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, 1997
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, 1998.
Common Stock, $50.00 par value - described on page 9 of 1997 Annual
Report and incorporated herein by reference.
Number of shares outstanding of the Registrant's shares of common stock
as of January 31, 1998. 160,566 shares, common stock, $50.00 par value
Page 1
<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, 1997 Part I, Item 2
(2) Notice of Annual Meeting of Stockholders Part II, Items 5 & 8
and Proxy Statement dated February 25, 1998 Part III, Items 10-13
(3) Index of Exhibits Part II, Item 5
Page 31
Page 2
<PAGE>
CANANDAIGUA NATIONAL CORPORATION
FORM 10-K
INDEX
Page No.
PART I.
Item 1. Business 4-17
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
PART II.
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters 19
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation 20-26
Item 7A. Management of Market Risk 20-26
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
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 32-33
Page 3
<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 Corporation acquired 100% of Home Town Funding, Inc. (HTF) during 1997.
HTF functions are the same as GFNYI above. 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, 1997, Bank had total assets of approximately
$418,942,000; total stockholders' equity of approximately $40,932,000; and
total
deposits of approximately $324,761,000. 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 as
well as limited banking transaction through the internet. 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 4
<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 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, M & T 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 248 people as of December 31, 1997.
Page 5
<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 6
<PAGE>
I. Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential
<TABLE>
A. Average Balance Sheet (In Thousands)
<CAPTION>
Average Assets 1997 1996 1995
<S> <C> <C> <C>
Cash & Due from Banks $ 15,567 $ 15,059 $ 13,392
Securities:
U.S. Government Securities 31,273 32,180 32,479
Obligations of States and
Political Subdivisions: Tax Exempt 31,037 28,370 28,349
Taxable 953 912 1,131
Other 11,014 11,386 12,706
Federal Funds Sold 19 7,184 12,023
Loans 281,476 227,781 209,280
Allowance for Loan Losses (2,936) (2,388) (2,213)
Premises & Equipment - net 11,554 8,764 8,269
Other Assets 5,810 5,411 5,354
________ ________ _______
Total $385,767 $334,659 320,770
</TABLE>
<TABLE>
<CAPTION>
Average Liabilities & Stockholders' Equity
<S> <C> <C> <C>
Deposits:
Interest Bearing Demand $ 34,464 $ 33,695 $ 32,989
Non-interest Bearing Demand 59,920 50,801 46,967
Savings 110,954 112,494 118,300
Other Time 112,661 96,965 84,746
_______ _______ _______
Total 317,999 293,955 283,002
Borrowing from FHLB 26,942 1,652 1,304
Other Liabilities 1,443 1,218 477
_______ _______ _______
Total Liabilities 346,384 296,825 284,783
Stockholders' Equity 39,383 37,834 35,987
________ ________ ________
Total $385,767 $334,659 $320,770
</TABLE>
Page 7
<PAGE>
<TABLE>
B. Average Rates and Yields (Dollars In Thousands)
1997 1996
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 31,273 1,846 5.90% $ 32,180 $ 1,968 6.12%
Obligations of States
& Political
Subdivisions-Tax Exempt 31,037 1,440 4.64% 28,370 1,332 4.70%
Taxable 953 66 6.93% 912 58 6.36%
Federal Funds Sold 19 1 5.26% 7,184 389 5.42%
Loans (1)(2) 281,476 25,799 9.17% 227,781 21,046 9.24%
Other Securities 11,014 691 6.27% 11,386 712 6.25%
_______ ______ _______ ______
Total Interest
Earning Assets $355,772 $29,843 8.39% $307,813 $25,505 8.29%
_______ ______ ____ _______ ______ ____
Interest Bearing Liabilities:
Demand Deposits 34,464 $ 493 1.43% $ 33,695 $ 457 1.36%
Savings 110,954 3,028 2.73% 112,494 3,075 2.73%
Other Time 112,661 6,212 5.51% 96,965 5,203 5.37%
Advances from FHLB 26,942 1,506 5.59% 1,652 62 3.75%
_______ ______ ____ _______ _____
Total Interest
Bearing Liabilities $285,021 $11,239 3.94% $244,806 $8,797 3.59%
_______ ______ ____ _______ ______ ____
Net Interest Income $18,604 $16,708
______ ______
Net Spread 4.45% 4.70%
____ ____
Net Interest Income
to Earning Assets 5.23% 5.43%
____ ____
</TABLE>
Page 8
<PAGE>
<TABLE>
Average Rates and Yields-continued (Dollars in Thousands)
1995
AVERAGE
AVERAGE
YIELD/
BALANCE INT. RATE
<CAPTION>
Interest Earning Assets:
<S> <C> <C> <C>
U.S. Gov't. Securities $ 32,479 $ 1,865 5.74%
Obligations of States
& Political
Subdivisions-Tax Exempt 28,349 1,395 4.92%
Taxable 1,131 64 5.66%
Federal Funds Sold 12,023 697 5.80%
Loans (1)(2) 209,280 19,998 9.56%
Other Securities 12,706 812 6.39%
_______ ______
Total Interest
Earning Assets $295,968 $24,831 8.39%
_______ ______ ____
Interest Bearing Liabilities:
Demand Deposits $ 32,989 $ 601 1.82%
Savings 118,300 3,570 3.02%
Other Time 84,746 4,614 5.44%
Short-term Borrowings and
Securities Sold Under
Agreements to
Repurchase 0 0 0%
Borrowing from FHLB 477 11 2.31%
_______ ______
Total Interest Bearing Liabilities $236,512 $ 8,796 3.72%
_______ ______ ____
Net Interest Income $16,035
______
Net Yield 4.67%
____
Net Interest Income to Earning Assets 5.42%
____
</TABLE>
(1) Non-accrual loans are included in the average loan balance.
(2) Loan interest includes fees on loans of $811,885, $753,171, and $610,946
in 1997, 1996, and 1995 respectively.
(3) Yields for securities were calculated based on amortized cost of
securities.
Page 9
<PAGE>
<TABLE>
C. Rate/Volume Analysis (Dollars In Thousands)
<CAPTION>
1997 vs. 1996 1996 vs. 1995
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 $4,978 $ (298) $ 4,680 $1,725 (677) 1,048
Federal Funds Sold (377) 0 (377) (265) (43)
(308)
Investment Securities:
U.S. Gov't Securities (55) (67) (122) (17) 120 103
Obligations of State
and Political
Subdivision-Exempt 125 (17) 108 1 (64)
(63)
-Taxable 3 5 8 (13) 7
(6)
Other (32) 73 41 (42) (58)
(100)
______ _______ _______ _____ ____ ____
Total Interest
Income 4,642 (304) 4,338 1,389 (715) 674
Interest Expense:
Deposits:
Interest Bearing
Demand 9 27 36 13 (157)
(144)
Savings (42) (5) (47) (170) (325)
(495)
Other Time 862 147 1,009 657 (68) 589
Borrowing from FHLB 1,400 44 1,444 50 1 51
_____ ____ _____ ____ ____ ____
Total Interest
Expense 2,229 213 2,442 550 (549) 1
_____ _____ _____ ___ ___ ___
Net Interest Income $2,413 $ (517) $1,896 $ 839 $(166) $ 673
</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 10
<PAGE>
<TABLE>
I. Securities Portfolio
<CAPTION>
A. Securities Portfolio, (at carrying value) including FHLB and FRB stock
(Dollars In Thousands)
------December 31--------
1997 1996
1995
<S> <C> <C> <C>
U.S. Government Obligations and Agencies $31,413 $30,671
$31,955
Mortgage backed Securities 334 325
310
Obligations of States and Political
Subdivisions: Exempt 33,320 29,365
26,321
Taxable 953 955
839
Other Securities 8,479 10,455
12,495
_______ _______
_______
Total $74,499 $71,771
$71,920
</TABLE>
<TABLE>
Securities Portfolio, including FHLB and FRB stock by Maturity with Weighted
Average Yield (Dollars In Thousands)
<CAPTION>
December 31, 1997
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 $16,179 5.78% $14,234 5.98% 0 0.00% 0
0.00%
Mortgage backed
Securities 9 8.44% 34 8.37% 42 8.19% 249 8.0%
US Gov't Agencies 1,000 5.37% 0 0.0% 0 0.0% 0 0.0%
Obligations of State
and Political
Subdivisions
Taxable: 266 5.60% 687 6.49% 0 0.00% 0 0.0%
Exempt: 6,946 4.06% 16,577 4.42% 9,490 4.57% 307
5.77%
Other Securities 1,499 5.92% 3,468 6.68% 0 0.00% 3,512
6.36%
_______ _______ ______ ______
Total $25,899 $35,000 $9,532 $4,068
</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 11
<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,
1997 1996 1995 1994 1993
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 37,610 27,503 28,326 32,442 30,367
Consumer
Auto 71,317 44,784 15,123 12,379 10,796
Other 15,245 9,925 9,146 14,511 12,501
Residential mortgage 94,593 101,349 86,641 83,018 78,315
Commercial mortgage 74,228 62,513 62,038 60,278 59,036
Other 14,257 11,437 8,770 8,121 7,288
________ ________ ________ ________ ________
Total 307,250 257,511 210,044 210,749 198,303
Less: Allowance for
loan losses 3,153 2,675 2,258 2,202 2,277
________ _______ _______ _______ _______
Loans, Net $304,097 254,836 207,786 208,547 196,026
</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, 1997.
Remaining Maturity
Within One Through Over
One Year Five Years Five Years Total
(Dollars In Thousands)
Commercial, financial
and agricultural $11,091 $ 16,793 $9,725 $37,610
Loans maturing after one year:
With a predetermined interest
rate $14,957
With a floating or adjustable rate $11,561
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 Company's loan policy encourages a repayment schedule to
be established whenever possible.
Page 12
<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, 1997, 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 1997 1996 1995 1994 1993
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial &
agricultural $ 1,210 $ 2,285 $1,640 $2,350 $1,151
Real-estate 1,811 8,919 9,307 8,912 4,866
Consumer loans 53 75 0 0 0
______ ______ _____ _____ _____
Total non-performing loans 3,074 11,279 10,947 11,262 6,017
Other real estate owned 2,512 1,141 2,158 723 721
_______ _______ ______ ______ ______
Total non-performing assets $ 5,586 $12,420 $13,105 $11,985 $6,738
Non-performing loans to year
end loans 1.00% 4.38% 5.21% 5.35% 3.03%
Non-performing assets to year end
loans & other real estate owned 1.82% 4.82% 6.24% 5.68% 3.40%
</TABLE>
Page 13
<PAGE>
<TABLE>
Item III. C. (continued)
<CAPTION>
Past Due 90 Days or More
and accruing 1997 1996 1995 1994 1993
<S> <C> <C> <C>. <C> <C>
Commercial, financial &
agricultural $ 347 $ 0 $ 12 $ 4 $ 381
Real estate 1,118 48 101 254 889
Consumer 501 28 55 44 69
____ ____ ______ ______ ______
Total past due 90 days
or more and accruing $1,966 $ 76 $ 168 $ 302 $1,339
1997 1996 1995 1994 1993
Restructured Loans $0 $0 $0 $0 $393
</TABLE>
The accrual of interest on commercial and real estate loans is generally
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 $636,000, $841,000, and $739,000 would have
been reported during 1997, 1996, and 1995, 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.
