UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ____________
Commission File Number 2-94863
CANANDAIGUA NATIONAL CORPORATION
----------------------------------
(Exact name of Registrant as specified in its charter)
New York 16-1234823
--------- ----------
(State of Incorporation) (IRS Employer Identification No.)
72 South Main Street, Canandaigua, NY 14424
------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 394-4260
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
240,000 shares $50 par common
---------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
Of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of January 31, 2000.
Common Stock, $50.00 par value - described on page 8 of 1999 Annual
Report and Common Stock Data disclosed on page 31 of the Annual Report are
incorporated herein by reference.
Number of shares outstanding of the Registrant's shares of common stock
as of January 31, 2000. 158,483 shares, common stock, $50.00 par value
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
disclosed on page 31 of the Annual Report may not be indicative of the
actual market value of the Company's stock.
Page 1
<PAGE>
Documents Incorporated by Reference
---------------------------------------------------
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1999 are incorporated by reference into Parts I and II.
Portions of the Registrant's Definitive Proxy Statement relating to the Annual
Meeting of Shareholders held on March 15, 2000 are incorporated by reference
into Part III.
SAFE HARBOR STATEMENT
- -----------------------
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: This report contains certain "forward-looking statements" intended to
qualify for the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. When used or incorporated by reference in the Company's
disclosure documents, the words "anticipate," "estimate," "expect," "project,"
"target," "goal" and similar expressions, as well as discussion regarding the
"Year 2000 issue," are intended to identify forward-looking statements within
the meaning of Section 27A of the Securities Act. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions,
including, but not limited to (1) economic conditions, (2) real estate market,
and (3) interest rates. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected or projected.
These forward looking statements speak only as of the date of the document. The
Company expressly disclaims any obligation or undertaking to publicly release
any updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectation with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
Page 2
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION
FORM 10-K
INDEX
Page No.
PART I.
<S> <C>
Item 1. Business 4
Item 2. Properties 18
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
PART II.
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 29
PART III.
Item 10. Directors and Executive Officers of
the Registrant 29
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain
Beneficial Owners and Management 30
Item 13. Certain Relationships and Related Transactions 31
PART IV.
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 31
Signatures 33
</TABLE>
Page 3
<PAGE>
PART I
Item 1. Business
Canandaigua National Corporation
The Canandaigua National Corporation, referred to as The Corporation, is a
one-bank holding company which builds lasting customer relationships by
providing comprehensive financial solutions to individuals, be they building
families or businesses. It was organized on October 31, 1984, and registered
under the Bank Holding Company Act of 1956, for the purpose of becoming a
one-bank holding company. The formation of the bank holding company was
consummated on May 31, 1985, through the exchange of 80,000 shares of
Canandaigua National Corporation $50 par value common stock for all of the
outstanding shares of The Canandaigua National Bank and Trust Company. The
one-bank holding company serves as a means of increasing the scope of banking
and financial services in the market area served by The Canandaigua National
Bank and Trust Company. The Corporation acquired 100% of Home Town Funding, Inc.
(HTF) during 1997. HTF offers mortgage products that the bank is not licensed
to offer, therefore offering the Corporation's customers a larger range of
products. HTF is engaged in underwriting and funding mortgages in western New
York State. HTF typically resells residential mortgages to unaffiliated
entities, which service the loans. On January 1, 1999 the Corporation merged
the mortgage banking operations of HTF and Greater Funding of New York, Inc
(GFNYI), a mortgage banking company acquired in 1996. The Bank will remain the
principal source of the Corporation's operating revenue and net income.
The Canandaigua National Bank and Trust Company
The Canandaigua National Bank and Trust Company ("Bank") was incorporated
under the laws of The United States of America as a national bank in 1887.
Since that time, the Bank has operated as a national banking association doing
business at its main office at 72 South Main Street, Canandaigua, New York and
several locations in Ontario County and Monroe County, New York.
As of December 31, 1999, Bank had total assets of $518,369,000; total
capital of $37,018,000; and total deposits of $456,015,000. Its deposits are
insured through the Bank Insurance Fund by the Federal Deposit Insurance
Corporation.
The Bank provides a full range of financial services to its retail,
commercial and municipal customers through a variety of deposit, lending, trust,
investment and insurance products. These products are delivered by employees
through a "life-stage" marketing concept, whereby customers' needs are
anticipated and evaluated based upon their life stage (e.g. growing family,
retirement, college student, etc.). New products are developed around this
concept. These services are delivered through the Bank's network of sixteen
community banking offices, which include drive-up facilities and automatic
teller machines, its customer call center, the internet and other remote
cash-dispensing machines. The locations and staffing of the Bank's full service
offices are described in more detail in Item 2 and on page 34 of the Annual
Report.
The Bank's deposit services include accepting time, demand and savings
deposits, NOW accounts, regular savings accounts, money market deposits, fixed
rate certificates of deposit and club accounts. The Bank also provides its
retail customers safe-keeping services through the renting of safe deposit
facilities.
The Bank's lending services include making secured and unsecured commercial
and consumer loans, financing commercial transactions either directly or through
regional industrial development corporations, making construction and mortgage
loans. Other services include making residential mortgage loans, revolving
credit loans with overdraft checking protection, small business loans, and
student loans. The Bank's business loans include seasonal, credit, collateral,
and term loans.
Page 4
<PAGE>
Item 1. Business
The Canandaigua National Bank and Trust Company (continued)
Trust and investment services provided by the Bank include services as
executor and trustee under wills and deeds, as guardian and custodian and as
trustee and agent for pension, profit sharing, individual retirement account and
other employee benefit trusts as well as various investment, pension and estate
planning services. Trust services also include service as transfer agent and
registrar of Canandaigua National Corporation stock and as paying agent for
various bond issues and as escrow agent.
Since the formation of its insurance subsidiary in 1995 and upon its
successful lawsuit against the New York State Superintendent of Insurance, the
Bank has been offering a full line of auto, home and life insurance products to
its customers through its wholly owned subsidiary, CNB Agency.
The Bank also administers the assets of the Canandaigua Equity Fund and
the Canandaigua Bond Fund. [Shares of these funds are not bank deposits or
obligations of, or guaranteed or endorsed by, any bank, and are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or and
other agency. Shares of these funds may go down in value.]
The Bank has a relatively stable deposit base and no material amount of
deposits
are obtained from a single depositor. Historically, approximately 15% of
average deposits are placed by local governments in the Bank's business region.
The Bank has not experienced any significant seasonal fluctuations in the amount
of its deposits nor does the Bank rely on foreign sources of funds or income.
Territory Served
The Company's physical market area generally covers western Ontario County
and Monroe County in New York State. Customers generally initiate their
relationship with the Bank from this area. However, the Bank conducts business
through the internet and by telephone and with payment services such as credit
cards and debit cards, the Bank's customer are served world-wide. Since the mid
1990's, the Bank expanded into Monroe County by opening community banking
offices in Pittsford (1995), Webster/Penfield (1998), Greece (1999), Chili
(1999), Honeoye Falls (1999), Perinton (2000), and Irondequoit (2000). Under
renovation and scheduled for opening in 2000 are locations in the City of
Rochester and Bushnell's Basin.
Competition
The Company considers its business to be highly competitive in its service
areas. The Company competes with respect to its lending services, as well as in
attracting deposits, with commercial banks, savings banks, savings and loan
associations, insurance companies, regulated small loan companies, non-bank
banks, credit unions and investment managers. The Company also competes with
insurance companies, investment counseling firms, mutual funds and other
business firms and individuals in corporate trust and investment management
services.
The Company is generally competitive with all financial institutions in its
service area with respect to interest rates paid on time and savings deposits
and interest rates charged on loans and service charges on deposit accounts.
One measure of competitive strength is the percentage of deposits held by
an institution in a geographic location. Based upon the most recent data
available from the FDIC as of June 30, 1999, the Company's share of deposits for
all banks was 36% in Ontario County compared to 35% in 1998. In Monroe County
the Bank's share doubled to .6% ($54,228,000) in 1999 from .3% ($25,780,000) in
1998.
Employees
At December 31, 1999, the Company had 323 employees of whom 69 worked on a
part-time basis. None of the employees are covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
Page 5
<PAGE>
Item 1. Business (continued)
Supervision and Regulation
Canandaigua National Corporation is incorporated under the laws of the
State
of New York. As a bank holding company, the Company is subject to the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), and is required to file
annual reports and such additional information as may be required by the Federal
Reserve Board (the "FRB") pursuant to the BHC Act. The FRB has the authority to
examine the Company and its subsidiaries.
The Gramm-Leach-Bliley Act (the Act) of 1999 was signed into law by
President Clinton on November 12, 1999. The Act represents the most sweeping
reform of financial services regulation in over sixty years. The Act permits
the creation of new financial products under a strong regulatory regime based on
the principle of functional regulation. The legislation eliminates legal
barriers to affiliation among banks and securities firms, insurance companies,
and other financial services companies. The Act provides financial
organizations with flexibility in structuring these new financial affiliations
through a holding company structure or a financial subsidiary, with appropriate
safeguards.
The Act preserves the role of the Federal Reserve Board as the umbrella
supervisor for holding companies while at the same time incorporating a system
of functional regulation designed to utilize the strengths of the various
federal and state regulators. It also sets up a mechanism for coordination
between the Federal Reserve Board and the Secretary of the Treasury regarding
the approval of new financial activities for both holding companies and national
bank financial subsidiaries.
The Act also establishes, for the first time, a minimum federal standard
for privacy. Financial institutions are required to have written privacy
policies that must be disclosed to customers. The disclosure of a financial
institution's privacy policy must take place at the time a customer relationship
is established and not less than annually during the continuation of the
relationship.
The Act also provides for functional regulation of bank securities
activities. The Act repeals Bank's blanket exemption from the definition of a
"broker" and replaces it with a set of limited exemptions that allow the
continuation of some traditional activities performed by banks (trust-related
activities). The Act amends the Exchange Act to include banks within the
general definition of dealer. The bank exclusion from the definition of
investment adviser is also eliminated.
The Act opens the possibility for complex new products to be developed with
both banking and securities elements. The Act provides a procedure for handling
new hybrid products sold by banks that have securities elements. The statute
provides for a rule-making and resolution process between the Securities and
Exchange Commission (SEC) and the Federal Reserve Board regarding new hybrid
products, with a federal appeal court as final arbiter.
As discussed above, the Company already conducts business directly, through
affiliates or through other contractual arrangements in many of the activities
allowed under the Act. Management and the Board of Directors review the
Company's strategic plan at least annually. However, the implications of the
Act on the Company have not yet been assessed.
The Federal Reserve Act imposes restrictions on extensions of credit by
subsidiary banks of a bank holding company to the bank holding company or any of
its subsidiaries, or investments in the stock or other securities of the holding
company, and on the use of such stock or securities as collateral for loans to
any borrower. Further, under the FRB's regulations, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property, or
furnishing of services.
Page 6
<PAGE>
Item 1. Business
Supervision and Regulation (continued)
From time to time the FRB may adopt further regulations pursuant to the
Act. The Company cannot predict whether any further regulations will be adopted
or how such regulations will affect the consolidated operating results or
business of the Company.
In addition, the Corporation reports to the Securities and Exchange
Commission under the laws governing corporations with registered securities.
The primary supervisory authority of the Bank is the Office of the
Comptroller of the Currency (the " OCC"), which regularly examines aspects of
the Bank's operations such as capital adequacy, reserves, loans, investments,
management practices, etc. In addition to these regular examinations, the Bank
must furnish quarterly and annual reports to the OCC. The OCC has the authority
to issue cease-and-desist orders to prevent a bank from engaging in an unsafe or
an unsound practice or violating the law in conducting its business.
The Bank is also a member of the Federal Reserve System, and as such, is
subject to certain laws and regulations administered by the FRB. As a member
of the Federal Reserve System, the Bank is required to maintain non-interest
bearing reserves against certain accounts. The amount of reserves required to
be maintained is established by regulations of the FRB and is subject to
adjustment from time to time.
The Bank's deposits are insured by the Bank Insurance Fund (BIF) of the
FDIC up to a maximum of $100,000 per insured deposit account, subject to the
rules and regulations of the FDIC. For this protection, the Bank pays a
quarterly statutory assessment.
Government Monetary Policies and Economic Controls
The earnings of the Company and the Bank are affected by the policies of
regulatory authorities including the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System and the Federal Deposit Insurance
Corporation. An important function of the Federal Reserve System is to regulate
the money supply and interest rates. Among the instruments used to implement
these objectives are open market operations in U.S. Government securities,
changes in reserve requirements against member bank deposits, and changes in the
federal discount rate. These instruments are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
for deposits.
The policies and regulations of the Federal Reserve Board have had, and
will probably continue to have, a significant effect on the Bank's deposits,
loans and investment growth, as well as the rate of interest earned and paid,
and are expected to affect the Bank's operations in the future. The effect of
such policies and regulations, if any, upon the future business and earnings of
the Bank cannot be predicted.
The United States Congress has periodically considered and adopted
legislation that has resulted in deregulation of banks and other financial
institutions. Such legislative changes have placed the Bank in more direct
competition with other financial institutions including mutual funds, securities
brokerage firms, insurance companies, and investment banking firms. The effect
of any such legislation on the business of the Bank cannot be predicted.
Consolidated Financial and Statistical Data
A review of the business activities of the Corporation and Bank is
presented in the following pages.
Page 7
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
A. and B. Average Balance Sheets and Analysis of Net Interest Margin
The following table reflects the net interest margin and interest rate
spread for the years shown. Average amounts are based upon the average daily
balances. No tax equivalent adjustments have been made.
<TABLE>
<CAPTION>
Average Balance Sheets and Analysis of Net Interest Margin
For the Years December 31, 1999, 1999 and 1997
(Dollars in thousands)
1999 Average Average
--------- --------
Balance Interest Rate
- ------------------------------------ ---------- ---------
<S> <C> <C> <C>
Assets
Interest earning assets:
Interest bearing deposits with
Others $ 182 $ 6 3.30%
Federal funds sold 4,700 226 4.81
Securities (1):
Taxable 36,647 2,015 5.50
Tax-exempt 40,853 1,741 4.26
Loans, net (2) 339,351 28,865 8.51
---------- --------- --------
Total interest earning assets 421,733 32,853 7.79
--------- ========
Non-interest earning assets 47,893
----------
Total assets $ 469,626
==========
Liabilities and Stockholders'
Equity
Interest bearing liabilities:
Savings, interest checking and
Money market $ 188,333 4,676 2.48%
Certificates of deposit 156,618 8,049 5.14
FHLB Advances 9,917 527 5.31
---------- --------- --------
Total interest bearing
liabilities 354,868 13,252 3.73
--------- ========
Non-interest bearing liabilities 73,225
Stockholders' equity 41,533
----------
Total liabilities and
stockholder's equity $ 469,626
==========
Interest rate spread 4.06%
==========
Net interest margin $ 19,601 4.65%
========== =========
<FN>
(1) Securities available-for sale are stated at fair value and includes the
Company's required investments in Federal Reserve Bank Stock and Federal Home
Loan Bank Stock.
(2) Average balance includes non-accrual loans and interest includes fees of
$ 463,000
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
1998 Average Average
--------- --------
Balance Interest Rate
- ------------------------------------ ---------- ---------
<S> <C> <C> <C>
Assets
Interest earning assets:
Interest bearing deposits with
others $ 368 $ 19 5.16%
Federal funds sold 630 33 5.24
Securities (1):
Taxable 41,131 2,400 5.84
Tax-exempt 34,511 1,567 4.54
Loans, net (2) 303,940 26,834 8.83
---------- --------- --------
Total interest earning assets 380,580 30,853 8.11%
--------- ========
Non-interest earning assets 36,421
----------
Total assets $ 417,001
==========
Liabilities and Stockholders'
Equity
Interest bearing liabilities:
Savings, interest checking and
money market $ 152,018 3,675 2.42%
Certificates of deposit 128,942 7,071 5.48
FHLB Advances 29,926 1,687 5.64
---------- --------- --------
Total interest bearing
liabilities 310,886 12,433 4.00%
--------- ========
Non-interest bearing liabilities 65,758
Stockholders' equity 40,357
----------
Total liabilities and
stockholder's equity $ 417,001
==========
Interest rate spread 4.11%
==========
Net interest margin $ 18,420 4.84%
========== =========
<FN>
(1) Securities available-for sale are stated at fair value and includes the
Company's required investments in Federal Reserve Bank Stock and Federal Home
Loan Bank Stock.
