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
<PAGE>
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 10,
1999 at 1:00 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 31, 1999
are entitled to notice of, and to vote at, the Annual Meeting. On that date,
there were outstanding and entitled to vote 159,531 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 23, 1999.
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 $4,840.
SHAREHOLDERS OF MANAGEMENT AND OTHERS
Principal Beneficial Owners of Common Stock
- ------------------------------------------------
<TABLE>
<CAPTION>
A) The following table sets forth, as of January 31, 1999, 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
- -------------------------------------- ---------------- -----------
<S> <C> <C>
All Directors and Principal Officers
of Corporation as a Group (12 persons) 13,217(1) 8.28 %
<FN>
(1) Includes shares set forth in footnotes to Table B
</TABLE>
As of January 31, 1999, the Trust Department of The Canandaigua National Bank
and Trust Company held in various fiduciary capacities 32,351 shares or 20.28 %
of the outstanding shares. The Trust Department of the bank has the power to
vote 11,672 of these shares.
Page 1
<PAGE>
<TABLE>
<CAPTION>
B) Beneficial Ownership by Directors and Principal Officers: The following
table sets forth as of January 31, 1999, 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
- ---------------------- ---------------- -----------
<S> <C> <C>
Patricia A. Boland 50 .03 %
Canandaigua, NY
David Hamlin, Jr. 150 .09 %
Bloomfield, NY
Frank H. Hamlin 5,529 3.47 %
Naples, NY
George W. Hamlin, IV 1,703 1.07 %
Canandaigua, NY
Stephen D. Hamlin 1,530 .96 %
Canandaigua, NY
James S. Fralick 25 .02 %
Canandaigua, NY
Richard P. Miller, Jr. 20 .01 %
Naples, NY
Caroline C. Shipley 116 .07 %
Canandaigua, NY
Alan J. Stone 3,758 2.36 %
Honeoye, NY
Gregory S. MacKay 156 .09 %
Canandaigua, NY
Robert G. Sheridan 68 .04 %
Canandaigua, NY
Daniel P. Fuller 112 .07 %
Canandaigua, NY
<FN>
David Hamlin Jr. shares include 70 shares in his self-directed IRA held by
subsidiary bank.
George W. Hamlin, IV shares include 111 shares owned individually by his spouse.
Stephen D. Hamlin shares include 410 shares owned individually by his spouse.
Page 2
Alan J. Stone shares include 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 the subsidiary bank and 280 shares owned by his two children under the
New York Uniform Gifts to Minors Act.
Gregory S. MacKay shares include 39 shares owned individually by his spouse, 59
shares owned by his IRA held by subsidiary bank and 16 shares owned by his two
children.
Robert G. Sheridan shares include 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.
Daniel P. Fuller shares include 20 shares owned individually by his spouse and
50 shares owned as custodian for his two children under New York Uniform Gifts
to Minors Act.
</TABLE>
ELECTION OF DIRECTORS
The number of Directors to be elected at the 1999 Annual Meeting is four.
Paul Kellogg, a Class 2 Director, retired from the Board as of February 1998.
James S. Fralick was appointed to the Board of Directors on September 9, 1998 to
fill Mr. Kellogg's term. Richard P. Miller, Jr., was appointed as a Class 3
Director on November 11, 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 four persons listed below. Nominees Frank H. Hamlin and
Stephen D. Hamlin are members of the present Board and were first elected by the
stockholders of the Corporation at the Annual Meeting held in 1984. Nominee
Daniel P. Fuller is a member of the present Board and was first elected by the
stockholders of the Corporation at the Annual Meeting held in 1996. Nominee
James S. Fralick is a member of the present Board having been appointed as a
Class 2 Director in 1998. 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
<TABLE>
<CAPTION>
1999 Incumbent Class 2 Directors - Term Expiring 1999
Year First Elected
Or Appointed to: Principal Occupation
Name Age Corporation Bank For Past Five Years
- ---------------------------------- ------------------ -------------------- ---- -------------------------
<S> <C> <C> <C> <C>
Frank H. Hamlin 93 1984 1948 Bank Director - Investor
Stephen D. Hamlin 62 1984 1973 Chief Executive Officer -
Sonnenberg Gardens
February 1996 - present
James S. Fralick 56 1998 1998 Director European
Economics Morgan Stanley
1993 - December 1997
Adjunct Professor -
University of Rochester
and Syracuse University
1998 - present
Page 3
<PAGE>
Daniel P. Fuller 47 1996 1996 President and General
Manager Bristol Mountain
Ski Resort - December 1984
to present
</TABLE>
<TABLE>
<CAPTION>
Class 1 Directors - Term Expiring 2000
Year First Elected
Or Appointed to: Principal Occupation
Name Age Corporation Bank For Past Five Years
- ----------------------------------- ------------------ -------------------- ---- ------------------------
<S> <C> <C> <C> <C>
David Hamlin, Jr. 55 1993 1993 Farmer; Retired Colonel,
New York State Air National
Guard
Caroline C. Shipley 59 1984 1984 Educator - Director
New York State School
Boards Association
January 1991- present;
Vice President 1995;
President 1996 -1997
George W. Hamlin, IV 57 1984 1979 President, CEO, CRA and
Trust Officer - The
Canandaigua National Bank
and Trust Company - April
1979 - present; Director of
the Buffalo Branch Federal
Reserve Bank of New York -
1992 - 1996; Director of
Federal Reserve Bank of New
York -1997 - Present
</TABLE>
<TABLE>
<CAPTION>
Class 3 Directors - Term Expiring 2001
Year First Elected
Or Appointed to: Principal Occupation
Name Age Corporation Bank For Past Five Years
- ----------------------------------- ------------------ -------------------- ---- -------------------------
<S> <C> <C> <C> <C>
Robert G. Sheridan 50 1984 1992 Senior Vice President and
Cashier - The Canandaigua
National Bank and Trust
Company - 1989 - present
Patricia A. Boland 63 1986 1986 Retired Educator;
Retired Mayor - City of
Canandaigua
Page 4
<PAGE>
Alan J. Stone 58 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
Richard P. Miller, Jr. 55 1998 1998 Senior Vice President &
Chief Operating Officer
University of Rochester
1996 - present. Director
Genesee Corporation -
1987 - Present
<FN>
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.
</TABLE>
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; James S. Fralick
David Hamlin, Jr.; Patricia A. Boland
The Examining Committee met five (5) times during 1998 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.
Page 5
<PAGE>
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 five (5) times during 1998 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 Nominating and Governance Committee consists of four (4) 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:
Patricia Boland; Daniel P. Fuller; Caroline C. Shipley
Alan J. Stone
The Nominating and Governance Committee met three (3) times during 1998 to
determine personal and professional qualifications for Board of Director
candidates. The Committee reviews the qualifications of and interviews
candidates for Director and makes recommendations to the Board of Directors for
approval.
In addition, 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 1998. 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 1998 and 1997, no compensation was paid to members of the Board
of Directors of Canandaigua National Corporation. For the years 1998 and 1997,
the Chairman of the Board of Directors of The Canandaigua National Bank and
Trust Company was compensated at the rate of $450 per meeting attended and the
remaining members were paid at the rate of $425 per meeting attended.
Page 6
<PAGE>
PRINCIPAL OFFICERS
<TABLE>
<CAPTION>
The following table sets forth selected information about the Principal
Officers of the Corporation, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the Board of Directors:
Number
Office and of Shares
Position with Held Beneficially
Name Corporation Since Owned Age
- -------------------- ------------- --------- ------------ ---
<S> <C> <C> <C> <C>
George W. Hamlin, IV President 1984 1,703 57
Robert G. Sheridan Secretary 1984 68 50
Gregory S. MacKay Treasurer 1988 156 49
<FN>
George W. Hamlin, IV shares include 111 shares owned individually by his spouse.
Robert G. Sheridan shares include 18 shares owned as custodian for his three
children under New York Uniform Gifts to Minors Act and 10 shares owned by his
IRA held by subsidiary bank.
Gregory S. MacKay shares include 39 shares owned individually by his spouse, 59
shares owned by his IRA held by subsidiary bank and 16 shares owned by his two
children.
All of the Principal Officers of the Corporation are officers of the
subsidiary bank and have served as officers of the subsidiary bank for the past
five (5) years.
