year end 1996. This ratio is slightly lower than
that of 1995 (1.08%). The cause for the decrease of this ratio is due to the
large increase of the loan portfolio in 1996 of $47.5 million. Also, charge-
offs rose to $1,637,000 in 1996 from $1,229,000 in 1995, recoveries of loans
charged off increased to $564,000 in 1996 from $254,000 in 1995. Management
believes its ability to properly manage the loan portfolio and current loan
loss policies are effective.
The Corporation`s investment portfolio book value fell to $70.0 million at
December 31, 1996 from $70.5 million at December 31, 1995, reflecting a
decrease of .71%.
Other income for 1996 increased to $3.9 million from $3.4 million,
reflecting an increase of $521,000 or 15.4%. Service charges on deposit
accounts were up $57,000 to $1,661,000. Other operating income for 1996 rose
to $940,000 from $678,000 reflecting an increase of $262,000. Strong demand
for our trust services in our traditional markets as well as in our new
Pittsford location led to an increase of Trust Income to $1,337,000 up from
$1,071,000 in 1995.
<PAGE
Operating expenses totaled $15.1 million, up 18.9% from $12.7 million in
1995. Salaries and employee benefits rose $1.4 million as the Corporation
expanded several product areas and purchased two non-traditional financial
service providers. Other operating expenses rose $1 million due to increases
in other real estate expenses and other costs associated with the growing loan
portfolio.
The rate of return on average assets (ROA) and the rate of return on
average equity are a good measure of the Corporation's results. For the year
1996, return on average assets dropped from 1.26% to .84%. Return on average
equity was 7.9% in 1996 compared to 10.88% in 1995. The decline in ROA was a
result of increase in staff which was required for our expansion into new
geographic areas as well as new business ventures. The decline in return on
equity is due to the decrease in earnings as well as the rapid growth of the
Corporation's capital. Management believes the Corporation remains quite
healthy.
Accounting Standards
In June 1996, the Financial Accounting Standards Board issued Statement of
Accounting Standards (SFAS) No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Management of the Company does not
expect the adoption of SFAS No. 125 will have a material impact on the
Company's financial position, results of operations, or liquidity.
Item 8. Financial Statements and Supplementary Data
(Supplementary data has been omitted because it is not applicable)
Financial statements, together with a report thereon of KPMG Peat Marwick LLP
dated February 10, 1997 appearing on Page 8-29 of the 1996 Annual Report to
Stockholders are incorporated herein by reference. A reference index to the
consolidated financial statements and accompanying notes presented in the
Annual Report to Stockholders is shown in Item 14 of this filing.
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
<PAGE>
PART III
Item 10. Directors and Executive Officers
(a) Directors
The information with respect to the directors of the Corporation, which is
required to be included herein pursuant to Item 401 of Regulation S-K, is
included under the caption "Election of Directors" on the Proxy Statement,
dated February 26, 1997, and is incorporated herein from the Proxy Statement by
reference. There are no arrangements or understandings between any director
and any other person pursuant to which the director was selected.
(b) Executive Officers
The name, age and position of the executive officer of the Corporation as
of December 31, 1996, is set forth on page 6 of the Proxy Statement dated
February 26, 1997 under the caption "Principal Officers" and is incorporated
herein by reference. Officers are generally elected annually by the Board of
Directors at the meeting of directors immediately following the annual meeting
of stockholders. The disclosure of family relationships between the executive
officer and directors of the Corporation is set forth on page 4 of the Proxy
Statement dated February 26, 1997 and is incorporated herein by reference.
There are no arrangements or understandings between the executive officer and
any other person pursuant to which the executive officer was selected.
No Director or executive officer of the Corporation has received any
remuneration from the Bank or the Corporation in his capacity as a director or
executive officer of the Corporation.
The executive officer of the Corporation has been an officer of the Bank
for five years or more.
Directors and the executive officer as a group beneficially owned 15,264
shares or 9.47% of the shares outstanding. Shares owned directly total 13,964
and shares held by directors, executive officer, or their spouses in a
fiduciary capacity or by their spouses individually total 1,300.
(c) Significant Employees
Not applicable
(d) Family Relationship
Disclosed in Item 10 (a) - Directors
(e) Business Experience
Disclosed in Item 10 (a) and 10 (b)
(f) None
(g) None
<PAGE>
Item 11. Executive Compensation
(a) Cash Compensation
The information required to be included herein regarding executive compensation
pursuant to Item 402 of Regulation S-K is included under the caption "Executive
Compensation" in registrants definitive proxy statement on page 6 and is
incorporated herein by reference.
During the year ended December 31, 1996, officers of the Corporation did not
receive any compensation from the Corporation for services rendered in such
capacity. All of the above compensation was paid by the Bank for services
rendered in the course of their employment with the bank.
(b) Compensation Pursuant to Plans
The Bank has a non-contributory, profit sharing plan covering substantially all
full-time employees who have completed one year of service, subject to a
minimum number of hours of service with the Bank. Contributions to the profit
sharing plan by the Bank are allocated among eligible participants in the
proportion that each participant's "points" for the calendar year bear to the
total "points" awarded for the calendar year. Participants are awarded one
point for each full calendar year of employment and one point for each $100 of
compensation paid such participant during that year. Voluntary contributions
may be made and invested in a separate "Voluntary Account" in which the
participant is always fully vested. Participants become fully-vested with non-
contributory allocations upon: reaching the age of 65, disability, death, or
7 years of service as defined by the plan. If employment is otherwise
terminated, partial vesting will be accorded depending upon the participant's
years of service. Retirement and death benefits may be distributed in a cash
lump sum or a series of equal installments, payable at least annually, over a
period selected by the Profit Sharing Plan Committee. The amounts contributed
to the profit sharing plan by the Bank in 1996, 1995, and 1994 were $658,000,
$639,000, and $641,000 respectively.
The Corporation has an Employee Stock Ownership Plan (ESOP) for employees of
its wholly-owned subsidiary, and executive officers are members of the plan.
Contributions to the ESOP are allocated among eligible participants in the
proportion that each participant's gross compensation bears to total
compensation of all participants. Contributions to the plan for 1996, 1995,
and 1994 were $52,000, $46,000, and $33,900 respectively.
<PAGE>
The Corporation has an incentive stock plan for senior management of the
Corporation. Annual contributions are made based on performance factors
established by the board of directors. The Corporation has accrued a liability
of $849,000 as of December 31, 1996 representing its obligation under the plan.
Expenses of the plan amounted to $371,000, $155,000, and $115,000 for the
years ended December 31, 1996, 1995 and 1994 and were paid by the Bank.
The following table sets forth the amount of profit sharing benefits set aside
or accrued by the Bank, directly or indirectly, under the Profit Sharing Plan
for the year ended December 31, 1996 for all executive officers of the Bank.
Amount Set Aside
or Accrued for Cumulative
Name of the Year Ended Accrued
Individual December 31, 1995 Benefit
- ------------------------------------------------------------------------
George W. Hamlin, IV $22,334 $678,204
The following table sets forth the amount of ESOP benefits set aside or accrued
by the Bank, directly or indirectly, under the ESOP for the year ended December
31, 1995 for all executive officers of the Bank.
Amount Set Aside
or Accrued for Cumulative
Name of the Year Ended Accrued
Individual December 31, 1995 Benefit
- --------------------------------------------------------------------------
George W. Hamlin, IV $ 1,606 $ 16,921
(c) Other Compensation - Option/SAR Grants Table
The information required to be included herein regarding executive compensation
pursuant to Item 402 of Regulation S-K is included under the caption "Executive
Compensation" in registrants definitive proxy statement on page 7 and is
incorporated herein by reference.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value
Table
The information required to be included herein regarding executive compensation
pursuant to Item 402 of Regulation S-K is included under the caption "Executive
Compensation" in registrants definitive proxy statement on page 6 and is
incorporated herein by reference.
(e) Long-Term Incentive Plan Awards Table
NONE
(f) Defined Benefit or Actuarial Plan Disclosure
NONE
<PAGE
(g) Compensation of Directors
For the years 1996, 1995, and 1994 no compensation was paid to members of the
Board of Directors of Canandaigua National Corporation. For the years of 1996,
1995, and 1994 members of the Board of Directors of The Canandaigua National
Bank and Trust Company were compensated at the rate of $300 per meeting.