(2) Average balance includes non-accrual loans and interest includes fees
of $ 227,000
</TABLE>
Page 9
<PAGE>
<TABLE>
<CAPTION>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
1997 Average Average
Balance Interest Rate
--------- ---------- -------
<S> <C> <C> <C>
Assets
Interest earning assets:
Interest bearing deposits with
others $ 264 $ 16 6.06%
Federal funds sold 19 1 5.26
Securities(1):
Taxable 43,240 2,587 5.98
Tax-exempt 31,037 1,440 4.64
Loans, net (2) 282,894 25,389 8.97
---------- --------- --------
Total interest earning assets 357,454 29,433 8.23%
--------- ========
Non-interest earning assets 28,313
----------
Total assets $ 385,767
==========
Liabilities and Stockholders'
Equity
Interest bearing liabilities:
Savings, interest checking and
money market $ 145,418 3,521 2.42%
Certificates of deposit 112,661 6,212 5.51
FHLB Advances 26,942 1,506 5.59
---------- --------- --------
Total interest bearing
liabilities 285,021 11,239 3.94%
--------- ========
Non-interest bearing liabilities 61,363
Stockholders' equity 39,383
----------
Total liabilities and
stockholder's equity $ 385,767
==========
Interest rate spread 4.29%
==========
Net interest margin $ 18,194 5.09%
========== =========
<FN>
(1) Securities available-for sale are stated at fair value and includes the
Company's required investments in Federal Reserve Bank Stock and Federal Home
Loan Bank Stock.
(2) Average balance includes non-accrual loans and interest includes fees
of $ 402,000
</TABLE>
C. Rate/Volume Analysis
The following table sets forth the dollar and volume of changes in interest
income and interest expense resulting from changes in the volume of earning
assets and interest bearing liabilities, and from changes in rates. Volume
changes are computed by multiplying the volume difference by the prior year's
rate. Rate changes are computed by multiplying the rate difference by the prior
year's balance. The change in interest due to both rate and volume has been
allocated to rate and volume changes in proportion to the dollar amounts of the
change in each.
Page 10
<PAGE>
<TABLE>
<CAPTION>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
C. Rate/Volume Analysis (continued)
Rate/Volume Analysis
For the Years December 31, 1999 and 1998
(Dollars in thousands)
1999 vs. 1998
Increase/(decrease) due
to change in
Volume Rate Total
-------- -------- --------
<S> <C> <C> <C>
Assets
Interest bearing deposits with
Others $ (8) $ (5) $ (13)
Federal funds sold 196 (3) 193
Securities 96 (307) (211)
Loans, net 3,039 (1,008) 2,031
-------- -------- --------
Total 3,323 (1,323) 2,000
======== ======== ========
Liabilities
Savings, interest checking and
Money market 899 102 1,001
Certificates of deposit 1,444 (466) 978
FHLB Advances (1,068) (92) (1,160)
-------- -------- --------
Total 1,275 (456) 819
======== ======== ========
Net change $ 2,048 $ (867) $ 1,181
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 vs. 1997
Increase/(decrease) due
to change in
Volume Rate Total
------- ------ -------
<S> <C> <C> <C>
Assets
Interest bearing deposits with
others $ 3 $ -- $ 3
Federal funds sold 32 -- 32
Securities 73 (133) (60)
Loans, net 1,864 (419) 1,445
------- ------ -------
Total 1,972 (552) 1,420
======= ====== =======
Liabilities
Savings, interest checking and
money market 160 (6) 154
Certificates of deposit 893 (34) 859
FHLB Advances 168 13 181
------- ------ -------
Total 1,221 (27) 1,194
======= ====== =======
Net change $ 751 $(525) $ 226
======= ====== =======
</TABLE>
Page 11
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
II. Securities Portfolio
A. Securities Portfolio
<TABLE>
<CAPTION>
The following table summarizes the Company's carrying value of securities
available for sale and held to maturity. Other securities includes the Company's
required investments in Federal Reserve Bank stock and Federal Home Loan Bank
stock
Securities
As of December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1997 1997
------- ------- ------
<S> <C> <C> <C>
US Treasury and other U.S.
Government agencies' obligations $26,865 $29,936 31,413
Obligations of states and political
Subdivisions 46,061 39,253 34,273
Other securities 6,486 7,275 8,813
------- ------- ------
Total $79,412 $76,464 74,499
======= ======= ======
</TABLE>
B. Maturity and Yields of Securities Portfolio
<TABLE>
<CAPTION>
The following table summarizes the maturities and weighted average yields of the
Company's securities available for sale and held to maturity at year end. Yields on
"Obligations of States and Political Subdivisions" are not reflected on a tax equivalent
basis. Other securities includes the Company's required investments in Federal Reserve
Bank Stock and Federal Home Loan Bank Stock. Mortgage backed securities, included in
other securities, are reported at their final contractual maturity, notwithstanding that
principal is prepaid regularly, reducing their effective maturity.
Maturities and Weighted Average Yields of Securities
As of December 31, 1999
(Dollars in thousands)
After After
One Five
One through through After
Year or Five Ten Ten
Less Years Years Years
-------- -------- ------- -------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------- -------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury and other
US Government agen-
cies' obligations $ 16,373 5.37 $ 10,492 5.48 $ -- -- $ -- --
Obligations of states
And political
Subdivisions(1) 11,536 4.24 29,196 4.32 5,157 4.55 172 5.52
Other securities 1,487 6.72 492 6.53 34 8.00 4,473 6.52
-------- ------- -------- ----- ------- ----- ------- -----
Total $ 29,396 4.99 $ 40,180 4.65 $ 5,191 4.57 $ 4,645 6.48
======== ======= ======== ===== ======= ===== ======= =====
<FN>
(1) Yields are not reflected on a tax equivalent basis.
</TABLE>
Page 12
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
III. Loan Portfolio
The loan portfolio is comprised solely of domestic loans with their
concentrations set forth in the schedule of loan classifications below. Other
than general economic risks, management is not aware of any material
concentrations of credit risk to any industry or individual borrower. The
following summary shows the classifications of loans by category.
A. Types of Loans
<TABLE>
<CAPTION>
Composition of Loan Portfolio
As of December 31,
(Dollars in thousands)
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
Agricultural $ 62,491 $ 43,260 37,610 27,503 28,326
Commercial mortgage 141,255 83,771 74,228 62,513 62,038
Residential mortgage 69,862 76,130 94,593 101,349 86,641
Consumer
Auto - indirect 103,605 84,370 73,211 45,747 15,339
Other 18,561 17,753 15,245 9,925 9,146
Other 2,589 6,485 14,257 11,437 8,770
--------- --------- -------- -------- --------
398,363 311,769 309,144 258,474 210,260
Less: Allowance for loan losses (4,136) (3,283) (3,153) (2,675) (2,258)
--------- --------- -------- -------- --------
Loans, net $394,227 $308,486 305,991 255,799 208,002
========= ========= ======== ======== ========
</TABLE>
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
<TABLE>
<CAPTION>
The following table sets forth the maturities and sensitivity to changes in
interest rates of the loan portfolio exclusive of real estate mortgage, consumer
and other loans.
Maturity and Sensitivity of Loans
As of December 31, 1999
(Dollars in thousands)
After
One
One through After
Year or Five Five
Less Years Years Total
-------- ------- ------ ------
<S> <C> <C> <C> <C>
Commercial, financial and
Agricultural $ 18,880 16,195 27,416 62,491
Loans maturing after one year:
With a predetermined interest rate 1,536 7,244
With a floating or adjustable rate 14,659 20,172
</TABLE>
The maturities set forth above are based upon contractual maturities.
Demand loans, overdrafts and certain time loans, the principal of which will be
renewed in whole or in part, are included in the " One Year or Less"
classification. The Company's loan policy encourages a repayment schedule to be
established whenever possible.
The policy provides that a demand loan should not be renewed more than
once, with renewals at the then prevailing interest rates and with the assurance
the borrower demonstrates the ability to repay on maturity of the loan.
Page 13
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
III. Loan Portfolio (continued)
The Company provides standby letters of credit commitments which also
provide for availability of funds over a period of generally one year. All such
commitments have fixed expiration dates and may require the payment of a fee.
The Company extends lines of credit under which a customer may borrow for
various purposes such as letters of credit. The extension of these commitments
and lines of credit have been in the normal course of business. In the opinion
of management, at December 31, 1999, there are no material commitments to extend
credit which represent unusual risks.
C. Risk Elements
(1) Non-accrual, Past Due and Restructured Loans
<TABLE>
<CAPTION>
The following table summarizes the Company's non-performing assets as of
December 31 for each of the last five years.
Non-Performing Assets
(Dollars in thousands)
1999 1998 1997 1996 1995
-------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more and
Accruing:
Commercial, financial &
Agricultural $ -- $ 14 347 -- 12
Real estate-commercial 11 102 610 -- --
Real estate-residential 13 157 508 48 101
Consumer 91 108 501 28 55
-------- -------- ------ ------- -------
Total past due 90 days or more
And accruing 115 381 1,966 76 168
-------- -------- ------ ------- -------
Loans in non-accrual status:
Commercial, financial &
Agricultural 509 1,498 1,210 2,285 1,640
Real estate-commercial 980 225 1,327 7,565 7,280
Real estate-residential 151 390 586 1,364 2,027
Consumer -- -- 53 75 --
-------- -------- ------ ------- -------
Total non-accrual loans 1,640 2,113 3,176 11,289 10,947
-------- -------- ------ ------- -------
Total non-performing loans 1,755 2,494 5,142 11,365 11,115
-------- -------- ------ ------- -------
Other real estate owned:
Commercial 1,651 1,642 2,494 1,012 1,856
Residential -- -- 18 129 302
-------- -------- ------ ------- -------
Total other real estate owned 1,651 1,642 2,512 1,141 2,158
-------- -------- ------ ------- -------
Total non-performing assets $ 3,406 $ 4,136 7,654 12,506 13,273
======== ======== ====== ======= =======
Non-performing loans to total
period end loans 0.44% 0.80% 1.66% 4.40% 5.29%
======== ======== ====== ======= =======
Non-performing assets to total
period end loans and other real
estate .85% 1.33% 2.48% 4.84% 6.30%
======== ======== ====== ======= =======
Allowance to non-performing loans 235.67% 131.64% 61.32% 23.54% 20.31%
======== ======== ====== ======= =======
Restructured loans $ -- $ -- -- -- --
======== ======== ====== ======= =======
</TABLE>
Page 14
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
III. Loan Portfolio (continued)
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.
The Company earned interest on a cash basis of $77,000 in 1999, $281,000 in
1998 and $259,000 in 1997 on non-performing loans. Additional interest income
of $ 138,000, $ 239,000 and $636,000 would have been recognized during 1999,
1998 and 1997, respectively, if the loans reported above as non-accrual had been
current in accordance with the original terms.
(2) Potential Problem Loans
Management is unaware of any potential problem loans at December 31, 1999
which are not already disclosed in the table above.
IV. Summary of Loan Loss Experience
A. Analysis of Loss Experience
The determination of the allowance for loan losses is based on an analysis
of the loan portfolio and reflects an amount which, in management's judgment, is
adequate to provide for loan losses 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.
Page 15
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
IV. Summary of Loan Loss Experience (continued)
<TABLE>
<CAPTION>
The following table summarizes the changes in the allowance for loan losses for
each of the last five years.
Summary of Loan Loss Allowance
(Dollars in thousands)
1999 1998 1997 1996 1995
------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $3,283 $ 3,153 2,675 2,258 2,202
Provision charge to operations 1,239 641 851 1,490 1,031
Charge-offs:
Commercial, financial &
Agricultural (3) (274) (257) (1,356) (810)
Real estate-commercial -- -- -- (44) --
Real estate-residential (29) (19) (40) (16) (151)
Consumer (843) (760) (498) (221) (268)
------- -------- ------ ------- -------
(875) (1,053) (795) (1,637) (1,229)
------- -------- ------ ------- -------
Recoveries:
Commercial, financial &
Agricultural 20 25 190 216 90
Real estate-commercial -- -- -- 71 --
Real estate-residential 3 102 19 1 20
Consumer 466 415 213 276 144
------- -------- ------ ------- -------
489 542 422 564 254
------- -------- ------ ------- -------
Net charge-offs: (386) (511) (373) (1,073) (975)
------- -------- ------ ------- -------
Balance at end of year $4,136 $ 3,283 3,153 2,675 2,258
======= ======== ====== ======= =======
Net charge-offs to average loans 0.11% 0.17% 0.13% 0.47% 0.47%
======= ======== ====== ======= =======
Allowance to total loans 1.04% 1.05% 1.02% 1.03% 1.07%
======= ======== ====== ======= =======
</TABLE>
B. Allocation of Allowance for Loan Losses
The following table presents an allocation of the allowance for loan losses
and the percentage of loans in each category to total loans at December 31 of
each of the last five years. In addition to an allocation for specific problem
loans, each category includes a portion of the non-specific allowance for loan
losses based upon loans outstanding, credit risk and historical charge-offs.
Notwithstanding the following allocation, the entire allowance for loan losses
is available to absorb charge-offs in any category of loans.
Page 16
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
IV. Summary of Loan Loss Experience (continued)
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses
(Dollars in thousands)
1999 1998 1997
Allowance % (1) Allowance % (1) Allowance % (1)
------- ---------- ------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial &
Agricultural (2) $1,783 51.1% $1,484 40.7% $1,974 36.2%
Real estate-residential 50 17.5% 54 24.4% 111 30.6%
Consumer 2,303 31.4% 1,745 34.8% 1,068 33.2%
------- ---------- ------- ---------- ------- ------
$4,136 100.0% $3,283 100.0% $3,153 100.0%
======= ---------- ======= ---------- ======= ------
1996 1995
Allowance % (1) Allowance % (1)
------- ------- -------- ------
Commercial, financial &
Agricultural (2) $1,982 34.8% $1,927 43.0%
Real estate-residential 122 39.2% 86 41.2%
Consumer 571 26.0% 245 15.8%
------- ---------- ------- ------
$2,675 100.0% $2,258 100.0%
======= ---------- ======= ------
<FN>
(1)Percentage of loans in each category to total loans.
(2)Includes commercial real estate.
</TABLE>
V. Deposits
<TABLE>
<CAPTION>
The following tables summarize the average deposits and average rates paid
during the years presented.
Average Deposits and Rates Paid
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
Amount Rate Amount Rate Amount Rate
--------- ------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $ 66,769 --% $ 62,944 --% $ 59,920 --%
Interest-bearing demand 47,851 1.33% 42,099 1.50% 34,464 1.43%
Savings and money market 140,480 2.88% 109,919 2.77% 110,954 2.73%
Time 156,618 5.14% 128,942 5.48% 112,661 5.51%
-------- ------- -------- ------- -------- -----
$411,718 3.09% $343,904 3.12% $317,999 3.06%
======== ======= ======== ======= ======== =====
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth the time certificate of deposits of $100,000
or greater, classified by the time remaining until maturity, which were on
deposit as of December 31, 1999.
Maturity Distribution of Time Deposits of $100,000 or More
As of December 31, 1999
(Dollars in thousands)
<S> <C>
3 months or less $64,639
3 through 6 months 1,774
6 through 12 months 5,793
Over 12 months 9,450
-------
$81,656
=======
</TABLE>
Page 17
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
VI. Return on Equity and Assets
<TABLE>
<CAPTION>
The following table sets forth certain ratios used in evaluating the
Company's financial position and results of operations.
