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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, 1998
[ ] 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. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of January 31, 1999.
Common Stock, $50.00 par value - described on page 8 of 1998 Annual
Report and Common Stock Data disclosed on page 30 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, 1999. 159,531 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 30 of the Annual Report may not be indicative of the
actual
market value of the Company's stock.
Page 1
Documents Incorporated by Reference
---------------------------------------------------
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1998 are incorporated by reference into Part I and II.
Portions of the Registrant's Definitive Proxy Statement relating to the Annual
Meeting of Shareholders held on March 10, 1999 are incorporated by reference
into Part III.
This annual report contains certain "forward-looking statements" covered by 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
CANANDAIGUA NATIONAL CORPORATION
FORM 10-K
INDEX
Page No.
PART I.
Item 1. Business 4
Item 2. Properties 18
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
PART II.
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation 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 30
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain
Beneficial Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
PART IV.
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 34
Signatures 35
Page 3
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 Greater Funding of New York,
Inc. 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 at its Monroe County community banking
offices in Webster (town of Penfield), Mendon and Pittsford, New York.
As of December 31, 1998, Bank had total assets of $422,783,000; total
capital of $36,870,000; and total deposits of $376,635,000. 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 eleven
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 33 of the Annual
Report.
The Bank's deposit services include accepting time, demand and savings
deposits, NOW accounts, regular savings accounts, money market certificates,
investment certificates, fixed rate certificates of deposit and club accounts.
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
Item 1. Business
The Canandaigua National Bank and Trust Company (continued)
Trust and investment services provided by 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 subsidiaries CNB Operating Subsidiary
No.1, Inc. and the Burlingham 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.]
The Bank has a relatively stable deposit base and no material amount of deposits
are obtained from a single depositor or group of depositors (including federal,
state and local governments). 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 market area currently covers the western Ontario and eastern
Monroe counties of New York State. In recent years the Bank expanded into
Monroe County by opening community banking offices in Pittsford and Webster.
Under renovation are locations in Irondequoit and Greece and, in February 1999,
the Company installed three cash dispensing machines in the Rochester
International Airport.
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 and 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 institutions in a geographic location. Based upon the most recent data
available from the FDIC as of June 30, 1998, the Company's share of deposits for
all banks was 35% in Ontario County and less than 1% in Monroe County.
Employees
At December 31, 1998, the Company had 292 employees of whom 81 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
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 "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 Act. The FRB has the authority to
examine the Company and its subsidiaries.
The Act and regulations thereunder limit, with certain exceptions, the
business which a bank holding company may engage in, directly or indirectly
through subsidiaries, to banking, managing or controlling banks, furnishing or
performing services for banks controlled by the Company, and services incident
thereto. In addition, the Act and regulations thereunder require the prior
approval of the FRB for the acquisition of a bank or bank holding company if
thereafter the bank holding company will, directly or indirectly, control more
than 5% of the voting stock of such bank or bank holding company, or
substantially all the assets of such bank or bank holding company. Among the
activities permitted bank holding companies is the ownership of shares of any
company which engages in activities that the FRB determines to be so closely
related to banking, managing, or controlling banks as to be a proper incident
thereto. The FRB has determined a number of activities to be closely related to
banking, and has proposed others for consideration. Such activities include
leasing real or personal property under certain conditions; operating as a
mortgage financing or factoring company; servicing loans and other extensions of
credit; acting as a fiduciary; acting as an investment or financial advisor
under certain conditions; acting as an insurance agent or broker principally in
connection with the extension of credit by the bank holding company or any
subsidiary; acting as underwriter for credit life insurance and credit accident
and health insurance that is directly related to extension of credit by the bank
holding company or any subsidiary; providing bookkeeping or data processing
services for the bank holding company, its affiliates, other financial
institutions and others, with certain limitations; making certain equity and
debt investments in community rehabilitation and development corporations; and
providing certain kinds of management consulting advice to unaffiliated banks.
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.
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 risk as capital adequacy, reserves, loans,
investments, management practices, and other. 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.
Page 6
Item 1. Business
Supervision and Regulation (continued)
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. In President Clinton's fiscal 2000 budget, he has
proposed that the Federal Reserve pay interest on these currently non-interest
bearing reserves. The outcome of this proposal cannot be determined by
management.
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 Company and Bank are affected by the policies of regulatory
authorities including the Comptroller of the Currency, the Board of Governors of
the Federal Reserve System and the Federal Deposit Insurance Corporation. An
important function of the Federal Reserve System is to regulate the money supply
and interest rates. Among the instruments used to implement these objectives
are open market operations in U.S. Government Securities, changes in reserve
requirements against member bank deposits, and changes in the federal discount
rate. These instruments are used in varying combinations to influence overall
growth and distribution of bank loans, investments and deposits, and their use
may also affect interest rates charged on loans or paid for deposits.
The policies and regulations of the Federal Reserve Board have had, and
will probably continue to have, a significant effect on Bank's deposits, loans
and investment growth, as well as the rate of interest earned and paid, and are
expected to affect Bank's operations in the future. The effect of such policies
and regulations, if any, upon the future business and earnings of Bank cannot
accurately be predicted.