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------- -----------------------------
Awards Other Compensation
------ ---------------------
Other Defined
Name and Annual Contribution
Principal Salary Bonus Compensation SARs Plan ESOP
Position Year ($) $) ($) PSAs ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
George W. Hamlin, IV 1996 226,850 11,343 6,545 See 21,393 1,495
President 1997 233,201 None 6,993 Table 20,960 1,716
1998 248,951 18,826 7,316 Below 22,569 1,786
Robert G. Sheridan 1996 97,323 4,866 3,138 See 14,065 970
Secretary 1997 100,048 None 2,953 Table 14,158 1,073
1998 106,805 8,932 3,400 Below 15,255 1,192
</TABLE>
Page 7
<PAGE>
STOCK APPRECIATION RIGHTS (SAR)
PHANTOM STOCK AWARDS (PSA)
<TABLE>
<CAPTION>
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.
Estimated
Value as of Estimated
% of Date of Value as of
Number Total Price Award End of Year
Granted SAR/PSAs SARs Only SAR/PSAs SAR/PSAs
Name Year SAR/PSA Granted $/share ($) ($)
<S> <C> <C> <C> <C> <C> <C>
George W. 1996 104.03/104.03 25% 214.55 9,627 11,031
Hamlin, IV 31,947 33,351
1997 36.75/36.75 25% 232.06 3,253 3,815
11,782 12,343
1998 65.63/65.63 25% 241.99 7,941 7,941
23,822 23,822
Robert G. 1996 62.42/62.42 15% 214.55 5,776 6,619
Sheridan 19,169 20,011
1997 22.05/22.05 15% 232.06 1,952 2,289
7,069 7,406
1998 39.38/39.38 15% 241.99 4,765 4,765
14,293 14,293
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth below the aggregated SAR and PSA values at December 31, 1998 for the
named executive officers. The value of the SAR's and PSA's reflected in the table is the per-SAR and
per-PSA value of $363.00 at December 31, 1998 minus the related exercise price. The per-SAR and per-PSA
value at December 31, 1998 is the higher of (1) the book value of the Corporation, (2) the last
appraised value of the stock using a third-party appraisal of the Corporation's stock prepared for the
Corporation's Employee Stock Ownership Plan, or (3) the price at which the Corporation's stock was
bought and sold during the last quarter of 1998 in a private transaction for which the Corporation has
information.
Total number of unexercised Total Value of
SAR's and PSA's at Unexercised in-the money SAR's
December 31, 1998 and PSA's at December 31, 1998
------------------------------ -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
(#) (#) ($) ($)
<S> <C> <C> <C> <C>
George W.
Hamlin, IV 1,116.96 396.51 354,950 61,071
Robert G.
Sheridan 216.14 681.94 48,154 201,459
<FN>
No Stock Appreciation Rights or Phantom Stock Awards were exercised by the executive officers during
1998.
</TABLE>
Page 8
<PAGE>
Compensation for the executive officers 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. 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. 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 1998 the stockholders approved a Stock Option Plan. No stock options were
awarded or exercised during 1998.
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.
Page 9
<PAGE>
(Omitted Graph Material)
<TABLE>
<CAPTION>
The following is the data table for the graph:
Period Ending
----------------------------------------------------------
Index 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
Canandaigua Nat. Corp 100.00 126.85 153.75 162.17 178.33 197.43
SNL Mid-Atl. Index 100.00 97.22 155.59 223.27 317.32 351.79
SNL <$500M Bank Index 100.00 107.55 147.13 189.37 322.82 294.76
</TABLE>
Page 10
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected KPMG LLP as independent certified public
accountants of Canandaigua National Corporation until the Annual Meeting held in
1999. 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, 1998.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the 1999
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 23, 1999
Page 11
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
President's Message 2
Canandaigua National Corporation Directors and Officers 4
Financial Highlights 5
Independent Auditors' Report 7
Consolidated Financial Statements 8
Notes to Consolidated Financial Statements 12
Common Stock Data 30
The Canandaigua National Bank and Trust Company Community
Advisory Committees 31
The Canandaigua National Bank and Trust Company Officers 32
Arthur S. Hamlin Award for Excellence 34
Welcome Our New Directors 35
Webster Office Dedication 36
</TABLE>
ANNUAL MEETING:
The Annual Meeting of Stockholders will be held at the Main Office of The
Canandaigua National Bank and Trust Company, 72 South Main Street, Canandaigua,
New York 14424; March 10, 1999 at 1:00 P.M.
FORM 10-K
A copy of the Corporation's Form 10-K Annual Report is available without charge
to stockholders upon written request to: Robert G. Sheridan, Secretary; 72 South
Main Street, Canandaigua, New York 14424.
CANANDAIGUA NATIONAL CORPORATION
72 South Main Street, Canandaigua, New York 14424
Phone: 716-394-4260
Fax: 716-396-1355
Internet: www.cnbank.com
<PAGE>
(photograph of George W. Hamlin, IV)
PRESIDENT'S MESSAGE
February 1, 1999
To Our Shareholders:
"Broadening the base" would aptly describe the year 1998. As we continue the
implementation of our Plan for the Year 2010, we have broadened our reach in
terms of products and markets. Our mutual fund, Canandaigua Select Equity, has
been converted to "retail" form so that customers may purchase units directly,
not just for "qualified" purposes, namely retirement accounts. The Rochester
Business Journal observed that Canandaigua Select Equity recorded the best
performance for 1998 of any fund managed in the region. Business Choice was
introduced mid-year and is popular with our business accounts wishing to
effectively manage their short-term cash at market rates while providing
day-to-day availability to meet operational requirements. In November, we
opened our Webster banking office, serving all points between the Village and
the Baytowne area of the Town of Penfield. An April date is slated to open a
banking office in Greece on Ridge Road, adjacent to the library and the old Town
Hall. We have an agreement in principle to purchase a bank building in
Irondequoit (Columbia, now M&T) on Hudson Avenue across from Irondequoit Plaza.
Judging from the reaction to our Webster facility opening celebration recently
held on January 28th, our presence as an independent, locally-owned,
full-service, community bank is a welcome addition to the area.
At the close of the first quarter we prevailed in our lawsuit against the
Superintendent of Insurance, gaining a permanent injunction against the
enforcement of Section 2501 of the New York Insurance Law which would have
precluded us from selling property and casualty insurance to our loan customers.
This decision, in connection with the recently passed "wild card" statute of New
York State Banking Law, has led the way now to enfranchise all banks, both
national and state chartered, in New York State to sell property and casualty
insurance. Currently, we sell or can place all kinds of insurance for customers
on a case-by-case basis and are working on a business plan to develop greater
volumes in the coming year. With the addition of insurance, we now have fully
achieved our goal to be able to offer, from under the same roof, a complete line
of financial services for individuals.
Our subsidiary, HomeTown Funding, delivered a banner performance seeing its
first year of profitability. New personnel and processing ability resulted in
growth and stability. Through HomeTown Funding, we have added access to
sub-prime markets and the ability to provide mortgage financing for virtually
every one of our customers no matter how challenged they may be from a credit
standpoint.
Similarly, our affiliation with USA Payroll continues to grow as that company
achieved profitability for the first time this year. As a payroll service,
there are many synergies to be availed between and among our various customer
segments.
The vehicle by which we keep all of this organized, both internally and
externally, is through our process of Life Stage Marketing which we continue to
develop. Simply, if we understand our customer's commitments and concerns, we
immediately know the appropriate array and fit of various products and services.
It is the assembly of these products and services wherein we add value to the
customer relationship. The customer receives good value at a fair price
available in one spot, managed and coordinated by one person.
Earnings for 1998 are $22.38 per share compared with $23.22 for the previous
year. As reported at mid-year, we were running behind $2.20 per share due to
one-time charges taken in the first and second quarters relating to account
adjustments connected with our computer conversion at the close of 1997. We
were able to implement strategies which regained most of the shortfall such that
our final earnings performance was within $.84 of last year's returns. Asset
growth of 2.2% year-over-year disguises a nearly 10% growth in average assets
and deposits for the entire year. Nevertheless, the dividend for the year was
up strongly by 10%, deposit growth up year-over-year 15.9% reflective of our
strong capital and promising prospects, respectively, as we position ourselves
for growth in the future.