(h) Employment Contracts and Termination of Employment and Change-In-
Control Arrangements
NONE
(i) Report on Repricing of Options/SARS
NONE
(j) Compensation Committee Interlocks
NONE
(k) Board Compensation Committee Report on Executive Compensation
The information required to be set forth for this item is set forth in
Registrant's definitive proxy statement at page 7 and incorporated herein by
reference.
(l) Performance Graph
The information required to be set forth for this item is set forth in
Registrant's definitive proxy statement at page 8 and incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a), (b) The information required by Item 403 (a) and (b) of Regulation S-K is
included with the information given on pages 1 through 3 of the Proxy
Statement and is incorporated herein by reference.
(c) Changes in Control
NONE
<PAGE>
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
NONE
(b) Certain Business Relationships
NONE
(c) Indebtedness of Management
Certain directors and executive officers of the Corporation and the Bank and
their associates were customers of and had transactions with the Bank in the
ordinary course of the Bank's business during 1995. All outstanding loans and
commitments included in such transactions were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others, and in the opinion of the Bank, did
not involve more than a normal risk of collectibility or present other
unfavorable features.
(d) Transactions with Promoters
Not applicable
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Canandaigua National
Corporation and subsidiary have been incorporated by reference in Item 8 on
Page 26: Pages*
Independent Auditors' Report 8
Consolidated Balance Sheets As of December 31, 1996 and 1995 9
Consolidated Statements of Income For Each of the Years in the 3-Year
Period ended December 31, 1996 10
Consolidated Statements of Changes In Stockholders' Equity for Each
of the Years in the 3-Year Period ended December 31, 1996 11
Consolidated Statements of Cash Flows For Each of the Years in the
3-Year Period ended December 31, 1996 ...........................12
Notes to Consolidated Financial Statements......................... 13-29
* 1996 Annual Report to Stockholders
(a) 2. Financial Statement Schedules
Schedules are omitted since the required information is either not applicable,
not deemed material, or is shown elsewhere in the financial statements or notes
thereto.
(a) 3. Exhibits Table
(11) The information required by Item 601(a)(3)(11) of Regulation S-K is set
forth on page 7 and 13 of the 1996 Annual Report to the Stockholders and is
incorporated herein by reference.
(13) A copy of the 1996 Annual Report to Stockholders is attached hereto as
Exhibit A.
(19) A copy of the definitive proxy statement mailed to Stockholders is
attached hereto as Exhibit B.
(22)The Canandaigua National Bank and Trust Company is wholly owned by the
Registrant. The Bank is incorporated under the laws of The United States of
America. Registrant also owns all outstanding stock in Greater Funding of New
York, Inc. a New York State licensed mortgage company.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CANANDAIGUA NATIONAL CORPORATION
By:
George W. Hamlin, IV
President
Date: 3/31/97
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
President/Director
George W. Hamlin, IV
Secretary/Director
Robert G. Sheridan
Treasurer
Gregory S. MacKay
Director
Patricia Boland
Director
Frank H. Hamlin
Director
Stephen D. Hamlin
Director
Paul R. Kellogg
Director
Eldred M. Sale
Director
Caroline C. Shipley
Director
Alan J. Stone
Director
David Hamlin, Jr.
Director
Daniel P. Fuller
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Canandaigua National Corporation:
We have audited the accompanying consolidated balance sheets of Canandaigua
National Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Canandaigua
National Corporation and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
February 10, 1997
Rochester, New York
<PAGE>
<TABLE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
(dollars in thousands, except per share amounts)
<CAPTION>
Assets 1996
1995
<S> <C> <C>
Cash and due from banks $ 18,887
16,811
Interest bearing deposits with other financial institutions 286
47
Federal funds sold ---
6,600
Securities:
Available for sale, at fair value 325
444
Held to maturity (fair value of $69,770 in 1996
and $70,728 in 1995) 69,682
70,070
Loans - net of allowance of $2,675 in 1996
and $2,258 in 1995 254,836
207,786
Premises and equipment - net 9,214
8,559
Accrued interest receivable 2,003
2,046
FHLB stock and Federal Reserve Bank stock 1,764
1,406
Other assets 3,626
3,440
_______
_______
Total Assets $ 360,623
317,209
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 57,287
49,779
Interest bearing 250,679
227,272
------- ------
- -
Total deposits 307,966
277,051
Federal Funds Purchased 10,600 ---
Borrowing from FHLB 990
1,013
Accrued interest payable and other liabilities 1,948
1,748
------- ------
- -
Total Liabilities 321,504
279,812
------- ------
- -
Commitments and contingencies (Note 13 and 14)
Stockholders' equity:
Common stock, $50 par value; 240,000 shares authorized,
162,208 shares issued in 1996 and 161,155 in 1995 8,110
8,058
Additional paid-in capital 8,489
8,203
Undivided profits 22,616
21,083
Treasury Stock, at cost (550 Shares) (174) --
Net unrealized gain on securities available for sale,
net of taxes 78
53
------- ------
- -
Total Stockholders' Equity 39,119
37,397
------- ------
- -
Total Liabilities and Stockholders' Equity $ 360,623
317,209
=======
=======
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
(dollars in thousands, except per share amounts)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Loans $ 21,046 19,998
17,654
Securities 4,070 4,136
3,677
Federal funds sold and other 389 697
558
______ ______
______
Total interest income 25,505 24,831
21,889
Interest expense:
Deposits 8,797 8,796
7,129
______ ______
______
Net interest income 16,708 16,035
14,760
Provision for loan losses 1,490 1,031
699
______ ______
______
Net interest income after provision for loan losses 15,218 15,004
14,061
______ ______
______
Other income:
Service charges on deposit accounts 1,661 1,604
1,562
Trust income 1,337 1,071
936
Net gain on sale of mortgage loans (24) 40
113
Other operating income 940 678
657
______ ______
______
Total other income 3,914 3,393
3,268
Operating expenses:
Salaries and employee benefits 8,382 7,063
6,489
Occupancy expense 2,314 1,961
1,862
FDIC insurance 2 319
630
Marketing and public relations 293 283
202
Office supplies, printing and postage 616 635
540
Legal 363 227
202
Other operating expenses 3,177 2,196
2,097
______ ______
______
Total operating expenses 15,147 12,684
12,022
______ ______
______
Income before income taxes 3,985 5,713
5,307
Income taxes 1,038 1,797
1,604
______ ______
______
Net income $ 2,947 3,916
3,703
Net income per common share $ 18.20 24.31
23.01
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE> CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
(dollars in thousands, except per share amounts)
<CAPTION>
Net
Unrealized
Gain on
Additional Securities
Common Paid in Undivided Available-
Stock Capital Profits for-Sale
Total _____ __________ _________ __________
_______
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 8,042 8,145 15,557 0 31,744
Sale of 150 shares of common stock 7 27 0 0 34
Cash dividend - $6.00 per share 0 0 (966) 0
(966)
Net unrealized gain on Securities
available-for-sale, net of taxes
of $16,000 0 0 0 23 23
Net income 0 0 3,703 0 3,703
_____ _________ ________ _________ _______
Balance at December 31, 1994 8,049 8,172 18,294 23 34,538
Sale of 175 shares of common stock 9 31 0 0 40
Cash dividend - $7.00 per share 0 0 (1,127) 0
(1,127)
Change in unrealized gain on
Securities available-for-sale,
net of taxes of $20,000 0 0 0 30 30
Net income 0 0 3,916 0 3,916
_____ _________ ________ _________ _______
Balance at December 31, 1995 $ 8,058 8,203 21,083 53 37,397
Cash dividend - $8.75 per share 0 (1,414) 0
(1,414)
Issuance of 1,053 shares of common
stock to purchase subsidiary 52 286 338
Change in unrealized gain on
Securities available-for-sale
net of taxes of $16 25 25
Purchase of 550 shares of
Treasury Stock (174)
(174)
Net Income 2,947
2,947
Balance at December 31, 1996 $ 8,110 8,489 22,616 (174) 78
39,119
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,947 3,916 3,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,057 947 1,102
Provision for loan losses 1,490 1,031 699
Write down of other real estate 205
Deferred income taxes (338) (54) 24
Originations of loans held for sale (7,391) (3,615)
(10,183)
Proceeds from sales of loans held for sale 7,675 4,370 10,900
(Increase) decrease in interest receivable 43 124
(295)
(Increase) in other assets (914) (492)
(1,002)
Increase (decrease) in accrued interest payable
and other liabilities 200 592 29
______ ______ ______
Net cash provided by operating activities 4,974 6,819 4,977
______ ______ ______
Cash flows from investing activities:
Proceeds from call of FHLB stock 18 12 87
Purchase of FHLB stock (376)
Securities held to maturity:
Proceeds from call of securities 1,650 618 755
Proceeds from maturities of securities 35,678 38,060 33,181
Purchase of securities (36,639) (37,820)
(31,595)
Loans made to customers net of principal
payments received on loans (47,870) (2,638)
(13,937)
Fixed asset purchases - net (1,894) (1,555)
(1,145)
Acquisition of subsidiary (102)
Proceeds from sale of other real estate 372 786 935
______ ______ ______
Net cash provided(used) by investing activities(49,163) (2,537)
(11,719)
______ ______ ______
Cash flows from financing activities:
Net increase (decrease) in demand, savings
and short-term deposits 9,511 (18,944)
(11,663)
Proceeds from sale of common stock 40 34
Proceeds from issuance of certificates of deposit
net of payments on maturing certificates 21,404 20,567 4,742
Federal Funds purchased 10,600
Dividends paid (1,414) (1,127)
(966)
Proceeds from borrowing 1,023 0
Principal repayments on borrowing (23) (10) 0
Purchase of Treasury Stock (174)
______ ______ ______
Net cash provided (used) by financing activities39,904 1,549
(7,853)
______ ______ ______
Net (decrease) in cash and cash equivalents (4,285) 5,831
(14,595)
Cash and cash equivalents - beginning of year 23,458 17,627 32,222
______ ______ ______
Cash and cash equivalents - end of year $ 19,173 23,458 17,627
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,784 8,659 7,179
Income taxes $ 1,341 1,705 1,629
Supplemental disclosure of non-cash investing activities:
Additions to other real estate acquired
through foreclosure $ (423) 2,204 937
Acquisition of subsidiary for
1,053 shares of common stock 338
========= ========
=======
<FN>
See accompanying notes to consolidated financial statements.