There were no potential problem loans as of December 31, 1997 and 1996.
Page 14
<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,
1997 1996 1995 1994 1993
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding
at end of year (1) $307,250 $257,511 $210,044 $210,749 $198,303
Average loans outstanding
during year (1) $281,476 $227,781 $209,280 $202,622 $197,168
Allowance for loan losses:
Balance at beginning
of year $ 2,675 $ 2,258 $ 2,202 $ 2,277 $ 2,152
Charge-offs
Commercial, financial
and agricultural 257 1,356 810 712 481
Installment 430 126 191 145 245
Real Estate Mortgage (2) 40 60 151 65 100
Credit Cards 68 95 77 89 69
_____ _____ ___ ___ ___
Total 795 1,637 1,229 1,011 895
Recoveries: (2)
Commercial, financial and
agricultural 190 216 90 82 218
Installment 189 253 118 143 132
Real Estate Mortgage 19 72 20 0 53
Credit Cards 24 23 26 12 17
____ ____ ____ ____ ____
Total 422 564 254 237 420
____ ____ ____ ____ ____
Net charge-offs ( 373) (1,073) (975) (774) (475)
Provision charged
to expense 851 1,490 1,031 699 600
______ ______ ______ ______ ______
Balance at end of year $3,153 $2,675 $2,258 $2,202 $2,277
Ratio of net charge-offs
to average loans
outstanding .13% .47% .47% .38% .24%
</TABLE>
(1) Loans are shown net of unearned discount.
(2)Includes Residential and Commercial Mortgages.
Page 15
<PAGE>
<TABLE>
IV. Summary of loan loss experience - continued
Allocation of allowance for loan losses
<CAPTION>
December 31
(Dollars in Thousands)
1997 1996 1995
% 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) $1,594 36% $1,873 35% $1,809 43%
Real Estate Mortgage 90 31% 115 40% 81 41%
Consumer 862 28% 540 21% 230 12%
Other 0 0% 0 0% 0 4%
Unallocated 607 5% 147 4% 138 N/A
_____ ___ _____ ___ _____ ___
Total $3,153 100% $2,675 100% $2,258 100%
</TABLE>
<TABLE>
<CAPTION>
December 31
(Dollars in Thousands)
1994 1993
% of % of
Loans to Loans to
Total Total
Amount Loans Amount Loans
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural (1) $1,534 44% $1,560 45%
Real Estate Mortgage 160 40% 125 40%
Consumer 360 13% 421 12%
Other 0 3% 0 3%
Unallocated 148 N/A 171 N/A
_____ ___ _____ ___
Total $2,202 100% $2,277 100%
</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 16
<PAGE>
<TABLE>
V. Deposits
The following summary sets forth the average amounts of the various types of
deposits for December 31, 1997, 1996 and 1995, and the average rate paid on
each.
<CAPTION>
1997 1996 1995
Amount Rate Amount Rate Amount Rate
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand $ 59,920 -- $ 50,801 -- $ 46,967 --
Interest bearing demand 34,464 1.43% 33,695 1.36% 32,989 1.82%
Savings 110,954 2.73% 112,494 2.73% 118,300 3.02%
Other time 112,661 5.51% 96,965 5.37% 84,746 5.45%
________ ________ ________
Total $317,999 3.06% $293,955 2.97% $283,002 3.11%
</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, 1997.
<CAPTION>
1997
(In Thousands)
<S> <C>
Three months or less $32,952
Over three through six months 1,124
Over six through twelve months 914
Over twelve months 1,433
_______
Total $36,423
</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,
1997 1996 1995
<S> <C> <C> <C>
Return on average total assets .97% .88% 1.22%
Return on average equity 9.49% 7.79% 10.88%
Dividend payout ratio 43.06% 47.98% 28.78%
Average equity to total
average assets 10.21% 11.31% 11.22%
</TABLE>
Page 17
<PAGE>
Item 2. Properties
Canandaigua National Corporation occupies space at the main office of the Bank.
The Corporation owns a building in Pittsford and is occupied by Home Town
Funding, Inc and several other unrelated businesses. 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;
Bloomfield, 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, 1997, 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 12
through 29 of the 1997 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 18
<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 1997
Annual Report to Stockholders and proxy statement set forth below:
Required Information Annual Report Caption
Market information "Common Stock Data"
Dividends "Common Stock Data"
"Stockholders' Equity"
Holdings: (At December 31, 1997, the Corporation had approximately 756
shareholders.) Information regarding beneficial ownership of the Corporation's
stock is set forth in 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, 1997.
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)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 18,604 16,708 16,035 14,760 14,018
Provision for Loan Losses $ 851 1,490 1,031 699 600
Non-Interest Income $ 4,317 3,914 3,393 3,268 3,469
Non-Interest Expense $ 16,657 15,147 12,684 12,022 12,195
Applicable Income Taxes $ 1,676 1,038 1,797 1,604 1,265
Net Income $ 3,737 2,947 3,916 3,703 3,427
Per Share Data:
Net Income $ 23.22 18.20 24.31 23.01 21.32
Cash Dividends $ 10.00 8.75 7.00 6.00 5.50
Balance Sheet Data:
Total Assets $418,942 360,623 $317,209 $310,541 $314,640
Total Equity $ 40,932 39,119 37,397 34,538 31,744
Average Assets $385,767 334,659 320,770 315,312 321,546
Average Equity $ 39,383 37,834 35,987 33,035 30,464
</TABLE>
Page 19
<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.
Asset liquidity is found in cash, federal funds sold, deposits with other
financial institutions, short term security holdings, and loan repayments. On
average for 1997, federal funds sold, cash and due from banks, and interest
bearing deposits with other banks totaled $15.6 million. The securities
portfolio is also an important source of liquidity. As of December 31, 1997,
approximately $25.9 million amortized cost of the portfolio will be mature in
one year or less. Combining these two major sources of liquidity, the
Corporation had $41.5 million of readily available assets, which is 10.8% of
average assets for 1997. 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.
An objective of the Company's asset/liability management policy is to maximize
current and future net interest income within acceptable levels of interest
rate risk while satisfying liquidity and capital requirements. The
Asset/Liability management Committee is responsible for managing interest rate
risk.
The Company uses a variety of methods to manage its interest rate risk and does
not rely solely on one method. One such method used to manage interest rate
risk involves the measurement of interest rate gap. Interest rate gap is the
amount by which a bank's rate sensitive assets differ from its rate sensitive
liabilities. A positive gap exists when rate sensitive assets exceed rate
sensitive liabilities, indicating that a greater volume of assets than
liabilities will reprice during a given period. Theoretically, this mismatch
will enhance earnings in a rising rate environment and inhibit earnings when
rates decline. Conversely, when rate sensitive liabilities exceed rate
sensitive assets, the gap is negative, indicating that greater volume of
liabilities than assets will reprice during the period. Theoretically, in this
case, a rising rate environment will inhibit earnings and declining rates will
enhance earnings. The Rate Sensitivity Schedule that follows illustrates the
measurement of interest rate gap at December 31, 1997.
Page 20
<PAGE>
<TABLE>
The following chart indicates rate sensitivity at December 31, 1997:
<CAPTION>
INTEREST RATE SENSITIVITY GAPS
As of December 31, 1997
(In Thousands)
MATURITIES
0 - 3 4 - 12 1 - 5 Over 5
MONTHS MONTHS YEARS YEARS
<S> <C> <C> <C> <C>
Loans $ 81,570 4,193 152,620 62,538
Securities 10,460 15,439 35,000 13,405
________ ______ _______ ______
Interest-earning
assets $ 92,030 19,632 187,620 75,493
________ ______ _______ ______
Certificate of Deposits 57,578 26,566 29,444 0
Savings 60,468
Royal Blue Money Market 16,914
Now & Super Now 25,642
Money Market 23,264
Advances from FHLB 45,824 4,020 823
_______ ______ ______ ______
Interest-bearing
liabilities 229,690 26,566 33,464 823
_______ ______ ______ ______
Interest sensitivity
gap $(137,660) (6,934) 154,156 74,670
Rate Sensitive Assets
divided by Rate Sensitive
Liabilities 0.40 .74 5.61 91.73
Cummulative gap as a % of
Total assets (32.86)% (1.66)% 36.80% 17.82%
</TABLE>
Page 21
<PAGE>
The chart indicates that the Corporation was repricing $137.7 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 $6.9 million more of interest bearing
liabilities are being repriced than interest earning assets. For the entire
one year range, the Corporation is repricing $144.6 million more interest
bearing liabilities than assets, or 43.6% of earning assets. This liability
sensitivity has increased $35 million and 10.9% of earning assets over last
year. The imbalance was due to the increase in advances from FHLB to fund
loans with a longer maturity. The Corporation is asset sensitive at $154.2
million for the one to five year range, as interest earning assets increased
$39.5 million from last year's amounts, along with an interest bearing
liabilities increase of $2.7 million.
For the entire portfolio range, the Corporation is asset sensitive at $84.2
million versus asset sensitivity of $66.9 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.
During 1997, increased consumer lending which was not supported by deposit
growth but by short-term borrowings. This 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.
On a quarterly basis, sensitivity to change in interest rates is also measured
using simulation model. The model estimates changes in net interest income and
net income under a variety of possible interest rate scenarios. By performing
these simulations and comparing them to established policy limits, management
has an opportunity to plan for changes in the asset/liability mix or to take
other steps that may be necessary to lessen interest rate risk. Based on
management's assumptions built into the simulation model and the current mix of
the Company's assets and liabilities, management's assessment is that its
negative gap position will not have a material adverse effect on its operating
results or liquidity in the event of reasonably foreseeable changes in interest
rates during 1998. These simulations are based on numerous assumptions
regarding the timing and the extent of repricing characteristics. Actual
results may differ significantly.
Page 22
<PAGE>
The following table shows the Company's estimated earnings sensitivity profile
as of December 31, 1997.
Changes in Interest Rates Percent Change in Net Income
(basis points) 12 Months 24 Months
+200 over one year -73.65% 6.63 %
+100 over one year -36.83 3.32
-100 over one year 36.83 -3.32
+200 over one year 73.65 -6.63
Capital Resources
Total Stockholders' equity at December 31, 1997, was $40,932,000,
representing an increase of $1,813,000 (or 4.6%) over 1996. Primary capital,
defined as shareholders equity plus loan loss reserve, was $44,085,000 at
December 31, 1997, or 11.43% of average assets versus $41,794,000 or 12.49% of
average assets at December 31, 1996.
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 23
<PAGE>
<TABLE>
The table below illustrates the Corporation's regulatory capital ratio
at December 31, 1997 and December 31, 1996:
<CAPTION>
1997 1996
(dollars in thousands)
<S> <C> <C>
Tier 1 Capital $ 40,567 $ 39,119
Tier 2 Capital $ 3,153 $ 2,675
Total Qualifying Capital $43,720 $ 41,794
Risk Adjusted Total Assets $303,110 $247,846
Tier 1 Risk Based Capital Ratio 13.38% 15.78%
Total Risk Based Capital Ratio 14.42% 16.86%
Leverage Ratio 9.69% 11.11%
</TABLE>
As shown in the table, the Corporation's Tier 1 Risk Based Capital has
grown 3.7%, and Total Risk Based Capital has increased 4.6% from year end 1996
levels.