Financial Ratios
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Return on average assets 0.50% 0.86% 0.97%
Return on average equity 5.68% 8.89% 9.49%
Dividend payout ratio 77.81% 49.15% 43.07%
Average equity to average assets 8.84% 9.68% 10.21%
------ ------ ------
</TABLE>
VII. Short-term Borrowings
<TABLE>
<CAPTION>
The following table sets forth the Company's short terms borrowings at the
dates indicated. The Company considers short-term borrowings to be those with
an original maturity date of three months or less.
Short-term Borrowings
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands)
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Amount outstanding at December 31, 18,900 2,300 44,800
Weighted average rate 5.72% 4.84% 5.85%
Maximum outstanding at any month end 26,300 48,200 44,800
Average amount outstanding during the year 3,948 24,753 24,970
Weighted average rate 5.36% 5.66% 5.71%
</TABLE>
Item 2. Properties
Canandaigua National Corporation occupies space at the main office of the
Bank. The Company owns a building in Pittsford that is occupied by Home Town
Funding, Inc. and is sublet to them and other unrelated businesses. The Bank
owns and leases real property in Ontario County and Monroe County for its
Community Bank Offices and to support its operations.
<TABLE>
<CAPTION>
As of December 31, 1999 The Bank's operations were conducted from eight
offices (including the main office) located in Ontario County, New York and six
offices located in Monroe County, New York. In January 2000, two more offices
were opened in Monroe County. The main office of the Bank is a three-story
structure located at 72 South Main Street, Canandaigua, New York. The
administrative, operational and electronic data processing offices of the Bank
are located in this facility. There are drive-up facilities located at all
permanent offices except for the Eastview Mall and Pittsford offices. Some of
the leases also provide for contingent rent to be paid annually based upon
increases the cost of living. Properties providing customer service are as
follows:
Location Use Ownership Expiration (1)
- --------------- ---------------------- ------------- --------------
<S> <C> <C> <C>
Canandaigua, NY Main office space Owned --
Bloomfield, NY Bloomfield bank office Owned --
Canandaigua, NY Customer call center Leased office 6/30/2002
</TABLE>
Page 18
<PAGE>
<TABLE>
<CAPTION>
Item 2. Properties (continued)
Location Use Ownership Expiration (1)
- ----------------- ----------------------------------- ------------------ ---------------
<S> <C> <C> <C>
Victor, NY Eastview Mall bank office Leased office 10/31/2004
Farmington, NY Farmington bank office Owned, leased land 6/30/2002
Honeoye, NY Honeoye bank office Owned --
Canandaigua, NY Lakeshore bank office Leased office 12/31/2001
Shortsville, NY Manchester-Shortsville bank office Leased office Month to month
Mendon, NY Mendon bank office Leased office 12/31/2004
Pittsford, NY Pittsford bank office Leased office 12/31/2001
Victor, NY Victor bank office Owned --
Penfield, NY Webster bank office Leased office 8/31/2008
Greece, NY Greece bank office Leased office 10/31/2003
Chili, NY Chili bank office Leased office 6/1/2010
Honeoye Falls, NY Honeoye Falls bank office (2) Leased office 11/30/2000
Honeoye Falls, NY Permanent bank office site Owned --
Irondequoit, NY Irondequoit bank office (3) Owned --
Perinton, NY Perinton bank office (3) Leased office 3/15/2004
Pittsford, NY Home Town Funding Owned --
Canandaigua, NY Home Town Funding branch office Leased office 4/30/2001
Bloomfield, NY CNB Agency office Leased office 4/30/2001
<FN>
(1) If applicable
(2) Temporary
(3) Opened January 2000
</TABLE>
During 2000 the Bank will continue to increase its number of Monroe County
offices. It has entered into lease agreements for an office in the City of
Rochester, New York and the hamlet of Bushnell's Basin, New York.
<TABLE>
<CAPTION>
The Bank also provides, free to its customers, 24-hour banking services
through automatic teller facilities located at each office and through remote
automatic teller machines and cash dispenser machines at the following
locations:
<S> <C>
Finger Lakes Community College Hopewell, New York
F.F. Thompson Hospital Canandaigua, New York
Finger Lakes Performing Arts Center Hopewell, New York
Bristol Mountain Bristol, New York
Case's Convenient Canandaigua, New York
Roseland Bowl Canandaigua, New York
The Greater Rochester International Airport Rochester, New York
The Company Store Cheshire, New York
The Strong Museum Rochester, New York
J-Mart Canandaigua, New York
Canandaigua Medical Group Canandaigua, New York
Rank's IGA Canandaigua, New York
Webster Community Sports Center Webster, New York
Midtown Tennis Club Rochester, New York
Hemlock General Store Hemlock, New York
</TABLE>
The Bank anticipates that in order to expand its service to its Monroe and
Ontario County customers it will increase the number of remote cash-dispenser
machines in operation.
The carrying value of the Company's properties as of December 31, 1999,
which is required to be included herein pursuant to Item 102 of Regulation S-K,
is included under the caption "Notes to Consolidated Financial Statements" set
forth on pages 12 through 30 of the 1999 Annual Report to Stockholders and is
incorporated herein by reference.
Page 19
<PAGE>
Item 3. Legal Proceedings
The Company and its subsidiaries are not involved in any pending legal
proceedings other than routine legal proceedings undertaken in the ordinary
course of business. In the opinion of management, after consultation with
counsel, the aggregate amount involved in such proceedings is not material to
the consolidated financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders (in the fourth
quarter of 1999)
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The market and dividend information required to be included herein,
pursuant to Item 201 of Regulation S-K, is incorporated herein by reference from
page 31 of the 1999 Annual Report to Stockholders and the Proxy Statement.
While there can be no assurance that the amount and timing of dividends
paid in recent years will continue, management has no knowledge of current
activities that would restrict the payment of dividends in an amount at least
equal to recent years and at the same times.
At December 31, 1999, the Corporation had approximately 801 shareholders
of record. Information regarding beneficial ownership of the Corporation's stock
is set forth in the Corporation's Proxy Statement and incorporated herein by
reference.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
This following table represents a summary of selected components of the
Corporation's consolidated financial statements for the five years ended
December 31, 1999. All information concerning the Corporation should be read in
conjunction with the consolidated financial statements and related notes.
Selected Financial Data
(Dollars in Thousands except per share data)
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income Statement Information:
Net interest income $ 19,601 18,420 18,194 16,343 16,035
Provision for loan losses 1,239 641 851 1,490 1,031
Non-interest income 7,274 5,924 3,788 3,401 3,393
Non-interest expense 22,383 18,430 15,632 14,163 12,684
Income taxes 896 1,686 1,762 1,144 1,797
Net income 2,357 3,587 3,737 2,947 3,916
Balance Sheet Data:
Total investments $ 79,412 76,464 74,499 71,771 71,920
Total loans, net 394,227 308,486 305,991 255,799 208,002
Total assets 522,135 428,047 418,942 360,623 317,209
Total deposits 454,290 376,507 324,761 307,966 277,051
Total borrowings 22,218 7,142 50,667 11,590 1,013
Total equity 42,477 42,478 40,932 39,119 37,397
Average assets 469,626 417,001 385,767 334,659 320,770
Average equity 41,533 40,357 39,383 37,834 35,987
Per Share Data:
Net income, basic $ 14.82 22.38 23.22 18.20 24.31
Net income, diluted $ 14.78 22.38 23.22 18.20 24.31
Cash dividends 11.50 11.00 10.00 8.75 7.00
</TABLE>
Page 20
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The purpose of this discussion is to focus on information about Canandaigua
National Corporation's financial condition and results of operations which is
not otherwise apparent from the consolidated financial statements in the annual
report. Reference should be made to those statements and the selected financial
data presented elsewhere in this report for an understanding of the following
discussion and analysis.
Overview
- --------
1999 will be remembered as a year of strong balance sheet growth and heavy
long-term investment. As noted in 1998's report, the Company accelerated its
expansion in the Rochester metropolitan area. During 1999 the Company opened
banking offices in Greece, Chili, and Honeoye Falls and in the first three weeks
of 2000 opened offices in Irondequoit and Perinton. Two more offices are
scheduled to be opened in 2000 in the City of Rochester and the hamlet of
Bushnell's Basin. The 1999 result of this expansion was remarkable for the
Company: 22.0% growth in assets, 27.8% growth in loans, 20.7% growth in
deposits, and $3.0 million investment in premises and equipment for these new
branches. But this investment and rapid and planned growth expectedly impacted
1999's financial results with diluted earnings per share of $14.78 versus $22.38
in 1998.
At December 31, 1999 the Company's assets reached $522.1 million. Total
assets increased $94.1 million or 22.0% for the year. Net loans increased $85.7
million or 27.8% while securities increased $2.9 million or 4.0%. Deposits
increased $ 77.8 million or 20.7% and borrowings (from the FHLB) increased $15.1
million or 212.7%. Funds generated through deposit inflows and borrowings were
used for loan originations and other asset growth.
Net income for the year ended December 31, 1999 was $2.4 million, down $1.2
million or 33.3% from 1998. Basic earnings per share decreased by $7.60 or
34.0% over the same period. The decrease in net income for 1999 was a result of
expenses related to the aforementioned increase in banking offices.
The quality of the Company's assets continued to improve throughout 1999
with non-performing loans at December 31, 1999 at less than 1.0% of total loans.
The allowance for loan losses stood at 235.7% of non-performing loans at
year-end 1999 versus 131.6% at December 31, 1998. However, even with the
improvement in non-performing loans, the provision for loan loss doubled from
1998 to $1.2 million to account for the Company's loan growth. Other real
estate owned was unchanged from 1998 at $1.6 million.
Financial Condition
- --------------------
As of December 31, 1999, total assets of the Company were $522.1 million,
up from $428.0 million at year end 1998. Cash and equivalents increased $2.6
million to $26.8 million in connection with the growth in customer deposits and
a buildup of cash reserves for the year 2000 date changeover, most of which
remained undrawn into 2000.
Securities showed an increase of $2.9 million to $75.9 million. The
Company's securities, with the exception of a minor amount of equity securities,
are held to maturity. The portfolio is comprised mainly of US Treasuries and
Agencies and tax-exempt obligations of state and local subdivisions. Nearly all
of the portfolio is pledged to federal agencies and for municipal deposits.
These deposits, in turn, are used to purchase securities of local
municipalities. Other securities consist mainly of high-grade corporate bonds.
As these bonds matured in 1999, they were replaced with tax-exempt municipal
obligations.
Net loans increased $85.7 million to $394.2 million. The growth in loans
came mostly in the last three quarters of the year, corresponding with the
Company's Monroe County expansion. Nearly 90% of 1999's loan growth came from
commercial loans, which was consistent with projected results. All other assets
rose $2.8 million, most of which was in premises and equipment for expansion.
Page 21
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Total non-performing loans decreased over the twelve month period ended
December 31, 1999 by $0.7 million to $1.8 million at year-end 1999 as compared
to $2.5 million at year-end 1998. Commercial loans and residential real estate
loans showed a decrease, while one $0.8 million commercial mortgage accounted
for the increase in commercial real estate. Management attributes the overall
decrease to a combination of strict underwriting procedures, strong collection
efforts and a relatively stable economic cycle in the Company's market.
The allowance for loan losses stood at $4.1 million at December 31, 1999,
up $0.8 million from December 31, 1998. 1999's year end balance represents
1.04% of total loans versus 1.05% for 1998. The increase in the allowance
balance for 1999 mirrored the overall increase in the loan portfolio. Net
charge-offs for the year remained favorable at 0.11% of average loans versus
0.17% in 1998.
Other real estate owned consists of three parcels, all commercial, for $1.6
million. While the balance in the account remained the same, this compares
favorably to seven parcels in 1998. The Company has been successful in
liquidating its foreclosed properties.
In 1999 the Company added approximately $4.0 million in fixed assets with
approximately $3.0 million coming for the new bank offices and the remainder
being other building improvements, furniture, equipment and software. With the
planned opening of at least two banking offices in 2000, more fixed assets
additions can be anticipated, which the Company expects to fund from current
operations.
Total deposits at December 31, 1999 were $454.3 million and were up $77.8
million from December 31, 1998. For the same period borrowings from the FHLB
were up $15.1 million to $22.2 million. Other liabilities increased by $1.2
million to $3.2 million. Deposit growth since December 31, 1998 came mainly in
interest-bearing accounts: savings and money market up $46.8 million and time
deposits up $31.1 million. Demand deposit accounts remained unchanged in total,
but there was some shift from interest bearing to non-interest bearing accounts.
Overall, the deposit growth is attributable to expansion in Monroe County. The
Company's Ontario County retail deposits grew approximately 3.6%, while Monroe
County deposits grew 178.9% from 1998. The increase in borrowings is a direct
result of loan demand outpacing deposit growth. The Company anticipates both
loan and deposit growth to continue into 2000, but at a rate less than 1999's.
Results of Operations
- -----------------------
With a $41.1 million or 10.8% growth in earning assets for 1999 and a
corresponding $44.0 million or 14.2% growth in interest bearing liabilities, net
interest income increased $1.2 million or 6.5% and is reflective of the decline
in yields on the assets due to a lower interest rate environment than in 1998.
The Company's cost of funds decreased 17 basis points to 3.73% for the year
ended December 31, 1999 as compared to 1998. However, the yield on assets
decreased 32 basis points, resulting in a spread reduction of 5 basis points.
As noted in last year's report, management anticipated a lowering of the
interest rate spread and interest margin (which declined 19 basis points from
1998) due to the competitive Monroe County market. This trend will likely
continue through 2000 as most of the Company's new loans are originated in the
Monroe County area. Refer to Interest Rate Sensitivity and Asset / Liability
Management Review section for a further discussion.
Other income for the year ended December 31, 1999 increased $1.4 million or
23.7% over 1998. The increase was reflected in all major sources of
non-interest revenue. Service charges on accounts rose 40.8% attributed to
increased transaction volume, changes in account fee structures, and an increase
in April of ATM convenience fee for non-Canandaigua National Bank and Trust
Company customers to offset the increased cost of operating these machines.
Trust income grew 27.3% year on year due to the growth in assets under
management. The book value of assets under management increased 38.5% to $586.8
million at year end 1999. The Company continues to see strong demand for
locally managed trust services in its market area.
Page 22
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
In recent years most of the Company's Trust competitors, large regional and
national banks, have reduced the local control and decision making authority and
raised minimum account balances for personally managed accounts. This trend is
allowing the Company, with its focus on the personal service, to see double
digit growth. Other operating income was up due to strong mortgage banking
returns in the first half of the year. However, revenue growth in this area
slowed considerably towards the end of the year, following the Federal Reserve
Board's interest rate increases. The Company anticipates 2000 to be a lower
year in revenue and profitability for mortgage banking given current interest
rate forecasts.
Operating expenses increased $4.0 million or 21.7% for the year ended
December 31, 1999. Increases came in all major expense categories and were
attributed to growth in the Company's operations and expansion in Monroe County.
Based upon the projected growth in banking offices in 2000, operating expenses
are expected to increase. Management continues to estimate that the Company's
new banking offices will break even in 24 to 36 months.
Liquidity
- ---------
The Board of Directors has set general liquidity standards for the Bank to
meet which can be summarized as: the ability to generate adequate amounts of
cash to meet the demand from depositors who wish to withdraw funds, borrowers
who require funds, and capital expansion. Liquidity is produced by cash flows
from operating, investing, and financing activities of the Company. For the
year ended December 31, 1999 the Company generated $2.6 million in net cash and
equivalents increases versus $4.6 million for the year ended December 31, 1998.
Net cash from operating activities was $8.6 million in 1999, roughly double
that of 1998. Both the largest source and use of operating cash in 1999 and
1998 were mortgage banking activity. However, activity in 1999 was slightly
less than 1998's.
Cash used by investing activities increased substantially in 1999 to $96.5
million from $6.0 million in 1998. The increase in investing activities was
primarily attributed to loan growth.
Cash provided by financing activities was $90.5 million in 1999 versus of
$6.2 million in 1998.
The Company has two primary sources of non-customer (wholesale) liquidity:
the Federal Home Loan Bank of New York (FHLB) and the Federal Reserve Bank of
New York. At December 31, 1999 residential mortgage loans with a carrying value
of approximately $24,440,000 were pledged as collateral for the Bank's advances
from the Federal Home Loan Bank, and an additional $10,321,000 was available for
pledging. Indirect automobile loans with a carrying value of approximately
$94,880,000 were pledged as collateral for a $75,900,000 line of credit from the
Federal Reserve Bank of New York.