The United States Congress has periodically considered and adopted
legislation that has resulted in deregulation of both banks and other financial
institutions. Congress has adopted further legislation to modify or eliminate
geographic restrictions on banks and bank holding companies, and could modify or
eliminate current prohibitions against banks engaging in one or more non-banking
activities. Such legislative changes could place 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 detailed review of the business activities of the Corporation and Bank is
presented in the following pages.
Page 7
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
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.
Average Balance Sheets and Analysis of Net Interest Margin
For the Years December 31, 1998, 1997 and 1996
(Dollars in thousands)
December 31, 1998 Average Average
--------- ----------
Balance Interest Rate
--------- ---------- -------
Assets
Interest earning assets:
Interest bearing deposits with
others $ 368 $ 19 5.16 %
Federal funds sold 630 33 5.24
Securities Note (1):
Taxable 41,131 2,400 5.84
Tax-exempt 34,511 1,567 4.54
Loans, net Note (2) 303,940 26,834 8.83
------- ------ ----
Total interest earning assets 380,580 30,853 8.11 %
------
Noninterest 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 %
------
Noninterest 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 %
====== ====
(1) Securities available-for sale are included at fair value. 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
Page 8
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
December 31, 1997 Average Average
--------- ----------
Balance Interest Rate
--------- ---------- -------
Assets
Interest earning assets:
Interest bearing deposits with
Others $ 264 $ 16 6.06 %
Federal funds sold 19 1 5.26
Securities Note (1):
Taxable 43,240 2,587 5.98
Tax-exempt 31,037 1,440 4.64
Loans, net Note (2) 282,894 25,389 8.97
------- ------ ----
Total interest earning assets 357,454 29,433 8.23 %
------
Noninterest 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 %
------
Noninterest 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 %
====== ====
(1) Securities available-for sale are included at fair value. 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
Page 9
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
December 31, 1996 Average Average
--------- ----------
Balance Interest Rate
--------- ---------- -------
Assets
Interest earning assets:
Interest bearing deposits with
Others $ 270 $ 16 5.93 %
Federal funds sold 7,184 373 5.19
Securities Note(1):
Taxable 44,478 2,728 6.13
Tax-exempt 28,370 1,342 4.73
Loans, net Note (2) 228,311 20,681 9.06
------- ------ ----
Total interest earning assets 308,613 25,140 8.15 %
------
Noninterest earning assets 26,046
-------
Total assets $ 334,659
=======
Liabilities and Stockholders'
Equity
Interest bearing liabilities:
Savings, interest checking and
money market $ 146,189 3,532 2.42 %
Certificates of deposit 96,965 5,203 5.37
FHLB Advances 1,652 62 3.75
------- ------ ----
Total interest bearing
Liabilities 244,806 8,797 3.59 %
------
Noninterest bearing liabilities 52,019
Stockholders' equity 37,834
-------
Total liabilities and
stockholder's equity $ 334,659
=======
Interest rate spread 4.56 %
====
Net interest margin $ 16,343 5.30 %
====== ====
(1) Securities available-for sale are included at fair value. 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 $
388,000
C. Rate/Volume Analysis
The following table sets forth the dollar and volume of increase (decrease) 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
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
C. Rate/Volume Analysis (continued)
Rate/Volume Analysis
For the Years December 31, 1998, 1997
(Dollars in thousands)
1998 vs. 1997
Increase/(decrease) due
to change in
Volume Rate Total
------- ------ -------
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
======= ====== =======
1997 vs. 1996
Increase/(decrease) due
to change in
Volume Rate Total
-------- ------ -------
Assets
Interest bearing deposits with
Others $ -- $ -- $ --
Federal funds sold (377) 5 (372)
Securities 79 (122) (43)
Loans, net 4,900 (192) 4,708
-------- ------ -------
Total 4,602 (309) 4,293
======== ====== =======
Liabilities
Savings, interest checking and
money market (19) 8 (11)
Certificates of deposit 862 147 1,009
FHLB Advances 1,400 44 1,444
-------- ------ -------
Total 2,243 199 2,442
======== ====== =======
Net change $ 2,359 $(508) $1,851
======== ====== =======
Page 11
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
II. Securities Portfolio
A. Securities Portfolio
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, 1998, 1997 and 1996
(Dollars in thousands)
1998 1997 1996
------- ------ ------
US Treasury and other U.S.
Government agencies' obligations $29,936 31,413 30,671
Obligations of states and political
Subdivisions 39,253 34,273 30,320
Other securities 7,275 8,813 10,780
------- ------ ------
Total $76,464 74,499 71,771
======= ====== ======
B. Maturity and Yields of Securities Portfolio
The following table summarizes the maturities and weighted average yields
of the Company's securities available for sale and held to maturity. 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 received regularly,
reducing their effective maturity.