The leverage ratio (Tier 1 Capital divided by total assets less goodwill)
must be at least 3%. The Corporation's leverage ratio was 9.69% as of December
31, 1997.
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,
1997, approximately $5,444,000 was available for payment of dividends to the
Company.
Cash dividends for 1997 amounted to $1,609,000, an increase of $195,000 or
13.79% over the $1,414,000 paid in 1996. Dividends paid were 43.1% and 48.0%
of 1997 and 1996 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 24
<PAGE>
For the year ended December 31, 1997, the Corporation had $355.6 million
average earning assets, up $47.8 million or 15.5% from the year earlier.
Average interest bearing liabilities were $285.0 million for 1997, up $40.2
million or 16.4% from 1996. The increase in earning assets reflects the
expansion of our indirect loan 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 1997 to $18.6
million, up from $16.7 million for 1996, reflecting an increase of 11.35% for
1997.
The yield on interest earning assets was 8.39% in 1997, up from 8.29% in
1996. Cost of funds increased to 3.94% from 3.59% in 1996. Management
continued to stress the cost and size control of liabilities during 1997, and
therefore the net spread decreased to 4.45% from 4.70% in 1996. Net interest
income as a percentage of earning assets (net interest rate margin) decreased
to 5.23%, as the $1,896,000 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 1997 was $851,000, down $639,000 from
1996. The allowance for loan loss as of December 31, 1997 was $3.2 million, or
1.03% of loans outstanding at year end 1997. This ratio is slightly lower than
that of 1996 (1.04%).
The Corporation's investment portfolio book value increased to $71.4
million at December 31, 1997 from $70.0 million at December 31, 1996,
reflecting an increase of 2%.
Other income for 1997 increased to $4.3 million from $3.9 million,
reflecting an increase of $403,000 or 10.3%. Service charges on deposit
accounts were down $127,000 to $1,534,000. Other operating income for 1997
rose to $1,031,000 from $940,000 reflecting an increase of $91,000. 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 $1,723,000 up from
$1,337,000 in 1996.
Page 25
<PAGE>
Operating expenses totaled $16.7 million, up 10.0% from $15.1 million in
1996. Salaries and employee benefits rose $1.3 million as the Corporation
expanded several product areas and purchased two non-traditional financial
service providers.
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
1997, return on average assets increased to .98% from .84%. Return on average
equity was 9.6% in 1997 compared to 7.9% in 1996. 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.
In June 1997, FASB issued Statement No. 130 entitled "Reporting Comprehensive
Income". Comprehensive Income is defined as "the change in equity(net assets)
of a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during
a period except those resulting from investments by owners and distributions to
owners." The Statement is effective for fiscal years beginning after December
15, 1997 and requires that items that meet the definition of components of
comprehensive income be reported in a financial statement that is displayed as
prominently as other financial statements. While this Statement will increase
the Company's financial disclosures, it will have no impact on operating
results.
FASB Statement No. 131 entitled "Disclosures about Segments of an Enterprise
and Related Information" was also issiued in June 1997. This Statement is
effective for fiscal years beginning after December 15, 1997. This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about disclosures but will have
no impact on operating results.
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 January 30, 1998 appearing on Page 7-29 of the 1997 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 26
<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 25, 1998, 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, 1997, is set forth on page 6 of the Proxy Statement dated
February 25, 1998 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 25, 1998 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 14,956
shares or 9.31% of the shares outstanding. Shares owned directly total 13,243
and shares held by directors, executive officer, or their spouses in a
fiduciary capacity or by their spouses individually total 1,713.
(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 27
<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, 1997, 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 1997, 1996, and 1995 were $763,000,
$658,000, and $639,000, 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 1997, 1996,
and 1995 were $52,000, $52,000, and $46,000 respectively.
Page 28
<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 $909,000 as of December 31, 1997 representing its obligation under the plan.
Expenses of the plan amounted to $110,000, $371,000, and $155,000 for the
years ended December 31, 1997, 1996 and 1995 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, 1997 for all executive officers of the Bank.
Amount Set Aside
or Accrued for Cumulative
Name of the Year Ended Accrued
Individual December 31, 1997 Benefit
- ------------------------------------------------------------------------
George W. Hamlin, IV $21,532 $0000000
Robert G. Sheridan $13,385
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, 1997 for all executive officers of the Bank.
Amount Set Aside
or Accrued for Cumulative
Name of the Year Ended Accrued
Individual December 31, 1997 Benefit
- --------------------------------------------------------------------------
George W. Hamlin, IV $ 1,606 $ 16,921
Robert G. Sheridan $ 984
(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 29
<PAGE>
(g) Compensation of Directors
For the years 1997, and 1996, no compensation was paid to members of the Board
of Directors of Canandaigua National Corporation. For the years of 1996
members of the Board of Directors of The Canandaigua National Bank and Trust
Company were compensated at the rate of $300 per meeting. For the year 1997,
the Chairman of the Board of Directors was compensated at the rate of $450 per
meeting attended and the remaining members were compensated at the rate of $425
per meeting attended.
(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 30
<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 1997. 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 31
<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 7
Consolidated Balance Sheets As of December 31, 1997 and 1996 8
Consolidated Statements of Income For Each of the Years in the 3-Year
Period ended December 31, 1997 9
Consolidated Statements of Changes In Stockholders' Equity for Each
of the Years in the 3-Year Period ended December 31, 1997 10
Consolidated Statements of Cash Flows For Each of the Years in the
3-Year Period ended December 31, 1997 ...........................11
Notes to Consolidated Financial Statements......................... 12-29
* 1997 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 1997 Annual Report to the Stockholders and is
incorporated herein by reference.
(13) A copy of the 1997 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 32
<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: 3/30/98
<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
Page 33
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
(signature of KPMG Peat Marwick LLP)
January 30, 1998
Rochester, New York
Page 7
<PAGE>
<TABLE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
(dollars in thousands, except per share amounts)
<CAPTION>
Assets 1997 1996
<S> <C> <C>
Cash and due from banks $ 19,647 18,887
Interest bearing deposits with other financial institutions 0 286
Securities:
Available for sale, at fair value 394 325
Held to maturity (fair value of $71,284 in 1997
and $69,770 in 1996) 70,987 69,682
Loans - net of allowance of $3,153 in 1997
and $2,675 in 1996 304,097 254,836
Premises and equipment - net 11,184 9,214
Accrued interest receivable 2,372 2,003
FHLB stock and Federal Reserve Bank stock 3,118 1,764
Other assets 7,143 3,626
------- -------
Total Assets $ 418,942 360,623
======= =======
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 73,297 57,287
Interest bearing 251,464 250,679
------- -------
Total deposits 324,761 307,966
Borrowing from FHLB 50,667 11,590
Accrued interest payable and other liabilities 2,582 1,948
------- -------
Total Liabilities 378,010 321,504
------- -------
Commitments and contingencies (Note 13 and 14)
Stockholders' equity:
Common stock, $50 par value; 240,000 shares authorized,
162,208 shares issued in 1997 and 1996 8,110 8,110
Additional paid-in capital 8,489 8,489
Undivided profits 24,742 22,616
Treasury Stock, at cost (1642 shares in 1997 and
550 shares in 1996) (528)
(174)
Net unrealized gain on securities available for sale,
net of taxes 119 78
------- -------
Total Stockholders' Equity 40,932 39,119
------- -------
Total Liabilities and Stockholders' Equity $ 418,942 360,623
======= =======
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
Page 8
<PAGE>
<TABLE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
(dollars in thousands, except per share amounts)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest income:
Loans $ 25,799 21,046 19,998
Securities 4,027 4,070 4,136
Federal funds sold and other 17 389 697
______ ______ ______
Total interest income 29,843 25,505 24,831
______ ______ ______
Interest expense:
Deposits 9,733 8,735 8,785
Borrowings 1,506 62 11
______ ______ ______
Total interest expense 11,239 8,797 8,796
______ ______ ______
Net interest income 18,604 16,708 16,035
Provision for loan losses 851 1,490 1,031
______ ______ ______
Net interest income after provision for loan losses 17,753 15,218 15,004
______ ______ ______
Other income:
Service charges on deposit accounts 1,534 1,661 1,604
Trust income 1,723 1,337 1,071
Net gain on sale of mortgage loans 29 (24) 40
Other operating income 1,031 940 678
______ ______ ______
Total other income 4,317 3,914 3,393
Operating expenses:
Salaries and employee benefits 9,638 8,382 7,063
Occupancy expense 2,459 2,314 1,961
FDIC insurance 38 2 319
Marketing and public relations 399 293 283
Office supplies, printing and postage 712 616 635
Legal 223 363 227
Other operating expenses 3,188 3,177 2,196
______ ______ ______
Total operating expenses 16,657 15,147 12,684
______ ______ ______
Income before income taxes 5,413 3,985 5,713
Income taxes 1,676 1,038 1,797
______ ______ ______
Net income $ 3,737 2,947 3,916
Net income per common share $ 23.22 18.20 24.31
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
Page 9
<PAGE>
<TABLE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
(dollars in thousands, except per share amounts)
<CAPTION>
Net
Unrealized
Gain on
Additional Securities
Common Paid in Undivided Treasury Available-
Stock Capital Profits Stock for-Sale Total
_____ _______ ________ ________ _______ _______
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 8,049 8,172 18,294 0 23 34,538
Sale of 175 shares of common stock 9 31 0 0 0 40
Cash dividend - $7.00 per share 0 0 (1,127) 0 0 (1,127)
Change in unrealized gain on securities
available-for-sale, net of taxes of $20 0 0 0 0 30 30
Net income 0 0 3,916 0 0 3,916
_____ ______ _______ _____ _____ _______
Balance at December 31, 1995 8,058 8,203 21,083 0 53 37,397
Cash dividend - $8.75 per share 0 0 (1,414) 0 0 (1,414)
Issuance of 1,053 shares of common
stock to purchase subsidiary 52 286 0 0 0 338
Change in unrealized gain on securities
available-for-sale net of taxes of $16 0 0 0 0 25 25
Purchase of 550 shares of treasury stock 0 0 0 (174) 0 (174)
Net Income 0 0 2,947 0 0 2,947
_____ ______ _______ _____ _____ _______
Balance at December 31, 1996 8,110 8,489 22,616 (174) 78 39,119
Cash dividend - $10.00 per share 0 0 (1,609) 0 0 (1,1609)
Sale of 139 shares of treasury stock 0 0 (2) 44 0 42
Purchase of 1,231 shares of treasury stock 0 0 0 (398) 0 (398)
Change in unrealized gain on securities
available-for-sale net of taxes of $27 0 0 0 0 41 41
Net income 0 0 3,737 0 0 3,737
_____ ______ _______ _____ _____ _______
Balance at December 31, 1997 $ 8,110 8,489 24,742 (528) 119 40,932
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
Page 10
<PAGE>
<TABLE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(dollars in thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,737 2,947 3,916
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,415 1,012 947
Provision for loan losses 851 1,490 1,031
Write down of other real estate 274 205 0
Deferred income taxes (210) (338) (54)
Originations of loans held for sale (7,171) (7,391) (3,615)
Proceeds from sales of loans held for sale 5,723 7,675 4,370
(Increase) decrease in interest receivable (369) 43 124
(Increase) in other assets (874) (869) (492)
Increase (decrease) in accrued interest payable
and other liabilities 634 200 592
______ ______ ______
Net cash provided by operating activities 4,010 4,974 6,819
______ ______ ______
Cash flows from investing activities:
Proceeds from call of FHLB stock 0 18 12
Purchase of FHLB stock (1,354) (376) 0
Securities held to maturity:
Proceeds from call of securities 210 1,650 618
Proceeds from maturities of securities 37,009 35,678 38,060
Purchase of securities (38,319) (36,639) (37,820)
Loans made to customers net of principal
payments received on loans (51,202) (47,870) (2,638)
Fixed asset purchases - net (3,469) (1,894) (1,555)
Acquisition of subsidiary (1,210) (102) 0
Proceeds from sale of other real estate 892 372 786
______ ______ ______
Net cash provided(used) by investing activities(57,443) (49,163) (2,537)
______ ______ ______
Cash flows from financing activities:
Net increase (decrease) in demand, savings
and short-term deposits 14,880 9,511 (18,944)
Proceeds from sale of common stock 42 0 40
Proceeds from issuance of certificates of deposit
net of payments on maturing certificates 1,915 21,404 20,567
Dividends paid (1,609) (1,414) (1,127)
Proceeds from FHLB advances 39,100 10,600 1,023
Principal repayments on FHLB advances (23) (23) (10)
Purchase of Treasury Stock (398) (174) 0
______ ______ ______
Net cash provided (used) by financing activities53,907 39,904 1,549
______ ______ ______
Net (decrease) in cash and cash equivalents 474 (4,285) 5,831
Cash and cash equivalents - beginning of year 19,173 23,458 17,627
______ ______ ______
Cash and cash equivalents - end of year $ 19,647 19,173 23,458
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 11,128 8,784 8,659
Income taxes $ 1,409 1,341 1,705
Supplemental disclosure of non-cash investing activities:
Additions to other real estate acquired
through foreclosure $ 2,538 (423) 2,204
Acquisition of subsidiary for
1,053 shares of common stock 0 338 0
<FN>
See accompanying notes to consolidated financial statements.