Secondarily, in 1998, the Company opened a liquidity source through the
sale of its CD's in the national brokered market. This source will be used from
time to time to manage both liquidity and interest rate risk as conditions may
require.
For 2000, cash for growth is expected to come from both customer and
wholesale sources. Customer deposit growth is mainly expected to come from
Monroe County sources.
Page 23
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Interest Rate Sensitivity and Asset / Liability Management Review
- -------------------------------------------------------------------------
(Item 7a Quantitative and Qualitative Disclosures about Market Risk)
The Company realizes income principally from the differential or spread
between the interest earned on loans, investments and other interest-earnings
assets and the interest paid on deposits and borrowings. Loan volumes and
yields, as well as the volume of and rates on investments, deposits and
borrowings, are affected by market interest rates. Additionally, because of the
terms and conditions of many of the Company's loan documents and deposit
accounts, a change in interest rates could also affect the projected maturities
of the loan portfolio and/or the deposit base, which could alter the Company's
sensitivity to future changes in interest rates. Accordingly, management
considers interest rate risk to be the Company's most significant market risk.
Interest rate risk management focuses on maintaining consistent growth in
net interest income within Board approved policy limits while taking into
consideration, among other factors, the Company's overall credit, operating
income, operating cost, and capital profile. The Company's Asset/Liability
Committee (ALCO), which includes senior management and reports to the Board of
Directors, monitors and manages interest rate risk to maintain an acceptable
level of change to net interest income as a result of changes in interest rates.
Management of the Company's interest rate risk, requires the selection of
appropriate techniques and instruments to be utilized after considering the
benefits, costs and risk associated with available alternatives. Since the
Company does not utilize derivative instruments, management's techniques usually
consider one or more of the following: (1) interest rates offered on products,
(2) maturity terms offered on products, (3) types of products offered, and (4)
products available to the Company in the wholesale market such as advances from
the FHLB and brokered CD's.
The Company uses an interest margin simulation model as one method to
identify and manage its interest rate risk profile. The model is based on
expected cash flows and repricing characteristics for all financial instruments
and incorporates market-based assumptions regarding the impact of changing
interest rates on these financial instruments over a twelve month period.
Assumptions based on the historical behavior of deposit rates and balances in
relation to changes in interest rates are also incorporated into the model.
These assumptions are inherently uncertain and, as a result, the model cannot
precisely measure net interest income or precisely predict the impact of
fluctuations in interest rates on net interest income. Actual results will
differ from simulated results due to timing, magnitude, and frequency of
interest rate changes as well as changes in market conditions and management
strategies.
Using the aforementioned simulation model, net interest earnings
projections reflect a decline when applying the rising interest rate environment
as of December 31, 1999 ("Base Case"). The table below, which shows the
Company's estimated net interest earnings sensitivity profile as of December 31,
1999, assumes no changes in the operating environment, but assumes interest
rates increase/decrease immediately (rate shock) and remain unchanged
thereafter. The table indicates the estimated impact on net interest income
under the various interest rate scenarios as a percentage of Base Case earnings
projections.
<TABLE>
<CAPTION>
Changes in Interest Estimated
Rates Percentage Change in
(basis points) Future Net Interest Income
- -------------------- --------------------------
12 Months
-----------
<S> <C>
Base Case --
+200 (7)%
+100 (4)
- -100 4
- -200 7
</TABLE>
Page 24
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
A second method used to identify and manage the Company's interest rate
risk profile is the static gap analysis. Interest sensitivity gap ("gap")
analysis measures the difference between the assets and liabilities repricing or
maturing within specific time periods. An asset-sensitive position indicates
that there are more rate-sensitive assets than rate-sensitive liabilities
repricing or maturing within specific time horizons, which would generally imply
a favorable impact on net interest income in periods of rising interest rates
and a negative impact in periods of falling rates. A liability-sensitive
position would generally imply a negative impact on net interest income in
periods of rising rates and a positive impact in periods of falling rates.
<TABLE>
<CAPTION>
The following table presents an analysis of the Company's interest rate-sensitivity
gap position at December 31, 1999. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of their contractual maturity or repricing
date with no adjustment for estimated prepayment and decay rates. It should be noted that
the interest rate sensitivity levels shown in the table could be changed by external
factors such as loan prepayments and liability decay (withdrawal) rates or by factors
controllable by the Company such as asset sales.
Canandaigua National Corporation
Interest Rate Sensitivity Gap
December 31, 1999
(Dollars in thousands)
Maturity/Repricing Period
---------------------------
Within 3 4 to 12 1 to 5 Over 5
Months Months Years Years
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits
and federal funds sold $ 33 -- -- --
Securities 5,312 24,090 33,735 16,275
Loans 82,974 6,205 236,631 72,553
--------- --------- -------- -------
Total interest-earnings
assets 88,319 30,295 270,366 88,828
--------- --------- -------- -------
Interest-bearing liabilities:
NOW accounts 46,552 -- -- --
Money market 53,011 -- -- --
Savings 102,837 -- -- --
Time deposits 87,921 52,510 36,631 --
Borrowings 18,906 1,327 1,244 741
--------- --------- -------- -------
Total interest-bearing
liabilities 309,227 53,837 37,875 741
--------- --------- -------- -------
Interest rate sensitivity gap $(220,908) (23,542) 232,491 88,087
========= ========= ======== =======
Cumulative gap $(220,908) (244,450) (11,959) 76,158
========= ========= ======== =======
Cumulative gap ratio(1) 28.6% 32.7% 97.0% 119.0%
========= ========= ======== =======
Cumulative gap as percent of
Total assets (42.3%) (46.8%) (2.3%) 14.6%
========= ========= ======== =======
<FN>
(1)Cumulative total interest-earning assets divided by cumulative total interest-bearing
liabilities.
</TABLE>
Page 25
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The chart indicates that the Corporation was repricing $220.9 million more
of interest bearing liabilities than interest earning assets in the 0-3 month
range. The Company considers this gap manageable, as a good portion of the
savings balances are not considered sensitive to rate changes. However, the
Company will be challenged to maintain its interest margins in the current
rising interest rate environment. For the 4-12 month period, the Corporation is
modestly liability sensitive, as $23.5 million more of interest bearing
liabilities are being repriced than interest earning assets. For the entire one
year range, the Corporation is repricing $244.5 million more interest bearing
liabilities than assets, or 32.7% of earning assets versus 37.7% at December 31,
1998. The Corporation is asset sensitive at $232.5 million for the one to five
year range and $88.1 million over five years.
For the entire portfolio range, the Corporation is asset sensitive at $76.1
million versus asset sensitivity of $69.3 million last year reflecting a modest
growth in non-interest bearing demand accounts. The Company's product mix is
such that nearly all assets and liabilities reprice or mature within five years
of origination, with most at three years. With such a balance sheet profile,
the Company faces interest rate risk over the short-term, but the value of its
equity (assets less liabilities) remains relatively stable.
Interest rates for 2000 are forecasted to continue to rise throughout the
year as the Federal Reserve balances continued economic expansion against
inflation fears.
Capital Resources
The Company and Bank are 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 Company's and Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and Bank's assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. The Company's and 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 Company and Bank to maintain minimum amounts and ratios. As
disclosed in the note 15 to the Consolidated Financial Statements, as of
December 31, 1999 all capital adequacy requirements were met.
As of December 31, 1999, 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 aforementioned
footnote. However, the Bank's asset growth in 2000 is anticipated to exceed its
capital formation, which will result in declining capital ratios. Management
will monitor capital levels at the Bank.
Dividends
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,
1999, dividends were unavailable for payment to the Company without the approval
of the OCC. The Company's February 2000 dividend was paid entirely from its own
operating cash of $1.3 million.
Page 26
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash dividends for 1999 were $1.8 million or $11.50 per outstanding share
versus $1.8 million or $11.00 per outstanding share in 1998.
1998 versus 1997
At December 31, 1998 the Company's assets reached $428.0 million. Total
assets increased $9.1 million or 2.2% for the year. Net loans increased $2.5
million or .8% while securities increased $1.5 million or 2.2%. More
significantly, deposits increased $51.7 million or 15.9% and borrowings (from
the FHLB) decreased $43.5 million or 85.9%. Funds generated through deposit
inflows were used for loan originations, security purchases and FHLB borrowing
repayments.
Net income for the year ended December 31, 1998 was $3.6 million, down $.1
million or 4.0% from 1997. Basic earnings per share decreased by $.84 or 3.6%
over the same period. The decrease in net income for 1998 was a result of a
significant legal expense reimbursement in 1997 relating one large credit and
one-time charges taken in the first half of 1998 related to the completion of
the Company's core banking system conversion. Also a portion of the increased
operating expenses was derived from one of the Company's mortgage banking
subsidiaries, which was not acquired until late 1997. For 1998 net interest
income increased only $.2 million or 1.2% due to a lower interest rate
environment than in 1997.
The quality of the Company's assets continued to improve throughout 1998
with non-performing loans at December 31, 1998 at less than 1% of total loans;
the first time in over 5 years. The allowance for loan losses stood at 131.6%
of non-performing loans at year-end 1998 versus 61.3% at December 31, 1997. As a
result of these trends the provision for loan loss declined to $.6 million
versus $.9 million for the years then ended. Other real estate owned also
declined in 1998 as the Company liquidated approximately $1.2 million during the
year.
Financial Condition
- --------------------
As of December 31, 1998, total assets of the Company were $428.0 million,
up from $418.9 million at year end 1997. Cash and equivalents increased $4.6
million to $23.9 million in connection with the growth in customer deposits.
Securities showed an increase of $1.5 million to $72.9 million.
Net loans increased $2.5 million to $308.5 million. The growth in loans
came mostly in the second and third quarters of 1998, following a $10.0 million
decline in the first quarter. There was little net new loan volume in the
fourth quarter. All other assets rose $.5 million to $22.4 million.
Total non-performing loans decreased over the twelve month period ended
December 31, 1998 by $2.6 million to $2.5 million at year-end 1998 as compared
to $5.1 million at year-end 1997. The decrease came across all loan types -
commercial, residential real estate and consumer loans with the largest decrease
coming from commercial real estate.
The allowance for loan losses stood at $3.2 million at December 31, 1998,
up $.1 million from December 31, 1997. 1998's year end balance represented
1.05% of total loans versus 1.02% for 1997. The increase in the allowance
balance for 1998 was relatively modest and was a reflection of little net new
loan volume. Net charge-offs for the year remained favorable at .17% of average
loans versus .13% in 1997.
Other real estate owned consisted of six parcels of property, all
commercial, for $1.6 million. The decline in other real estate owned from the
same period in 1997 was a result of the Company's foreclosure on $ 2.1 million
in real estate assets in May 1997 offset by the liquidation of portions of this
and other properties.
Page 27
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
In 1998 the Company added approximately $2 million in fixed assets with
approximately half coming from the new Webster office and computer hardware,
software and peripherals.
Total deposits at December 31, 1998 were $376.5 million and were up $51.7
million from December 31, 1997. For the same period borrowings from FHLB were
down $43.5 million to $7.1 million. Other liabilities increased by $.07 million
to $1.9 million. The decline in borrowings was a direct result of deposit
growth. Deposit growth from December 31, 1997 came in all interest-bearing
types: interest-bearing demand up $19.6 million, savings and money market up
$8.7 million and certificates of deposit up $32.4 million. Deposit growth came
from a number of sources, including the introduction of our Generations Gold
suite of accounts, our Business Choice Sweep account, the opening of the Webster
office, and our "CD Specials". Also, to open a secondary source of liquidity in
addition to FHLB advances and reduce the short-term gap, the Company sold $10
million in nationally market CD's with an average maturity of 30 months.
Results of Operations
- -----------------------
Despite a $23.1 million or 6.5% growth in earning assets for 1998 and a
corresponding growth in interest bearing liabilities, net interest income
increased only $.2 million or 1.2% and was reflective of the decline in yields
on the assets due to a lower interest rate environment than in 1997. The
Company's cost of funds increased 6 basis points to 4.00% for the year ended
December 31, 1998 as compared to 1997. The increase was mostly due to higher
FHLB advances in early 1998, which were replaced during the year with lower cost
retail deposits.
Other income for the year ended December 31, 1998 increased $2.1 million or
56.4% over 1997. The increase was reflected in all sources of non-interest
revenue. Service charges on accounts rose 18% attributed to increased
transaction volume, changes in account fee structures, and the implementation in
April of an ATM convenience fee for non-Canandaigua National Bank and Trust
Company customers. Trust income grew 31% year on year due to the growth in
assets under management. The book value of assets under management increased
18.4% to $423.6 million at year end 1998. Net gains on loan sales and other
income are both up due to mortgage banking.
Operating expenses increased $2.8 million or 17.9% for the year ended
December 31, 1998. Increases came in all major expense categories and were
attributed to (1) growth in the Company's operations, (2) the acquisition of
Home Town Funding in late 1997, and (3) additional expenses for the core banking
conversion.
New Accounting Pronouncements
- -------------------------------
In June 1999 the Financial Accounting Standards Board deferred for one year
the effective date of FASB Statement No. 133 entitled "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 establishes
comprehensive accounting and reporting requirements for derivative instruments
and hedging activities. The statement requires companies to recognize all
derivatives as either assets or liabilities, with the instruments measured at
fair value. The accounting for gains and losses resulting 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 now effective for the
Company for fiscal quarters beginning January 1, 2001. Earlier adoption is
permitted. The Company holds no free-standing derivative instruments at year
end, and management does not anticipate that adoption of the new standard will
have a material effect on the Company's financial statements.
Page 28
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Year 2000
The Company's 1998 Form 10-K and 1999 Form 10-Q's detailed the nature and
extent of the Company's efforts to prepare for the year 2000 (Y2K) date
changeover. By any measure, the efforts were a success. There were no major
Y2K incidents that affected the Company. The Company will continue to monitor
its internal and external resources for possible disruptions related to Y2K, but
anticipates none.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company, together with a
report thereon of KPMG LLP dated February 4, 2000 appearing on pages 7 to 30 of
the 1999 Annual Report to Stockholders are incorporated herein by reference. A
reference index to the consolidated financial statements and accompanying notes
presented in the Annual Report to Stockholders is shown in Item 14 of this
filing.
Supplementary data has been omitted because it is not applicable
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors
The information with respect to the directors of the Corporation, which is
required to be included herein pursuant to Item 401 of Regulation S-K, is
included under the caption "Election of Directors" on the Proxy Statement, dated
February 28, 2000, and is incorporated herein from the Proxy Statement by
reference. There are no arrangements or understandings between any director and
any other person pursuant to which the director was selected.
(b) Executive Officers
The names, ages and positions of the executive officers of the Corporation
as of December 31, 1999, are included under the caption "Principal Officers" on
the Proxy Statement, dated February 28, 2000, and is incorporated herein from
the Proxy Statement by reference. Officers are generally elected annually by
the Board of Directors at the meeting of directors immediately following the
annual meeting of stockholders. There are no arrangements or understandings
between the executive officers and any other person pursuant to which the
executive officers were selected.
No Director or executive officer of the Corporation has received any
remuneration from the Bank or the Corporation in his capacity as a director or
executive officer of the Corporation.
The executive officers of the Corporation have been officers of the Bank
for five years or more.
Directors and the executive officers as a group beneficially owned 13,159
shares or 8.30% of the shares outstanding. Shares owned directly total 11,983
and shares held by directors, executive officers, or their spouses in a
fiduciary capacity or by their spouses individually total 1,176.
Page 29
<PAGE>
(c) Significant Employees
Not applicable
(d) Family Relationship
The disclosure of family relationships between executive officers and
directors of the Corporation is included under the caption "Information on
Directors and Nominees " on the Proxy Statement, dated February 28, 2000, and is
incorporated herein from the Proxy Statement by reference.