Maturities and Weighted Average Yields of Securities
As of December 31, 1998, 1997 and 1996
(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
-------- ------- -------- ----- ------- ----- ------- -----
US Treasury and other U.S.
Government agencies'
Obligations $ 17,444 5.36 $ 12,492 5.31 $ -- -- $ -- --
Obligations of states and
political subdivisions (1) 7,648 4.51 26,480 4.54 5,072 4.28 53 5.12
Other securities 1,009 6.40 2,016 6.79 42 7.90 4,208 7.00
-------- ------- -------- ----- ------- ----- ------- -----
Total $ 26,101 5.15 $ 40,988 4.89 $ 5,114 4.31 $ 4,261 6.98
======== ======= ======== ===== ======= ===== ======= =====
(1) Yields are not reflected on a tax equivalent basis.
Page 12
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
III. Loan Portfolio
The loan portfolio is comprised solely of domestic loans which are widely
diversified with no concentrations in an industry group or with borrowers
engaged in similar activities. The following summary shows the classifications
of loans by category.
A. Types of Loans
Composition of Loan Portfolio
As of December 31,
(Dollars in thousands)
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
Commercial, financial and
Agricultural $ 43,260 37,610 27,503 28,326 32,442
Commercial mortgage 83,771 74,228 62,513 62,038 60,278
Residential mortgage 76,130 94,593 101,349 86,641 83,018
Consumer
Auto 84,370 73,211 45,747 15,339 12,617
Other 17,753 15,245 9,925 9,146 14,511
Other 6,485 14,257 11,437 8,770 8,121
--------- -------- -------- -------- --------
311,769 309,144 258,474 210,260 210,987
Less: Allowance for (3,283) (3,153) (2,675) (2,258) (2,202)
--------- -------- -------- -------- --------
Loans, net $308,486 305,991 255,799 208,002 208,785
========= ======== ======== ======== ========
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table sets forth the maturities and sensitivity to changes in
interest rates of the loan portfolio exclusive of real estate mortgage, consumer
and other loans.
Maturity and Sensitivity of Loans
As of December 31, 1998
(Dollars in thousands)
After
One
One through After
Year or Five Five
Less Years Years Total
-------- ------- ------ ------
Commercial, financial and
Agricultural $ 12,681 14,224 16,355 43,260
Loans maturing after one year:
With a predetermined interest rate 8,519 13,393
With a floating or adjustable rate 5,705 2,962
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 "Within One Year"
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
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, 1998, there are no material commitments to extend
credit which represent unusual risks.
C. Risk Elements
(1) Non-accrual, Past Due and Restructured Loans
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)
1998 1997 1996 1995 1994
-------- ------ ------- ------- -------
Loans past due 90 days or more and
Accruing:
Commercial, financial &
agricultural $ 14 347 -- 12 4
Real estate-commercial 102 610 -- -- --
Real estate-residential 157 508 48 101 254
Consumer 108 501 28 55 44
-------- ------ ------- ------- -------
Total past due 90 days or more
and accruing 381 1,966 76 168 302
-------- ------ ------- ------- -------
Loans in non-accrual status:
Commercial, financial &
agricultural 1,498 1,210 2,285 1,640 2,350
Real estate-commercial 225 1,327 7,565 7,280 6,844
Real estate-residential 390 586 1,364 2,027 2,097
Consumer -- 53 75 -- --
-------- ------ ------- ------- -------
Total non-accrual loans 2,113 3,176 11,289 10,947 11,291
-------- ------ ------- ------- -------
Total non-performing loans 2,494 5,142 11,365 11,115 11,593
-------- ------ ------- ------- -------
Other real estate owned:
Commercial 1,642 2,494 1,012 1,856 301
Residential -- 18 129 302 422
-------- ------ ------- ------- -------
Total other real estate owned 1,642 2,512 1,141 2,158 723
-------- ------ ------- ------- -------
Total non-performing assets $ 4,136 7,654 12,506 13,273 12,316
======== ====== ======= ======= =======
Non performing loans to total
period end loan 0.80% 1.66% 4.40% 5.29% 5.49%
======== ====== ======= ======= =======
Non performing assets to total
period end loans and other real
estate 1.33% 2.48% 4.84% 6.30% 5.83%
======== ====== ======= ======= =======
Allowance to non-performing loans 131.64% 61.32% 23.54% 20.31% 18.99%
======== ====== ======= ======= =======
Restructured loans $ -- -- -- -- 196
======== ====== ======= ======= =======
Page 14
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 $281,000 in 1998, $259,000
in 1997 and $149,000 in 1996 on non-performing loans. Additional interest
income of $ 239,000, $636,000 and $841,000 would have been recognized during
1998, 1997, and 1996, 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 ad December 31, 1998
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 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.
Page 15
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
IV. Summary of Loan Loss Experience (continued)
The following table summarizes the changes in the allowance for loan losses for
each of the years ended December 31, 1994 through 1998.