<TABLE/>
Page 11
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
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), Greater Funding of New York, Inc. (GFNYI) and Home Town Funding.
Ic. (HTF). 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 12
<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 13
<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
Goodwill, which represents the excess of the purchase price over the fair value
of identifiable assets acquired in 1997, is being amortized over five years on
the straight-line method. The amortization period is monitored to determine if
events and circumstances require the period to be reduced. At December 31,
1997 the unamortized balance of goodwill amounted to $465,000. Insurance
expirations (customer list) acquired through acquisition in 1996 are amortized
over five years, the expected period over which commission income will be
received. The amount remaining to be amortized at December 31, 1997 and 1996
was $225,000 and $293,000, respectively.
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.
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 amounting to
$358,000,000 and $297,000,000 at December 31, 1997 and 1996, respectively, 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.
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.
Page 14
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies (continued)
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.
Treasury stock is shown on the consolidated balance sheet at cost as a separate
component of stockholders' equity, and is a reduction to total stockholders'
equity. Shares are released from treasury at fair value, with any gain or loss
on the sale reflected as an adjustment to additional paid in capital. Losses
are reflected as an adjustment to additional paid in capital to the extent of
gains recognized, otherwise as an adjustment to undivided profits.
Per Share Data
Basic earnings per share was computed on the basis of the weighted average
number of common shares outstanding. On December 31, 1997 the Company adopted
the provisions of Statement of Financial Accounting Standard No. 128, "Earnings
Per Share." Adoption of this statement had no effect on the Company as it had
no potentially dilutive securities. The weighted average number of common
shares outstanding for each of the years in the three-year period ended
December 31, 1997 are as follows: 1997 - 160,955; 1996 - 161,855; and 1995 -
161,068. Net income used in the calculation of basic earnings per share is net
income shown on the consolidation statement of income.
Note 2 Acquisitions
In October 1997, the Company acquired all of the outstanding shares of the
mortgage banking company Home Town Funding, Inc. (HTF) for a cash price of
$74,000 which approximated the fair value of identifiable assets acquired and
liabilities assumed. The acquisition was accounted for under the purchase
method of accounting; and accordingly, the results of operations of the HTF for
the period from acquisition are included in the accompanying consolidated
financial statements. The purchase price allocated to assets acquired and
liabilities assumed based upon the fair market value at the date of
acquisition.
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 accordingly, 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.
The pro forma effect of the Home Town Funding acquisition was nor material.
Page 15
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 Federal Funds Sold
Income from federal funds sold for the years ended December 31, 1997, 1996 and
1995 was $1,000, $374,000 and $692,000, respectively.
Note 4 Securities
The aggregate amortized cost and fair value of Securities Available-for-Sale
and Securities Held-to-Maturity at December 31, 1997 and 1996 follows (in
thousands):
1997 1996
Amortized Fair Amortized Fair
Cost Value Cost Value
Securities Available-for-Sale:
Common stock $ 195 394 195 325
Securities Held-to-Maturity:
U.S. Treasury obligations $ 30,413 30,506 29,671 29,707
U.S. Government agencies 1,000 996 1,000 989
Mortgage-backed securities 334 352 325 341
Obligations of state and
municipal subdivisions 34,273 34,406 30,320 30,329
Other securities 4,967 5,024 8,366 8,404
______ ______ ______ ______
Total $ 70,987 71,284 69,682 69,770
Gross unrealized gains and gross unrealized losses on Securities Available-
for-Sale and Securities Held-to-Maturity at December 31, 1997 and 1996 follow
(in thousands):
1997 1996
Unrealized Unrealized
Gains Losses Gains Losses
Securities Available-for-Sale:
Common stock $ 199 0 130 0
Securities Held-to-Maturity:
U.S. Treasury obligations $ 159 (66) 68 ( 32)
U.S. Government agencies 0 ( 4) 0 ( 11)
Mortgage - backed securities 18 0 16 0
Obligations of state and
municipal subdivisions 258 (125) 210 (201)
Other securities 59 ( 2) 59 (21)
___ ___ ___ _____
Total $ 494 (197) 353 ( 265)
Page 16
<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, 1997 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 $ 16,179 1,000 9 7,212 1,499
1 to 5 14,234 0 34 17,264 3,468
5 to 10 0 0 42 9,490 0
10 and over 0 0 249 307 0
______ _____ ___ ______ _____
Total $ 30,413 1,000 334 34,273 4,967
Fair Value : Obligations
U.S. U.S. Mortgage- of state and
Treasury Government backed municipal Other
Years obligations agencies securities subdivisions securities
Under 1 $ 16,206 996 11 7,202 1,499
1 to 5 14,300 0 40 17,342 3,525
5 to 10 0 0 46 9,534 0
10 and over 0 0 255 328 0
______ _____ ___ ______ _____
Total $ 30,506 996 352 34,406 5,024
Maturities of mortgage-backed securities are classified in accordance with
the contractual repayment schedules.
Securities Held-to-Maturity with carrying values of $64,533,000 were
pledged as collateral against municipal deposits at December 31, 1997.
Interest on securities segregated between taxable interest and tax-exempt
interest for the years ended December 31, 1997, 1996 and 1995 follows (in
thousands):
1997 1996 1995
Taxable $ 2,587 2,728 2,741
Tax-exempt 1,440 1,342 1,395
_____ _____ _____
Total $ 4,027 4,070 4,136
The Bank's required investment in stock of the Federal Home Loan Bank
amounted to $2,628,000 and $1,284,000 at December 31, 1997 and 1996,
respectively, which equals the Company's cost basis.
Page 17
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 Loans
The major classifications of loans at December 31, 1997 and 1996 follow (in
thousands):
1997 1996
Commercial, financial and agricultural $ 37,610 27,503
Mortgages:
Residential 94,593 101,349
Commercial 74,228 62,513
Consumer-Auto 71,317 44,784
Consumer-Other 15,245 9,925
Other 12,138 10,766
Loans held for sale 2,119 671
_______ _______
Total 307,250 257,511
Less - allowance for loan losses 3,153 2,675
_______ _______
Loans - net $ 304,097 254,836
Interest and fees on loans for the years ended December 31, 1997, 1996 and 1995
follow (in thousands):
1997 1996 1995
Commercial $ 3,587 3,062 3,358
Mortgage 15,590 14,368 13,964
Consumer and other 6,622 3,616 2,676
______ ______ ______
Total $ 25,799 21,046 19,998
A summary of the changes in the allowance for loan losses follow (in
thousands):
Years Ended December 31,
1997 1996 1995
Balance at beginning of year $ 2,675 2,258 2,202
Provision charged to operations 851 1,490 1,031
Loans charged off ( 795) (1,637) (1,229)
Recoveries of loans charged off 422 564 254
_____ _____ _____
Balance at end of year $ 3,153 2,675 2,258
The principal balance of loans not accruing interest totaled $3,074,000 and
$11,279,000 at December 31, 1997 and 1996, respectively. The effect of
nonaccrual loans on interest income for the years ended December 31, 1997,
1996,and 1995 was $636,000, $841,000, and $739,000 respectively. Other real
estate owned amounted to $2,512,000 and $1,141,000 at December 31, 1997 and
1996, respectively and is included in other assets in the consolidated balance
sheets.
The recorded investment in loans that are considered to be impaired totaled
$3,074,000 and $11,279,000 at December 31, 1997 and 1996, respectively.
Included in this amount was $917,000 and $451,000 of impaired loans for which
the related allowance for loan losses is $100,000 and $220,000, and $2,157,000
and $10,828,000 of impaired loans with no related allowance for loan losses at
December 31, 1997 and 1996, respectively. The average recorded investment in
impaired loans during 1997, 1996 and 1995 was $6,245,000, $11,113,000 and
$11,105,000, respectively. The effect on interest income for impaired loans
was $636,000 in 1997 and $841,000 in 1996 and $739,000 in 1995. Income earned
on impaired loans during 1997, 1996 and 1995 was approximately $259,000,
$149,000, $275,000,respectively.
Page 18
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 Loans (continued)
Residential mortgage loans with a carrying value of $44,000,000 and consumer
loans with a carrying value of $11,000,000 were pledged as collateral for the
Bank's advances from the Federal Home Loan Bank.
Loans serviced for others, amounting to $64,979,000 and $68,368,000 at December
31, 1997 and 1996, 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, 1997 December 31, 1996
Land and land improvements $ 1,004 759
Buildings and leasehold improvements 12,500 10,869
Furniture, fixtures, equipment and vehicles 9,737 11,061
______ ______
23,241 22,689
Less accumulated depreciation and amortization 12,057 13,475
______ ______
Premises and equipment - net $11,184 9,214
Depreciation and amortization expense amounted to $1,499,000, $1,239,000 and
$1,103,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
Page 19
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 7 Deposits
Deposits at December 31, 1997 and 1996 by type were (in thousands):
1997 1996
Demand deposits $ 68,378 54,229
Savings and time deposits 208,442 199,278
Other deposits:
U.S. Government 146 744
State and political subdivisions 44,564 52,595
Official checks 3,231 1,120
_______ _______
Total $ 324,761 307,966
Certificates of deposit of $100,000 or more amounted to $36,423,000 at
December 31, 1997 and $40,196,000 at December 31, 1996. Interest expense on
certificates of deposit of $100,000 or more was as follows: $1,930,000 in
1997; $1,437,000 in 1996; and $1,181,000 in 1995.