Page 2
<PAGE>
In December of 1998, M&T announced the acquisition of First National Bank of
Rochester effective the second quarter of 1999. We greeted this announcement
with mixed emotions. Any time a community bank is absorbed there is cause for
concern and sadness because the effect is to remove from the locale the
management of local financial resources in accord with local priorities. On the
bright side, we remain as the only locally owned financial institution in the
metropolitan market offering a full compliment of banking, trust, and investment
services. This opportunity adds significantly to a key strategy to broaden our
base in areas of greater population. In January, we revised our 1999 budget to
invest in this opportunity which, in the short term, will reduce our earnings
but, in the long term, will enhance our prospects for growth toward our Plan for
the Year 2010. Recent activities have involved taping TV spots (a first for
us), expanding our lending staff in the Rochester market and identifying new
sales and support staff as we accelerate our plans in Irondequoit.
On the legislative side, we participated with the New York Bankers Association
to eliminate much of the damaging provisions which were contained in HR 10
(passed by the House) by working with the Senate Banking Staff and teams of
negotiators from underwriters, sales organizations and regulators of the
insurance industry in New York and Connecticut. Of course, Congress has been
consumed by the impeachment process which has delayed any thought of productive
work being accomplished. We remain disappointed that Congress, by legislation,
ratified the illegal expansion over the last eight years of Credit Unions in
contravention of the "common bond" prerequisite for membership found to have
been violated by the Supreme Court of the United States. Credit Unions remain
free from payment of Federal and State income taxes, enjoy exemptions from
Community Reinvestment Act provisions and are benefited by special accounting
rules which amount to an enormous subsidy. This may contain the seeds of
ultimate vulnerability as in the case of the thrift industry, where it led to
its ultimate demise. These inequities and the loss of an estimated $1 billion
per year in tax revenues falls upon the deaf ears of Congress.
We are entering our ninth year of economic expansion. The growth of GDP over
the last three years averaged nearly 3.7% per year. Our State and Federal
governments experienced surpluses for the first time in nearly three decades.
Unemployment, by any measure, is as low as it has ever been, and inflation is
remarkably well behaved. Troubles in Russia and Brazil are serious, yet their
contagion seems far removed. Accordingly, loan portfolios are healthy in big
and small banks, earnings and capital of the industry remain strong, and
prospects for the future are positive. Part of this is due to good fortune and
part is due to good management of monetary policy by the Federal Reserve.
As we invest in our future, we are excited by the challenges recently
presented to us. Moreover, as experienced and talented people come to us from
other financial institutions, we are bolstered by the confirmation of our vision
and mission which their commitment to us implies. Whether it be at home or at
the business site, whether it be in person or through interaction on the
Internet, we are prepared to offer comprehensive financial services to
individuals and their families and businesses wherever they may be located.
These greetings would not be complete without introducing our two new
Directors, James Fralick and Richard Miller, who bring to us important
experience coupled with a strong commitment to our community as we move into the
new millennium. Jim has had a career in economics which has spanned the Federal
Reserve to Morgan Stanley in London, and Dick's experiences range from CEO
positions in sales and management in industry to his current position as Chief
Operating Officer of the University of Rochester. Their profiles appear on page
35. To this we add our gratitude to our associates wherever they may be
situated, especially for their creative efforts applied day by day to bring our
vision to a reality.
Very truly yours,
/s/ George W. Hamlin, IV
George W. Hamlin, IV
President
Page 3
<PAGE>
CANANDAIGUA NATIONAL CORPORATION BOARD OF DIRECTORS
(photograph of the Board of Directors)
Back Row: Stephen D. Hamlin, George W. Hamlin, IV, Robert G. Sheridan,
David Hamlin, Jr., Patricia A. Boland
Front Row: Frank H. Hamlin, Alan J. Stone, Chairman, Caroline C. Shipley, Daniel
P. Fuller
Not pictured: James S. Fralick, Richard P. Miller, Jr. (See page 35)
Patricia A. Boland Retired Executive Director, Granger Homestead
James S. Fralick Adjunct Professor, University of Rochester's Simon School
and Syracuse University's Maxwell School
Daniel P. Fuller Owner, Bristol Mountain
David Hamlin, Jr. Farmer
Frank H. Hamlin Investor
George W. Hamlin, IV President, CEO, Trust and CRA Officer,
The Canandaigua National Bank and Trust Company
Stephen D. Hamlin President and CEO, Sonnenberg Gardens
Richard P. Miller, Jr. Senior Vice President and Chief Operating Officer
University of Rochester
Robert G. Sheridan Retail Senior Vice President and Cashier,
The Canandaigua National Bank and Trust Company
Caroline C. Shipley Educator, Director New York State School Boards Association
Alan J. Stone Chairman of the Board of Directors,
The Canandaigua National Bank and Trust Company
Managing Partner, Stone Properties
EMERITUS BOARD MEMBERS
Arthur S. Hamlin Retired Banker
Eldred M. Sale Retired Banker
Willis F. Weeden, MD Retired Surgeon
OFFICERS
George W. Hamlin, IV President
Robert G. Sheridan, Secretary
Gregory S. MacKay, Treasurer
Page 4
<PAGE>
ABOUT THE CORPORATION
Canandaigua National Corporation is a one-bank holding company providing
comprehensive financial services. Its wholly owned subsidiaries include The
Canandaigua National Bank and Trust Company and a mortgage company. The Bank
engages in full-service commercial and consumer banking, trust business and
insurance services. Its market area is generally Western Ontario County and
Eastern Monroe County.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Years ended December 31, 1998 and 1997
(dollars in thousands, except per share data)
1998 % Change 1997
------- -------- -------
<S> <C> <C> <C>
Net Income $ 3,587 (4.0) 3,737
Cash Dividends $ 1,766 9.8 1,609
Basic Earnings Per Share $ 22.38 (3.6) 23.22
Dividends Per Share $ 11.00 10.0 10.00
Book Value Per Share $ 265.94 4.3 254.92
Total Assets $428,047 2.2 418,942
Securities $ 72,916 2.2 71,381
Loans-Net $308,486 0.8 305,991
Deposits $376,507 15.9 324,761
Stockholders' Equity $ 42,478 3.8 40,932
Weighted Average Shares Outstanding 160,254 (0.4) 160,955
Return on Average Assets .86% (12.2) .98%
Return on Beginning Equity 8.76% (8.3) 9.55%
</TABLE>
<TABLE>
<CAPTION>
THE CANANDAIGUA NATIONAL BANK AND TRUST COMPANY
TRUST DEPARTMENT
Years ended December 31, 1998 and 1997
(at cost, in thousands of dollars)
1998 % Change 1997
------- -------- -------
<S> <C> <C> <C>
Estate, Trust and Guardianship Assets $139,211 35.1 103,025
Custodian Account Assets 263,955 12.2 235,212
The Canandaigua Funds' Assets 20,414 5.0 19,449
-------- -------
Total Assets Under Administration $423,580 18.4 357,686
======== =======
</TABLE>
Page 5
<PAGE>
Graph 1 (depicting Assets, Deposits and Loans for the years 1994 to 1998)
Graph 2 (depicting Stockholders' Equity for the years 1994 to 1998)
Page 6
<PAGE>
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/KPMG LLP
January 28, 1999
Rochester, New York
Page 7
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS 1998 1997
- ---------------------------------------------------------------- --------- --------
<S> <C> <C>
Cash and due from banks $ 23,892 19,389
Interest-bearing deposits with other financial institutions 314 258
Securities:
- Available for sale, at fair value 437 394
- Held-to-maturity (fair value of $73,688 in 1998 and
$71,284 in 1997) 72,479 70,987
Loans - net of allowance of $3,283 in 1998 and $3,153 in 1997 308,486 305,991
Premises and equipment - net 11,468 11,184
Accrued interest receivable 2,244 2,372
Federal Home Loan Bank stock and Federal Reserve Bank stock 3,548 3,118
Other assets 5,179 5,249
--------- --------
Total Assets $428,047 418,942
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------
Deposits:
Demand
Non-interest bearing $ 64,368 73,297
Interest bearing 56,877 37,229
Savings and money market 109,316 100,647
Certificates of deposit 145,946 113,588
--------- --------
Total deposits 376,507 324,761
FHLB advances 7,142 50,667
Accrued interest payable and other liabilities 1,920 2,582
--------- --------
Total Liabilities $385,569 378,010
--------- --------
Commitments and Contingencies (Notes 13 and 14)
Stockholders' Equity:
Common stock, $50 par value; 240,000 shares authorized;
162,208 shares issued in 1998 and 1997 8,110 8,110
Additional paid in capital 8,489 8,489
Retained earnings 26,569 24,742
Treasury stock at cost (2,479 shares in 1998 and 1,642 shares
in 1997) (835) (528)
Accumulated other comprehensive income 145 119
--------- --------
Total Stockholders' Equity 42,478 40,932
--------- --------
Total Liabilities and Stockholders' Equity $428,047 418,942
========= ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Interest income:
Loans, including fees $26,834 25,389 20,681
Securities 3,967 4,027 4,070
Other 52 17 389
------- ------ -------
Total interest income 30,853 29,433 25,140
------- ------ -------