Summary of Loan Loss Allowance
(Dollars in thousands)
1998 1997 1996 1995 1994
-------- ------ ------- ------- -------
Balance at beginning of year $ 3,153 2,675 2,258 2,202 2,227
Provision charge to operations 641 851 1,490 1,031 699
Charge-offs:
Commercial, financial &
agricultural (274) (257) (1,356) (810) (712)
Real estate-commercial -- -- (44) -- --
Real estate-residential (19) (40) (16) (151) (65)
Consumer (760) (498) (221) (268) (234)
-------- ------ ------- ------- -------
(1,053) (795) (1,637) (1,229) (1,011)
-------- ------ ------- ------- -------
Recoveries:
Commercial, financial &
agricultural 25 190 216 90 82
Real estate-commercial -- -- 71 -- --
Real estate-residential 102 19 1 20 --
Consumer 415 213 276 144 155
-------- ------ ------- ------- -------
542 422 564 254 237
-------- ------ ------- ------- -------
Net charge-offs: (511) (373) (1,073) (975) (774)
-------- ------ ------- ------- -------
Balance at end of year $ 3,283 3,153 2,675 2,258 2,202
======== ====== ======= ======= =======
Net charge-offs to average loans 0.17% 0.13% 0.47% 0.47% 0.38%
======== ====== ======= ======= =======
Allowance to total loans 1.05% 1.02% 1.03% 1.07% 1.04%
======== ====== ======= ======= =======
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 year. 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
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
IV. Summary of Loan Loss Experience (continued)
Allocation of Allowance for Loan Losses
(Dollars in thousands)
1998 1997 1996
------- ---------- -------
Allowance % (1) Allowance % (1) Allowance % (1)
- -------------------------- ------- ---------- ------- ---------- -------
Commercial, financial &
agricultural (2) $1,484 40.7% $1,974 36.2% $1,982 34.8%
Real estate-residential 54 24.4% 111 30.6% 122 39.2%
Consumer 1,745 34.8% 1,068 33.2% 571 26.0%
------- ---------- ------- ---------- ------- ------
$3,283 100.0% $3,153 100.0% $2,675 100.0%
======= ---------- ======= ---------- ======= ------
1995 1994
------- ----------
Allowance % (1) Allowance % (1)
- -------------------------- ------- ---------- -------
Commercial, financial &
agricultural (2) $1,927 43.0% $1,645 43.9%
Real estate-residential 86 41.2% 172 39.3%
Consumer 245 15.8% 386 16.7%
------- ---------- ------- ----------
$2,258 100.0% $2,202 100.0%
======= ---------- ======= ----------
(1)Percentage of loans in each category to total loans.
(2)Includes commercial real estate.
V. Deposits
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, 1998, 1997 and 1996
(Dollars in thousands)
1998 1997 1996
---------------- ----------------- ---------------
Amount Rate Amount Rate Amount Rate
------- ------- -------- ------- -------- -----
Non-interest bearing demand $ 62,944 --% $ 59,920 --% $ 50,801 --%
Interest-bearing demand 42,099 1.50% 34,464 1.43% 33,695 1.36%
Savings and money market 109,919 2.77% 110,954 2.73% 112,494 2.73%
Time 128,942 5.48% 112,661 5.51% 96,965 5.37%
-------- ------- -------- ------- -------- -----
$343,904 3.12% $317,999 3.06% $293,955 2.97%
======== ------- ======== ------- ======== -----
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, 1998.
Maturity Distribution of Time Deposits of $100,000 or More
As of December 31, 1998
(Dollars in thousands)
3 months or less $42,791
3 through 6 months 2,383
6 through 12 months 623
Over 12 months 13,532
-------
$59,329
=======
Page 17
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
VI. Return on Equity and Assets
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, 1998, 1997 and 1996
1998 1997 1996
------ ------ ------
Return on average assets 0.86% 0.97% 0.88%
Return on average equity 8.89% 9.49% 7.79%
Dividend payout ratio 49.15% 43.07% 48.08%
Average equity to average assets 9.68% 10.21% 11.31%
VII. Short-term Borrowings
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 one month or less.
Short-term Borrowings
For the Years Ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
1998 1997 1996
------- -------- -------
Amount outstanding at December 31, 2,300 44,800 10,600
Weighted average rate 4.84% 5.85% 7.38%
Maximum outstanding at any month end 48,200 44,800 10,600
Average amount outstanding during the year 24,753 24,970 661
Weighted average rate 5.66% 5.71% 5.47%
Item 2. Properties
Canandaigua National Corporation occupies space at the main office of the
Bank. The Company owns a building in Pittsford and is occupied by Home Town
Funding, Inc. and is sublet them and other unrelated businesses. The
Corporation leases real property in Farmington, Mendon, Manchester, Victor
(Eastview Mall), Pittsford, under long-term renewable leases. The premises are
sublet to the Bank for its Farmington Branch Office.