At December 31, 1997, the scheduled maturity of all certificates of deposit was
as follows (in thousands):
1998 $ 84,923
1999 14,226
2000 14,439
_______
$113,588
Note 8 Borrowing From FHLB
The Company maintains a $24,353,000 overnight line of credit with the FHLB of
New York of which $10,800,000 was outstanding at December 31, 1997. Advances
are payable on demand and bear interest at the federal funds rate plus 1/8 %.
The Company also has access to the FKLB's Term Advance Program, which allows
the bank to borrow up to 25% of total assets at various terms and rates. Under
the terms of a blanket collateral agreement with the FHLB, these outstanding
balances are collateralized by certain qualifying assets not otherwise
pledged(primarily first mortgage loans).
In 1995 the Bank borrowed $1,023,000 from the FHLB at an effective rate of 2.5%
to fund low income housing projects.
Scheduled maturity of the Company's borrowings from the FHLB at December 31,
1997 follows (in thousands):
Weighted Average
Amount Interest Rate
1998 overnight line of credit $10,800 6.125%
1998 other 35,024 5.90
1999 1,524 6.15
2000 1,324 6.23
2001 1,124 5.93
2002 24 2.50
after 2002 847 2.50
______ ____
Total $50,667 5.91%
Page 20
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9 Income Taxes
Total income taxes for the years ended December 31, 1997, 1996 and 1995 were
allocated as follows (dollars in thousands):
1997 1996 1995
Income before income taxes $ 1,676 1,038 1,797
Change in Stockholders' equity for unrealized
gain on securities available for sale 27 16 20
_____ _____ _____
Total $ 1,703 1,054 1,817
The components of income tax expense are as follows (in thousands):
Years ended December 31,
Current: 1997 1996 1995
Federal $ 1,503 1,066 1,450
State 383 310 401
_____ _____ _____
1,886 1,376 1,851
Deferred (210) (338) (54)
_____ _____ _____
Total $ 1,676 1,038 1,797
Income tax expense was $1,676,000, $1,038,000, and $1,797,000, for the years
ended December 31, 1997, 1996 and 1995, 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,
1997 1996 1995
Tax expense at statutory rate of 34% $ 1,840 1,355 1,957
Tax-exempt interest (489) (453) (474)
Nondeductible interest expense 62 50 53
State taxes, net of federal benefit 253 136 265
Other 10 (50) (4)
_____ _____ _____
Total $ 1,676 1,038 1,797
Effective tax rate 30.1% 26.0% 31.5%
Page 21
<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, 1997
and 1996 are presented below:
Deferred tax assets:
1997 1996
Allowance for loan losses $ 931 743
Incentive stock plan 377 340
Excess servicing 76 91
NOL credits from subsidiary prior to consolidation 129 188
State NOL arising from nonconsolidation for state
tax purpose only 71 49
Other 86 23
_____ _____
Total gross deferred tax assets before allowance 1,670 1,434
Valuation allowance (42) (30)
_____ _____
Total gross deferred tax asset 1,628 1,404
Deferred tax liabilities:
Depreciation 462 456
Net unrealized gains on Available-for-Sale securities 79 52
Accretion on bonds 41 33
_____ ___
Total gross deferred tax liabilities 582 541
_____ ___
Net deferred tax asset $1,046 863
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 $42,000 against
its subsidiary's state Net Operating Loss (NOL) was necessary. As of December
31, 1997 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 (OCC)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,
1997, approximately $5,444,000 was available for payment of dividends to the
Company.without the approval of the OCC
Page 22
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
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 $763,000, $658,000 and
$639,000 for the years ended December 31, 1997, 1996 and 1995, 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, $52,000, and $46,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Note 12 Incentive Stock Plan
The Company has an incentive stock plan for senior management of the Company
which allows for the issuance of Phantom Stock Options (PSA) and Stock
Appreciation Rights (SAR) to key employees based upon performance factors
established by the Board of Directors, and is generally tied to increases in
the value of the Company's common stock. PSAs represent the right to receive,
for each phantom share of common stock covered by the PSA, payment equal to the
higher of the book value or market value per share of common stock on the date
of exercise. Payment can be made in cash, shares of the Company, or both at
the discretion of the Board of Directors. PSAs are exercisable at the later of
age 55 or 15 years of continuous employment with the Company or at normal
retirement age (65). SARs represent the right to receive payment equal to the
amount, if any, by which the higher of book value or market value per share of
common stock on the date of exercise exceeds the SARs grant value. SARs are
exercisable five years from the date of grant. At December 31, 1997, 2,765
PSAs were outstanding and 2,437 SARs were outstanding at prices ranging from
$114 to $232.
Prior to January 1, 1996, the Company accounted for its plan in accordance with
the provisions of Accounting Principles 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
value 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 between the Company's previous method of accounting for
its incentive stock plan and the provision of SFAS No. 123, therefore no pro
forma information is provided.
The Company has accrued a liability of $909,000 as of December 31, 1997
representing its obligation under the plans. Expenses of the plans amounted to
$110,000, $371,000, and $155,000 for the years ended December 31, 1997, 1996,
and 1995, respectively.
Page 23
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 13 Leases
The Company leases certain buildings and office space under operating lease
arrangements. Rent expense under these arrangements amounted to $238,000 in
1997, $386,000 in 1996 and $192,000 in 1995. 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.
A summary of noncancellable long-term operating lease commitments as of
December
31, 1997 follows (in thousands):
Years Ending
December 31, Amount
1998 $ 202
1999 193
2000 178
2001 92
2002 51
2003 & After 52
___
Total $ 768
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, 1997 are:
Commercial letters of credit $1,796,000 and unused commitments $34,766,000.
The contract amounts of these commitments at December 31, 1996 were:
Commercial letters of credit $1,839,000 and unused commitments $26,642,000.
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, 1997.
The Company committed $2,500,000 to fund a 25% limited partnership investment
interest in Cephas Capital Partnership, LP. This small business investment
company was established for the purpose of providing financing to small
businesses in conjunction with programs established by the U.S. Small Business
Administration. At December 31, 1997, the Company had funded $464,000 of this
commitment and carries the investment under the equity method in other assets.
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, 1997 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 24
<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 to qualitative judgments by regulators about components, risk
weightings, 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-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, 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 minimum 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, 1997
Total Capital $ 41,279 13.7% $ 24,105 8.0% $ 30,131 10.0%
(to risk weighted assets)
Tier I Capital 38,126 12.7% 12,008 4.0% 18,012 6.0%
(to risk weighted assets)
Tier I Capital 38,126 9.5% 16,053 4.0% 20,066 5.0%
(to average assets)
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)
Page 25
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
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, 1997 and 1996, loans to
these related parties amounted to $4,221,000 and $5,885,000, 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,
1997 1996
Assets:
Cash $ 106 365
Investment in subsidiary bank 39,777 37,997
Securities Available-for-Sale 185 185
Premises and Equipment, net 743 0
Other assets 122 572
______ ______
Total assets $ 40,933 39,119
Liabilities:
Other liabilities $ 1 0
Stockholders' equity:
Common stock 8,110 8,110
Additional paid-in capital 8,489 8,489
Undivided profits 24,742 22,616
Treasury Stock (1,642 shares in 1997
And 550 shares in 1996) (528) (174)
Net unrealized gain on securities available for sale,
net of taxes 119 78
______ ______
Total stockholders' equity $ 40,933 39,119
Statements of Income (dollars in thousands)
Years ended December 31,
1997 1996 1995
Income - Dividends from The Canandaigua
National Bank and Trust Company $ 2,975 1,750 1,124
Other income 7 12 2
Other expense ( 66) ( 77) (114)
_____ _____ _____
Income before undistributed income of subsidiary 2,916 1,685 1,012
Equity in undistributed income of subsidiary 821 1,262 2,904
_____ _____ _____
Net income $ 3,737 2,947 3,916
Page 26
<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,
1997 1996 1995
Cash flows from operating activities:
Net income $ 3,737 2,947 3,916
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 10 0 25
Equity in undistributed earnings of subsidiary bank ( 821) (1,262) (2,904)
Other ( 7) 29 35
_____ _____ _____
Net cash from operating activities 2,919 1,714 1,072
Cash flows from investing activities:
Sale (Purchase) of securities 0 5 (28)
Purchase of Subsidiary (718) (102) 0
Loans disbursed net of principal payments received 0 11 6
Decrease in other real estate 450 796 49
Additional capital investment into subsidiary (202) (625) 0
Fixed assets purchased, net (743) 0 0
_____ _____ _____
Net cash provided (used) in investing activities (1,213) 85 27
Cash flows from financing activities:
Proceeds from issuance of common stock 0 0 40
Proceeds from sale of treasury stock 42 0 0
Purchase of Treasury Stock (398) (174) 0
Dividends paid (1,609) (1,414) (1,127)
_____ _____ _____
Net cash used by financing activities (1,965) (1,588) (1,087)
Net increase (decrease) in cash (259) 211 12
Cash at beginning of year 365 154 142
_____ _____ _____
Cash at end of year $ 106 365 154
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 27
<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 28
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 18 Fair Values of Financial Instruments (continued)
Advances from FHLB:
The fair value of advances 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:(dollars in thousands)
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value(1) Amount Value(1)
Financial Assets:
Cash and due from banks $ 19,647 19,647 19,173 19,173
Securities 71,381 71,678 70,007 70,095
Loans:
Loans 305,131 307,282 256,840 255,096
Loans held for sale 2,119 2,119 671 671
Allowance for loan losses (3,153) 0 (2,675) 0
FHLB and Federal Reserve Bank stock 3,188 3,188 1,764 1,764
Accrued interest receivable 2,372 2,372 2,003 2,003
Financial Liabilities:
Deposits:
Demand accounts, Savings and
Money Market accounts 211,173 211,173 196,293 196,293
Certificates of deposit 113,588 113,987 111,673 106,427
Borrowing from FHLB 50,667 49,728 990 689
Accrued interest payable 960 960 850 850
Off balance sheet commitments:
Commercial letters of credit 0 40 0 33
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 29
<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
1992.
Average Dividend
Sale Price Book Value Paid
1997
4th quarter no sales $ 254.92
3rd quarter $ 335.87 $ 252.57 $4.75
2nd quarter $ 320.59 $ 251.25
1st quarter $ 326.61 $ 243.32 $5.25
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
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.
Page 30
</TABLE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 240. 14a-11 (c) or Rule 240. 14a-12
CANANDAIGUA NATIONAL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON (S) FILING PROXY STATEMENT, IF OTHER THAN REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11
(1) Title of each class of securities to which transaction applies:
Not Applicable
(2) Aggregate number of securities to which transaction applies:
Not Applicable
(3) Per unit price of other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
Not Applicable
(4) Proposed maximum aggregate value of transaction:
Not Applicable
(5) Total fee paid:
Not Applicable
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11 (a) (2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement number,
or
the Form or Schedule and the date of its filing.