(e) Business Experience
Disclosed in Items 10 (a) and 10 (b)
(f) Involvement in Certain Legal Proceedings
Not applicable
(g) Promoters and Controlled Persons
Not applicable
Item 11. Executive Compensation
The information required to be included herein regarding executive
compensation pursuant to Item 402 of Regulation S-K is included under the
caption "Executive Compensation" on the Proxy Statement, dated February 20,
2000, and is incorporated herein from the Proxy Statement by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required to be included herein regarding security ownership
and certain beneficial owners and management pursuant to Items 403 (a) and (b)
of Regulation S-K is included under the caption "Principal Beneficial Owners of
Common Stock" in the Proxy Statement, dated February 20, 2000, and is
incorporated herein from the Proxy Statement by reference.
(c) Changes in Control
None
Page 30
<PAGE>
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
None
(b) Certain Business Relationships
None
(c) Indebtedness of Management
Certain directors and executive officers of the Corporation and the Bank
and their associates were customers of and had transactions with the Bank in the
ordinary course of the Bank's business during 1999. All outstanding loans and
commitments included in such transactions were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others, and in the opinion of the Bank and
Company, did not involve more than a normal risk of collectibility or present
other unfavorable features.
(d) Transactions with Promoters
Not applicable
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements are contained in the Company's 1999
Annual Report to Shareholders which, as indicated below, is included as Exhibit
13 of this report.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) Schedules
Schedules are omitted because of the absence of conditions under which they
are required or because the required information is provided in the consolidated
financial statements or notes thereto.
Page 31
<PAGE>
(3.a) Exhibits
Exhibit Incorporation by Reference or page in
sequential numbering where exhibit
may be found:
(3.i.) Certificate of Incorporation, of the Exhibit A on Form 10-K
Registrant, as amended for the year ended
December 31, 1994
(3.ii.) By-laws of the Registrant, Exhibits B on Form 10-K
as amended for the year ended
December 31, 1994
(13) Annual Report to Shareholders for
the year ended December 31, 1999 Page 35
(20) Definitive Proxy Statement to
Shareholders dated February 28, 2000 Page 71
(21) Subsidiaries Page 84
(27) Financial Data Schedule Page 85
(b) Reports on Form 8-K:
None
Page 32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CANANDAIGUA NATIONAL CORPORATION
March 29, 2000 By: /s/ George W. Hamlin, IV
George W. Hamlin, IV, President
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Signature Title Date
- --------------------------- ------------------ --------------
<S> <C> <C>
/s/ George W. Hamlin, IV President/Director March 29, 2000
- ---------------------------
(George W. Hamlin, IV)
/s/ Robert G. Sheridan Secretary/Director March 29, 2000
- ---------------------------
(Robert G. Sheridan)
/s/ Gregory S. MacKay Treasurer March 29, 2000
- ---------------------------
(Gregory S. MacKay)
/s/ Patricia A. Boland Director March 29, 2000
- ---------------------------
Patricia A. Boland
/s/ James S. Fralick Director March 29, 2000
- ---------------------------
James S. Fralick
/s/ Daniel P. Fuller Director March 29, 2000
- ---------------------------
Daniel P. Fuller
/s/ David Hamlin, Jr. Director March 29, 2000
- ---------------------------
David Hamlin, Jr.
/s/ Frank H. Hamlin, Director March 29, 2000
- ---------------------------
Frank H. Hamlin
/s/ Stephen D. Hamlin Director March 29, 2000
- ---------------------------
Stephen D. Hamlin
/s/ Richard P. Miller, Jr. Director March 29, 2000
- ---------------------------
Richard P. Miller, Jr.
/s/ Caroline C. Shipley Director March 29, 2000
- ---------------------------
Caroline C. Shipley
/s/ Alan J. Stone Director March 29, 2000
- ---------------------------
Alan J. Stone
</TABLE>
Page 33
<PAGE>
INDEX OF EXHIBITS
Exhibit
(3.i.) Certificate of Incorporation, of the Exhibit A on Form 10-K
Registrant, as amended for the year ended
December 31, 1994
(3.ii.) By-laws of the Registrant, Exhibits B on Form 10-K
as amended for the year ended
December 31, 1994
(13) Annual Report to Shareholders for
the year ended December 31, 1999
(20) Definitive Proxy Statement to
Shareholders dated February 28, 2000
(21) Subsidiaries
(27) Financial Data Schedule
Page 34
<TABLE>
<CAPTION>
EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<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 31
The Canandaigua National Bank and Trust Company Community
Advisory Committees 32
The Canandaigua National Bank and Trust Company Officers 33
Community Banking Offices 34
Arthur S. Hamlin Award for Excellence 35
New Branch Offices 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 15, 2000 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 or 1-800-724-2621
Fax: 716-396-1355
Internet: www.cnbank.com
1 Page 35
<PAGE>
(photograph of George W. Hamlin, IV)
PRESIDENT'S MESSAGE
February 9, 2000
To Our Shareholders:
We are in the fifth year of our "Plan for Year 2010" commenced in 1995.
First, we envisioned the development of comprehensive financial services
for individuals, be they growing families or businesses. This focused on four
elements: payment services, access to credit, savings and investment, and
insurance. In our mind these were the four legs of the stool upon which an
individual's financial concerns rest. Then, we developed and implemented
support systems to include the entire revamping of our data processing systems
adopting a wholly new approach in relational database architecture, developed a
Credit Administration function second to none, and established a Human
Resources function tasked to identify and staff our plans for the future. With
the stage thus set, in 1998 we broadened the base of products and services by
converting our successful mutual fund (Canandaigua Funds) to a retail fund and
ultimately prevailed in a court battle to allow our Bank and others to sell a
full line of insurance products to our customers. This past year, we
"launched" our branching initiatives to establish "beach heads" in definable
markets in Monroe County north of the Thruway along the same lines as our
foundation facilities south of the Thruway. We opened offices in
Webster/Penfield, Chili, Perinton, Honeoye Falls, Greece, and Irondequoit, all
within twelve months. Sites on East Main Street near the Four Corners in the
City of Rochester and in Bushnell's Basin will come in the second quarter of
2000. Bushnell's Basin will feature investment, trust, commercial services
supported by satellite check processing, and administrative support for
all of these new facilities which supplement the main operations located at the
Home Office. These are the "inked" arrangements where others are in process to
be announced and which altogether will round out our commitment to these
new markets and the distinct communities they represent.
Yes, the metropolitan market is in transition adjusting to the acquisition of
First National Bank of Rochester by a large regional holding company
headquartered in Buffalo, which merger was effective at the end of the second
quarter of 1999. Competition from existing larger institutions in the
marketplace and three "new-to-the-market" institutions have confirmed that the
metropolitan market is an attractive place to be, each opening a single office
to "test the waters." This strategy is compared with our master strategy and
commitment to the entire marketplace with what will be the establishment of
eight new facilities in just 16 months. The setting of these "anchor" points
allows any new or existing customer to have convenient access to our services
throughout the entire geographical area and validates our extensive
"e-services" available "24 hours/7 days" via ATM, internet(www.cnbank.com)
--------------
and CNBanker Voice.
Our reception, to date, in the communities we have selected has been
gratifying - exceeding our projections dramatically and positively. This
process has been assisted significantly by an effective TV branding campaign
which has more than tripled our "recognition" and has been a primary factor in
our year-over-year deposit growth of over 20%. Likewise, loan growth has been
substantial during the course of this year at nearly 28%. The more recent
openings are tracking growth consistent with our earliest openings. The
spillover effect of such activity and advertisement has positively impacted
growth in our base markets south of the Thruway and in Pittsford, now in its
fifth year. Synergies are at work.
Of course, as we said in our June letter, this expansion is not without its
costs. Unlike a manufacturing firm which "invests" in machinery to improve
production and earnings, but may defer the "expense" of such investment through
depreciation in later years presumably against greater earnings in those later
years, our investment in human capital which attends our expansion creates an
expense which cannot be deferred as depreciation to later years but must be
expensed currently and before new revenues which, by the nature of things, lag
the expenses associated with creating them. Thus, we are pleased to report
earnings per share for the year 1999 of $14.78 which is above our budget of
$14.55 representing a good performance against the 1999 plan. This performance,
however, is about two-thirds of our earnings for the previous year of $22.38
which is a figure more in line with our customary level of earnings. The
principal impact may be found in significantly increased staffing costs
associated with the opening of so many new facilities. Fortunately and
significantly, our net interest margins have been sustained at the same level
as last year, a level which is better than peer (65th percentile). Positive
contributions to earnings include strong performance in our Trust and Investment
businesses and our participation in CEPHAS (mezzanine financing partnership) and
USA Payroll, now profitable and paying dividends both in terms of hard dollars
and synergistic opportunities.
2 Page 36
<PAGE>
Legislatively speaking, November saw the President signing the Financial
Services Modernization Act of 1999, which purports to be a wholesale reform of
the banking laws in place since 1933 under which we have labored with great
difficulty, especially in the last ten years. For our company, we had been able
to achieve our product and services goals without the new legislation through a
process of regulatory reform and judicial support of that reform. However, the
Act will bring us some additional flexibility to operate more efficiently in
these new businesses as artificial walls and barriers are removed which were a
part of the former regulatory scheme. Thus, the operations of Canandaigua
Funds, our mutual fund, and our insurance operations may be streamlined .
We are in the tenth year of an economic expansion, now unprecedented.
Inflation has been well behaved. Unemployment in the 4% range is as low as
anyone can remember. The Federal Reserve has tightened (raised) interest rates
recently out of an abundance of caution given growth rates at 4% of G.D.P.
which is above a range of 2% to 3% which is generally felt to be more
sustainable. All of this augers well for us in our expansion plans which are
enhanced and assisted by a climate of financial "fair weather" giving us the
opportunity to become well-established before any threat of "storm clouds"
develop.
We are midway through the execution of our plan as we "invest" or "expense"
our way to future opportunities. Our people are responding to the challenges
which are inevitable in the execution of any large project. We are on track on
our five-year projections which generally contemplate a couple of years of
lower-than-customary earnings offset by a couple of years of recovery of that
investment followed by a strong final year demonstrating that the expenses and
challenges of the first few years were worth all the effort. Regardless of
what the economy or competitive environment may bring, we are executing on an
opportunity which is presented but once in a lifetime, indeed once a century,
and the early returns are that it is working.
We are committed to being the region's principal, locally owned, full-service
financial intermediary. Even though we may be small relative to the market and
other players in that market, we have a powerful thesis of community investment
and personal service that is real and differentiable from the performance of
others. This thesis has sustained us over the last century (113 years) and
will sustain us in the next century. A reasonable risk/return for shareholders
coupled with extraordinary value presented to customers, the community and
colleagues, is a viable long-term strategy even if not flashy or headline
grabbing.
On a personal note, I am happy to report I have won an election to serve a
second three-year term as a Director of the New York Federal Reserve Bank. For
a Community Banker, the nomination for a second term was without precedent.
The election itself was unusual since, for the first time in 13 years, two
other candidates threw their hats into the ring. Happily, I garnered 93% of the
votes cast in what must have been a record turnout. I was graciously assisted
by the unsolicited support of two other financial institutions who offered to
support and actively initiate a campaign by mail on my behalf which was as
unexpected by me as it was effective in getting the vote out and achieving a
favorable result. This effort was ably assisted by our Marketing Department
which is just another example of the support and effectiveness of our
associates.
Think about it. Eight facilities in sixteen months. Branch Administration,
Training and Human Resources have truly risen to the occasion. None of this
would have been possible without Operations and Audit support, all accomplished
despite the distractions and the brouhaha surrounding Y2K preparations and
certifications, an event which turned out to be the most heralded non-event of
the century. Commercial loan growth put strains on Credit Administration and
Resource Recovery. Trust and Investments had its own challenges, with Y2K and
planning for a new facility, and still contributed substantially to margin. A
growing facility is ultimately supported by an expansion of assets originated
and serviced by our Commercial and Retail Divisions, backed in turn by a
Herculean effort given by our newly minted Finance Department. When placed all
in one paragraph, one cannot help but be impressed by the teamwork which
underlies our success today and which will be the principal ingredient of our
success for tomorrow.
Very truly yours,
/s/ George W. Hamlin, IV
George W. Hamlin, IV
President
3 Page 37
<PAGE>
CANANDAIGUA NATIONAL CORPORATION BOARD OF DIRECTORS
(photograph of the Board of Directors)
Back Row: James S. Fralick, Robert G. Sheridan, George W. Hamlin, IV,
David Hamlin, Jr., Daniel P. Fuller, Stephen D. Hamlin,
Front Row: Caroline C. Shipley, Frank H. Hamlin, Alan J. Stone,
Patricia A. Boland, Richard P. Miller, Jr.