As of December 31, 1998 The Bank's operations were conducted from nine
offices located in Ontario County, New York and three offices located in Monroe
County, New York. The main office of the Bank is a three-story structure
located at 72 South Main Street, Canandaigua, New York. The administrative,
operational and electronic data processing offices of the Bank are located in
this facility. There are drive-up facilities located at all 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:
Page 18
Item 2. Properties (continued)
Location Use Ownership Expiration (1)
- --------------- ----------------------------------- ------------------ ---------------
Canandaigua, NY Main office space Owned --
Bloomfield, NY Bloomfield bank office Owned --
Canandaigua, NY Customer call center Leased office 6/30/1999
Victor, NY Eastview Mall bank office Leased office 6/30/2003
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 12/31/2000
Victor, NY Victor bank office Owned --
Penfield, NY Webster bank office Leased office 8/31/2008
Greece, NY Greece Bank office (2) Leased office 10/31/2003
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
(1) If applicable
(2) Scheduled to open in 1999
Throughout 1999 the Bank will continue to expand its number of Monroe
County offices. It has entered into lease agreements for an office in Greece,
New York and Chili, New York and has accepted a purchase offer for an office in
Irondequoit, New York. These three new offices are expected to be opened in
1999.
The Bank also provides, free to its customers, 24-hour banking services to
Bank customers through automatic teller facilities located at each office and
through remote automatic teller machines and cash dispenser machines at the
following locations:
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 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, 1998,
which is required to be included herein pursuant to Item 102 of Regulation S-K,
is included under the caption "Notes to Consolidated Financial Statements" set
forth on pages 12 through 29 of the 1998 Annual Report to Stockholders and is
incorporated herein by reference.
Item 3. Legal Proceedings
The Company and its subsidiaries are not involved in any pending legal
proceeding other than routine legal proceedings undertaken in the ordinary
course of business. In the opinion of the management, after consultation with
counsel, the aggregate amount involved in such proceedings is not material to
the consolidated financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders (in the fourth
quarter of 1998)
None.
Page 19
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 30 of the 1998 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, 1998, the Corporation had approximately 753 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
This following table represents a summary of selected components of the
Corporation's consolidated financial statements for the five years ended
December 31, 1998. 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)
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
Income Statement Information:
Net interest income $ 18,420 18,194 16,343 16,035 14,760
Provision for loan losses 641 851 1,490 1,031 699
Non-interest income 5,924 3,788 3,401 3,393 3,268
Non-interest expense 18,430 15,632 14,163 12,684 12,022
Income taxes 1,686 1,762 1,144 1,797 1,604
Net income 3,587 3,737 2,947 3,916 3,703
Balance Sheet Data:
Total investments $ 76,464 74,499 71,771 71,920 72,594
Total loans, net 308,486 305,991 255,799 208,002 208,785
Total assets 428,047 418,942 360,623 317,209 310,541
Total deposits 376,507 324,761 307,966 277,051 274,837
Total borrowings 7,142 50,667 11,590 1,013 --
Total equity 42,478 40,932 39,119 37,397 34,538
Average assets 417,001 385,767 334,659 320,770 315,312
Average equity 40,357 39,383 37,834 35,987 33,035
Per Share Data:
Net income $ 22.38 23.22 18.20 24.31 23.01
Cash dividends 11.00 10.00 8.75 7.00 6.00
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.
Page 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Overview
- --------
1998 proved to be a year of transition for the Company. During the first
and into the second quarters the Company completed the final steps of its core
banking system conversion. These final steps led to unbudgeted expenses in
excess of $.4 million. However, this new system allowed the Company to
introduce a number of new products to the marketplace, including it Generations
Gold(TM) suite of deposit accounts, a Business Sweep Account, and a new credit
card. As the second quarter began and interest rates continued to fall, (and
throughout the remainder of the year,) the Company' mortgage banking operations
generated record origination volumes. The fourth quarter began with the opening
of the Webster Bank Office (the Company's third Monroe County branch) and ended
with the announcement of a local community bank competitor's announcement of its
acquisition by a regional bank. This acquisition has caused the acceleration of
the Company's expansion in the marketplace. Already the Company has plans to
open offices in the Monroe County towns of Greece and Irondequoit.
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 versus $.9
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. 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.
Approximately 90% 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 mature, they are being replaced with tax-exempt municipal
obligations.
Page 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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. Although declining market interest rates have resulted in loan
portfolio payoffs and refinancings, the Company continues to encounter local
loan demand for commercial and residential mortgages, as well as indirect
automobile loans. With Canandaigua National Bank and Trust company soon to be
the only locally owned full service community bank in the Monroe and Ontario
County marketplace, management anticipates greater portfolio loan growth in 1999
than 1998. 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 has come across all loan types -
commercial, residential real estate and consumer loans with the largest decrease
coming from commercial real estate. Management attributes these decreases 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 $3.2 million at December 31, 1998,
up $.1 million from December 31, 1997. 1998's year end balance represents 1.05%
of total loans versus 1.02% for 1997. The increase in the allowance balance for
1998 was relatively modest and is 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 consists of six parcels of property, all
commercial, for $1.6 million. The decline in other real estate owned from the
same period in 1997 is 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. While other real estate owned trended downward during 1998,
the Company did foreclose on one commercial real estate property in October,
resulting in an addition of $.3 million; however, total other real estate owned
remains below the December 31, 1997 level.