Interest expense:
Deposits 10,746 9,733 8,735
Borrowings 1,687 1,506 62
------- ------ -------
Total interest expense 12,433 11,239 8,797
------- ------ -------
Net interest income 18,420 18,194 16,343
Provision for loan losses 641 851 1,490
------- ------ -------
Net interest income after provision for loan losses 17,779 17,343 14,853
------- ------ -------
Other income:
Service charges on deposit accounts 1,810 1,534 1,661
Trust income 2,249 1,723 1,337
Net gain (loss) on sale of mortgages 125 29 (24)
Other operating income 1,740 502 427
------- ------ -------
Total other income 5,924 3,788 3,401
------- ------ -------
Operating expenses:
Salaries & employee benefits 10,557 9,638 8,382
Occupancy expense 3,007 2,736 2,685
FDIC insurance 39 38 2
Marketing and public relations 515 399 293
Office supplies, printing and postage 807 712 616
Professional 222 223 363
Other operating expenses 3,283 1,886 1,822
------- ------ -------
Total operating expenses 18,430 15,632 14,163
------- ------ -------
Income before income taxes 5,273 5,499 4,091
Income taxes 1,686 1,762 1,144
------- ------ -------
Net income $ 3,587 3,737 2,947
======= ====== =======
Basic earnings per share $ 22.38 23.22 18.20
======= ====== =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
Page 9
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID IN RETAINED TREASURY COMPREHENSIVE
STOCK CAPITAL EARNINGS STOCK INCOME TOTAL
------------ ------- --------- --------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 8,058 8,203 21,083 - 53 37,397
Comprehensive income:
Change in unrealized
gain on securities
available for sale,
net of taxes of $16 - - - - 25 25
Net income - - 2,947 - - 2,947
------------ ------- --------- --------- ------------- -------
Total comprehensive
income - - 2,947 - 25 2,972
------------ ------- --------- --------- ------------- -------
Cash dividend - $8.75
per share - - (1,414) - - (1,414)
Issuance of 1,053 shares
in acquisition 52 286 - - - 338
Purchase of 550 shares
of treasury stock - - - (174) - (174)
------------ ------- --------- --------- ------------- -------
Balance at December 31, 1996 8,110 8,489 22,616 (174) 78 39,119
------------ ------- --------- --------- ------------- -------
Comprehensive income:
Change in unrealized
gain on securities
available for sale,
net of taxes of $27 - - - - 41 41
Net income - - 3,737 - - 3,737
------------ ------- --------- --------- ------------- -------
Total comprehensive
income - - 3,737 - 41 3,778
------------ ------- --------- --------- ------------- -------
Cash dividend - $10.00
per share - - (1,609) - - (1,609)
Sale of 139 shares of
treasury stock - - (2) 44 - 42
Purchase of 1,231 shares
of treasury stock - - - (398) - (398)
------------ ------- --------- --------- ------------- -------
Balance at December 31, 1997 8,110 8,489 24,742 (528) 119 40,932
------------ ------- --------- --------- ------------- -------
Comprehensive income:
Change in unrealized
gain on securities
available for sale,
net of taxes of $17 - - - - 26 26
Net income - - 3,587 - - 3,587
------------ ------- --------- --------- ------------- -------
Total comprehensive
income - - 3,587 - 26 3,613
------------ ------- --------- --------- ------------- -------
Cash dividend - $11.00
per share - - (1,766) - - (1,766)
Sale of 135 shares of
treasury stock - - 6 41 - 47
Purchase of 972 shares
of treasury stock - - - (348) - (348)
------------ ------- --------- --------- ------------- -------
Balance at December 31, 1998 $ 8,110 8,489 26,569 (835) 145 42,478
============ ======= ========= ========= ============= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
Page 10
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 3,587 3,737 2,947
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 1,793 1,415 1,012
Provision for loan losses 641 851 1,490
Writedown of other real estate owned 50 274 205
Deferred income taxes (256) (210) (338)
Originations of loans held for sale (116,551) (28,481) (7,391)
Proceeds from sale of loans held for sale 115,702 27,033 7,675
Increase) decrease in accrued interest receivable
(and other assets 149 (312) (168)
Increase (decrease) in accrued interest payable and
Other liabilities (662) 634 290
---------- -------- --------
Net cash provided by operating activities 4,453 4,941 5,722
---------- -------- --------
Cash flows from investing activities:
Proceeds from call of FHLB stock - - 18
Purchase of FHLB and FRB stock (430) (1,354) (376)
Securities held to maturity:
Proceeds from maturities and calls of securities 32,740 37,219 37,328
Purchases of securities (34,025) (38,319) (36,639)
Loans made net of principal payments (2,663) (52,133) (48,618)
Fixed asset purchases - net (2,104) (3,469) (1,894)
Acquisition of subsidiary - (196) (102)
Investment in minority owned subsidiary (762) (1,014) -
Proceeds from sale of other real estate 1,196 892 372
---------- -------- --------
Net cash used by investing activities (6,048) (58,374) (49,911)
---------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in demand, savings and short-
term deposits 19,388 14,880 9,511
Proceeds from issuance of certificates of deposit net
of payments on maturing certificates 32,358 1,915 21,404
Proceeds from long term FHLB advances - 39,100 10,600
Principal repayments on FHLB advances (43,525) (23) (23)
Proceeds from sale of common stock 47 42 -
Purchase of treasury stock (348) (398) (174)
Dividends paid (1,766) (1,609) (1,414)
---------- -------- --------
Net cash provided by financing activities 6,154 53,907 39,904
---------- -------- --------
Net (decrease) increase in cash & cash equivalents 4,559 474 (4,285)
Cash & cash equivalents - beginning of year 19,647 19,173 23,458
---------- -------- --------
Cash & cash equivalents-end of year $ 24,206 19,647 19,173
========== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 12,312 11,128 8,784
========== ======== ========
Income taxes $ 2,142 1,409 1,341
========== ======== ========
Supplemental disclosure of non-cash investing
activity:
Additions to other real estate acquired through
foreclosure, net of loans to facilitate sales $ 376 2,538 (423)
========== ======== ========
Acquisition of subsidiary for 1,053 shares of common
stock $ - - 338
========== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
Page 11
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Canandaigua National Corporation (the Company) provides a full range of
financial services, including banking, trust, and insurance services to
individual, corporate, and municipal customers. The Company is subject to
competition from other financial institutions. The Company and its subsidiaries
are subject to the regulations of certain federal and state agencies and undergo
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., and HomeTown Funding, Inc. (HTF).
All significant intercompany accounts and transactions have been eliminated in
consolidation. The Company accounts for investments in minority owned
subsidiaries under the equity method. 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.
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. Held to maturity securities are recorded at
amortized cost. All other securities not included as held to maturity are
classified as available for sale.
Available for sale securities are recorded at fair value. 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 component of
accumulated other comprehensive income in 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
security as an adjustment to yield using the interest method. Dividend and
interest income are recognized when earned. Realized gains and losses are
included in earnings and are determined using the specific identification
method.
LOANS
Loans are stated at the principal amount outstanding net of deferred origination
costs. Interest and costs on loans are credited to income based on the effective
interest 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. Consumer loans
are generally charged off upon becoming 120 days past due.
Page 12
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 inherent in the portfolio. 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 allowance 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 allowance for loan
losses. Such agencies may require the Company to recognize additions to the
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 for impairment as
discussed above.
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 ASSETS
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 reviewed at least annually
to determine if events and circumstances require the period to be reduced. At
December 31, 1998 and 1997 the unamortized balance of goodwill amounted to
$348,000 and $476,000, respectively. 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, 1998 and 1997 was $158,000 and
$225,000, respectively.
Page 13
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of foreclosure (other
real estate) 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 earnings and 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.
ACCUMULATED OTHER COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. This statement establishes standards for
reporting and display of comprehensive income and its components. The Company's
comprehensive income consists of only net income and the net unrealized holding
gains and losses of securities available for sale, net of the related tax
effect. Accumulated other comprehensive income on the consolidated statements of
stockholders' equity is presented net of taxes.