Patricia A. Boland Retired Executive Director, Granger Homestead
James S. Fralick Adjunct Professor, Syracuse University
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
4 Page 38
<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 Home Town Funding, Inc., 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 Monroe County.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Years ended December 31, 1999 and 1998
(dollars in thousands, except per share data)
1999 1998
------- -------
<S> <C> <C>
Net Income $ 2,357 3,587
Cash Dividends $ 1,833 1,766
Diluted Earnings Per Share $ 14.78 22.38
Dividends Per Share $ 11.50 11.00
Book Value Per Share $ 268.02 265.94
Total Assets $522,135 428,047
Investment Securities $ 75,864 72,916
Loans-Net $394,227 308,486
Deposits $454,290 376,507
Stockholders' Equity $ 42,477 42,478
Weighted Average Shares Outstanding -
diluted 159,521 160,254
Return on Average Assets .50% .86%
Return on Beginning Equity 5.50% 8.76%
</TABLE>
<TABLE>
<CAPTION>
THE CANANDAIGUA NATIONAL BANK AND TRUST COMPANY
TRUST DEPARTMENT
Years ended December 31, 1999 and 1998
(at cost, in thousands of dollars)
1999 1998
------- -------
<S> <C> <C>
Estate, Trust and Guardianship Assets $215,022 139,211
Custodian Account Assets 342,098 263,955
The Canandaigua Funds' Assets 29,695 20,414
-------- -------
Total Assets Under Administration $586,815 423,580
======== =======
</TABLE>
5 Page 39
<PAGE>
Graph 1 (depicting Assets, Deposits and Loans for the years 1994 to 1998)
Graph 2 (depicting Trust Assets Market and Book Value for the
years 1994 to 1998)
6 Page 40
<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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/KPMG LLP
February 4, 2000
Rochester, New York
7 Page 41
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS 1999 1998
- ------- --------- --------
<S> <C> <C>
Cash and due from banks $26,801 23,892
Interest bearing deposits with other financial institutions 33 314
Securities:
- Available for sale, at fair value 528 437
- Held to maturity (fair value of $74,805 in 1999 and
$73,688 in 1998) 75,336 72,479
Loans - net of allowance of $4,136 in 1999 and $3,283 in 1998 394,227 308,486
Premises and equipment - net 13,438 11,468
Accrued interest receivable 2,682 2,244
Federal Home Loan Bank stock and Federal Reserve Bank stock 3,548 3,548
Other assets 5,542 5,179
--------- --------
Total Assets $522,135 428,047
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
Deposits:
Demand
Non-interest bearing $ 74,630 64,368
Interest bearing 46,490 56,877
Savings and money market 156,108 109,316
Certificates of deposit 177,062 145,946
--------- --------
Total deposits 454,290 376,507
Borrowings 22,218 7,142
Accrued interest payable and other liabilities 3,150 1,920
--------- --------
Total Liabilities 479,658 385,569
--------- --------
Commitments and Contingencies (Notes 13 and 14)
Stockholders' Equity:
Common stock, $50 par value; 240,000 shares authorized,
162,208 shares issued in 1999 and 1998 8,110 8,110
Additional paid-in capital 8,506 8,495
Retained earnings 27,087 26,563
Treasury stock, at cost (3,725 shares in 1999 and 2,479 shares
in 1998) (1,348) (835)
Accumulated other comprehensive income 122 145
--------- --------
Total Stockholders' Equity 42,477 42,478
--------- --------
Total Liabilities and Stockholders' Equity $522,135 428,047
========= ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
8 Page 42
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997
------- ------ -------
<S>
<C> <C> <C>
Interest income:
Loans, including fees $ 28,865 26,834 25,389
Securities 3,756 3,967 4,027
Other 232 52 17
------- ------ ------
Total interest income 32,853 30,853 29,433
------- ------ ------
Interest expense:
Deposits 12,725 10,746 9,733
Borrowings 527 1,687 1,506
------- ------ ------
Total interest expense 13,252 12,433 11,239
------- ------ ------
Net interest income 19,601 18,420 18,194
Provision for loan losses 1,239 641 851
------- ------ ------
Net interest income after provision for loan losses 18,362 17,779 17,343
------- ------ ------
Other income:
Service charges on deposit accounts 2,548 1,810 1,534
Trust income 2,782 2,249 1,723
Net gain on sale of mortgage loans 88 125 29
Other operating income 1,856 1,740 502
------- ------ ------
Total other income 7,274 5,924 3,788
------- ------ ------
Operating expenses:
Salaries & employee benefits 13,055 10,557 9,638
Occupancy 3,763 3,007 2,736
Marketing and public relations 1,162 515 399
Office supplies, printing and postage 966 807 712
FDIC insurance 43 39 38
Other operating expenses 3,394 3,505 2,109
------- ------ ------
Total operating expenses 22,383 18,430 15,632
------- ------ ------
Income before income taxes 3,253 5,273 5,499
Income taxes 896 1,686 1,762
------- ------ ------
Net income $ 2,357 3,587 3,737
======= ====== ======
Basic earnings per share $ 14.82 22.38 23.22
======= ====== ======
Diluted earnings per share $ 14.78 22.38 23.22
======= ====== ======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
9 Page 43
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT 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, 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 3,778
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 3,613
-------
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 8,495 26,563 (835) 145 42,478
------------ ------- --------- --------- ------------- -------
Comprehensive income:
Change in unrealized
gain on securities
available for sale,
net of taxes of $16 - - - - (23) (23)
Net income - - 2,357 - - 2,357
-------
Total comprehensive
income 2,334
-------
Cash dividend - $11.50
per share - - (1,833) - - (1,833)
Sale of 176 shares of
treasury stock - 11 - 56 - 67
Purchase of 1,422 shares
of treasury stock - - - (569) - (569)
------------ ------- --------- --------- ------------- -------
Balance at December 31, 1999 $ 8,110 8,506 27,087 (1,348) 122 42,477
============ ======= ========= ========= ============= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
10 Page 44
<PAGE>
<TABLE>
<CAPTION>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
1999 1998 1997
---------- -------- --------
<S>
<C> <C> <C>
Cash flow from operating activities:
Net income $ 2,357 3,587 3,737
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and accretion 2,084 1,793 1,415
Provision for loan losses 1,239 641 851
Writedown of other real estate - 50 274
Deferred income taxes (482) (256) (210)
Income from minority owned entities (144) - -
Originations of loans held for sale (106,988) (116,551) (28,481)
Proceeds from sale of loans held for sale 109,464 115,702 27,033
(Increase) decrease in accrued interest receivable
and other assets (175) 149 (312)
Increase (decrease) in accrued interest payable and
other liabilities 1,230 (662) 634
---------- -------- --------
Net cash provided by operating activities 8,585 4,453 4,941
---------- -------- --------
Cash flows from investing activities:
Purchase of FHLB and FRB stock - (430) (1,354)
Securities held to maturity:
Proceeds from maturities and calls of securities 38,303 32,740 37,219
Purchase of securities (41,180) (34,025) (38,319)
Loans originated - net (89,985) (2,663) (52,133)
Fixed asset purchases - net (3,990) (2,104) (3,469)
Acquisition of subsidiary - - (196)
Investment in minority owned entities (158) (762) (1,014)
Proceeds from sale of other real estate 529 1,196 892
---------- -------- --------
Net cash used by investing activities (96,481) (6,048) (58,374)
---------- -------- --------
Cash flows from financing activities:
Net increase in demand, savings and money
market deposits 46,667 19,388 14,880
Net increase in time deposits 31,116 32,358 1,915
Proceeds from FHLB advances 16,600 - 39,100
Principal repayments on FHLB advances (1,524) (43,525) (23)
Proceeds from sale of treasury stock 67 47 42
Purchase of treasury stock (569) (348) (398)
Dividends paid (1,833) (1,766) (1,609)
---------- -------- --------
Net cash provided by financing activities 90,524 6,154 53,907
---------- -------- --------
Net increase in cash & cash equivalents 2,628 4,559 474
Cash & cash equivalents - beginning of year 24,206 19,647 19,173
---------- -------- --------
Cash & cash equivalents-end of year $ 26,834 24,206 19,647
========== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 13,074 12,312 11,128
========== ======== ========
Income taxes $ 1,020 2,142 1,409
========== ======== ========
Supplemental disclosure of non-cash investing
activity:
Additions to other real estate acquired through
foreclosure, net of loans to facilitate sales $ 536 376 2,538
========== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
11 Page 45
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(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. (GFNYI), and HomeTown Funding,
Inc. (HTF). All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company accounts or investments in
minority owned entities 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 included in 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, other than loans designated as held for sale, 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.
12 Page 46
<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.
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 borrower's
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. 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, 1999 and 1998 the unamortized balance of goodwill amounted to
$208,000 and $348,000, respectively. Insurance expirations (customer list),
acquired through acquisition, are amortized over five years, the expected
period over which commission income will be received. The amount remaining
to be amortized at December 31, 1999 and 1998 was $95,000 and $158,000,
respectively.
13 Page 47
<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.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value-based method of accounting prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees" for its
stock-based compensation plans and discloses in these footnotes pro forma net
income and earnings per share information as if the fair value based method had
been adopted.
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
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 $587,000,000 and $424,000,000 at December 31, 1999 and 1998, 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.
14 Page 48
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TREASURY STOCK
Treasury stock is shown on the consolidated balance sheet at cost as a
reduction of stockholders' equity. Shares are released from treasury at fair
value, with any gain on the sale reflected as an adjustment to additional
paid-in capital. Losses are reflected as an adjustment to additional paid-in
capital to the extent of gains previously recognized, otherwise as an
adjustment to retained earnings.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income available to
common shareholders by the weighted average number of shares outstanding during
the year. Diluted earnings per share includes the maximum dilutive effect of
stock issuable upon conversion of stock options.
SEGMENT REPORTING
During 1998, the Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the Company to report
financial and other information about key revenue-producing segments of the
Company for which such information is available and is utilized by the chief
operating decision maker. Specific information to be reported for individual
segments include profit and loss, certain revenue and expense items, and total
assets. A reconciliation of segment financial information to amounts reported in
the financial statements is also provided. Adoption of SFAS No. 131 did not
result in significant changes in the Company's reporting. The Company's
operations are solely in the financial service industry and include the
provision of traditional commercial banking services, which includes payment
services, credit services, investment and trust services, and insurance services
to individual, corporate and municipal customers. The Company operates in the
geographical regions of Western Ontario County and Monroe County and surrounding
areas in New York State. The Company has identified separate operating segments;
however, these segments did not meet the quantitative thresholds for separate
disclosure.
OTHER RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999 the Financial Accounting Standards Board deferred for one year the
effective date of FASB Statement No. 133 entitled "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 establishes
comprehensive accounting and reporting requirements for derivative instruments
and hedging activities. The statement requires companies to recognize all
derivatives as either assets or liabilities, with the instruments measured at
fair value. The accounting for gains and losses resulting 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 now
effective for the Company for fiscal quarters beginning January 1, 2001.
Earlier adoption is permitted. The Company holds no free-standing derivative
instruments at year end, and management does not anticipate that adoption of
the new standard will have a material effect on the Company's financial
statements.
15 Page 49
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) FEDERAL FUNDS SOLD
Income from Federal funds sold for the years ended December 31, 1999, 1998, and
1997 was $225,000, $33,000, and $1,000, respectively.
(3) SECURITIES
<TABLE>
<CAPTION>
The aggregate amortized cost and fair value of Securities Available for Sale and
Securities Held to Maturity at December 31, 1999 and 1998 follow (in thousands):
1999 1998
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------- ------ ------ ------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Common Stock $ 325 528 195 437
======= ======= ===== ======
Securities Held to Maturity:
U.S Treasury obligations $26,865 26,715 29,936 30,126
Mortgage-backed securities 430 436 308 309
Obligations of state and municipal
Subdivisions 46,061 45,674 39,253 40,224
Other securities 1,980 1,980 2,982 3,029
------- ------- ------ ------
Total $75,336 74,805 72,479 73,688
======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Gross unrealized gains and gross unrealized losses on Securities Available for
Sale and Securities Held to Maturity at December 31, 1999 and 1998 follow (in
thousands):
1999 1998
---------------- -------------
Unrealized Unrealized
Gains Losses Gains Losses
<S> <C> <C> <C> <C>
Securities Available for Sale:
Common Stock $ 212 (9) 242 -
======= ====== ====== =====
Securities Held to Maturity:
U.S Treasury obligations $ 3 (153) 201 (11)
Mortgage-backed securities 9 (3) 1 -
Obligations of state and municipal
Subdivisions 162 (549) 985 (14)
Other securities 3 (3) 47 -
------- ------ ------ -----
Total $ 177 (708) 1,234 (25)
======= ====== ====== =====
</TABLE>
16 Page 50
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
The amortized cost and fair value of securities Held to Maturity by years to
maturity as of December 31, 1999 follow (in thousands):
Amortized Cost Fair Value
--------- -------
<S> <C> <C>
Years
Under 1 $ 29,396 29,331
1 to 5 40,180 39,800
5 to 10 5,191 5,061
10 and over 569 613
-------- -------
Total $ 75,336 74,805
======== =======
</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 $74,413,000 were pledged as
collateral against municipal deposits at December 31, 1999.
<TABLE>
<CAPTION>
Interest on securities segregated between taxable interest and tax-exempt
interest for the years ended December 31, 1999, 1998, and 1997 follows (in
thousands):
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Taxable $2,015 2,400 2,587
Tax-exempt 1,741 1,567 1,440
------ ----- -----
Total $3,756 3,967 4,027
====== ===== =====
</TABLE>
The Bank's required investment in stock of the Federal Home Loan Bank (FHLB)
and the Federal Reserve Bank amounted to $3,548,000 at December 31, 1999
and 1998, respectively, which equals the Company's cost basis.
17 Page 51
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) LOANS
<TABLE>
<CAPTION>
The major classifications of loans at December 31, 1999 and 1998 follow (in
thousands):
1999 1998
-------- -------
<S> <C> <C>
Commercial, financial and agricultural $ 62,491 43,260
Mortgages:
Residential 69,862 76,130
Commercial 141,255 83,771
Consumer:
Auto - Indirect 103,605 84,370
Other 18,561 17,753
Other 2,097 3,516
Loans held for sale 492 2,969
-------- -------
Total 398,363 311,769
Less - allowance for loan losses 4,136 3,283
-------- -------
Loans - net $394,227 308,486
======== =======
</TABLE>
<TABLE>
<CAPTION>
Interest and fees on loans follow (in thousands):
Years ended December 31,
-----------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Commercial $4,416 3,319 3,575
Mortgage 14,852 15,270 15,445
Consumer and other 9,597 8,245 6,369
------- ------ ------
Total $28,865 26,834 25,389
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
A summary of the changes in the allowance for loan losses follows (in
thousands):
Years Ended December 31,
------------------------
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Balance at beginning of year $ 3,283 3,153 2,675
Provision charged to operations 1,239 641 851
Loans charged off (875) (1,053) (795)
Recoveries of loans charged off 489 542 422
------- ----- ------
Balance at end of year $ 4,136 3,283 3,153
======= ===== ======
</TABLE>
The principal balance of loans not accruing interest totaled $1,640,000 and
$2,113,000 at December 31, 1999 and 1998, respectively. The effect of nonaccrual
loans on interest income for the years ended December 31, 1999, 1998, and 1997
was approximately $138,000, $239,000, and $636,000, respectively. Other real
estate amounted to $1,651,000 and $1,642,000 at December 31, 1999 and 1998,
respectively, and is included in other assets in the consolidated balance
sheets.
The recorded investment in loans that are considered to be impaired totaled
$1,640,000 and $2,113,000 at December 31, 1999 and 1998, respectively. Included
in 1998's amount was $38,000 of impaired loans for which the related allowance
for loan losses was $18,000. The average recorded investment in
impaired loans during 1999, 1998, and 1997 was $1,583,000, $2,728,000, and
$6,245,000, respectively. The effect of not accruing interest income on
impaired loans was approximately $138,000 in 1999, $239,000 in 1998, and
$636,000 in 1997.
18 Page 52
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) LOANS (CONTINUED)
At December 31, 1999 residential mortgage loans with a carrying value of
approximately $24,440,000 were pledged as collateral for the Bank's advances
from the Federal Home Loan Bank, and an additional $10,321,000 was available for
pledging. Indirect automobile loans with a carrying value of approximately
$94,880,000 were pledged as collateral for a $75,900,000 line of credit from the
Federal Reserve Bank of New York at December 31, 1999.
Loans serviced for others, amounting to $80,364,000 and $73,007,000 at December
31, 1999 and 1998, respectively, are not included in the consolidated financial
statements.
The Company's market area is generally Western Ontario County and 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.
(5) PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of premises and equipment at December 31, 1999 and 1998 follows (in
thousands):
1999 1998
------- ------
<S> <C> <C>
Land and land improvements $ 979 979
Buildings and leasehold improvements 15,192 13,280
Furniture, fixtures, equipment, and vehicles 11,131 10,113
------- ------
27,302 24,372
Less accumulated depreciation and amortization 13,864 12,904
------- ------
Premises and equipment - net $13,438 11,468
======= ======
</TABLE>
Depreciation and amortization expense amounted to $2,020,000, $1,820,000, and
$1,499,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
19 Page 53
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6)CERTIFICATES OF DEPOSIT
Certificates of deposit of $100,000 or more amounted to $81,656,000 at December
31, 1999 and $59,329,000 at December 31, 1998. Interest expense on these
certificates of deposit was as follows: $3,032,000 in 1999; $2,211,000 in 1998;
and $1,930,000 in 1997.
<TABLE>
<CAPTION>
At December 31, 1999, the scheduled maturity of these certificates of deposit
was as follows (in thousands):
<S> <C>
2000 $72,206
2001 8,853
2002 597
-------
$81,656
=======
</TABLE>
(7)BORROWINGS
<TABLE>
<CAPTION>
Borrowings consisted of the following at December 31, 1999 and 1998 (in
thousands)
1999 1998
------- -----
<S> <C> <C>
Federal Home Loan Bank Line of Credit $ 3,900 2,300
Federal Home Bank Loan Bank Term Advances 18,318 4,842
-------- -----
$ 22,218 7,142
======== =====
</TABLE>
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,
1999 follows (in thousands):
Weighted Average
Amount Interest Rate
----------- -------------
<S> <C> <C>
2000 overnight line of credit $ 3,900 3.60%
2000 other 16,324 5.88
2001 1,124 6.15
2002 24 2.50
2003 24 2.50
2004 24 2.50
After 2004 798 2.50
-------
Total $ 22,218 5.36%
=======
</TABLE>
The Company maintains a $24,000,000 overnight line of credit with the FHLB of
New York. Advances are payable on demand and generally bear interest at the
federal funds rate plus .10%. The Company also has access to the FHLB's Term
Advance Program, which allows the bank to borrow up to $24,000,000 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).