<TABLE/>
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Note1 Summary of Significant Accounting Policies
Business
Canandaigua National Corporation (the Company) provides a full range of
banking and trust services to individual and corporate customers. The Company
is subject to competition from other financial institutions. The Company is
subject to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, The Canandaigua National Bank and Trust Company
(the Bank)and Greater Funding of New York, Inc. (GFNYI). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The financial statements have been prepared in conformity with generally
accepted accounting principles and conform with predominant practices within
the banking industry.
In preparing the consolidated financial statements, management made estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Amounts in prior years' consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation. The
following is a description of the Company's more significant accounting
policies.
Securities
The Company classifies its debt securities as either available for sale or
held to maturity as the Company does not hold any securities considered to be
trading. Held to maturity securities are those that the Company has the
ability
and intent to hold until maturity. All other securities not included as held
to
maturity are classified as available for sale.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at amortized cost. Unrealized holding gains and
losses, net of the related tax effect, on available for sale securities are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized.
A decline in fair value of any available for sale or held to maturity
security
below cost that is deemed other than temporary is charged to earnings resulting
in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
held to maturity security as an adjustment to yield using the effective
interest
method. Dividend and interest income are recognized when earned. Realized
gains and losses are included in earnings and are derived using the specific
identification method.
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
Loans
Loans are stated at the principal amount outstanding. Interest on loans is
credited to income based on the level-yield method.
The accrual of interest on commercial and real estate loans is discontinued
and previously accrued interest is reversed when the loans become 90 days
delinquent or when, in management's judgment, the collection of principal and
interest is uncertain. Recognition of interest income on nonaccrual loans does
not resume until management considers principal and interest collectible.
Installment loans are generally charged off upon becoming 120 days past due.
Loans held for sale are carried at the lower of cost or market value on an
aggregate basis. Market value is estimated based on outstanding investor
commitments, or in the absence of such commitments, based on current yield
requirements or quoted market prices.
The Company services residential mortgage loans for the Federal Home Loan
Mortgage Corporation (Freddie Mac) and earns servicing fees, which are
recognized when payments are received, based upon the outstanding principal
balance of the loans. The cost of originating these loans is attributed to the
loans and is considered in the calculation of the gain or loss on the sale of
the loans. Due to immateriality the right to service the loans is assigned no
financial statement value.
Allowance for Loan Losses
The determination of the allowance for loan losses is based on an analysis of
the loan portfolios and reflects an amount which, in management's judgment, is
adequate to provide for loan losses. This analysis is based on management's
periodic evaluation, which considers factors such as past loss experience,
identification of adverse conditions that may affect a borrower's ability to
repay, an assessment of current and expected economic conditions and the
estimated value of any underlying collateral.
While management uses available information to recognize losses on loans,
future additions to the allowances may be necessary based on changes in
economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowances for
loan
losses. Such agencies may require the Company to recognize additions to
allowance based on their judgments about information available to them at the
time of their examination.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of the impairment is measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, or as a practical expedient, at the loan's observable
market price or the fair value of collateral if the loan is collateral
dependent. Impairment losses are included in the allowance for loan losses
through a charge to the provision for loan losses. Cash receipts on impaired
loans are applied to reduce the principal balance outstanding and accrued but
unpaid interest. In considering loans for evaluation of impairment, management
generally excludes smaller balance, homogeneous loans -- residential mortgage
loans, home equity loans, and all consumer loans. These loans are collectively
evaluated form impairment as discussed above.
<PAGE
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
Premises and Equipment
Land is carried at cost. Buildings, equipment and leasehold improvements are
carried at cost, less accumulated depreciation and amortization. Depreciation
is computed using straight-line and accelerated methods over the estimated
useful lives of the assets, 3-25 years. Amortization of leasehold improvements
is provided over the lesser of the term of the lease or the estimated useful
lives of the assets.
Intangible Asset
Insurance expirations (customer list) acquired through acquisition in 1996,
amounting to $293,000 at December 31, 1996, are amortized over five years, the
expected period over which commission income will be received.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Trust Department Income
Assets held in fiduciary or agency capacity for customers are not included in
the accompanying consolidated balance sheets, since such assets are not assets
of the Company. Fee income is recognized on the accrual method.
Other Real Estate
Real estate acquired through foreclosure or deed in lieu of foreclosure is
recorded at the lower of the unpaid loan balance on the property at the date of
transfer, or fair value. Adjustments made to the value at transfer are charged
to the allowance for loan losses. After transfer, the property is carried at
the lower of cost or estimated fair value less estimated costs to sell.
Adjustments to the carrying values of such properties that result from
subsequent declines in value are charged to operations in the period in which
the declines occur. Operating costs associated with the properties are charged
to expense as incurred. Gains on the sale of other real estate are included in
results of operations when title has passed and the sale has met the minimum
down payment and other requirements prescribed by generally accepted accounting
principles.
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand, interest bearing deposits with other financial institutions and
federal funds sold.
Financial Instruments With Off-Balance-Sheet Risk
The Company does not engage in the use of derivative financial instruments.
The Company's only financial instruments with off-balance-sheet risk are
commercial letters of credit and committed lines of credit. These off-balance-
sheet items are shown in the Company's balance sheet upon funding.
Per Share Data
Net income per common share is based upon the weighted average number of
common shares outstanding during the year. There were no common stock
equivalents outstanding during the years presented which would result in
dilution of net income per share. The weighted average number of common
shares outstanding for each of the years in the three-year period ended
December
31, 1996 are as follows: 1996 - 161,855; 1995 - 161,068 and 1993 - 160,902.
Primary and fully diluted net income per share are the same for 1996, 1995 and
1994.
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2 Acquisitions
In April, 1996, the Company acquired all of the outstanding shares of Greater
Funding of New York, Inc. (GFNYI) for a cash price of $102,000. Up to that
date, the Company had owned 33% of GFNYI. GFNYI is a mortgage banking company.
Also in April, 1996, the Bank acquired the Burlingham Agency (BA), a life
insurance agency for 1,053 shares of the Company's common stock valued at
$338,000. The GFNYI and BA acquisitions were recorded under the purchase
method of accounting; and acccordingly, the results of operations of GFNYI and
BA for the period from their April acquisition are included in the accompanying
consolidated financial statements. The purchase prices have been allocated to
assets acquired and liabilities assumed based on fair market value at the dates
of acquisition.
Unaudited pro-forma earnings per share for the Company giving effect to the
GFNYI and BA acquisitions as if they had occurred on January 1, 1995 are $18.02
and $23.86 for 1996 and 1995, respectively. These pro-forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted had the
acquisitions occurred on the date indicated, or which may result in the future.