TRUST DEPARTMENT INCOME
Assets, at cost, held in fiduciary or agency capacity for customers, amounting
to $424,000,000 and $358,000,000 at December 31, 1998 and 1997, 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.
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 mortgages and lines of credit. These
off-balance-sheet items are shown on the Company's balance sheet upon funding.
TREASURY STOCK
Treasury stock is shown on the consolidated balance sheet at cost as a separate
component of stockholders' equity, and is a reduction thereto. Shares are
released from treasury at fair value, with any gain on the sale reflected as an
adjustment to additional paid-in capital or retained earnings. Losses are
reflected as an adjustment to additional paid-in capital to the extent of gains
previously recognized, otherwise as an adjustment to retained earnings.
Page 14
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 in 1997. As discussed in note 12, the Company
adopted an incentive stock plan in 1998, however, no options have been granted
under the plan. The weighted average number of common shares outstanding for
each of the years in the three-year period ended December 31, 1998 are as
follows: 1998 - 160,254; 1997 - 160,955; and 1996 - 161,855. Net income used in
the calculation of basic earnings per share is net income shown on the
consolidation statement of income.
Other Recently Issued Accounting Standards
Effective January 1, 1998, the Company adopted the remaining provisions of SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which relate to the accounting for securities
lending, repurchase agreements, and other secured financing activities. These
provisions, which were delayed for implementation by SFAS No. 127, did not have
a material impact on the Company.
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which revised its requirements for
disclosing segment data. The new standard did not result in significant changes
in the Company's reporting.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement requires the Company to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
gains and losses results from changes in fair value of the derivative instrument
depends on the intended use of the derivative and the type of risk being hedged.
The statement is effective for fiscal years beginning after June 15, 1999,
although earlier adoption is permitted. Based upon current activities, the
adoption of the statement will not have an effect on the Company's financial
position or results of operation.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage Backed
Securities Retained after the Securitization or Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise", which amends SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities". This statement conforms the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage banking enterprise with the accounting for such securities by a
non-mortgage banking enterprise. This statement is effective for the first
quarter beginning January 1, 1999 and this statement will not have any impact on
the Company's financial position or results of operation as the Company does not
currently securitize mortgage loans.
(2) ACQUISITIONS
In October 1997, the Company acquired all of the outstanding shares of the
mortgage banking company HomeTown Funding, Inc. In May 1996, the Bank acquired
the Burlingham Agency (BA), a life insurance agency. In April 1996, the Company
acquired all of the outstanding shares of the mortgage banking company Greater
Funding of New York, Inc. Up to that date, the Company had owned 33% of GFNYI.
The pro forma effect of these acquisitions was not material.
Page 15
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) FEDERAL FUNDS SOLD
Income from Federal funds sold for the years ended December 31, 1998, 1997, and
1996 was $33,000, $1,000, and $374,000, respectively.
(4) SECURITIES
<TABLE>
<CAPTION>
The aggregate amortized cost and fair value of Securities Available for Sale and
Securities Held to Maturity at December 31, 1998 and 1997 follow (in thousands):
1998 1997
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------- ------ -------- ------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Common Stock $ 195 437 195 394
======= ======= ===== ======
Securities Held to Maturity:
U.S Treasury obligations $29,936 30,126 30,413 30,506
U.S. Government agencies - - 1,000 996
Mortgage-backed securities 308 309 334 352
Obligations of state and municipal
Subdivisions 39,253 40,224 34,273 34,406
Other securities 2,982 3,029 4,967 5,024
------- ------- ------ ------
Total $72,479 73,688 70,987 71,284
======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Gross unrealized gains and gross unrealized losses on Securities Available for
Sale and Securities Held to Maturity at December 31, 1998 and 1997 follow (in
thousands):
1998 1997
Unrealized Unrealized
---------------- -------------
Gains Losses Gains Losses
<S> <C> <C> <C> <C>
Securities Available for Sale:
Common Stock $ 242 - 199 -
======= ====== ====== =====
Securities Held to Maturity:
U.S Treasury obligations $ 201 (11) 159 (66)
U.S. Government agencies - - - (4)
Mortgage-backed securities 1 - 18 -
Obligations of state and municipal
Subdivisions 985 (14) 258 (125)
Other securities 47 - 59 (2)
------- ------ ------ -----
Total $ 1,234 (25) 494 (197)
======= ====== ====== =====
</TABLE>
Page 16
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
The amortized cost and fair value of securities Held to Maturity by years to
maturity as of December 31, 1998 follow (in thousands):
Amortized Cost: Obligations of
Mortgage- state and
U.S. Treasury backed municipal Other
obligations securities subdivisions securities
--------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Years
Under 1 $ 17,444 9 7,648 1,000
1 to 5 12,492 34 26,480 1,982
5 to 10 - 42 5,072 -
10 and over - 223 53 -
--------------- ------------ ------------ ----------
Total $ 29,936 308 39,253 2,982
=============== ============ ============ ==========
Fair Value: Obligations of
Mortgage- state and
U.S. Treasury backed municipal Other
obligations securities subdivisions securities
--------------- ------------ ------------ ----------
Years
Under 1 $ 17,517 9 7,731 1,006
1 to 5 12,609 34 27,224 2,023
5 to 10 - 42 5,206 -
10 and over - 224 63 -
--------------- ------------ ------------ ----------
Total $ 30,126 309 40,224 3,029
=============== ============ ============ ==========
</TABLE>
Maturities of mortgage-backed securities are classified in accordance with the
contractual repayment schedules. Expected maturities will differ from contracted
maturities since issuers may have the right to call or prepay obligations
without penalties.
Securities Held to Maturity with carrying values of $66,432,000 were pledged as
collateral against municipal deposits at December 31, 1998.
<TABLE>
<CAPTION>
Interest on securities segregated between taxable interest and tax-exempt
interest for the years ended December 31, 1998, 1997, and 1996 follows (in
thousands):
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Taxable $2,400 2,587 2,728
Tax-exempt 1,567 1,440 1,342
------ ----- -----
Total $3,967 4,027 4,070
====== ===== =====
</TABLE>
The Bank's required investment in stock of the Federal Home Loan Bank and the
Federal Reserve Bank amounted to $3,548,000 and $3,118,000 at December 31, 1998
and 1997, respectively, which equals the Company's cost basis.
Page 17
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) LOANS
<TABLE>
<CAPTION>
The major classifications of loans at December 31, 1998 and 1997 follow (in
thousands):
1998 1997
-------- -------
<S> <C> <C>
Commercial, financial and agricultural $ 43,260 37,610
Mortgages:
Residential 76,130 94,593
Commercial 83,771 74,228
Consumer:
Auto - Indirect 84,370 73,211
Other 17,753 15,245
Other 3,516 12,138
Loans held for sale 2,969 2,119
-------- -------
Total 311,769 309,144
Less - allowance for loan losses 3,283 3,153
-------- -------
Loans - net $308,486 305,991
======== =======
</TABLE>
<TABLE>
<CAPTION>
Interest and fees on loans for the years ended December 31, 1998, 1997, and 1996
follow (in
thousands):
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Commercial $ 3,319 3,575 3,048
Mortgage 15,270 15,445 14,229
Consumer and other 8,245 6,369 3,404
------- ------ ------
Total $26,834 25,389 20,681
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
A summary of the changes in the allowance for loan losses follows (in
thousands):
Years Ended December 31,
------------------------
1998 1997 1996
------- ----- -----
<S> <C> <C> <C>
Balance at beginning of year $ 3,153 2,675 2,258
Provision charged to operations 641 851 1,490
Loans charged off (1,053) (795) (1,637)
Recoveries of loans charged off 542 422 564
------- ----- ------
Balance at end of year $ 3,283 3,153 2,675
======= ===== ======
</TABLE>
The principal balance of loans not accruing interest totaled $2,113,000 and
$3,176,000 at December 31, 1998 and 1997, respectively. The effect of nonaccrual
loans on interest income for the years ended December 31, 1998, 1997, and 1996
was approximately $239,000, $636,000, and $841,000, respectively. Other real
estate owned amounted to $1,642,000 and $2,512,000 at December 31, 1998 and
1997, respectively, and is included in other assets in the consolidated balance
sheets.