20 Page 54
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8)INCOME TAXES
<TABLE>
<CAPTION>
Total income taxes for the years ended December 31, 1999, 1998, and 1997 were
allocated as follows (in thousands):
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Income from operations $ 896 1,686 1,762
Change in stockholders' equity for unrealized
gain on securities available for sale 16 17 27
------ ----- -----
$ 912 1,703 1,789
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
The components of income tax expense (benefit) relating to income from
operations
follows (in thousands):
Years Ended December 31,
--------------------------
Current: 1999 1998 1997
------- ----- ------
<S> <C> <C> <C>
Federal $ 1,033 1,465 1,503
State 345 477 469
------- ----- ------
1,378 1,942 1,972
------- ----- ------
Deferred:
Federal (478) (221) (186)
State (4) (35) (24)
------- ----- ------
Total (482) (256) (210)
------- ----- ------
$ 896 1,686 1,762
======= ===== ======
</TABLE>
<TABLE>
<CAPTION>
Income tax expense 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,
-------------------------
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Tax expense at statutory rate of 34% $ 1,106 1,790 1,870
Tax-exempt interest (591) (551) (489)
Nondeductible interest expense 76 61 62
State taxes, net of federal benefit 228 292 310
Change in valuation allowance
For deferred tax assets (22) 45 12
Other 99 49 (3)
------- ------ -------
Total $ 896 1,686 1,762
======= ====== =======
Effective tax rate 27.5% 32.0% 32.0%
======= ====== ======
</TABLE>
21 Page 55
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8)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, 1999 and
1998 are presented below:
1999 1998
------- ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses - books $1,619 1,312
Incentive stock plan 525 412
Excess servicing 45 60
NOL credits from subsidiaries 199 256
State NOL arising from nonconsolidation for state tax
purpose only 49 53
Interest on non-accrual loans 101 143
Other 59 55
------- ------
Deferred tax assets before allowance 2,597 2,291
Valuation allowance (65) (87)
Deferred tax assets 2,532 2,204
------- ------
Deferred tax liabilities:
Allowance for loan losses - tax 322 329
Depreciation 293 472
Net unrealized gains on available for sale securities 83 99
Accretion on bonds 51 19
------- ------
Deferred tax liabilities 749 919
------- ------
Net deferred tax asset $1,783 1,285
======= ======
</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 $65,000 against
its non-bank subsidiaries' Net Operating Loss (NOL) was necessary. As of
December 31, 1999 there were approximately $108,000 of mortgage tax credits
available to offset future state tax liabilities of GFNYI.
(9) 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,
1999, dividends were unavailable for payment to the Company without the approval
of the OCC.
(10) EARNINGS PER SHARE
<TABLE>
<CAPTION>
Basic and diluted earnings per share for the years ended December 31, 1999, 1998,
and 1997 were computed as follows (dollars in thousands, except share data)
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income applicable to common shareholders $ 2,357 3,587 3,737
Weighted average common shares outstanding 159,029 160,254 160,952
--------- ------- -------
Basic Earnings Per Share $ 14.82 22.38 23.22
========= ======= =======
</TABLE>
22 Page 56
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
DILUTED EARNINGS PER SHARE
Net income applicable to common shareholders $ 2,357 3,587 3,737
--------- ------- -------
Weighted average common shares outstanding 159,029 160,254 160,952
Effect of dilutive securities:
Stock options 492 - -
--------- ------- -------
Total 159,521 160,254 160,952
Diluted earnings per share $ 14.78 22.38 23.22
========= ======= =======
</TABLE>
(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
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 $974,000, $835,000, and
$763,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan (ESOP) for employees of the
Bank. Annual contributions are made at the discretion of the Board of
Directors. ESOP expense amounted to $76,000, $63,000, and $62,000 for the years
ended December 31, 1999, 1998, and 1997, 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, 1999 and 1998 the plan held 1,802 and 1,666 shares with a fair
value at the respective dates of $697,000 and $645,000.
(12) INCENTIVE STOCK PLANS
STOCK OPTION PLAN
The Company's incentive stock option program for employees authorizes grants of
options to purchase up to 16,000 shares of common stock. At its March 1999
meeting, the Board of Directors granted, effective January 1, 1999, 4,571
non-qualified options to certain employees. Of this amount, 3,210 options were
granted in replacement of the future appreciation of previously granted Stock
Appreciation Rights and Phantom Stock Awards. The remaining options were
granted to management under the Company's incentive compensation plan for 1998's
performance. The options were granted with an exercise price equal to the
estimated fair value of the common stock on the grant date. The options are
exercisable at times - varying from five years to seventeen years. The
options
are fully vested and have no set expiration date.
<TABLE>
<CAPTION>
The following summarizes outstanding and exercisable options at December 31,
1999:
Weighted
# Average Price
----- ---------
<S> <C> <C>
Options outstanding, January 1 - -
Granted 4,571 $ 360.52
Exercised - -
Expired - -
------ ---------
Options outstanding, December 31 4,571 $ 360.52
====== =========
Options exercisable, December 31 1,853 $ 360.52
====== =========
Options available for future grants 11,429
======
</TABLE>
23 Page 57
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) INCENTIVE STOCK PLANS (CONTINUED)
All options outstanding (both exercisable and unexercisable) at December 31,
1999 have an exercise price of $360.52. The weighted average expected life of
the options is 12.3 years. Since the options have no stated expiration date,
the remaining life is calculated as the number of years from grant date to the
grantee's 65th birthday.
The Company applies APB Opinion No. 25 in accounting for its stock option plan,
and accordingly, no compensation cost has been recognized for its fixed-award
stock options in the consolidated statement of income. Had compensation cost
been determined based on the fair value at the grant date of the stock options
using option valuation models consistent with the approach of FASB Statement No.
123, the Company's net income and earnings per share for the year ended December
31, 1999 would have been reduced to the pro forma amounts indicated below
(net income in thousands):
Net Income
As reported $ 2,357
Pro forma $ 2,118
Earnings per share Basic Diluted
----- -------
As reported $ 14.82 $ 14.78
Pro forma $ 13.32 $ 13.28
The per share fair value of stock options granted during 1999 of $73.57, was
determined using the Black-Scholes option-pricing model with the following
weighted average assumptions:
Expected dividend yield 3.09%
Risk free interest rate 4.92%
Expected life 12.3 years
Volatility 14.73%
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, 1999, 3,052 PSAs were
outstanding and 2,508 SARs were outstanding at prices ranging from $114.00 to
$242.00.
There is no difference between the Company's previous method of accounting for
its incentive plan and the provisions of SFAS No. 123; therefore, no pro forma
information is provided.
PHANTOM STOCK AND STOCK APPRECIATION RIGHTS PLAN
The maximum value of the PSAs and SARs was frozen as of December 31, 1998 and
future appreciation associated with increases in the market value of the
Company's common stock was replaced with stock options. The Company has accrued
a liability of $1,242,000 at December 31, 1999 representing the vested
obligation under the plan. Expenses of the plan amounted to $269,000, $137,000,
and $110,000, for the years ended December 31, 1999, 1998, and 1997,
respectively.
24 Page 58
<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 $376,000 in
1999, $284,000 in 1998, and $238,000 in 1997. 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, 1999 follows (in thousands):
Years ending
December 31, Amount
- -------------- -------
<S> <C>
2000 $ 849
2001 852
2002 802
2003 763
2004 613
2005 and after 878
-------
Total $ 4,757
=======
</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, 1999 were: Commercial letters of
credit $5,800,000 and unused commitments $37,422,000. 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 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
$4,277,000 at December 31, 1999.
The Bank has committed $2,200,000 to fund a 22% 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, 1999, the Company had funded $1,564,000 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, 1999 was approximately $6,900,000.
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.
25 Page 59
<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, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, 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
(dollars in thousands) Actual Purposes Provisions
-------------------- ---------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total Capital
(to risk weighted assets) $40,985 10.2% $32,153 8.0% $40,191 10.0%
Tier 1 Capital
(to risk weighted assets) $36,848 9.2% $16,077 4.0% $24,115 6.0%
Tier 1 Capital
(to average assets) $36,848 7.2% $20,408 4.0% $25,509 5.0%
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%
</TABLE>
26 Page 60
<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, 1999 and 1998, loans and
unused commitments to these related parties amounted to $4,497,000 and
$4,311,000, 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,
------------------
1999 1998
--------- -------
<S> <C> <C>
Assets:
Cash $ 1,342 114
Securities available for sale 177 185
Premises and equipment, net 710 730
Investment in subsidiaries 40,497 41,328
Other assets 36 122
--------- -------
Total Assets $ 42,762 42,479
========= =======
Liabilities:
Other liabilities $ 285 1
Stockholders' equity:
Common stock 8,110 8,110
Additional paid-in capital 8,506 8,495
Retained earnings 27,087 26,563
Treasury stock (3,725 shares in 1999
and 2,479 shares in 1998) (1,348) (835)
Accumulated other comprehensive income 122 145
--------- -------
Total stockholders' equity 42,477 42,478
--------- -------
Total liabilities and stockholders' equity $ 42,762 42,479
========= =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
---------------------------
1999 1998 1997
-------- ----- ------
<S> <C> <C> <C>
Income - Dividends from the Canandaigua
National Bank and Trust Company $ 2,025 5,122 2,975
Other income 18 11 7
Other expense (16) (34) (66)
-------- ----- ------
Income before undistributed income of
subsidiaries 2,027 5,099 2,916
Undistributed (distributions in excess
of)current year income of subsidiaries 330 (1,512) 821
-------- ----- ------
Net income $ 2,357 3,587 3,737
======== ===== ======
</TABLE>
27 Page 61
<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,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,357 3,587 3,737
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 25 30 10
(Undistributed) distributions in excess
of current year earnings of subsidiaries (330) 1,512 (821)
Other 5 - (7)
-------- ------- -------
Net cash provided by operating activities 2,057 5,129 2,919
-------- ------- -------
Cash flows from investing activities:
(Purchase) sale of subsidiaries 1,564 - (718)
Decrease in other real estate 105 - 450
Additional capital investments in subsidiaries (158) (3,037) (202)
Fixed assets purchased, net (5) (17) (743)
-------- ------- -------
Net cash provided by investing activities 1,506 (3,054) (1,213)
-------- ------- -------
Cash flows from financing activities:
Proceeds from sale of treasury stock 67 47 42
Purchase of treasury stock (569) (348) (398)
Dividends paid (1,833) (1,766) (1,609)
-------- ------- -------
Net cash used by financing activities (2,335) (2,067) (1,965)
-------- ------- -------
Net increase in cash 1,228 8 (259)
Cash at beginning of year 114 106 365
-------- ------- -------
Cash at end of year $ 1,342 114 106
======== ======= =======
</TABLE>
28 Page 62
<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. Included herein
are the Bank's required investments in stock of the Federal Home Loan Bank and
the Federal Reserve Bank.
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.
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 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 maturities on time deposits.
29 Page 63
<PAGE>
CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
BORROWINGS:
The fair value of borrowings 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, 1999 December 31, 1998
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value(1) Amount Value(1)
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and equivalents $ 26,834 26,834 24,206 24,206
Securities 79,412 78,881 76,464 77,673
Loans, net 394,227 393,890 308,486 318,735
Financial Liabilities:
Deposits:
Demand accounts, savings and
money market accounts 227,228 277,228 230,561 230,561
Certificates of deposit 177,062 176,832 145,946 147,109
Borrowings 22,218 22,078 7,142 6,863
Off-balance-sheet commitments:
Commercial letters of credit $ - 58 - 35
Unused lines of credit - - - -
<FN>
(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.
</TABLE>
30 Page 64
<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 at quarter end, and semi-annual dividends paid
per share since the first quarter of 1994.
<TABLE>
<CAPTION>
AVERAGE DIVIDEND
SALE PRICE BOOK VALUE PAID
- ----------- ----------- -----
<S> <C> <C> <C>
1999
- -----------
4th quarter no sales $268.02
3rd quarter $437.18 $262.86 $5.75
2nd quarter $413.98 $265.35
1st quarter $400.00 $263.51 $5.75
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
</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.
31 Page 65
<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, Kathleen A. Rice
(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
(photograph of committee)
Webster Bank Office
David W. Nytch, Jeffery C. Riedel, Kathleen Vasile, Ross J. Willink
32 Page 66
<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 - Cashier
Judith M. Stewart, Vice President - Training, Community Office Operations
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
G. Karl Smith, Bank Security Officer
Cheryl A. Hurd, Banking Officer - Consumer Loans
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, Credit Services
A. Rosamond Zatyko, Vice President - Credit Administration
Robert L. Lowenthal, Vice President
Gary L. Babbitt, Vice President
Richard A. Szabat, Vice President
Michael J. Drexler, Vice President
Michael S. Mallaber, Vice President
JoAnn N. VanderSal, Vice President
Teresa P. Iula, Assistant Vice President
William J. Van Damme, Assistant Vice President
Keith J. Goebel, Assistant Vice President
Bernard E. Belcher, Assistant Vice President
Dorothy A. Ducatte, Project Manager - Assets, Assistant CRA Officer
Tamra A.B. O'Donnell, Product Manager
Sandra J. Holley, Collateral Control Officer
INVESTMENT SERVICES:
Gregory S. MacKay, Senior Vice President
James M. Exton, Vice President - Investment Officer
Scott B. Trumbower, Vice President - Investment Officer
Robert J. Swartout, Vice President - Investment Officer
Anthony D. Figueiredo, Vice President - Trust Investment Officer
Sandra A. Lancer, Vice President - Employee Benefits Trust Officer
Mary Kay Bashaw, Vice President - Investment Officer
Patricia A. McAuley, Assistant Vice President - Investment IRA's
Jay J. Bachstein, Assistant Vice President - Investment Officer
TRUST SERVICES:
Richard H. Hawks, Jr., Senior Vice President - Trust Officer
Paul R. Callaway, Vice President - Trust Officer
M. Beth Uhlen, Vice President - Manager Trust Operations
Sharon E. Greisberger, Assistant Vice President
Kevin D. Kinney, Assistant Vice President - Trust Development Officer
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
AUDIT:
Linda M. Rogers, CFSA, CBA, Vice President - Corporate Audit Manager
Gretchen A. Alles, Senior Auditor
Diane B. Savage, Audit Officer
MARKETING:
Stephen R. Martin, Vice President - Marketing
ADMINISTRATIVE:
Mary Ann M. Ridley, Vice President - Human Resources
Marie E. Dastin, Human Resources Officer
Vicki B. Mandrino, Compliance Officer
33 Page 67
<PAGE>
THE CANANDAIGUA NATIONAL BANK AND TRUST COMPANY
COMMUNITY BANKING OFFICES
BLOOMFIELD BANK OFFICE
Barbara A. Thorpe, Assistant Vice President - Community Office Manager
Judy A. Reader, Banking Officer
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
CHILI BANK OFFICE
Mary Anne Burkhart, Assistant Vice President - Community Office Manager
Commercial Services:
Richard A. Szabat, Vice President
Michael S. Mallaber, Vice President
CUSTOMER CALL CENTER
Barbara A Finch, 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
Dianne M. Tucker, Banking Officer
GREECE BANK OFFICE
Laurel L. Harrington, Assistant Vice President - Community Office Manager
Peter J. Bevan, Banking Officer
Commercial Services:
JoAnn N. VanderSal, Vice President
HONEOYE BANK OFFICE
Kathleen A. Rice, Assistant Vice President - Community Office Manager
Sandra L. D'Angelo, Banking Officer
HONEOYE FALLS BANK OFFICE
Gerald V. Bowe, Community Office Manager
Audrey A, Evangelist, Banking Officer
IRONDEQUOIT BANK OFFICE
Timi L. Wright, Community Office Manager
LAKESHORE BANK OFFICE
Dolores J. Reynolds, Assistant Vice President - Community Office Manager
MANCHESTER-SHORTSVILLE BANK OFFICE
Diane C. Mordue, Assistant Vice President - Community Office Manager
MENDON BANK OFFICE
Christopher M. Keys, Assistant Vice President - Community Office Manager
Mary Ellen McMurry, Banking Officer
PERINTON BANK OFFICE
Deborah E. Rought, Community Office Manager
PITTSFORD BANK OFFICE
Karen C. Serinis, Assistant Vice President - Community Office Manager
Commercial Services
Robert L. Lowenthal, Vice President
Gary L. Babbitt, Vice President
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, Banking Officer
WEBSTER BANK OFFICE
Kathleen Vasile, Assistant Vice President - Community Office Manager
Gina M. Shevchuk, Banking Officer
Commercial Services
Michael J. Drexler, Vice President
Keith J. Goebel, Assistant Vice President
34 Page 68
<PAGE>
Arthur S. Hamlin
AWAERD FOR EXCELLENCE
1998 Recipient
(photograph of the award)
(photograph of Beth Uhlen)
"It is a tremendous honor to be selected as this year's recipient of the Arthur
S. Hamlin Award. Arthur Hamlin sets the standard we should all strive to
attain. His leadership and guidance to the Bank, and involvement in both
Community and charitable organizations are exemplary and serve as an
inspiration to us all.