Note 3 Federal Funds Sold
Income from federal funds sold for the years ended December 31, 1996, 1995
and
1994 was $374,000, $692,000 and $554,000, respectively.
Note 4 Securities
The aggregate amortized cost and fair value of Securities Available-for-Sale
and Securities Held-to-Maturity at December 31, 1996 and 1995 follows (in
thousands):
1996 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
Securities Available-for-Sale:
Common stock $ 195 325 355 444
Securities Held-to-Maturity:
U.S. Treasury obligations $ 29,671 29,707 29,928 30,256
U.S. Government agencies 1,000 989 2,027 1,999
Mortgage-backed securities 325 341 310 334
Obligations of state and
municipal subdivisions 30,320 30,329 27,160 27,330
Other securities 8,366 8,404 10,645 10,809
______ ______ ______ ______
Total $ 69,682 69,770 70,070 70,728
Gross unrealized gains and gross unrealized losses on Securities Available-
for-Sale and Securities Held-to-Maturity at December 31, 1996 and 1995 follow
(in thousands):
1996 1995
Unrealized Unrealized
Gains Losses Gains Losses
Securities Available-for-Sale:
Common stock $ 130 0 89 0
Securities Held-to-Maturity:
U.S. Treasury obligations $ 68 (32) 336 (
8)
U.S. Government agencies 0 (11) 1 (
29)
Mortgage - backed securities 16 0 24 0
Obligations of state and
municipal subdivisions 210 (201) 277
(107)
Other securities 59 ( 21) 164
0
___ ___ ___ _____
Total $ 353 (265) 802 (
144)
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 4 Securities (continued)
The amortized cost and fair value of securities Held-to-Maturity by years to
maturity as of December 31, 1996 follow (in thousands):
Amortized Cost: Obligations
U.S. U.S. Mortgage- of state and
Treasury Government backed municipal Other
Years obligations agencies securities subdivisions securities
<S> <C> <C> <C> <C> <C>
Under 1 $ 18,921 0 9 7,549 3,400
1 to 5 10,750 1,000 34 15,641 4,966
5 to 10 0 0 44 6,449 0
10 and over 0 0 238 681 0
______ _____ ___ ______ _____
Total $ 29,671 1,000 325 30,320 8,366
Fair Value : Obligations
U.S. U.S. Mortgage- of state and
Treasury Government backed municipal Other
Years obligations agencies securities subdivisions securities
Under 1 $ 18,935 0 11 7,560 3,423
1 to 5 10,772 989 41 15,707 4,981
5 to 10 0 0 49 6,365 0
10 and over 0 0 240 697 0
______ _____ ___ ______ _____
Total $ 29,707 989 341 30,329 8,404
Maturities of mortgage-backed securities are classified in accordance with
the contractual repayment schedules.
Securities Held-to-Maturity with carrying values of $58,745,000 were
pledged as collateral against municipal deposits at December 31, 1996.
Interest on securities segregated between taxable interest and tax-exempt
interest for the years ended December 31, 1996, 1995 and 1994 follows (in
thousands):
1996 1995 1994
Taxable $ 2,728 2,741 2,301
Tax-exempt 1,342 1,395 1,376
_____ _____ _____
Total $ 4,070 4,136 3,677
The Bank's required investment in stock of the Federal Home Loan Bank
amounted to $1,284,000 and $926,000 at December 31, 1996 and 1995,
respectively, which equals the Company's cost basis. This investment allows
the Bank to maintain a $32,053,000 overnight line of credit with the Federal
Home Loan Bank.
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 Loans
The major classifications of loans at December 31, 1996 and 1995 follow (in
thousands):
1996 1995
Commercial, financial and agricultural $ 27,503 28,326
Mortgages:
Residential 101,349 86,641
Commercial 62,513 62,038
Consumer-Auto 44,784 15,123
Consumer-Other 9,925 9,146
Other 10,766 7,815
Loans held for sale 671 955
_______ _______
Total 257,511 210,044
Less - allowance for loan losses 2,675 2,258
_______ _______
Loans - net $ 254,836 207,786
Interest and fees on loans for the years ended December 31, 1996, 1995 and
1994 follow (in thousands):
1996 1995 1994
Commercial $ 3,062 3,358 3,179
Mortgage 14,368 13,964 12,227
Consumer and other 3,616 2,676 2,248
______ ______ ______
Total $ 21,046 19,998 17,654
A summary of the changes in the allowance for loan losses follow (in
thousands):
Years Ended December 31,
1996 1995 1994
Balance at beginning of year $ 2,258 2,202 2,277
Provision charged to operations 1,490 1,031 699
Loans charged off (1,637) (1,229) (1,011)
Recoveries of loans charged off 564 254 237
_____ _____ _____
Balance at end of year $ 2,675 2,258 2,202
The principal balance of loans not accruing interest totaled $11,279,000 and
$10,947,000 at December 31, 1996 and 1995, respectively. The effect of
nonaccrual loans on interest income for the years ended December 31, 1996,
1995,
and 1994 was $841,000, $739,000, and $496,000 respectively. Other real estate
owned amounted to $1,141,000 and $2,158,000 at December 31, 1996 and 1995,
respectively and is included in other assets in the consolidated balance
sheets.
The recorded investment in loans that are considered to be impaired totaled
$11,279,000 and $10,947,000 at December 31, 1996 and 1995, respectively.
Included in this amount was $451,000 and $619,000 of impaired loans for which
the related allowance for loan losses is $220,000 and $293,000, and $10,828,000
and $10,328,000 of impaired loans with no related allowance for loan losses at
December 31, 1996 and 1995, respectively. The average recorded investment in
impaired loans during 1996 and 1995 was $11,113,000 and $11,105,000,
respectively. The effect on interest income for impaired loans was $514,000 in
1996 and $739,000 in 1995. Income earned on impaired loans during 1996 and
1995 was approximately $149,000 and $275,000,respectively.
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 Loans (continued)
Residential mortgage loans with a carrying value of $43,000,000 were pledged as
collateral for the Bank's line of credit from the Federal Home Loan Bank.
Loans serviced for others, amounting to $68,368,000 and $69,611,000 at December
31, 1996 and 1995, respectively, are not included in the consolidated financial
statements.
The Company's market area is generally Western Ontario County, the Township of
Mendon, and Pittsford. Virtually all loans are made in its market area.
Accordingly, the ultimate collectibility of a substantial portion of the
Company's loan portfolio is susceptible to changes in the conditions in this
area.
The Company's concentrations of credit risk are as disclosed in the above
schedule of loan classifications. The concentrations of credit risk in loan
commitments and letters of credit parallel the loan classifications reflected
above. Other than general economic risks, management is not aware of any
material concentrations of credit risk to any industry or individual borrower.
Note 6 Premises and Equipment
A summary of premises and equipment follows (in thousands):
December 31, 1996 December 31, 1995
Land and land improvements $ 759 759
Buildings and leasehold improvements 10,869 9,983
Furniture, fixtures, equipment and vehicles 11,061 10,051
______ ______
22,689 20,793
Less accumulated depreciation and amortization 13,475 12,234
______ ______
Premises and equipment - net $ 9,214 8,559
Note 7 Deposits
Deposits at December 31, 1996 and 1995 by type were (in thousands):
1996 1995
Demand deposits $ 54,229 47,445
Savings and time deposits 199,278 191,912
Other deposits:
U.S. Government 744 324
State and political subdivisions 52,595 36,602
Official checks 1,120 768
_______ _______
Total $ 307,966 277,051
Certificates of deposit of $100,000 or more amounted to $40,196,000 at
December 31, 1996 and $20,915,000 at December 31, 1995. Interest expense on
certificates of deposit of $100,000 or more was as follows: $1,437,000 in
1996; $1,181,000 in 1995; and $270,000 in 1994.
At December 31, 1996, the scheduled maturity of all certificates of deposit was
as follows (in thousands):
1997 $ 80,955
1998 17,648
1999 13,070
$111,673
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 8 Borrowing From FHLB
In 1995 the Bank borrowed $1,023,000 from the FHLB at an effective rate of 2.5%
to fund low income housing projects. Principal payments of approximately
$2,000 are due monthly with the balance due at maturity in 2010. The balance
at December 31, 1996 was $990,000.