The recorded investment in loans that are considered to be impaired totaled
$2,113,000 and $3,176,000 at December 31, 1998 and 1997, respectively. Included
in this amount was $38,000 and $917,000 of impaired loans for which the related
allowance for loan losses is $18,000, and $100,000. The average recorded
investment in impaired loans during 1998, 1997, and 1996 was $2,728,000,
$6,245,000, and $11,113,000, respectively. The effect on interest income for
impaired loans was approximately $239,000 in 1998, $636,000 in 1997 and $841,000
in 1996. Income earned on impaired loans during 1998, 1997, and 1996 was
approximately $281,000, $259,000, and $149,000, respectively.
Page 18
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) LOANS (CONTINUED)
At December 31, 1998 residential mortgage loans with a carrying value of
approximately $7,900,000 were pledged as collateral for the Bank's advances from
the Federal Home Loan Bank, and an additional $38,600,000 was available for
pledging.
Loans serviced for others, amounting to $73,007,000 and $64,979,000 at December
31, 1998 and 1997, respectively, are not included in the consolidated financial
statements.
The Company's market area is generally Western Ontario County and Eastern Monroe
County of New York State. 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 schedule of
loan classifications. The concentrations of credit risk in loan commitments and
letters of credit parallel the loan classifications reflected. Other than
general economic risks, management is not aware of any material concentrations
of credit risk to any industry or individual borrower.
(6) PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of premises and equipment at December 31, 1998 and 1997 follows (in
thousands):
1998 1997
------- ------
<S> <C> <C>
Land and land improvements $ 979 979
Buildings and leasehold improvements 13,280 12,525
Furniture, fixtures, equipment, and vehicles 10,113 9,737
------- ------
24,372 23,241
Less accumulated depreciation and amortization 12,904 12,057
------- ------
Premises and equipment - net $11,468 11,184
======= ======
</TABLE>
Depreciation and amortization expense amounted to $1,820,000, $1,499,000, and
$1,239,000 for the years ended December 31, 1998, 1997, and 1996, respectively.
Page 19
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7)CERTIFICATES OF DEPOSIT
Certificates of deposit of $100,000 or more amounted to $59,329,000 at December
31, 1998 and $36,423,000 at December 31, 1997. Interest expense on these
certificates of deposit was as follows: $2,211,000 in 1998; $1,930,000 in 1997;
and $1,437,000 in 1996.
<TABLE>
<CAPTION>
At December 31, 1998, the scheduled maturity of these certificates of deposit
was as follows (in thousands):
<S> <C>
1999 $45,797
2000 5,186
2001 8,346
-------
59,329
=======
</TABLE>
(8)BORROWING FROM FHLB
The Company maintains a $21,000,000 overnight line of credit with the FHLB of
New York of which $2,300,000 was outstanding at December 31, 1998. Advances are
payable on demand and generally bear interest at the federal funds rate plus
1/8%. The Company also has access to the FHLB's Term Advance Program, which
allows the bank to borrow up to $21,000,000 at various terms and rates. Under
the terms of a blanket collateral agreement with the FHLB, these outstanding
balances are collateralized by the Company's investment in FHLB stock and
certain other 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.
<TABLE>
<CAPTION>
Scheduled maturity of the Company's borrowings from the FHLB at December 31,
1998 follows (in thousands):
Weighted Average
Amount Interest Rate
----------- --------------
<S> <C> <C>
1999 overnight line of credit $ 2,300 5.13%
1999 other 1,524 6.09
2000 1,324 6.16
2001 1,124 6.12
2002 24 2.50
2003 24 2.50
After 2003 822 2.50
-----------
Total $ 7,142 5.36%
===========
</TABLE>
Page 20
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9)INCOME TAXES
<TABLE>
<CAPTION>
Total income taxes for the years ended December 31, 1998, 1997, and 1996 were
allocated as follows (dollars in thousands):
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Income before taxes $1,686 1,762 1,144
Change in stockholders' equity for unrealized
Gain on securities available for sale 17 27 16
------ ----- -----
$1,703 1,789 1,160
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
The components of income tax expense are as follows (in thousands):
Years Ended December 31,
-------------------------
1998 1997 1996
------- ----- -----
<S> <C> <C> <C>
Current:
Federal $ 1,465 1,503 1,066
State 477 469 416
------- ----- -----
1,942 1,972 1,482
Deferred (256) (210) (338)
------- ----- -----
Total $ 1,686 1,762 1,144
======= ===== =====
</TABLE>
<TABLE>
<CAPTION>
Income tax expense was $1,686,000, $1,762,000, and $1,144,000 for the years
ended December 31, 1998, 1997, and 1996, respectively, and differed from the
amounts computed by applying the applicable U.S. Federal corporate tax rates to
pretax income from operations as follows (in thousands):
Years Ended December 31,
-------------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Tax expense at statutory rate of 34% $ 1,790 1,870 1,391
Tax-exempt interest (551) (489) (453)
Nondeductible interest expense 61 62 50
State taxes, net of federal benefit 292 310 206
Valuation allowance 45 12 12
Other 49 (3) (62)
------- ------ ------
Total $ 1,686 1,762 1,144
======= ====== ======
Effective tax rate 32.0% 32.0% 28.0%
======= ====== ======
</TABLE>
Page 21
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9)INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are presented below:
1998 1997
------- ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 983 931
Incentive stock plan 412 377
Excess servicing 60 76
NOL credits from subsidiaries 256 192
State NOL arising from nonconsolidation for state tax
purposes only 53 71
Interest on non-accrual loans 143 -
Other 55 23
------- ------
Total gross deferred tax assets before allowance 1,962 1,670
Valuation allowance (87) (42)
Total gross deferred tax asset 1,875 1,628
------- ------
Deferred tax liabilities:
Depreciation 472 462
Net unrealized gains on available for sale securities 97 80
Accretion on bonds 21 40
------- ------
Total gross deferred liabilities 590 582
------- ------
Net deferred tax asset $1,285 1,046
======= ======
</TABLE>
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 $87,000 against
its non-bank subsidiary's Net Operating Loss (NOL) was necessary. As of December
31, 1998 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 GFNYI.
(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 in which dividends exceed the total of net income for
that year plus retained income for the preceding two years. At December 31,
1998, approximately $921,000 was available for payment of dividends to the
Company without the approval of the OCC.
(11) EMPLOYEE BENEFITS
PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all Bank employees
upon completion of 1,000 hours of service with respect to full-time employees,
and 870 hours of service for part-time employees. Contributions to the plan are
determined by a mathematical formula which takes into account average
Page 22
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) EMPLOYEE BENEFITS (CONTINUED)
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 $835,000, $763,000, and
$658,000 for the years ended December 31, 1998, 1997, and 1996, 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 $63,000, $62,000, and $52,000 for the years
ended December 31, 1998, 1997, and 1996, respectively. Shares distributed to a
participant upon termination of service are subject to a put option whereby the
participant may cause the Company to purchase the shares at fair value. At
December 31, 1998 and 1997 the plan held 1,560 and 1,435 shares with a fair
value at the respective dates of $566,280 and $439,110.
(12) INCENTIVE STOCK PLANS
In March 1998, the shareholders approved an incentive stock option program for
employees, which authorizes grants of options to purchase up to 16,000 shares of
its authorized common stock. As of December 31, 1998 no options were granted
under the plan. The Company also 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 the 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, 1998, 3,052 PSAs were outstanding and 2,508 SARs were outstanding at prices
ranging from $114 to $242.
Prior to January 1, 1996, the Company accounted for its plans 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 $1,033,000 as of December 31, 1998
representing its obligation under the plans. Expenses of the plans amounted to
$137,000, $110,000, and $371,000 for the years ended December 31, 1998, 1997,
and 1996, respectively.
Page 23
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) LEASES
The Company leases certain buildings and office space under operating lease
arrangements. Rent expense under these arrangements amounted to $284,000 in
1998, $238,000 in 1997, and $386,000 in 1996. Included in rent expense 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 leased buildings and office space are generally paid by the
Company.
<TABLE>
<CAPTION>
A summary of noncancellable long-term operating lease commitments as of December
31, 1998 follows (in thousands):
Years ending
December 31, Amount
- -------------- -------
<S> <C>
1999 $ 369
2000 366
2001 292
2002 241
2003 201
2004 and after 358
-------
Total $ 1,827
=======
</TABLE>
(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, 1998 were: Commercial letters of
credit $3,462,000 and unused commitments $39,842,000. The contract amounts of
these commitments at December 31, 1997 were: Commercial letters of credit
$1,796,000 and unused commitments $34,766,000. 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
$6,200,000 at December 31, 1998.
The Company committed $1,980,000 to fund a 20% 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, 1998, the Company had funded $1,406,000 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, 1998 was approximately $6,000,000.