(1)Amount Previously Paid:
Not Applicable
(2) Form, Schedule or Registration Statement No.:
Not Applicable
(3) Filing Party:
Not Applicable
(4) Date Filed:
Not Applicable
CANANDAIGUA NATIONAL CORPORATION
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD MARCH 11, 1998
Notice is hereby given that the Annual Meeting of Stockholders of Canandaigua
National Corporation will be held on Wednesday, March 11, 1998, at the Main
Office of The Canandaigua National Bank and Trust Company, 72 South Main
Street, Canandaigua, New York 14424. The meeting will convene at 2:00 p.m.,
eastern standard time, for the purpose of voting on the following matters:
1. To elect three Class 3 Directors for terms of three years.
2. To consider and act upon a proposal to approve the Canandaigua National
Corporation Stock Option Plan.
3. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
The Board of Directors has fixed January 30, 1998, as the record date for the
meeting, and only holders of common stock of record at the close of business
on
that day are entitled to receive notice of and vote at the meeting. All
stockholders are cordially invited to attend the meeting in person, but those
who are unable to do so are respectfully urged to execute and return the
enclosed proxy at their earliest convenience.
If you attend the meeting in person, you may withdraw your proxy and vote
your
shares.
February 25, 1998
By Order of the Board of Directors
/s/ George W. Hamlin, IV
George W. Hamlin, IV
Secretary - Board of Directors
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 11, 1998 at 2:00 p.m. at the Offices of the
Corporation, 72 South Main Street, Canandaigua, NY 14424 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 30, 1998,
are entitled to notice of, and to vote at, the Annual Meeting. On that date,
there were outstanding and entitled to vote 160,566 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 25, 1998.
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 $4,400.
SHAREHOLDERS OF MANAGEMENT AND OTHERS
Principal Beneficial Owners of Common Stock
A)The following table sets forth, as of January 30, 1998, 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 than 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) 5.11 %
Canandaigua, NY
All Directors and Principal Officers 14,956 (2) 9.31 %
of Corporation as a Group (12 persons)
As of January 30, 1998, the Trust Department of The Canandaigua National Bank
and Trust Company held in various fiduciary capacities 32,836 shares or
20.45% of the outstanding shares. The Trust Department of the bank has the
power to vote 11,242 of these shares.
B)Beneficial Ownership by Directors and Principal Officers: The following
table sets forth as of January 30, 1998, 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 (3) .09 %
Bloomfield, NY
Frank H. Hamlin 5,533 3.45 %
Naples, NY
George W. Hamlin, IV 1,703 (4) 1.06 %
Canandaigua, NY
Stephen D. Hamlin 1,510 (5) .94 %
Canandaigua, NY
Paul R. Kellogg 352 (6) .22 %
Canandaigua, NY
Eldred M. Sale 1,500 (7) .93 %
Victor, NY
Caroline C. Shipley 108 .07 %
Canandaigua, NY
Alan J. Stone 3,758 (8) 2.34 %
Honeoye, NY
Gregory S. MacKay 159 (9) .10 %
Canandaigua, NY
Robert G. Sheridan 68 (10) .04 %
Canandaigua, NY
Daniel P. Fuller 65 (11) .04%
Canandaigua,
PROPOSAL NO. 1 ELECTION OF DIRECTORS
The number of Directors to be elected at the 1998 Annual Meeting is three.
Eldred M. Sale, a Class 3 Director, retired from the Board as of January 30,
1998. 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. Nominee Robert G. Sheridan is a member of the present Board
and was elected by the stockholders of the Corporation at the Annual Meeting
held in 1992. Nominees Patricia A. Boland and Alan J. Stone are also
members of the present Board and were elected by the stockholders of the
Corporation at the Annual Meeting held in 1986. 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 3 Directors Term Expiring 1998
Robert G. Sheridan 49 1984 1992 Senior Vice President and
Cashier - The Canandaigua
National Bank and Trust
Company - 1989 - present
Patricia A. Boland 62 1986 1986 Retired Educator;
Retired Mayor City of
Canandaigua
Alan J. Stone 57 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 92 1984 1948 Bank Director - Investor
Stephen D. Hamlin 61 1984 1973 Chief Executive Officer
Sonnenberg Gardens
February 1996 - present
Paul R. Kellogg 70 1984 1962 Retired Owner - Kellogg's
Pan Tree - Inn
Daniel P. Fuller 46 1996 1996 President and General
Manager Bristol Mountain
Ski Resort - December
1984 present
Class 1 Directors - Term Expiring 2000
David Hamlin, Jr. 54 1993 1993 Farmer;
Retired Colonel, New York
State Air National Guard
Caroline C. Shipley 58 1984 1984 Educator - Director
New York State School
Boards Association
January 1991- present;
Vice President 1995;
President 1996-1997
George W. Hamlin, IV 56 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
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 Paul R. Kellogg
David Hamlin, Jr. Patricia A. Boland
The Examining Committee met six (6) times during 1997 to supervise the
internal audit and compliance 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 Officer's 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 six (6) times during 1997 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 1997. 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 1997 and 1996, no compensation was paid to members of the Board
of Directors of Canandaigua National Corporation. For the year 1996 members
of the Board of Directors of The Canandaigua National Bank and Trust Company
were compensated at the rate of $300 per meeting attended. For the year
1997, the Chairman of the Board of Directors was compensated at the rate of
$450 per meeting attended and the remaining members were paid at the rate of
$425 per meeting attended.
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 1,703 (12) 56
Robert G. Sheridan* Secretary 1984 68 (13) 49
Gregory S. MacKay* Treasurer 1988 159 (14) 48
* 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 Year Salary Bonus Other Annual SARs Defined ESOP
Principal Compensation PSAs Contribution
Position Plan
George W. 1995 $214,198 $13,099 $6,145 See $21,532 $1,606
Hamlin, IV 1996 226,850 11,343 6,545 Table 21,393 1,495
President 1997 233,201 None 6,993 Below 20,960 1,716
Robert G. 1995 91,896 5,620 3,304 See 13,385 984
Sheridan 1996 97,323 4,866 3,138 Table 14,065 970
Secretary 1997 100,048 None 2,953 Below 14,158 1,073
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 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.
STOCK APPRECIATION RIGHTS (SAR)
PHANTOM STOCK AWARDS (PSA)
Name Year Number % of Total Base Price Estimated Estimated
Granted SAR/PSAs SARs Only Value as of Value as of
SAR/PSA Granted $/share Date of Award End of Year
SAR/PSAs SAR/PSAs
George W. 1995 101.2/101.2 25% 197.47 $6,314.88 $11,093.54
Hamlin, IV 1995 26,298.84 31,077.51
1996 104.03/104.03 25% 214.55 9,626.93 11,002.21
1996 31,946.57 33,321.85
1997 36.739/36.739 25% 241.99 2,887.69 3,449.06
1997 11,778.16 12,339.53
Robert G. 1995 60.72/60.72 17% 197.47 5,540.09 6,656.13
Sheridan 1995 17,530.47 18,646.51
1996 62.42/62.42 15% 214.55 5,776.35 6,601.54
1996 19,168.56 19,993.75
1997 22.05/22.05 15% 241.99 1,733.13 2,070.55
1997 7,069.01 7,405.93
No Stock Appreciation Rights or Phantom Stock Awards were exercised by the
executive officers during 1997.
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.
PROPOSAL NO. 2 CANANDAIGUA NATIONAL CORPORATION STOCK OPTION PLAN
The Company's Board of Directors has approved, subject to stockholder
approval, the Canandaigua National Corporation Stock Option Plan (the "Option
Plan"). The Board of Directors has historically provided incentive to key
executives of the Company by issuing phantom stock and stock appreciation
rights. The Board now believes that stock option awards will provide the
desired incentives while providing a more favorable accounting treatment of
the awards for the Company. The purpose of the new Option Plan is to enable
the Company more flexibility to award non-qualified stock options and
incentive stock options to attract and retain valued employees and to provide
them with incentives to maintain and enhance the Company's long-term
performance record through increasing the identity of interests between
participants and the stockholders. Implementation of the Option Plan is
subject to the approval of the Company's stockholders.
Summary of Terms
The Option Plan will be administered by a committee of the Company's Board of
Directors (the "Committee"). Under the Option Plan, the Committee is charged
with responsibility for selecting the participants and for determining the
type of options to be award, the number of stock options to be granted to
each participant, the timing of the awards, and any other terms and
conditions applicable to the awards. Non-qualified stock options may be
issued at any exercise price determined by the Committee. Incentive stock
options may only be issued to employees, including officers, of the Company
and must have an exercise price of at least the fair market value of the
underlying shares as of the date of the grant.
The eligible persons under the Option Plan are key employees of the Company
or its subsidiaries. Approximately ten employees will be eligible to
participate in the Option Plan. The Committee has not yet selected the
participants nor determined the number, nature or timing of any stock option
awards for the upcoming year.
The aggregate number of shares of the Company's Common Stock available for
awards under the Option Plan is 16,000 shares. The number of shares subject
to the Plan, any outstanding options and any awards granted pursuant to the
Option Plan will be automatically adjusted to prevent dilution or enlargement
in the event of any stock dividend, stock split, reorganization or other
event affecting the common stock. The Common Stock is not listed on any stock
exchange and there is no active trading market for the Common Stock. As of
December 31, 1997, the book value of the Common Stock was $254.92 per share.
Under the Option Plan, the Committee possesses the authority, in its
discretion, (a) to determine the employees of the Company to whom, and the
time or times at which options are granted; (b) to determine at the time of
grant whether an option will be a non-qualified option or an incentive stock
option, the number of shares to be subject to each option and the price at
which such option will be exerciseable; (c) to prescribe the form of the
option agreements and any appropriate terms and conditions applicable to the
options and to make any amendments to such agreements or options; (d) to
interpret the Plan and the options agreements; (e) to make and amend rules
and regulations relating to the Plan; (f) to make all other determinations
necessary or advisable for the administration of the Plan; and to (g) amend
or modify the Plan or any option or option agreement, except as otherwise
provided below. The Committee's determinations shall be conclusive and
binding. No member of the Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any option granted
hereunder.
The Option Plan may from time to time be amended, modified or terminated by
the Committee. No amendment, modification or termination of the Option Plan
will be effective without stockholder approval if such approval is required
under any applicable law, rule or regulation. The exercisability of any
award will terminate if the committee determines that the participant is
engaged in competition with the Company or has been terminated for "cause" as
defined in the Option Plan.
Federal Tax Consequences
Non-Qualified Stock Options. No income is recognized by a participant at the
time of grant of a non-statutory option, nor is the Company entitled to a tax
deduction at that time. The rules for recognizing income upon exercise of a
non-qualified stock option depend on whether or not the participant is an
"insider", i.e, the participant's sale or purchase of Common Stock may give
rise to suit under Section 16(b) of the Securities Exchange Act of 1934, as
amended ("Section 16(b)"). In the case of a non-insider, ordinary income
will be recognized by the participant on the date he or she exercises a non-
statutory option in an amount equal to the excess of the fair market value of
the shares on the date of exercise over the exercise price. The holding
period for capital gain and loss purposes will begin on the date of exercise.