Note 9 Income Taxes
Total income taxes for the years ended December 31, 1996, 1995 and 1994 were
allocated as follows (dollars in thousands):
1996 1995 1994
Income before income taxes $ 1,038 1,797 1,604
Change in Stockholders' equity for unrealized
gain on securities available for sale 16 20 16
_____ _____ _____
Total $ 1,054 1,817 1,620
The components of income tax expense are as follows (in thousands):
Years ended December 31,
Current: 1996 1995 1994
Federal $ 1,066 1,450 1,260
State 310 401 320
_____ _____ _____
1,376 1,851 1,580
Deferred (338) (54) 24
_____ _____ _____
Total $ 1,038 1,797 1,604
Income tax expense was $1,038,000, $1,797,000, and $1,604,000 for the years
ended December 31, 1996, 1995 and 1994, respectively, and differed from the
amounts computed by applying the applicable U.S. Federal corporate tax rates
to pretax income from continuing operations as follows:
Years ended December 31,
1996 1995 1994
Tax expense at statutory rate of 34% $ 1,355 1,957 1,804
Tax-exempt interest (453) (474) (468)
Nondeductible interest expense 50 53 47
State taxes, net of federal benefit 136 265 211
Other (50) (4) 10
_____ _____ _____
Total $ 1,038 1,797 1,604
Effective tax rate 26.0% 31.5% 30.2%
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9 Income Taxes (continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and
1995 are presented below:
Deferred tax assets:
1995 1994
Allowance for loan losses $ 743 580
Incentive stock plan 340 244
Excess servicing 91 108
NOL credits from subsidiary prior to consolidation 188 -
State NOL arising from nonconsolidation for state
tax purpose only 31 -
Other 23 17
Total gross deferred tax assets before allowance 1,416 949
Valuation allowance (12) 0
Total gross deferred tax asset 1,404 949
Deferred tax liabilities:
Depreciation 456 475
Net unrealized gains on Available-for-Sale securities 52 36
Accretion on bonds 33 9
___ ___
Total gross deferred tax liabilities 541 520
___ ___
Net deferred tax asset $ 863 429
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryback period. A valuation allowance is provided when it is more likely
than
not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the
scheduled
reversal of deferred tax liabilities, the level of historical taxable income
and
projected future taxable income over the periods which the temporary
differences
comprising the deferred tax assets are deductible. Based on its assessment,
management determined that a valuation allowance of $12,000 against its
subsidiary's state Net Operating Loss (NOL) was necessary. As of December 31,
1996 there were approximately $111,000 of mortgage tax credits available to
offset future state tax liabilities of GFNYI. The Company acquired a deferred
tax asset of $112,000 from its acquisition of Greater Funding of New York, Inc.
Note 10 Stockholders' Equity
Payment of dividends by the Bank to the Company is limited or restricted in
certain circumstances. According to federal banking law, the approval of the
Office of the Comptroller of the Currency is required for the declaration of
dividends in any year which dividends exceed the total of net income for that
year plus retained income for the preceding two years. At December 31, 1996,
approximately $7,094,000 was available for payment of dividends to the Company.
Note 11 Employee Benefits
Profit Sharing Plan
The Company has a profit sharing plan covering all employees upon completion
of 1,000 hours of service with respect to salaried employees, and 870 hours of
service for employees paid on an hourly basis. Contributions to the plan are
determined by a mathematical formula which takes into account average net
income
of the Bank for the current and prior year, and the level of the Bank's
stockholders' equity. It is the Company's policy to fund current costs as they
accrue. Profit sharing plan expense amounted to $658,000, $639,000 and
$641,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Employee Stock Ownership Plan
The Company has an employee stock ownership plan (ESOP) for employees of the
Company. Annual contributions are made at the discretion of the board of
directors. ESOP expense amounted to $52,000, $46,000, and $33,900 for the
years
ended December 31, 1996, 1995 and 1994, respectively.
Note 12 Incentive Stock Plan
The Company has an incentive stock plan for senior management of the Company.
Annual expense is based on performance factors established by the board of
directors and is generally tied to increases in the Company's common stock
price. Prior to January 1, 1996, the Company accounted for its plans in
accordance with the provisions of Accounting Principals Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the
current market price of the underlying stock exceeded the exercise price.
Compensation cost is recognized annually to the extent the Company's stock
increases in value. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995
and future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25. There is no difference betweeen the Company's previous
method of accounting for its incentive stock plans and the provision of SFAS
No. 123, therefore no pro forma information is provided. The Company has
accrued a liability of $849,000 as of December 31, 1996 representing its
obligation under the plans. Expenses of the plans amounted to $371,000,
$155,000, and $115,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Note 13 Leases
The Company leases certain buildings and office space under operating lease
arrangements. Rent expense under these arrangements amounted to $386,000 in
1996, $192,000 in 1995 and $118,000 in 1994. Included in rent for 1996 is
$145,000 for the buyout of a lease commitment by Greater Funding of New York,
Inc. Real estate taxes, insurance, maintenance, and other operating expenses
associated with the buildings and office space are generally paid by the
Company.
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 13 Leases (Continued)
A summary of noncancellable long-term operating lease commitments as of
December
31, 1996 follows (in thousands):
Years ending December 31, Amount
1997 $ 240
1998 214
1999 200
2000 168
2001 & After 213
___
Total $1,035
Note 14 Commitments and Contingencies
In the normal course of business there are various outstanding commitments to
extend credit which are not reflected in the accompanying consolidated
financial
statements. Because many commitments and almost all letters of credit expire
without being funded in whole or in part, the contract amounts are not
estimates
of future cash flows. Loan commitments have off-balance sheet credit risk
because only origination fees are recognized in the balance sheet until
commitments are fulfilled or expire. The credit risk amounts are equal to the
contractual amounts, assuming that the amounts are fully advanced and
collateral
or other security is of no value. The Company's policy generally requires
customers to provide collateral, usually in the form of customers' operating
assets or property, prior to the disbursement of approved loans. The contract
amounts of these commitments at December 31, 1996 are: Commercial letters of
credit $1,839,000 and unused commitments $26,642,000. The contract amounts of
these commitments at December 31, 1995 were: Commercial letters of credit
$2,727,000 and unused commitments $22,179,000. The majority of these
commitments have terms up to one year at fixed interest rates current at the
date of origination. Commitments to fund residential mortgage loans amounted
to $424,000 at December 31. 1996.
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The average amount of such reserve balances for the year ended
December 31, 1996 was approximately $3,847,000.
In the normal course of business, the Company has various contingent
liabilities
outstanding that are not included in the consolidated financial statements.
Management does not anticipate any material losses as a result of these
contingent liabilities.
<PAGE
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 15 Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject ot qualitative judgments by regulators about components, risk
weighings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (as set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighed assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well-
capitalized, the Bank must maintain a minumum total risk-based, Tier 1 risk-
based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
Actual For Capital To Be Well
Adequacy Capitalized
Under
Purposes Prompt
Corrective
Action
Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996
Total Capital $ 39,722 16.1% $ 19,727 8.0% $ 24,659
10.0%
(to risk weighted assets)
Tier I Capital 37,047 15.0% 9,863 4.0% 14,795
6.0%
(to risk weighted assets)
Tier I Capital 37,047 10.6% 13,958 4.0% 17,448
5.0%
(to average assets)
As of December 31, 1995
Total Capital $ 37,724 17.93% $ 16,828 8.0% $ 21,035
10.0%
(to risk weighted assets)
Tier I Capital 35,466 16.86% 8,414 4.0% 12,621
6.0%
(to risk weighted assets)
Tier I Capital 35,466 11.9% 12,789 4.0% 15,987
5.0%
(to average assets)
Note 16 Loans to Directors and Officers
Certain executive officers, directors and their business interests are
customers of the Bank. Transactions with these parties are based on
substantially the same terms as similar transactions with others and do not
carry more than normal credit risk. At December 31, 1996 and 1995, loans to
these related parties amounted to $5,885,000 and $1,208,000, respectively.
Note 17 Condensed Financial Information - Parent Company Only
The following are the condensed balance sheets, statements of income, and
statements of cash flows for Canandaigua National Corporation (parent company
only).