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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, 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 I
risk-based, and Tier I 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.
<TABLE>
<CAPTION>
To Be Well-
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
-------------------------- ------------------- ---------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------------- ----------- ----------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998
Total Capital (to risk weighted assets) $ 39,956 13.0% $ 24,620 8.0% $30,776 10.0%
Tier 1 Capital (to risk weighted assets) $ 36,564 11.9% $ 12,310 4.0% $18,465 6.0%
Tier 1 Capital (to average assets) $ 36,564 8.6% $ 16,977 4.0% $21,221 5.0%
As of December 31, 1997
Total Capital (to risk weighted assets) $ 41,279 13.7% $ 24,105 8.0% $30,131 10.0%
Tier 1 Capital (to risk weighted assets) $ 38,126 12.7% $ 12,008 4.0% $18,012 6.0%
Tier 1 Capital (to average assets) $ 38,126 9.5% $ 16,053 4.0% $20,066 5.0%
</TABLE>
Page 25
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) LOANS TO DIRECTORS AND OFFICERS
Certain executive officers, directors, and their business interests are
customers of the Company. 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, 1998 and 1997, loans and
unused commitments to these related parties amounted to $4,311,000 and
$4,221,000, respectively.
(17) CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
<TABLE>
<CAPTION>
The following are the condensed balance sheets, statements of income, and
statements of cash flows for Canandaigua National Corporation, (dollars in
thousands).
BALANCE SHEETS
- ---------------
December 31,
------------------
1998 1997
--------- ------
<S> <C> <C>
Assets:
Cash $ 114 106
Securities available for sale 185 185
Premises and equipment - net 730 743
Investment in subsidiaries 41,328 39,777
Other assets 122 122
--------- ------
Total Assets $ 42,479 40,933
========= ======
Liabilities:
Other liabilities $ 1 1
Stockholders' equity:
Common stock 8,110 8,110
Additional paid in capital 8,489 8,489
Retained earnings 26,569 24,742
Treasury stock at cost (2,479 shares in
1998 and 1,642 shares in 1997) (835) (528)
Accumulated other comprehensive income 145 119
--------- -------
Total stockholders' equity 42,478 40,932
--------- -------
Total liabilities and stockholders' equity $ 42,479 40,933
========= =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
--------------------------
1998 1997 1996
-------- ----- -----
<S> <C> <C> <C>
Income - Dividends from the Canandaigua
National Bank and Trust Company $ 5,122 2,975 1,750
Other income 11 7 12
Other expense (34) (66) (77)
-------- ----- -----
Income before undistributed income of
subsidiaries 5,099 2,916 1,685
Undistributed (distributions in excess
of)current year income of subsidiaries (1,512) 821 1,262
-------- ----- -----
Net income $ 3,587 3,737 2,947
======== ===== =====
</TABLE>
Page 26
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,587 3,737 2,947
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 30 10 -
Undistributed (distributions in excess
of)current year income of subsidiaries 1,512 (821) (1,262)
Other - (7) 29
-------- ------- -------
Net cash provided by operating
activities 5,129 2,919 1,714
-------- ------- -------
Cash flows from investing activities:
Sale of securities - - 5
Purchase of subsidiaries - (718) (102)
Loans disbursed net of principal payments
received - - 11
Decrease in other real estate - 450 796
Additional capital investments in
subsidiaries (3,037) (202) (625)
Fixed assets purchased, net (17) (743) -
-------- ------- -------
Net cash provided by investing
activities (3,054) (1,213) 85
-------- ------- -------
Cash flows from financing activities:
Proceeds from sale of treasury stock 47 42 -
Purchase of treasury stock (348) (398) (174)
Dividends paid (1,766) (1,609) (1,414)
Net cash used by financing
activities (2,067) (1,965) (1,588)
-------- ------- -------
Net increase in cash 8 (259) 211
Cash at beginning of year 106 365 154
-------- ------- -------
Cash at end of year $ 114 106 365
======== ======= =======
</TABLE>
In 1996, the Company acquired a subsidiary for stock in the amount of $338,000.
Page 27
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
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
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, is 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.
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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
<TABLE>
<CAPTION>
The estimated fair values of the Company's financial instruments are as follows (dollars
in thousands):
December 31, 1998 December 31, 1997
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value(1) Amount Value(1)
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and equivalents $ 24,206 24,206 19,647 19,647
Securities 76,464 77,673 74,499 74,796
Loans, net 308,486 318,735 305,991 311,295
Financial Liabilities:
Deposits:
Demand accounts, savings and
money market accounts 230,561 230,561 211,173 211,173
Certificates of deposit 145,946 147,109 113,588 113,987
Advances from FHLB 7,142 6,863 50,667 49,728
Off-balance-sheet commitments:
Commercial letters of credit $ - 35 - 40
Unused lines of credit - - - -
</TABLE>
(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.
(19) INDUSTRY SEGMENT INFORMATION
The Company's operations are solely in the financial services industry and
include the provision of traditional commercial banking services and other
financial services (mortgage banking and insurance brokering.) The Company
operates in the geographical region of Western Ontario County and Eastern Monroe
County of New York State. The Company has identified operating segments,
however, these segments did not meet the quantitative thresholds for separate
disclosure.
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 1993.
<TABLE>
<CAPTION>
AVERAGE DIVIDEND
SALE PRICE BOOK VALUE PAID
----------- ----------- -----
<S> <C> <C> <C>
1998
- -----------
4th quarter no sales $ 265.94
3rd quarter 360.52 $ 261.09 $5.50
2nd quarter no sales $ 260.72
1st quarter 351.16 $ 255.68 $5.50
1997
- -----------
4th quarter no sales $ 254.92
3rd quarter 335.87 $ 252.57 $5.25
2nd quarter 320.59 $ 251.25
1st quarter 326.61 $ 243.32 $4.75
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
</TABLE>
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
<PAGE>
COMMUNITY ADVISORY COMMITTEES
(photograph of committee)
Bloomfield Bank Office
Joseph Ferris, DVM, David Hamlin, Jr.,
Frank J. Marianacci,
Judith S. Smith, Barbara A. Thorpe
(photograph of committee)
Farmington Bank Office
Lawrence E. Potter, Henry A. Trickey, Jr.