This award is of special significance to me because I was nominated by my
co-workers. It is the people that make an organization exceptional and I am
truly grateful for the opportunity to work with all the remarkable people who
make up The Canandaigua National Bank and Trust Company."
Beth Uhlen
(photographs of all the 1999 nominees)
1999 Nominees:
Sandy D'Angelo
Susan Davis
Alice Hecker
Mary Keenan
Denise Kelly
Brian Martin
Tamra O'Donnell
Dawn Phelps
Dee Reynolds
Darlene Rogers
Jan Schrader
Kim Senglaub
Brenda Stoker
Barb Thorpe
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
Kathy Lafler 1997
35 Page 69
<PAGE>
TOUCHING MORE NEIGHBORS
(photographs of bank offices)
Chili - June 1999 (temporary location)
Greece - June 1999
Honeoye Falls - September 1999 (temporary location)
Canandaigua National Bank and Trust opened three new Monroe County Community
Branch offices in calendar 1999. The Chili community branch office is a
temporary location, situated in the Chili Paul Plaza and will be moving into its
permanent location, a free standing building at the front end of the plaza in
Mid - 2000. The Greece community office is located on West Ridge Road, just
North of Greece-Ridge Mall. The Honeoye Falls location, located on Main St. in
the village, is also a temporary location and will be permanently situated at a
site to be determined in the Honeoye Falls village. All three Community Branch
Offices model the design of our Webster branch opened in 1998, featuring
sit-down tellers as well as a customer service greeter station and the same
customer-friendly banking environment our customers have come to enjoy from this
region's only full-service, locally-owned community bank.
36 Page 70
<PAGE>
EXHIBIT 20 DEFINITIVE PROXY STATEMENT TO SHAREHOLDERS
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 71
<PAGE>
CANANDAIGUA NATIONAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MARCH 15, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
CANANDAIGUA NATIONAL CORPORATION
The undersigned hereby appoints Robert J. Craugh and James A. Avery, jointly and
severally, proxies, with power of substitution, to represent and to vote at the
Annual Meeting of Stockholders (including adjournments) of CANANDAIGUA NATIONAL
CORPORATION, to be held on March 15, 2000 at 1:00 p.m., at the Offices of the
Corporation, 72 South Main Street, Canandaigua, New York, with all powers the
undersigned would possess if personally present, as specified on the ballot
below and in accordance with their discretion for any other business that may
come before the meeting or any adjournment thereof, and the undersigned hereby
revokes all proxies previously given by the undersigned with respect to the
shares of common stock covered hereby.
Unless a contrary choice is specified, this proxy will be voted "FOR" Items 1
and 2. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" DIRECTORS' PROPOSALS TO:
1. Elect three Class 1 Directors for terms of three years.
NOMINEES: CAROLINE C. SHIPLEY, GEORGE W. HAMLIN, IV AND DAVID HAMLIN, JR.
[] FOR [] AGAINST [] ABSTAIN
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, DRAW A SINGLE LINE THROUGH
THE NAME OF THAT NOMINEE.
2. Transact such other business as may properly come before the meeting or
any adjournment thereof.
[] FOR [] AGAINST [] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ITEMS 1 AND 2. THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT
TO ALL MATTERS REFERRED TO IN ITEM 2.
When shares are held by joint owners, both should sign. When signing as
attorney, executor, administrator, trustee, guardian or other fiduciary or in a
representative capacity, please add your title as such. If signing as power of
attorney or in any other representative capacity, please provide proof of such
capacity. If a partnership, please sign in partnership name by authorized
person. If a corporation, please sign in full corporate name by authorized
officer, giving title.
Receipt of the Notice of the Annual Meeting of Stockholders, the Proxy Statement
dated February 28, 2000, and the 1999 Annual Report is hereby acknowledged.
Date _______________, 2000
----------------------------
Signature
----------------------------
Signature if held jointly
Please sign, date, and
promptly return the proxy
in the enclosed envelope.
Page 72
<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 15,
2000 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, 2000
are entitled to notice of, and to vote at, the Annual Meeting. On that date,
there were outstanding and entitled to vote 158,483 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 28, 2000.
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 $5,080.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Beneficial Owners of Common Stock
- ------------------------------------------------
<TABLE>
<CAPTION>
A) The following table sets forth, as of January 31, 2000, 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) 13,159(1) 8.30 %
<FN>
(1) Includes shares set forth in footnotes to Table B
</TABLE>
As of January 31, 2000, the Trust Department of The Canandaigua National Bank
and Trust Company held in various fiduciary capacities 44,569 shares or 28.12 %
of the outstanding shares. The Trust Department of the bank has the power to
vote 11,868 of these shares.
1 Page 73
<PAGE>
<TABLE>
<CAPTION>
B) Beneficial Ownership by Directors and Principal Officers: The following
table sets forth as of January 31, 2000, 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 5,277 3.33 %
Naples, NY
George W. Hamlin, IV 1,803 1.14 %
Canandaigua, NY
Stephen D. Hamlin 1,500 .95 %
Canandaigua, NY
James S. Fralick 100 .06 %
Canandaigua, NY
Richard P. Miller, Jr. 20 .01 %
Naples, NY
Caroline C. Shipley 116 .07 %
Canandaigua, NY
Alan J. Stone 3,804 2.40 %
Honeoye, NY
Gregory S. MacKay 118 .07 %
Canandaigua, NY
Robert G. Sheridan 68 .04 %
Canandaigua, NY
Daniel P. Fuller 153 .10 %
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 161 shares owned individually by his spouse.
Mr. Hamlin has the option to acquire 825 shares under the terms of the Company's
1998 Stock Option Plan as described under the "Stock Options" Section of this
Proxy Statement
Stephen D. Hamlin shares include 410 shares owned individually by his spouse.
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 326 shares owned by his three children under
Trust Agreements.
2 Page 74
Gregory S. MacKay shares include 1 share owned individually by his spouse, 59
shares owned by his IRA held by subsidiary bank and 16 shares owned by his two
children. Mr. MacKay has the option to acquire 105 shares under the terms of
the Company's 1998 Stock Option Plan.
Robert G. Sheridan shares include 18 shares owned as custodian for his three
children under New York Uniform Transfers to Minors Act and 10 shares owned by
his IRA held by subsidiary bank. Mr. Sheridan has the option to acquire 270
shares under the terms of the Company's 1998 Stock Option Plan as described
under the "Stock Options" Section of the Proxy Statement.
Daniel P. Fuller shares include 25 shares owned individually by his spouse and
86 shares owned as custodian for his two children under New York
Uniform
Transfers to Minors Act.
</TABLE>
<PAGE>
ELECTION OF DIRECTORS
The number of Directors to be elected at the 2000 Annual Meeting is three.
Directors are elected annually by the stockholders to hold office for three
Years and until their successors are elected and qualified. Management
Has nominated as Directors, and recommends the election, of the three
persons listed below. Nominees George W. Hamlin, IV and Caroline C.
Shipley are members of the present Board and were first elected by the
stockholders of the Corporation at the Annual Meeting held in 1984. Nominee
David Hamlin, Jr. is a member of the present Board and was first elected
by the stockholders of the Corporation at the Annual Meeting held in
1993. Each nominee has consented to be named in this Proxy Statement
and to serve if elected. If at the time of the Annual Meeting any of them
becomes unavailable for election, the proxies may exercise discretionary
authority to vote for substitutes proposed by the Board of Directors.
Management has no reason to believe that any substitute nominees will
be required.
INFORMATION ON DIRECTORS AND NOMINEES
<TABLE>
<CAPTION>
2000 Incumbent 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>
Caroline C. Shipley 60 1984 1984 Educator - Director
New York State School
Boards Association
January 1991- present;
Vice President 1995;
President 1996 -1997
George W. Hamlin, IV 58 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
David Hamlin, Jr. 56 1993 1993 Farmer; Colonel, USAF
Retired
</TABLE>
3 Page 75
<PAGE>
<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 51 1984 1992 Senior Vice President and
Cashier - The Canandaigua
National Bank and Trust
Company - 1989 - present
Patricia A. Boland 64 1986 1986 Retired Educator;
Retired Mayor - City of
Canandaigua
Alan J. Stone 59 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. 56 1998 1998 Senior Vice President &
Chief Operating Officer
University of Rochester
1996 - present.
</TABLE>
4 Page 76
<PAGE>
<TABLE>
<CAPTION>
Class 2 Directors - Term Expiring 2002
Year First Elected
Or Appointed to: Principal Occupation
Name Age Corporation Bank For Past Five Years
- ---------------------------------- ------------------ -------------------- ---- -------------------------
<S> <C> <C> <C> <C>
Frank H. Hamlin 94 1984 1948 Bank Director - Investor
Stephen D. Hamlin 63 1984 1973 Chief Executive Officer -
Sonnenberg Gardens
February 1996 - present
James S. Fralick 57 1998 1998 Adjunct Professor -
Syracuse University
1998 - present
Daniel P. Fuller 49 1996 1996 President and General
Manager Bristol Mountain
Ski Resort - December 1984
to 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 Examining, Compensation or Nominating
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 seven (7) times during 1999 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.
5 Page 77
<PAGE>
The Officer's Compensation 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:
Daniel P. Fuller; Alan J. Stone; Caroline C. Shipley; Richard P. Miller, Jr.
The Officers' Compensation Committee met six (6) times during 1999 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 five (5) 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; Richard P. Miller, Jr.
The Nominating and Governance Committee met four (4) times during 1999 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 thirteen (13) meetings during
2000. 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 1999 and 1998, no compensation was paid to members of the Board
of Directors of Canandaigua National Corporation. For the years 1999 and 1998,
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.
6 Page 78
<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 1,803 58
Robert G. Sheridan Secretary 1984 68 51
Gregory S. MacKay Treasurer 1988 118 50
<FN>
George W. Hamlin, IV shares include 161 shares owned individually by his spouse.
Mr. Hamlin has the option to acquire 825 shares under the terms of the Company's
1998 Stock Option Plan as described under the "Stock Options" Section of this
Proxy Statement
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. Mr. Sheridan has the option to acquire 270 shares
under the terms of the Company's 1998 Stock Option Plan as described under the
"Stock Options" Section of the Proxy Statement.
Gregory S. MacKay shares include 1 share owned individually by his spouse, 59
shares owned by his IRA held by subsidiary bank and 16 shares owned by his two
children. Mr. MacKay has the option to acquire 105 shares under the terms of
the Company's 1998 Stock Option Plan.
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 SAR's Defined
Name and Annual PSA's Contribution
Principal Salary Bonus Compensation Stock Plan ESOP
Position Year ($) $) ($) Options ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
George W. Hamlin, IV 1997 233,201 None 6,993 See 20,960 1,716
President 1998 248,951 18,826 7,316 Table 22,569 1,786
1999 246,443 25,643 8,964 Below 18,042 1,870
Robert G. Sheridan 1997 100,048 None 2,953 See 14,158 1,073
Secretary 1998 106,805 8,932 3,400 Table 15,255 1,192
1999 105,729 13,788 3,489 Below 12,076 1,236
</TABLE>
7 Page 79
<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. No Stock
Appreciation Rights nor Phantom Stock Awards were made after 1998.
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. 1997 36.75/36.75 25% 232.06 3,253 3,815
Hamlin, IV 11,782 12,343
1998 65.63/65.63 25% 241.99 7,941 7,941
23,822 23,822
Robert G. 1997 22.05/22.05 15% 232.06 1,952 2,289
Sheridan 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, 1999 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, 1999
minus the related exercise price. The per-SAR and per-PSA value was frozen at $363.00
by the Board of Directors effective January 1, 1999.
Total number of unexercised Total Value of
SAR's and PSA's at Unexercised in-the money SAR's
December 31, 1999 and PSA's at December 31, 1999
------------------------------ -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
(#) (#) ($) ($)
<S> <C> <C> <C> <C>
George W.
Hamlin, IV 1,205.86 307.61 371,072 44,949
Robert G.
Sheridan 269.48 638.60 57,827 191,785
<FN>
No Stock Appreciation Rights or Phantom Stock Awards were exercised by the executive
officers during
1999.
</TABLE>
8 Page 80
<PAGE>
<TABLE>
<CAPTION>
STOCK OPTIONS
During 1999, the Company granted options pursuant to the Company's 1998 Stock Option
Plan. The Table below shows the relevant information pertaining to the grant of options
during 1999 to named executive officers.
Potential Realizable Value at
% of Assumed Annual Rates of
Number Total Base Stock Price Appreciation for
of Options Options Price Expiration The Option Term ($)(1)
Name Year Granted Granted $/share Date(1) 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
George W. 1999 1,262 28% 360.52 2006 185,221 431,644
Hamlin, IV
Robert G. 1999 757 17% 360.52 2013 267,437 763,475
Sheridan
<FN>
(1) Since the stock options have no stated expiration date, the expiration date for these
calculations is the year of the grantee's 65th birthday, considered normal retirement age.
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth below the aggregated option values at December 31,
1999 for the named executive officers using an estimated market price of $437.18, the
latest average market value in 1999 in a public auction.
Total number of Total Value of Unexercised
Unexercised options at in-the money options at
December 31, 1999 December 31, 1999
------------------------------ -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
(#) (#) ($) ($)
<S> <C> <C> <C> <C>
George W.
Hamlin, IV 825 437 63,245 33,500
Robert G.
Sheridan 270 488 20,698 37,410
<FN>
No options were exercised by the named executive officers in 1999.
</TABLE>
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.
9 Page 81
<PAGE>
PERFORMANCE GRAPH
(Omitted Graph Material)
<TABLE>
<CAPTION>
The following is the data table for the graph:
Period Ending
----------------------------------------------------------
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Canandaigua Nat. Corp 100.00 121.20 127.83 140.56 155.62 194.38
SNL Mid-Atl. Index 100.00 160.04 229.66 326.41 361.87 459.77
SNL <$500M Bank Index 100.00 136.80 176.08 300.16 274.06 253.69
</TABLE>
The above 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.
10 Page 82
<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
2000. 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, 1999.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the 2000
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 28, 2000
11 Page 83
<PAGE>
(Exhibit 21)
CANANDAIGUA NATIONAL CORPORATION
Name of Subsidiary State of Incorporation
-------------------- ------------------------
The Canandaigua National Bank and Trust Company New York
Home Town Funding, Inc. New York
Greater Funding of New York d/b/a
Greater Funding, The Mortgage Company New York
Page 84
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CAPTION>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 26,801
<INT-BEARING-DEPOSITS> 33
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 528
<INVESTMENTS-CARRYING> 75,336
<INVESTMENTS-MARKET> 74,805
<LOANS> 398,363
<ALLOWANCE> 4,136
<TOTAL-ASSETS> 522,135
<DEPOSITS> 454,290
<SHORT-TERM> 20,224
<LIABILITIES-OTHER> 3,150
<LONG-TERM> 1,994
<COMMON> 8,110
0
0
<OTHER-SE> 34,367
<TOTAL-LIABILITIES-AND-EQUITY> 522,135
<INTEREST-LOAN> 28,865
<INTEREST-INVEST> 3,756
<INTEREST-OTHER> 232
<INTEREST-TOTAL> 32,853
<INTEREST-DEPOSIT> 12,725
<INTEREST-EXPENSE> 13,252
<INTEREST-INCOME-NET> 19,601
<LOAN-LOSSES> 1,239
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,383
<INCOME-PRETAX> 3,253
<INCOME-PRE-EXTRAORDINARY> 896
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,357
<EPS-BASIC> 14.82
<EPS-DILUTED> 14.78
<YIELD-ACTUAL> 7.79
<LOANS-NON> 1,640
<LOANS-PAST> 115
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,283
<CHARGE-OFFS> 875
<RECOVERIES> 489
<ALLOWANCE-CLOSE> 4,136
<ALLOWANCE-DOMESTIC> 4,136
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