Balance Sheets (dollars in thousands)
December 31,
1996 1995
Assets:
Cash $ 154 154
Investment in subsidiary bank 37,997 35,519
Securities Available-for-Sale 185 345
Loans -- 11
Other assets 572 1,368
______ ______
Total assets $ 39,119 37,397
Stockholders' equity:
Common stock $ 8,110 8,058
Additional paid-in capital 8,489 8,203
Undivided profits 22,616 21,083
Treasury Stock (550 Shares) (174) --
Net unrealized gain on securities available for sale,
net of taxes 78 53
______ ______
Total stockholders' equity $ 39,119 37,397
Statements of Income (dollars in thousands)
Years ended December 31,
1996 1995 1994
Income - Dividends from The Canandaigua
National Bank and Trust Company $ 1,750 1,124 1,009
Other income 12 2 0
Other expense ( 77) (114) (120)
_____ _____ _____
Income before undistributed income of subsidiary 1,685 1,012 889
Equity in undistributed income of subsidiary 1,262 2,904 2,814
_____ _____ _____
Net income $ 2,947 3,916 3,703
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 17 Condensed Financial Information - Parent Company Only (cont.)
Statements of Cash Flows (dollars in thousands)
Years ended December 31,
1996 1995 1994
Cash flows from operating activities:
Net income $ 2,947 3,916 3,703
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 0 25 99
Equity in undistributed earnings of subsidiary bank (1,262) (2,904)
(2,814)
Other 29 35 0
_____ _____ _____
Net cash from operating activities 1,714 1,072 988
Cash flows from investing activities:
Sale (Purchase) of securities 5 (28) 0
Purchase of Subsidiary (102)
Loans disbursed net of principal payments received 11 6 6
Decrease in other real estate 796 49 0
Additional capital investment into subsidiary (625)
Capital expenditures 0 0
(3)
_____ _____ _____
Net cash provided (used) in investing activities 85 27 3
Cash flows from financing activities:
Proceeds from issuance of common stock 0 40 34
Purchase of Treasury Stock (174)
Dividends paid (1,414) (1,127)
(966)
_____ _____ _____
Net cash used by financing activities (1,588) (1,087)
(932)
Net increase (decrease) in cash 211 12 59
Cash at beginning of year 154 142 83
_____ _____ _____
Cash at end of year $ 365 154 142
In 1995 the Company transferred fixed assets with a carrying value of
$1,400,000
to the Bank in exchange for other real estate with a carrying value of
$1,400,000. In 1996, the company acquired a subsidiary for stock in the amount
of $338,000.
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 18 Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and Cash Equivalents
For these short-term instruments that generally mature 90 days or less, the
carrying value approximates fair value.
Securities
Fair values for securities are based on quoted market prices or dealer quotes,
where available. Where quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans Receivable
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as loans adjustable by
prime, commercial, mortgages, installment, and other consumer. Each loan
category is further segmented into categories based on collateral, for purpose
of the calculations.
The fair value of performing loans is calculated by discounting scheduled cash
flows through the estimated maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan category. The
estimate of maturity is based on the average maturity for each loan
classification.
Delinquent loans (not in foreclosure) are valued using the method noted above.
While credit risk is a component of the discount rate used to value loans,
delinquent loans are presumed to possess additional risk. Therefore, the
calculated fair value of loans delinquent more than 30 days but less than 91
days delinquent, are reduced by an allocated amount of the allowance for loan
losses. The fair value of loans currently in foreclosure is estimated to
approximate carrying value, as such loans are generally carried at fair value.
FHLB Stock and Federal Reserve Bank Stock
The carrying value of these instruments, which is redeemable at par,
approximates fair value.
Accrued Interest Receivable and Payable
For these short-term instruments, the carrying value approximates fair value.
Deposits
The fair value of demand deposits, savings accounts, and certain money market
accounts is the amount payable on demand at the reporting date. The fair value
of fixed maturity certificates of deposit is estimated using a discounted cash
flow approach that applies current market rates (prevailing CD rates) to a
schedule of aggregated expected monthly maturities on time deposits.
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 18 Fair Values of Financial Instruments (continued)
Borrowing from FHLB:
The fair value of borrowing is calculated by discounting scheduled cash flows
through the estimated maturity using market rates presently available for new
borrowings.
The estimated fair values of the Company's financial instruments are as
follows:
December 31, 1996 December 31, 1995
Carrying Fair Carrying Fair
Amount Value(1) Amount Value(1)
Financial Assets:
Cash and due from banks $ 16,858 19,173 16,858 16,858
Federal funds sold 6,600 0 6,600 6,600
Securities 70,007 70,095 70,514 71,172
Loans:
Loans 256,840 255,096 209,089 215,097
Loans held for sale 671 671 955 955
Allowance for loan losses (2,675) 0 (2,258) 0
FHLB and Federal Reserve Bank stock 1,764 1,764 1,406 1,406
Accrued interest receivable 2,003 2,003 2,046 2,046
Financial Liabilities:
Deposits:
Demand accounts, Savings and
Money Market accounts 196,293 196,293 186,775 186,775
Certificates of deposit 111,673 106,427 90,276 90,666
Borrowing from FHLB 990 689 1,013 670
Accrued interest payable 850 850 701 701
Off balance sheet commitments:
Commercial letters of credit 0 33 0 27
Unused lines of credit $ 0 0 0 0
(1)Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes
in assumptions could significantly affect the estimates.
Fair value of commitments to extend credit approximates the fee charged to make
the commitments.
<PAGE>
COMMON STOCK DATA
The Company's stock is not actively traded nor is it traded in the over-the-
counter market. In addition, it is not listed with a national securities
exchange. Due to the limited number of transactions, the weighted average sale
price may not be indicative of the actual market value of the Company's stock.
The following table sets forth a summary of the weighted average sale price,
book value, and semi annual dividends paid per share since the first quarter of
1991.
Average Dividend
Sale Price Book Value Paid
1996
4th quarter $ 320.31 $ 240.69
3rd quarter $ 326.74 $ 236.63 $4.50
2nd quarter $ 324.86 $ 237.41
1st quarter no sales $ 232.52 $4.25
1995
4th quarter no sales $ 232.06
3rd quarter $ 307.09 $ 226.65 $3.50
2nd quarter $ 293.15 $ 223.46
1st quarter $ 288.71 $ 216.94 $3.50
1994
4th quarter $ 259.87 $ 214.55
3rd quarter $ 256.64 $ 208.23 $3.00
2nd quarter $ 240.34 $ 205.25
1st quarter no sales $ 199.09 $3.00
1993
4th quarter no sales $ 197.47
3rd quarter no sales $ 194.08 $2.75
2nd quarter $ 206.47 $ 189.68
1st quarter $ 203.42 $ 183.72 $2.75
1992
4th quarter $ 195.90 $ 181.65
3rd quarter $ 192.51 $ 178.65 $2.63
2nd quarter no sales $ 174.68
1st quarter $ 190.00 $ 169.46 $2.50
1991
4th quarter $ 181.99 $ 166.24
3rd quarter $ 168.71 $ 162.95 $2.50
2nd quarter $ 199.18 $ 159.73
1st quarter $ 161.34 $ 155.31 $2.38
As stated above, the stock of the Company is not listed with a national
securities exchange; therefore, no formal bid and asked for quotations are
available.
All per share amounts have been adjusted to reflect a two-for-one stock split
in 1993.
</TABLE>
CANANDAIGUA NATIONAL CORPORATION
72 SOUTH MAIN STREET
CANANDAIGUA, NEW YORK 14424
This Proxy Statement is being mailed to holders of common stock, in
connection with solicitation of proxies by the Board of Directors of
Canandaigua National Corporation for use at the Annual Meeting of Stockholders
to be held March 12, 1997, and any adjournment thereof. Each proxy that is
properly executed and returned will be voted at the meeting and, if a choice is
specified therein, will be voted in accordance with the specification made. If
no choice is specified, it will be voted in favor of the proposals set forth in
the notice enclosed herewith. Any proxy may be revoked by the person giving it
at any time prior to its exercise.
Only stockholders of record as of the close of business on January 31, 1997,
are entitled to notice of, and to vote at, the Annual Meeting. On that date,
there were outstanding and entitled to vote 161,608 shares of common stock, par
value $50 per share. Each share of common stock is entitled to one vote. A
quorum will consist of the holders of not less than a majority of the shares
entitled to vote, present either in person or by proxy.
This Proxy Statement and the accompanying proxy are being mailed by first-
class mail on February 26, 1997.
All expenses incurred in connection with the solicitation of proxies will be
borne by the Corporation. It is estimated that the cost of this solicitation
of security holders will be approximately $4,200.