In the case of an insider, ordinary income will be recognized by the
participant on the first day on which a sale of the Common Stock at a profit
would not expose the participant to Section 16(b) liability (the "date of
taxation") in an amount equal to the excess of the fair market value of the
shares on the date of taxation over the exercise price. The holding period
for capital gain and loss purposes will begin on the date of taxation. An
insider may elect to be taxed according to the rules applicable to non-
insiders by filing an election with the Internal Revenue Service under
Section 83(b) of the Internal Revenue Code within 30 days from the date of
exercise. The Company will be entitled to a deduction at the time the
participant is required to recognize income from the exercise of the non-
statutory option. The deduction will be equal to the amount which is taxable
to the participant as ordinary income as a result of the exercise. If the
exercise price of a non-statutory option is paid by surrendering Common Stock
of the Company, the participant will recognize no gain or loss on the shares
that he or she surrenders to pay the exercise price (the "surrendered
shares"). The number of shares that the participant receives upon exercise
of the option in excess of the surrendered shares are considered "additional
shares." The participant will recognize ordinary income upon the exercise
equal to the fair market value of the additional shares on the date of
exercise, less any cash paid towards the exercise price. The basis of the
additional shares will be equal to their fair market value on the date of
exercise, and their holding period will begin on that date. The shares that
the participant receives upon exercise equal to the surrendered shares will
have a basis and holding period equal to that of the surrendered shares.The
basis of shares acquired pursuant to the exercise of a non-statutory option
will be the amount included in ordinary income due to receipt of those
shares. When the participant disposes of shares acquired pursuant to a non-
statutory option, any amount realized in excess of the basis of the shares
will be treated as long-term or short-term capital gain, depending on the
holding period of the shares. If the amount realized is less than the basis
of the shares, the loss will be treated as a long-term or short-term capital
loss, depending on the holding period of the shares.
Incentive Stock Options. A participant receiving an incentive stock option
will not be subject to income tax upon either the grant of the incentive
stock option or its subsequent exercise. The spread between the exercise
price and the fair market value on the date of exercise will, however, be
included in the participant's alternative minimum taxable income for purposes
of determining the participant's liability, if any, for the alternative
minimum tax. If the participant holds the shares acquired upon exercise for
more than one year after exercise (and two years after grant), then the
difference between the amount realized on a subsequent sale or other taxable
disposition of the shares and the exercise price will constitute long-term
capital gain or loss at the time of sale. The Company will not be entitled
to a federal income tax deduction with respect to the grant or exercise of an
incentive stock option. If the options cease to be incentive stock options
for any reason, they will be treated as non-statutory options. For example,
if the participant sells the shares before the expiration of the requisite
holding periods, he or she will be deemed to have made a "disqualifying
disposition" of the shares and will realize ordinary income in the year of
the disposition. In the event of a disqualifying disposition, the Company
will be entitled to a federal income tax deduction in the year of disposition
of the shares in the amount of the ordinary income realized by the
participant.
If the exercise price of an incentive stock option is paid by surrendering
Common Stock of the Company, the Internal Revenue Service treats such
exchange as if there were two transactions. The first transaction is treated
as a non-taxable exchange of the previously-acquired Common Stock for an
equal number of shares of new Common Stock, both having the same market
value. The basis of the new shares will be the same basis as the shares
surrendered and the holding period will include the holding period of the
shares surrendered. The second transaction concerns the additional shares
that a participant will receive pursuant to the exercise. This exchange also
results in no gain or loss being recognized at the time of the exchange.
However, the basis of these additional shares will equal zero (i.e., the
participant is treated as having paid nothing for these shares). The holding
period for the additional shares begins on the date of the exchange.
New Plan Benefits
No determination has been made at this time as to the persons to whom options
will be issued during this calendar year, nor the amount or nature of any
such awards.
Reasons for Adoption
The Board of Directors believes that it is desirable and in the best
interests of the Company and its stockholders to provide employees and
directors with incentives to maintain and enhance the Company's long-term
performance record. The Option Plan serves the Company's interests by
providing the Committee with discretion to awards incentive stock options and
in selecting the participants, the number, type and timing of awards, and the
terms and conditions applicable to the awards.
Vote Required
In accordance with applicable New York law, approval of Proposal No. 2 to
adopt the Option Plan requires the affirmative vote of the holders of a
majority of the shares entitled to vote and present in person or represented
by proxy at the meeting voting together as a single class.
The Board of Directors recommends that the stockholders approve the Option
Plan and accordingly recommends that you vote FOR Proposal No. 2.
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.
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.
(Omitted Graph Material)
The following is the data table for the graph:
Period Ending
Index 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
Canandaigua Nat. Corp.100.00 108.25 137.31 166.43 175.55 193.04
SNL Mid-Atl. Index 100.00 116.30 113.06 180.94 259.66 369.03
SNL <$500M Bank Index 100.00 130.56 140.42 192.09 247.24 421.47
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected KPMG Peat Marwick LLP as independent
certified public accountants of Canandaigua National Corporation until the
Annual Meeting held in 1998. 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, 1997.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
1998 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
/s/ George W. Hamlin, IV
George W. Hamlin, IV
Secretary - Board of Directors
February 25, 1998
Endnotes
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.
3 Includes 70 shares in his Self Directed IRA held by subsidiary bank.
4 Includes 111 shares owned individually by his spouse.
5 Includes 385 shares owned individually by his spouse.
6 Includes 312 shares owned individually by his spouse.
7 Includes 700 shares owned individually by his spouse.
8 Includes 475 shares owned by his IRA held by subsidiary bank, 50 shares
owned individually by his spouse, 83 shares owned by her IRA held by
subsidiary bank and 280 shares owned by his three children under the New York
Uniform Gifts to.Minors Act.
9 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.
10 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.
11 Includes 10 shares owned individually by his spouse and 30 shares owned as
custodian for his two children under New York Uniform Gift to Minors Act.
12 Includes 111 shares owned individually by his spouse.
13 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.
14 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.
CANANDAIGUA NATIONAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MARCH 11, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
CANANDAIGUA NATIONAL CORPORATION
The undersigned hereby appoints Robert J. Craugh and James A. Avery, jointly
and severally, proxies, with power of substitution, to represent and to vote
at the Annual Meeting of Stockholders (including adjournments) of CANANDAIGUA
NATIONAL CORPORATION, to be held on March 11, 1998, at 2:00 p.m. at the
Offices of the Corporation, 72 South Main Street, Canandaigua, New York ,
with all powers the undersigned would possess if personally present, as
specified on the ballot below and in accordance with their discretion for any
other business that may come before the meeting or any adjournment thereof,
and the undersigned hereby revokes all proxies previously given by the
undersigned with respect to the shares of common stock covered hereby.
Unless a contrary choice is specified, this proxy will be voted "FOR" Items
1, 2 and 3. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" DIRECTORS'
PROPOSALS TO:
1. Elect three Class 3 Directors for terms of three years.
NOMINEES: Patricia A. Boland, Robert G. Sheridan, and Alan J. Stone
[ ] FOR [ ] AGAINST [ ] ABSTAIN
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, DRAW A SINGLE LINE THROUGH THE
NAME OF THAT NOMINEE.
2.To approve the adoption of the Canandaigua National Corporation Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Transact such other business as may properly come before the meeting or
any adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3. THE PROXIES WILL USE THEIR
DISCRETION WITH RESPECT TO ALL MATTERS REFERRED TO IN ITEM 3.
When shares are held by joint owners, both should sign. When signing as
attorney, executor, administrator, trustee, guardian or other fiduciary or in
a representative capacity, please add your title as such. If signing as
power of attorney or in any other representative capacity, please provide
proof of such capacity. If a partnership, please sign in partnership name by
authorized person. If a corporation, please sign in full corporate name by
authorized officer, giving title.
Receipt of the Notice of the Annual Meeting of Stockholders, the Proxy
Statement dated February 25, 1998, and the 1997 Annual Report is hereby
acknowledged.
Date
Signature
Signature if held jointly
Please sign, date, and promptly return the proxy in the enclosed envelope.
CANANDAIGUA NATIONAL CORPORATION
STOCK OPTION PLAN
1.BACKGROUND AND PURPOSE
Canandaigua National Corporation (the "Company") hereby establishes the
Canandaigua National Corporation Stock Option Plan (the "Plan"). The purpose
of this Plan is to enable the Company to retain executive officers and other
key employees and provide them with an incentive to maintain and enhance the
Company's long-term performance. The Company believes that this purpose will
be enhanced by granting eligible employees non-qualified stock options
("NSOs") and incentive stock options ("ISOs") under this Plan pursuant to the
rules set forth in the Internal Revenue Code of 1986, as amended (the
"Code").
2.ADMINISTRATION
The Plan shall be administered by a Committee of the Company's Board of
Directors (the "Compensation Committee"). This Committee shall consist of at
least two members of the Company's Board of Directors with such
qualifications as the Board of Directors deems necessary and desirable from
time to time, taking into consideration applicable provisions of the federal
securities laws (including Rule 16b-3 promulgated under the Securities and
Exchange Act of 1934) and the Code. The Committee shall possess the
authority, in its discretion, (a) to determine the employees of the Company
to whom, and the time or times at which, NQSOs and/or ISOs (collectively,
"options") shall be granted; (b) to determine at the time of grant whether an
option will be an ISO or a NQSO and the number of shares to be subject to
each option and the price at which such option will be exerciseable; (c) to
prescribe the form of the option agreements and any appropriate terms and
conditions applicable to the options and to make any amendments to such
agreements or options; (d) to interpret the Plan and the options agreements;
(e) to make and amend rules and regulations relating to the Plan; (f) to make
all other determinations necessary or advisable for the administration of the
Plan; and (g) to amend or modify the Plan except as otherwise provided in
Section 13.. The Committee's determinations shall be conclusive and binding.
No member of the Committee shall be liable for any action taken or decision
made in good faith relating to the Plan or any option granted hereunder.
3.ELIGIBLE EMPLOYEES
Options may be granted under the Plan only to employees of the Company and
its subsidiaries (which shall include all corporations of which at least
fifty percent of the voting stock is owned by the Company directly or through
one or more corporations at least fifty percent of the voting stock of which
is so owned) who have the capability of making a substantial contribution to
the success of the Company. Employees may be granted any type of award
offered under the Plan.
4.SHARES AVAILABLE
The total number of shares of the Company's Common Stock (par value of $50.00
per share) available in the aggregate for options under this Plan is 16,000.
Shares to be granted may be authorized and unissued shares or may be treasury
shares.
If an option expires, terminates or is canceled without being exercised or
becoming vested, new options may thereafter be granted under the Plan
covering such shares unless otherwise required under applicable laws, rules
or regulations. No option may be granted more than 10 years after the
effective date of the Plan.
5.TERMS AND CONDITIONS FOR NQSOS
Each NQSO granted under the Plan shall be evidenced by a NQSO option
agreement in such form as the Committee shall approve from time to time,
which agreement shall conform to this Plan and contain such terms and
conditions as the Committee may prescribe, including, without limitation, the
exercise price of the option, which shall be at, below or above the fair
market or book value of the Common Stock on the date of grant as the
Committee shall determine and the duration, transferability, vesting and such
other terms and conditions the Committee deems appropriate at the time of
grant.