In 1998 the Company added approximately $2 million in fixed assets with
approximately half coming from the new Webster branch and computer hardware,
software and peripherals. With the planned opening of at least two banking
offices in 1999, more fixed assets additions can be anticipated, which the
Company expects to fund from current operations.
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 is a direct result of deposit growth.
Deposit growth since December 31, 1997 has come 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 is 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. Management believes it will face less refinancing pressure in 1999
than in 1998, however, management also anticipates the continuation of the trend
of lower interest spread and margin as most of the Company's loan growth will
come from the competitive Monroe County market. Refer to Interest Rate
Sensitivity and Asset / Liability Management Review section for a further
discussion.
Page 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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 and 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. The Company continues to see strong
demand for locally managed trust services in its market area. 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 touch, to see double digit growth. Net
gains on loan sales and other income are both up due to the Company's strong
mortgage banking year. It is important to note that over 75% of the mortgage
banking originations were for home purchases rather that refinancing. This
factor is important for years when refinanicing activity is slower as local real
estate brokers should continue to refer their business to Home Town Funding.
Also in late 1998 Home Town Funding began brokering subprime residential
mortgages. This now means that any customer can find a mortgage loan at the
Company, from its 20 year bi-weekly three-year callable mortgage to fixed rate
secondary market mortgages originated through the VA, FNMA and FHLMC.
Operating expenses increased $2.8 million or 17.9% for the year ended
December 31, 1998. Increase 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. Based upon the projected growth in banking offices in 1999,
operating expenses are expected to increase further and will grow at a faster
pace than the related revenue. Management estimates that the Company's new
banking offices break even in 24 to 36 months.
Liquidity
- ---------
Liquidity is defined 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, 1998 the Company generated $4.6 million in cash and
equivalents versus $.5 million for the year ended December 31, 1997.
Net cash from operating activities was $4.5 million in 1998, roughly the
same as in 1997. Both the largest source and use of operating cash in 1998 and
1997 were mortgage banking activity. However, activity in 1998 was over four
times that in 1997.
Cash used by investing activities declined significantly in 1998 to $6.0
million from $58.3 million in 1997. The reduction in cash used in investing
activities is primarily attributed to slower commercial and indirect automobile
loan growth relative to 1997.
Cash provided by financing activities was $6.2 million in 1998 versus of
$53.9 million in 1997. With little net loan volume, financing growth was
minimal. However, the Company did experience a shift with financing activities
from FHLB advances to customer deposits.
FHLB advances remain an important liquidity source for the Company. With
$7.1 million outstanding at December 31, 1998 the Company had additional
borrowing capacity from the FHLB of $35 million. Secondarily, the Company opened
a liquidity source through the sale of its CD's in the national brokered market.
Cash for growth in 1999 is expected to come from these two sources as well as
customer deposits as the Company expands into Monroe County.
Page 23
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.
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. 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 earnings projections reflect
continued growth in net income when applying the declining interest rate
environment as of December 31, 1998 ("Base Case"). The table below, which shows
the Company's estimated net earnings sensitivity profile as of December 31,
1998, 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 income under the
various interest rate scenarios as a percentage of Base Case earnings
projections.
Changes in Interest Estimated
Rates Percentage Change
(basis points) in Future Net Income
------------------- --------------------
12 Months 24 Months
--------- ---------
Base Case -- --
+200 (8.3)% (6.2)%
+100 (5.5) (4.5)
-100 5.0 4.0
-200 8.2 6.1
Page 24
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.
The following table presents an analysis of the Company's interest
rate-sensitivity gap position at December 31, 1998. 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 rates or by factors controllable by the
Company such as asset sales.
Canandaigua National Corporation
Interest Rate Sensitivity Gap
December 31, 1998
(Dollars in thousands)
Maturity/Repricing Period
----------------------------------------
Within 3 4 to 12 1 to 5 Over 5
Months Months Years Years
--------- -------- -------- --------
Interest-earning assets:
Interest-bearing deposits
and federal funds sold $ -- 314 -- --
Securities 10,812 15,279 35,036 15,337
Loans 70,639 3,866 160,038 77,226
--------- --------- -------- -------
Total interest-earnings
assets 81,451 19,459 195,074 92,563
--------- --------- -------- -------
Interest-bearing liabilities:
NOW accounts 56,877 -- -- --
Money market 46,071 -- -- --
Savings 63,245 -- -- --
Certificates of deposits 64,893 32,500 48,553 --
FHLB advances 2,300 1,524 2,520 798
--------- --------- -------- -------
Total interest-bearing
liabilities 233,386 34,024 51,073 798
--------- --------- -------- -------
Interest rate sensitivity gap $(151,935) (14,565) 144,001 91,765
========== ========= ======== =======
Cumulative gap $(151,935) (166,500) (22,499) 69,266
========== ========= ======== =======
Cumulative gap ratio (1) 34.9% 38.0% 93.5% 121.7%
========== ========= ======== =======
Cumulative gap as percent of
Total assets (35.5%) (38.9%) (5.3%) 16.2%
========== ========= ======== =======
(1) Cumulative total interest-earning assets divided by cumulative total
interest-bearing liabilities.