Mary Catherine VanBortel, Anne P. Fessler, DVM
(photograph of committee)
Honeoye Bank Office
Ralph C. Annechino, George A. Ward,
Earl L. Mastin,
Herbert E. Treble, Barbara B. Overfield
(photograph of committee)
Manchester-Shortsville Bank Office
Mary C. Record, Gary H. Bliss,
Charles D. Zonneville, Diane C. Mordue
(photograph of committee)
Mendon Bank Office
A. Jack Leckie, Charles H. Meisenzahl,
Clayton G. Zuber, Christopher M. Keys,
Marvin E. Hogan
(photograph of committee)
Victor Bank Office
John W. VanVechten, Gary L. Bennett,
William H. Turner,
Eldred M. Sale, L. Kenneth Bliss
Page 31
<PAGE>
THE CANANDAIGUA NATIONAL BANK AND TRUST COMPANY
Officers
Office of the President
George W. Hamlin, IV, President, CEO, Trust and CRA Officer
Jean M. Baldick, Assistant Vice President, Executive Assistant to the
President
Lawrence A. Heilbronner, Vice President - Finance
Robert L. Simpson, Assistant Vice President - Finance
Retail Services
Robert G. Sheridan, Senior Vice President and Cashier
Judith M. Stewart, Vice President - Training, Community Office Operations &
Security Officer
Richard T. Wade, Assistant Vice President - Consumer Loans
J. Thomas Lenda, Assistant Vice President - Mortgage Origination
Lori R. Ellis, Assistant Vice President
Jane R. Hamlin, Assistant Vice President
Richard J. Ertel, Assistant Vice President
Denise J. Salvatore, Assistant Branch Administrator
Commercial Services
James C. Minges, Senior Vice President
Wesley L. Talbett, Vice President
William E. Pearce, Vice President
Steven W. Robertson, Vice President
Carl A. Mabie, Vice President - Resource Recovery and Credit Services
Teresa P. Iula, Assistant Vice President
William J. Van Damme, Assistant Vice President
A. Rosamond Zatyko, Assistant Vice President - Credit Administration
Dorothy A. Ducatte, Project Manager - Assets and Assistant CRA Officer
Bernard E. Belcher, Assistant Vice President
Investment Services
Gregory S. MacKay, Senior Vice President
James M. Exton, Vice President - Investment Officer
Scott B. Trumbower, Vice President - Employee Benefit Programs
Robert J. Swartout, Vice President - Investment Officer
Anthony D. Figueiredo, Vice President - Trust Investment Officer
Mary Kay Bashaw, Assistant Vice President - Investment Officer
Patricia A. McAuley, Assistant Vice President - Investment IRA's
Francis P. Lupiani, Investment Officer
Trust Services
Richard H. Hawks, Jr., Senior Vice President and Trust Officer
Beth Uhlen, Assistant Vice President - Manager Trust Operations
Joseph P. Coonan, Trust Development Officer
Operations
David R. Morrow, Senior Vice President
Kathleen G. Corry, Vice President - Bank Operations
Sandra U. Roberts, Vice President - Manager Data Processing
Susan H. Foose, Vice President - Retail Operations
Gerald E. Terragnoli, Assistant Vice President - Senior Systems Analyst
Michael A. Mandrino, Assistant Vice President - Information Systems Architect
Dawn C. Phelps, Assistant Vice President
Gilberta C. Elliott - Assistant Vice President
Audit
Linda M. Rogers, CFSA, CBA, Vice President and Corporate Audit Manager
Gretchen A. Alles, Senior Auditor
Diane B. Savage, Audit Officer
Marketing
Stephen R. Martin, Vice President - Marketing
Tamra A.B. O'Donnell, Marketing Information Officer
Administrative
Mary Ann M. Ridley, Vice President - Human Resources
Marie E. Dastin, Bank Officer
Vicki B. Mandrino, Compliance Officer
Page 32
<PAGE>
THE CANANDAIGUA NATIONAL BANK AND TRUST COMPANY
Community Banking Offices
Bloomfield Bank Office
Barbara A. Thorpe, Assistant Vice President - Community Office Manager
Canandaigua Bank Office
Michael D. O'Donnell, Assistant Vice President - Community Office Manager
Roy M. Beecher, Assistant Vice President
Marcia M. Minges, Assistant Vice President
Linda M. Keyes, Consumer Services Officer
Customer Call Center
Patrick J. Kelly, Assistant Vice President - Call Center Manager
Eastview Mall Bank Office
Robin A.-Erb, Community Office Manager
Farmington Bank Office
Henry A. Trickey Jr., Assistant Vice President - Community Office Manager
Timi L. Wright, Bank Officer
Honeoye Bank Office
Barbara B. Overfield, Assistant Vice President - Community Office Manager
Sandra L. D'Angelo, Bank Officer
Lakeshore Bank Office
Dolores J. Reynolds, Assistant Vice President - Community Office Manager
Jason A. Ingalls, Bank Officer
Manchester-Shortsville Bank Office
Diane C. Mordue, Assistant Vice President - Community Office Manager
Mendon Bank Office
Christopher M. Keys, Bank Officer - Community Office Manager
Mary Ellen McMurry, Bank Officer
Pittsford Bank Office
Karen C. Serinis, Assistant Vice President - Community Office Manager
Commercial Services
Robert L. Lowenthal, Vice President - Commercial Lending
Gary L. Babbitt, Vice President - Commercial Lending
Trust and Investment Services
Paul R. Callaway, Vice President and Trust Officer
Sharon E. Greisberger, Assistant Vice President
Victor Bank Office
John W. Van Vechten, Vice President - Community Office Manager
Leslie C. O'Malley, Bank Officer
Webster Bank Office
Kathleen Vasile, Assistant Vice President - Community Office Manager
Kathleen A. Rice, Bank Officer
Keith J. Goebel, Assistant Vice President - Commercial Lending
Page 33
<PAGE>
Arthur S. Hamlin
1997 Recipient
(photograph of the award)
(photograph of Kathy Lafler)
"Arthur S. Hamlin's commitment to CNB and the many
organizations throughout the community is continual.
We can be proud to work for the financial institution that he
is so much a part of and has remained very active in.
I was honored to be recognized by my fellow employees and
receive an award named after such an outstanding man."
Kathy Lafler
(photographs of all the 1998 nominees)
1998 Nominees
Gretchen A. Alles
Lynn E. Colyer
Donna J. DeVries
Barbara A. Finch
Amy L. Force
Loren l. Garlock
Kristi M. Hamann
Jennifer B. Housel
Rebecca A. Long
Kelly J. Masline
Judy A. Reader
Jan C. Schrader
Robert L. Simpson
Tamera M. Straight
Corene M. Trickey
Mary Beth Uhlen
Past Recipients
Linda Keyes - 1989
Jerry Drake - 1990
Michael O'Donnell - 1991
James Roth - 1992
Kathleen Corry - 1993
Susan Foose - 1994
Amy Eagley and Regina Kesel - 1995
Jeannie Baldick - 1996
Page 34
<PAGE>
WELCOME OUR NEW DIRECTORS
(photograph of James S. Fralick)
James S. Fralick
James S. Fralick, B.S., M.A., Phd., joined the Board of Directors of The
Canandaigua National Bank and Trust Company and Canandaigua National Corporation
in September of 1998. Currently, he is an Adjunct Professor at the University
of Rochester's Simon School and Syracuse University's Maxwell School, teaching
Public Policy Toward Financial Markets, International Finance, Banking and
Financial Markets, and Macro-economic Theory. For 15 years prior, Mr. Fralick
was Principal and Director of European Economic Research at Morgan Stanley &
Co., managing a department of nine professional economists in London and Paris,
as well as advising senior risk takers and investors of global and Pan European
economic trends and policy developments. Earlier positions included Vice
President of Morgan Guaranty Trust Co. and Senior Economist with the Board of
Governors of the Federal Reserve System in Washington, DC. He was selected
LeMoyne College's "Businessman of the Year" in 1988 and was also named to
"Institutional Investor's" All American Fixed Income Team and All Europe
Research Team. Mr. Fralick lives in Canandaigua with his wife, Ellie. They are
the parents of three children; Jimmy Fralick, Ann Fuell, and Molly Fralick.
(photograph of Richard P. Miller, Jr.)
Richard P. Miller, Jr.
Richard P. Miller, Jr., B.A. Middlebury, joined the Board of Directors of The
Canandaigua National Bank and Trust Company and Canandaigua National Corporation
in December of 1998. Currently, he is the Senior Vice President and Chief
Operations Officer at the University of Rochester. Prior to joining the
University of Rochester, Mr. Miller was associated with Case-Hoyt, starting as a
sales representative in 1967, holding numerous positions culminating as
President and CEO in 1982. He served in the U.S. Army from 1965 through 1967
receiving the Bronze Star, Air Medal Valor Device, and Army Commendation Valor
Device for his service in Vietnam. Mr. Miller has been actively involved in
community activities for a number of years and currently serves as a Director
for the Genesee Corporation, Frontier Telephone of Rochester, and the Rochester
Area Community Foundation. Mr. Miller lives in the town of South Bristol on
Canandaigua Lake with his wife, Barbara. They are the parents of two sons,
Matthew and Jason.
Page 35
<PAGE>
(photograph of Webster Office)
On November 17, 1998, Canandaigua National Bank and Trust opened its third
Monroe County location in Webster at 1998 Empire Boulevard. The strategic
identification of this location supports an existing customer base obtained
through our indirect lending initiatives. This location is also positioned in
the fastest growing town in Monroe County and will provide us the opportunity to
offer our personal approach to financial services in this new market.
Designed with the influence and success of the "Pittsford Model," this
office features a customer-friendly banking environment. As you enter the
office, you are welcomed with an information desk where you are greeted and
directed to the area you need. Tellers and customers conduct transactions at a
sit-down counter, while children play with books and toys or watch a movie on
the television in pint-sized furniture. The foyer offers self-serve safekeeping
boxes and traditional safe deposit boxes are in the vault. Soon to come is a
computer to be set up in the lobby to allow customers access to their account
through the internet.
The staff of this office includes experienced banking professionals, many of
whom are from the Rochester Area.
In addition to the traditional members of a branch team, there is a Commercial
Lender to provide local businesses with the services they desire. The Webster
office offers extended banking hours of 8:30 a.m. - 5:00 p.m. Monday through
Wednesday, 8:30 a.m. - 6:00 p.m. on Thursday and Friday, and 9:00 a.m. - 1:00
p.m. on Saturday.
Each of the initiatives at this location is intended to increase the level of
value-added service to the customer and to continue our commitment to provide
our customers with the most comprehensive array of financial services.
Page 36
<PAGE>