6.TERMS AND CONDITIONS OF ISOS
Each ISO granted under the Plan shall be evidenced by an ISO option agreement
in such form as the Committee shall approve from time to time, which
agreement shall conform with this Plan and contain the following terms and
conditions:
(a)Exercise Price. The exercise price under each option shall equal the fair
market value of the Common Stock at the time such option is granted. If an
option is granted to an officer or employee who at the time of grant owns
stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company (a "10-percent Shareholder"), the
purchase price shall be at least 110 percent of the fair market value of the
stock subject to the option. To the extent an option initially designated as
an ISO exceeds the value limit of Section 6(e), it shall be deemed a NQSO and
shall otherwise remain in full force and effect.
(b)Duration of Option. Each option by its terms shall not be exercisable
after the expiration of ten years from the date such option is granted. In
the case of an option granted to a 10-percent Shareholder, the option by its
terms shall not be exercisable after the expiration of five years from the
date such option is granted.
(c)Options Nontransferable. Each option by its terms shall not be
transferable by the participant otherwise than (i) by will or the laws of
descent and distribution, (ii) pursuant to a qualified domestic relations
order, or (iii) to the extent permitted under the option agreement or
interpretation of the Committee and under Rule 16b-3, by gift to family
members or entities beneficially owned by family members or other permitted
transferees under Rule 16b-3, and shall be exercisable, during the
participant's lifetime, only by the participant, the participant's guardian
or the participant's legal representative, the participant's transferee under
a qualified domestic relations order or other permitted transferee under this
section. To the extent required for the option grant and/or exercise to be
exempt under Rule 16b-3, options (or the shares of Common Stock underlying
the options) must be held by the participant for at least six months
following the date on which the option was granted (the "Date of Grant").
(d)Exercise Terms. Each option granted under the Plan shall vest over a ten-
year period beginning on the Date of Grant, with 50% of the shares vesting on
the fifth anniversary of the Date of Grant and 10% of the shares vesting on
each annual anniversary of the Date of Grant in years six through ten or such
other vesting terms as the Committee shall determine as of the Date of Grant.
Options may be partially exercised from time to time during the period
extending from the time they first become exercisable until the tenth
anniversary (fifth anniversary for a 10-percent Shareholder) of the Date of
Grant.
(e)Maximum Value of ISO Shares. No ISO shall be granted to an employee under
this Plan or any other ISO plan of the Company or its subsidiaries to
purchase shares as to which the aggregate fair market value (determined as of
the Date of Grant) of the Common Stock which first become exercisable by the
employee in any calendar year exceeds $100,000. To the extent an option
initially designated as an ISO exceeds the value limit of this Section 6(e),
it shall be deemed a NQSO and shall otherwise remain in full force and
effect.
(f)Payment of Exercise Price. An option shall be exercised upon written
notice to the Company accompanied by payment in full for the shares being
acquired. The payment shall be made in cash or by check or by delivery of
previously owned shares. Any such shares so delivered shall be deemed to have
a value per share equal to the fair market value of the shares on such date.
For this purpose, fair market value shall equal the closing price of the last
sale of Common Stock by the Company.
7.GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any certificate upon the grant,
vesting or exercise of any option until it has been furnished with such
opinion, representation or other document as it may reasonably deem necessary
to ensure compliance with any law or regulation of the Securities and
Exchange Commission or any other governmental authority having jurisdiction
under this Plan. Certificates delivered upon such grant, vesting or exercise
may bear a legend restricting transfer absent such compliance. Each option
shall be subject to the requirement that, if at any time the Committee shall
determine, in its discretion, that the listing, registration or qualification
of the shares subject to such option upon any securities exchange or under
any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such options or the issue or purchase of
shares thereunder, such options may not vest or be exercised in whole or in
part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee in the exercise of its reasonable judgment.
8.IMPACT OF TERMINATION OF EMPLOYMENT
(a) Options
If the employment of a participant terminates by reason of death or
disability (as determined by the Committee), any option may be exercised by
the participant or, in the event of the participant's death, by the
participant's personal representative any time prior to the earlier of the
expiration date of the option or the expiration of one year after the date of
termination, but only if, and to the extent that, the participant was
entitled to exercise the option at the date of such termination. Upon
termination of the participant's employment for any reason other than death
or disability, any vested option that was exercisable immediately preceding
termination may be exercised at any time prior to the earlier of the
expiration date of the option or the expiration of three months after the
date of such termination for ISOs and six months after the date of
termination of employment for NQSOs. In the event of retirement, the period
specified in the preceding sentence shall be extended to one year in the case
of NQSOs. Furthermore, upon retirement of a participant, the Committee has
the discretionary authority to accelerate vesting of options under the Plan.
Notwithstanding the foregoing, an option may not be exercised after
termination of employment if the Committee reasonably determines that the
termination of employment of such participant resulted from willful acts or
failure to act by the participant detrimental to the Company or any of its
subsidiaries.
(b)Miscellaneous Termination Provisions
Unless otherwise determined by the Committee, an authorized leave of absence
shall not constitute a termination of employment for purposes of this Plan.
For purposes of this section, retirement means that a participant terminates
employment at or after the date on which the participant reaches any normal
retirement age specified in any policy adopted by the Board or, in the
absence of such policy, age 65.
9.ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the Company by reason of
any stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or of any
similar change affecting the Common Stock, the number and kind of shares
authorized under Section 4, the number and kind of shares which thereafter
are subject to options under the Plan and the number and kind of unexercised
options shares set forth in awards under outstanding agreements and the price
per share shall be adjusted automatically consistent with such change to
prevent substantial dilution or enlargement of the rights granted to, or
available for, participants in the Plan.
10.WITHHOLDING TAXES
All stock issuable or payable to a participant upon exercise of any stock
option under the terms of this Plan is subject to such federal, state and
local income and employment tax withholdings as payments of this type are
normally subject. Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, the Company shall have the
right to require the recipient to remit to the Company an amount of cash
sufficient to satisfy any federal, state and/or local income and employment
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares or to take any other appropriate action to
satisfy such withholding requirements. Notwithstanding the foregoing, the
recipient may satisfy such obligation in whole or in part by electing to have
the Company withhold shares of Common Stock from the shares to which the
recipient is otherwise entitled.
11.RESTRICTIONS ON EXERCISE; NO EMPLOYMENT RIGHTS
No outstanding option may be exercised by any person if the employee to whom
the option is granted is, or at any time after the Date of Grant has been, in
competition with the Company. The Committee has the sole discretion to
determine whether an employee's actions constitute competition with the
Company or an affiliated company. The Committee may impose such other terms
and conditions on the exercise of options as it deems appropriate to serve
the purposes for which this Plan has been established.
The Plan and any options granted under the Plan shall not confer upon any
participant any right with respect to continuance as an employee of the
Company or any subsidiary, nor shall they interfere in any way with the right
of the Company or any subsidiary to terminate the participant's position as
an employee at any time.
12.RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for the
underlying shares of Common Stock are issued to the recipient.
13.AMENDMENT AND DISCONTINUANCE OF PLAN
This Plan may be amended, modified or terminated by the Committee or by the
shareholders of the Company, except that the Committee may not, without
approval of a majority of the shareholders present in person or by proxy,
materially increase the benefits accruing to participants under the Plan,
materially increase the maximum number of shares as to which options may be
granted under the Plan, change the minimum exercise price of options, change
the class of eligible persons, extend the period for which options may be
granted or exercised, or withdraw the authority to administer the Plan from
the Committee or another committee of the Board of Directors.
Notwithstanding the foregoing, to the extent permitted by law, the Committee
may amend the Plan without the approval of shareholders, to the extent it
deems necessary to cause the Plan to comply with Rule 16b-3 or any successor
rule, as it may be amended from time to time or as otherwise permitted under
Rule 16b-3 promulgated under the Exchange Act and the Code. Except as
required by law, no amendment, modification, or termination of the Plan may,
without the written consent of a participant to whom any option shall
theretofore have been granted, adversely affect the rights of such
participant under such option.
14.CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in the event of a change
in control of the Company (as defined in subsection (c) below), all options
shall become immediately vested and exercisable in full, unless directed
otherwise by a resolution of the Committee adopted prior to and specifically
relating to the occurrence of such change in control.
(b) In the event of a change in control each participant holding an
exercisable option (i) shall have the right at any time thereafter during the
term of such option to exercise the option in full notwithstanding any
limitation or restriction in any option agreement or in the Plan, and (ii)
may, after written notice to the Company within 60 days after the change in
control, require the Company to redeem such options for cash at a price equal
to the difference between the fair market value of the stock immediately
after such change of control was publicly announced and the exercise price
per share of the option.
(c) For purposes of this section, "change in control" means:
1)there shall be consummated
i)any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which any shares of the
Company's common stock are to be converted into cash, securities or other
property, provided that the consolidation or merger is not with a corporation
which was a wholly-owned subsidiary of the Company immediately before the
consolidation or merger; or
ii)any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets
of the Company (other than to one or more directly or indirectly wholly-owned
subsidiaries of the Company); or
2)the shareholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; or
3)any person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the
Company's then outstanding common stock, provided that such person shall not
be a wholly-owned subsidiary of the Company immediately before it becomes
such 30% beneficial owner; or
4)individuals who constitute the Company's Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least three quarters of the
directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named
as a nominee for director, without objection to such nomination) shall be,
for purposes of this clause (4), considered as though such person were, and
shall be deemed to be, a member of the Incumbent Board.
15. EFFECTIVE DATE
The effective date of the Plan is the date of shareholder approval of the
Plan..
16. DEFINITIONS
Any terms or provisions used herein which are defined in Sections 162(m),
421, or 422 of the Code, or the regulations thereunder or corresponding
provisions of subsequent laws and regulations in effect at the time awards
are made hereunder, shall have the meanings as therein defined.
17. GOVERNING LAW
To the extent not inconsistent with the provisions of the Code that relate to
awards, this Plan and any award agreement adopted pursuant to it shall be
construed under the laws of the State of New York.
Approved by Shareholders __________, 1998.
CANANDAIGUA NATIONAL CORPORATION
Signature
Title
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 19,647
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 394
<INVESTMENTS-CARRYING> 70,987
<INVESTMENTS-MARKET> 71,284
<LOANS> 304,097
<ALLOWANCE> 3,153
<TOTAL-ASSETS> 418,942
<DEPOSITS> 324,761
<SHORT-TERM> 49,671
<LIABILITIES-OTHER> 2,582
<LONG-TERM> 996
<COMMON> 8,110
0
0
<OTHER-SE> 32,822
<TOTAL-LIABILITIES-AND-EQUITY> 418,942
<INTEREST-LOAN> 25,799
<INTEREST-INVEST> 4,027
<INTEREST-OTHER> 17
<INTEREST-TOTAL> 29,843
<INTEREST-DEPOSIT> 9,733
<INTEREST-EXPENSE> 11,239
<INTEREST-INCOME-NET> 18,604
<LOAN-LOSSES> 851
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,657
<INCOME-PRETAX> 5,413
<INCOME-PRE-EXTRAORDINARY> 3,737
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,737
<EPS-PRIMARY> 23.22
<EPS-DILUTED> 23.22
<YIELD-ACTUAL> 8.39
<LOANS-NON> 3,074
<LOANS-PAST> 1,966
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,675
<CHARGE-OFFS> 795
<RECOVERIES> 422
<ALLOWANCE-CLOSE> 3,153
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