Page 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The chart indicates that the Corporation was repricing $151.9 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 case of a
rising interest rate environment. For the 4-12 month period, the Corporation is
modestly liability sensitive, as $14.6 million more of interest bearing
liabilities are being repriced than interest earning assets. For the entire one
year range, the Corporation is repricing $166.5 million more interest bearing
liabilities than assets, or 38.0% of earning assets versus 43.6% at December 31,
1997. The Corporation is asset sensitive at $144.0 million for the one to five
year range and $91.8 million over five years.
For the entire portfolio range, the Corporation is asset sensitive at $69.3
million versus asset sensitivity of $84.2 million last year reflecting a shift
of retail deposits from non-interest bearing demand to interest-bearing demand.
1999's interest rate forecast is mixed. Early in the year, experts were
predicting the possibility of a further rate drop by the Federal Reserve.
During February this forecast changed to the possibility of a rate rise.
Company management sees no inherent reason for significant rate increases or
decreases and, accordingly believe the 1999 will see relatively stable interest
rates.
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 Statement, as of December
31, 1998 all capital adequacy requirements were met.
As of December 31, 1998, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well-capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain a minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the footnote. There are
no conditions or events since that notification that management believes have
changed the Bank's category.
Dividends
Payments of dividends by the Bank to the Company is limited or restricted
in certain circumstances. According to federal banking law, the approval of the
Office of the Comptroller of the Currency is required for the declaration of
dividends in any year which dividends exceed the total of net income for that
year plus retained income for the preceding two years. At December 31, 1998,
approximately $.9 million was available for payment of dividends to the Company,
its primary cash source for paying dividends to stockholders.
Cash dividends for 1998 were $1.8 million or $11.00 per outstanding share
versus $1.6 million or $10.00 per outstanding share in 1997.
Page 26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
1997 versus 1996
For the year ended December 31, 1997, the Corporation had $357.5 million
average earning assets, up $48.9 million or 15.9% from the year earlier.
Average interest bearing liabilities were $285.0 million for 1997, up $40.2
million or 16.4% from 1996. The increase in earning assets reflects the
expansion of the Company's indirect loan product into the Rochester, NY area.
Liability growth was fueled by the Company borrowing from the Federal Home Loan
Bank to fund the asset growth. While being mindful of the Corporation's
customers' needs, management was able to increase net interest income for 1997
to $18.2 million, up from $16.3 million for 1996, reflecting an increase of
11.7% for 1997.
The yield on interest earning assets was 8.23% in 1997, up from 8.15% in
1996. Cost of funds increased to 3.94% from 3.59% in 1996. Management
continued to monitor the cost and size of liabilities during 1997, and
maintained a higher than average spread of 4.29%, but was a reduction from 4.56%
in 1996. Net interest rate margin decreased to 5.09% from 5.30%.
The provision for loan losses in 1997 was $0.9 million, down $.6 million
from 1996. The allowance for loan loss as of December 31, 1997 was $3.2
million, or 1.02% of loans outstanding at year end 1997. This ratio is slightly
lower than that of 1996 (1.03%) on a balance of $2.7 million.
Other income for 1997 increased to $3.8 million from $3.4 million,
reflecting an increase of $.4 million or 11.8%. Service charges on deposit
accounts were down slightly mainly as a result of slightly lower transaction
volumes. Strong demand for the Company's trust services in Ontario County as
well as the new Pittsford office led to an increase of trust income to $1.7
million or 30.8% from $1.3 million in 1996. All other non-interest operating
income for 1997 rose to $.5 million from $.4 million reflecting a modest
increase of $0.1 million on improved mortgage banking operations.
Operating expenses totaled $15.6 million, up 9.9% from $14.2 million in
1996. Salaries and employee benefits rose $1.3 million, accounting for
substantially all of the increase. This increase is reflective of hiring
additional staff in the indirect lending operations as well as the effect of the
1996 acquisition of Greater Funding of New York, Inc. and the Burlingham Agency.
Year 2000
- ----------
The Company began reviewing its year 2000 conversion needs in 1995 and
established a Year 2000 Project Committee that meets to review the status of the
conversion. The committee continues to direct the Company's Year 2000 activities
under the framework of the Federal Financial Institutions Examination Council's
(FFIEC) Five Step Program, which includes the following:
1. Awareness Phase
2. Assessment Phase
3. Renovation Phase
4. Validation Phase
5. Implementation Phase
The Company has segregated its systems into two main categories: (1)
Mission Critical and (2) Other. Mission Critical systems are those systems
(hardware and software) that are vital to the successful continuance of the
Canandaigua National Bank and Trust's core banking and trust operations. Other
systems are those used by the Company and its related non-bank subsidiaries that
are considered non-mission critical.