SHAREHOLDERS OF MANAGEMENT AND OTHERS
Principal Beneficial Owners of Common Stock
A) The following table sets forth, as of January 31, 1997, the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner ("beneficial ownership" as used in this
Proxy Statement is defined in Rule 13d-3 under the Securities Exchange Act of
1934) of more that 5% of the Corporation's outstanding common stock, the number
of shares beneficially owned, and the percentage of the Corporation's
outstanding common stock so owned and the percentage of class of the
Corporation's common stock beneficially owned by all Directors and Principal
Officers of the Corporation as a group:
Shares of Common Percent of
Name and Address Stock Owned Class
Arthur S. Hamlin 8,200(1) 5.08%
Canandaigua, NY
All Directors and Principal 14,834(2) 9.18%
Officers of Corporation
as a Group (12 persons)
(1) Includes 1,200 shares in the Estate of Mary D. Hamlin, of which he is the
executor
(2) Includes 40 shares owned individually by Robert G. Sheridan, 18 shares
owned
by Robert G. Sheridan as custodian for his three children under New York
Uniform Gifts to Minors Act, and 10 shares owned by his IRA held by subsidiary
bank. Includes 42 shares owned individually by Gregory S. MacKay, 42 shares
owned individually by his spouse, 59 shares owned by his IRA held by subsidiary
bank and 16 shares owned by his two children.
<PAGE>
As of January 31, 1997, the Trust Department of The Canandaigua National Bank
and Trust Company held in various fiduciary capacities 34,091 shares or 21.10 %
of the outstanding shares. The Trust Department of the bank has the power to
vote 11,603 of these shares.
B) Beneficial Ownership by Directors and Principal Officers: The following
table sets forth as of January 31, 1997, the amount and percentage of the
common stock of the Corporation beneficially owned by each Director and each
Principal Officer.
Shares of Common Percent of
Name and Address Stock Owned Class
Patricia A. Boland 50 .03%
Canandaigua, NY
David Hamlin, Jr. 150(1) .10%
Bloomfield, NY
Frank H. Hamlin 5,597 3.47%
Naples, NY
George W. Hamlin, IV 1,639(2) 1.01%
Canandaigua, NY
Stephen D. Hamlin 1,510(3) .93%
Paul R. Kellogg 352(4) .22%
Canandaigua, NY
Eldred M. Sale 1,540(5) .95%
Victor, NY
Caroline C. Shipley 108 .07%
Canandaigua, NY
Alan J. Stone 3,606(6) 2.23%
Honeoye, NY
Gregory S. MacKay 159(7) .10%
Canandaigua, NY
Robert G. Sheridan 68(8) .04%
Canandaigua, NY
Daniel P. Fuller 55(9) .03%
Canandaigua, NY
(1)Includes 70 shares in his Self Directed IRA held by subsidiary bank.
<page
(2) Includes 111 shares owned individually by his spouse
(3) Includes 385 shares owned individually by his spouse.
(4) Includes 226 shares owned individually by his spouse.
(5) Includes 740 shares owned individually by his spouse.
(6) Includes 475 shares owned by his IRA held by subsidiary bank, 43 shares
owned individually by his spouse, 70 shares owned by his IRA held by
subsidiary bank and 148 shares owned by his two children under the New York
Uniform Gifts to Minors Act.
(7) Includes 42 shares owned individually by his spouse, 59 shares owned by his
IRA held by subsidiary bank and 16 shares owned by his two children.
(8) Includes 18 shares owned as custodian for his three children under New York
Uniform Gifts to Minors Act and 10 shares owned by his IRA held by
subsidiary bank.
(9) Includes 5 shares owned individually by his spouse and 30 shares owned as
custodian for his two children under the New York Uniform Gifts to Minors
Act.
ELECTION OF OFFICERS
The number of Directors to be elected at the 1997 Annual Meeting is three.
Directors are elected annually by the stockholders to hold office for three
years and until their successors are elected and qualified. Management has
nominated as Directors, and recommends the election of the three persons listed
below. Nominees George W. Hamlin, IV and Caroline C. Shipley are members of
the present Board and were elected by the stockholders of the Corporation at
the Annual Meeting held in 1984. Nominee David Hamlin, Jr. is also a member of
the present Board and was elected by the stockholders of the Corporation at the
Annual Meeting held in 1993. Each nominee has consented to be named in this
Proxy Statement and to serve if elected. If at the time of the Annual Meeting
any of them becomes unavailable for election, the proxies may exercise
discretionary authority to vote for substitutes proposed by the Board of
Directors. Management has no reason to believe that any substitute nominees
will be required.
INFORMATION ON DIRECTORS AND NOMINEES
Year First Elected
or Appointed to: Principal Occupation
Name Age Corporation Bank For Past Five Years
Incumbent Class 1 Directors - Term Expiring 1997
David Hamlin, Jr. 53 1993 1993 Farmer
Retired Colonel, New
York
State Air National Guard
Caroline C. Shipley 56 1984 1984 Educator - Director
New York State School
Boards Association
January 1991 - present,
Vice President, January
- -
December 1995; President
January 1996 - present
George W. Hamlin, IV 54 1984 1979 President, CEO, CRA and
Trust Officer - The
Canandaigua
National Bank
and Trust Company April
1979 - present.
Director
of the Buffalo, NY
Federal Reserve
Bank
1992-1996. Director of
the New York, NY Federal
Reserve Bank 1997-
present
<PAGE>
Year First Elected
or Appointed to: Principal Occupation
Name Age Corporation Bank For Past Five Years
Class 3 Directors - Term Expiring 1998
Patricia A. Boland 61 1986 1986 Executive Director -
Granger Homestead 10/89
- -
present
Eldred M. Sale 72 1984 1966 Sr. Vice President - The
Canandaigua National
Bank
and Trust Company 1980 -
January 1987; presently
retired
Robert G. Sheridan 48 1984 1992 Senior Vice President
and
Cashier - The
Canandaigua
National Bank and Trust
Company - 1989 - present
Alan J. Stone 56 1986 1986 CEO Stone Construction
Equipment, Inc. until
1986 Managing Partner -
Stone Properties July
1986 - present.
Chairman
of the Board -
Canandaigua National
Corporation - February
1994 - present
Class 2 Directors -- Term expiring 1999
Frank H. Hamlin 91 1984 1948 Chairman of the Board of
Directors of The
Canandaigua National
Bank
and Trust Company until
February 1986; retired
February 1986 - present
Stephen D. Hamlin 60 1984 1973 Chief Executive Officer
Sonnenberg Gardens
February 1996 - present
Paul R. Kellogg 69 1984 1962 Retired Owner -
Kellogg's Pan-Tree Inn
Daniel P. Fuller 45 1996 1996 President and General
Manager Bristol Mountain
Ski Resort - December
1984 - Present
The family relationships between the above-named Directors are as follows:
George Hamlin is the son of Frank Hamlin. Stephen Hamlin is the nephew of
Frank Hamlin and first cousin of George Hamlin. David Hamlin, Jr. , is a first
cousin once removed of Frank Hamlin and a second cousin of George and Stephen
Hamlin.
COMMITTEES OF THE BOARD OF DIRECTORS
The Directors of Canandaigua National Corporation and the Directors of The
Canandaigua National Bank and Trust Company are the same persons.
The Corporation does not have standing Audit, Nominating, or Compensation
Committees. These functions are performed by the following committees of The
Canandaigua National Bank and Trust Company:
The Examining Committee consists of five (5) Directors who are not employees
of the subsidiary bank and who are appointed annually by the Board of
Directors. Members of the Committee are:
Caroline C. Shipley Frank H. Hamlin
Stephen D. Hamlin Patricia A. Boland
Paul R. Kellogg
<PAGE>
The Examining Committee met six (5) times during 1996 to supervise the
internal audit activities of the Bank. The function of the Committee is to
make or cause to be made suitable examinations every year and to insure that
the Bank's activities are being conducted in accordance with the law and the
banking rules and regulations established by the Comptroller of the Currency,
other regulatory and supervisory authorities, and in conformance with
established policy. In addition, the Examining Committee recommends to the
Board of Directors the services of a reputable independent certified public
accounting firm, and the Board of Directors then appoints the independent
certified public accounting firm at the annual organizational meeting of
Directors. The Committee receives and reviews the reports of the independent
certified public accounting firm and presents them to the Board of Directors
with comments and recommendations. At least once during each twelve-month
period, this Committee makes audits of the Trust Department or causes audits to
be made and ascertains whether an adequate review of all the assets in each
trust has been made.
The Officers' Compensation Committee consists of three (3) Directors who are
not employees of the subsidiary bank and who are appointed by the Board of
Directors each year. Members of the Committee are as follows:
Daniel P. Fuller Alan J. Stone Caroline C. Shipley
The Officers' Compensation Committee met three (7) times during 1996 to
perform annual reviews of officers' performance. Based on the Committee's
reviews, recommendations on officers' titles and salaries for the upcoming year
are made to the Board of Directors for approval.
The Corporation has no Nominating Committee or other committee performing a
similar function, but the Board of Directors does consider persons suggested as
candidates for election as Corporate Directors. In this connection, the Board
will consider recommendations submitted by stockholders. Any stockholder
wishing to make such a recommendations should submit it to the Secretary of the
Corporation. Notice of intention to make any nominations or other proposals,
other than by the Board of Directors, must be made in writing and must be
received by the Secretary of the Corporation no less than twenty (20) days
prior to any meeting of stockholders called for the election of Directors.
Such notification should contain the following information to the extent known
to the notifying stockholder: (a) the name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee; (c) the total
number of shares of capital stock of the Corporation that will be voted for
each proposed nominee; (d) the number of shares of common stock of the
Corporation owned by the notifying stockholder.
The Board of Directors of the Corporation held twelve (12) regular meetings
during 1996. No incumbent Director of the Bank or of the Corporation attended
fewer than 75% of the aggregate of all the meetings of the Board of Directors
and the Committees of which they were members.
BOARD OF DIRECTORS COMPENSATION
For the years 1996 and 1995, no compensation was paid to members of the Board
of Directors of Canandaigua National Corporation. For the years 1996 and 1995,
members of the Board of Directors of The Canandaigua National Bank and Trust
Company were compensated at the rate of $300 per meeting attended.
<PAGE>
PRINCIPAL OFFICERS
The following table sets forth selected information about the Principal
Officers of the Corporation, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the Board of Directors:
Number
Office and of Shares
Position with Beneficially
Name Corporation Held Since Owned Age
George W. Hamlin, IV* President 1984 1,639(1) 55
Robert G. Sheridan* Secretary 1984 68(2) 48
Gregory S. MacKay* Treasurer 1988 159(3) 47
(1) Includes 111 shares owned individually by his spouse.
(2) Includes 18 shares owned as custodian for his three children under New York
Uniform Gifts to Minors Act and 10 shares owned by his IRA held by subsidiary
bank.
(3) Includes 42 shares owned individually by his spouse, 59 shares owned by his
IRA held by subsidiary bank and 16 shares owned by his two children.
* All of the Principal Officers of the Corporation are officers of the
subsidiary bank and have served as officers of the subsidiary bank for the
past five (5) years.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation Long -Term Compensation
Awards Other Compensation
Name and Defined
Principal Other Annual SAR's Contribution
Position Year Salary Bonus Compensation PSA's Plan ESOP
George W. 1994 $202,576 $12,388 $5,774 See $22,984 $1,718
Hamlin, IV 1995 $214,198 $13,099 $6,145 Table $21,532 $1,606
President 1996 $226,850 $11,343 $6,545 Below $21,393 $1,495
STOCK APPRECIATION RIGHTS (SAR)
PHANTOM STOCK AWARDS (PSA)
The table set forth below lists the value of the Stock Appreciation Rights
and Phantom Stock Awards as of the date of award using the highest of three
different estimates of value: (1) the book value of the Corporation, (2) the
appraised value of the stock using a third-party appraisal of the Corporation's
stock prepared for the Corporation's Employee Stock Ownership Plan, and (3) the
price at which the Corporation's stock was bought and sold in private
transactions for which the Corporation has information during the calendar
quarter in which the award was made. The Corporation does not have pricing
information regarding all private purchases and sales of the Corporation's
stock, and the shares of the Corporation are not listed on any national
exchange nor traded over the counter. The Stock Appreciation Rights and
Phantom Stock
<PAGE>
Awards are perpetual. Stock Appreciation Rights are exercisable after five
years from the date of award. Phantom Stock Awards are exercisable by a
recipient upon reaching the age of 55 or upon attaining 15 years of continuous
full-time employment with the company. Amounts set forth in the table are
adjusted for a two-for-one stock split approved by the stockholders in 1993
Estimated Estimated
Number % of Total Base Price Value as of Value as of
Granted SAR/PSA SARs Only Date of Award 12/31/95
Name Year SAR/PSA Granted $/Share SAR/PSA SAR/PSA
George W. 1994 88.87 25% 181.65 3,942.71 11,151.62
88.87 20,091.40 27,300.30
1995 101.20 25% 197.47 6,314.88 11,096.54
101.20 26,298.84 31,077.51
1996 104.03 25% 214.55 9,626.93 11,002.21
104.03 31,946.57 33,321.85
No Stock Appreciation Rights or Phantom Stock Awards were exercised during
1996.
Compensation for the executive officer for whom disclosure is required by
Item 402 of Regulation S-K is determined by the Officers' Compensation
Committee consisting of Daniel P. Fuller, Caroline C. Shipley and Alan J.
Stone. The Committee's consideration consists of, but is not limited to,
analysis of the following factors: financial performance of the company,
including Return on Equity, Return on Assets, growth of the company, and
management of assets and liabilities. All of these factors are considered in
the context of the market for the company's products and services, and the
complexity and difficulty of managing business risks in the prevailing economic
conditions and regulatory environment.
In addition, the Officers' Compensation Committee conducts a comparison study
of the company's executive compensation with that of comparable positions in
similar companies within the company's peer group. The Committee also
considers intangible factors such as the scope of responsibility of the
executive, leadership within the company, the community and within the
industry, and whether the company, under the executive's leadership, has been
able to serve worthwhile public purposes while enhancing shareholder value.
PERFORMANCE GRAPH
The following performance graph is required to be set forth in the Proxy
Statement by Item 402 (1) of Regulation S-K. The theory incorporated into this
requirement is that all corporations have organized orderly markets in which to
exchange their securities. The graph is provided so that stockholders and
prospective stockholders can compare market results with peer companies or with
indexes of companies in similar businesses or having similar capitalization,
e.g. those companies which are listed on the NASDAQ or NYSE.
<PAGE>
THE CORPORATION'S COMMON STOCK IS NOT LISTED WITH A NATIONAL SECURITIES
EXCHANGE, NOR IS IT TRADED IN THE OVER-THE-COUNTER MARKET. THE CORPORATION'S
COMMON STOCK IS NOT ACTIVELY TRADED; LESS THAN 1% OF THE CORPORATION'S
OUTSTANDING SHARES HAVE BEEN BOUGHT AND SOLD IN ANY YEAR REPRESENTED IN THE
GRAPH. DUE TO THE EXTREMELY LIMITED NUMBER OF TRANSACTIONS, THE AVERAGE SALE
PRICE OF THE CORPORATION'S COMMON STOCK USED IN THE GRAPH MAY NOT BE INDICATIVE
OF THE ACTUAL MARKET VALUE OF THE CORPORATION'S COMMON STOCK. THE GRAPH SET
FORTH BELOW DEPICTS THE AVERAGE SALE PRICE OF THE CORPORATION'S COMMON STOCK
BASED ONLY UPON TRANSACTIONS FOR WHICH THE CORPORATION HAS PRICE INFORMATION.
THERE ARE PURCHASES AND SALES OF THE CORPORATION'S COMMON STOCK FOR WHICH THE
CORPORATION HAS NO PRICE INFORMATION; THEREFORE, THE ACTUAL AVERAGE SALE PRICE
OF ALL SHARES BOUGHT AND SOLD IN ANY QUARTER MAY BE DIFFERENT THAN SET FORTH IN
THE GRAPH.
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected KPMG Peat Marwick as independent
certified public accountants of Canandaigua National Corporation until the
Annual Meeting held in 1997. Representatives are expected to be present at the
meeting and to be available to respond to appropriate questions. They will be
given the opportunity to make a statement if they so desire.
FINANCIAL INFORMATION
Incorporated by reference and made a part hereof is the Annual Report of
Canandaigua National Corporation for the year ending December 31, 1996.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
1997 Annual Meeting of Stockholders. However, if other matters should come
before the meeting, it is the intention of each person named in the Proxy to
vote it in accordance with his or her judgment on such matters.
By Order of the Board of Directors
George W. Hamlin, IV
Secretary - Board of Directors
February 26, 1997
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