Page 27
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
A comprehensive review to identify the systems affected by the year 2000
issue was completed in 1997 and an implementation plan was compiled and is
currently being executed. As a result of the procedures already completed, the
Company expects to upgrade existing systems or replace some systems altogether.
Considerable progress has been made, including the replacement/conversion
of the Bank's core operating systems. It is anticipated that all remaining
projects will be completed by internal staff. The Company does not expect to
spend any significant amounts with outside contractors. Therefore, costs do not
represent any material incremental costs, but rather will represent the
redeployment of existing technology resources. In the opinion of management our
"opportunity cost" from 1996 through 2000 approximates $3.0 million and is based
upon an estimate of the time for internal staff to complete testing and
remediation efforts multiplied by an estimated hourly rate. Out-of-pocket costs
for testing and other services are estimated at no more than $300,000, most of
which will be expended in 1999.
As of December 31, 1998 the Company has substantially completed all of the
above phases of its year 2000 compliance plan. Management expects all material
year 2000 compliance items will be resolved no later than the second quarter of
1999. Substantially all mission-critical systems were validated by year -end
1998. The Company still has validation testing to complete on some non-critical
systems. Following validation, these systems will be implemented.
All of the remaining systems to be validated and converted/replaced are
vendor-supplied, and most vendors have provided the Company with certification
or a delivery commitment letter. The Company presently believes that with the
conversion to new systems, and vendor delivery of millennium-compliant systems,
all material year 2000 compliance issues will be resolved.
While deemed remote by management, if the Company's systems were to cease
processing due to a year 2000 failure, any interruption would likely be
short-lived. And because substantially all of our income and expenses are
earned (paid) on an accrual basis, any anticipated direct losses which may
result from a year 2000 related system failure would not be expected to be
material over the long term. The Company can continue to earn (and pay)
interest in the event of an operating disruption. The Company assesses its worst
case Year 2000 scenarios to include: (1) material credit losses due to Year 2000
failures adversely affecting its commercial banking customer base and (2)
liquidity strain resulting from potential disruption of the financial markets
stemming from significant Year 2000 failures.
Because of these potential risks, the Company has developed and is
implementing the following plans:
The Company has prepared a business continuity plan for its Bank operations
to consider the impact of Year 2000. The plan will include, at a minimum:
1. Identification of responsible individual or team, and key personnel required
for business resumption.
2. Development of a recovery plan for each core business process.
3. Creation of a master list of customer, clients, suppliers, institutions that
share data.
4. An inventory of machines, documents, electronic files required for
resumption.
5. Identification of a location for business resumption.
6. Creation of printouts of warehoused (in-process) transactions.
7. Use of manual processing procedures if necessary.
8. Training of key personnel to implement plan.
Testing of the Business Resumption Contingency Plans will be performed
during 1999.
Page 28
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The Company is also subject, either directly or indirectly, to the year
2000 issue with respect to external parties, particularly commercial loan
customers and transaction processing parties. The Bank is addressing its
exposure to its commercial loan customers by reviewing customers' plans and
procedures for remediating their year 2000 risk. This review is carried out in
the context of the Bank's annual loan review process, which includes a Y2K
assessment questionnaire for completion by borrowers. By December 31, 1998 the
Bank had reviewed a majority of its commercial loan customers and had classified
the entire loan portfolio in a "high-medium-low Y2K risk" rating system. Using
this system, management assessed the Bank's risk of loan loss. Through this
assessment process the Company has concluded that no special provision for loan
loss is necessary at this time to address the Y2K risk.
The Company's most important third party vendors are the Federal Reserve
Bank of New York (Fedline), NYCE, and NYACH. Each of these vendors plays a role
in the payment exchange system, such as check clearing, ATM processing and ACH
postings. A failure of any or all of these vendors to carry out their functions
would result in a delay in posting customer transactions. The Company has
established testing dates with each of these vendors. For some, testing has
already started.
Management believes the Company's Year 2000 efforts constitute and
important technology project. They view these efforts as opportunities for
technological advancement, which will ultimately increase customer value.
New Accounting Pronouncements
- -------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
statement requires the Company to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
gains and losses results from changes in fair value of the derivative instrument
depends on the intended use of the derivative and the type of risk being hedged.
The statement is effective for fiscal years beginning after June 15, 1999,
although earlier adoption is permitted. Based upon current activities, the
adoption of the statement will not have an effect on the Company's financial
position or results of operation.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage
Backed Securities Retained after the Securitization or Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise", which amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities". This statement conforms the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage banking enterprise with the accounting for such securities by a
non-mortgage banking enterprise. This statement is effective for the first
quarter beginning January 1, 1999 and this statement will not have any impact on
the Company's financial position or results of operation as the Company does not
currently securitize mortgage loans.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company, together with a
report thereon of KPMG LLP dated January 28, 1999 appearing on pages 7 to 29 of
the 1998 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
Page 29
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 23, 1999, 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, 1998, are included under the caption "Principal Officers" on
the Proxy Statement, dated February 23, 1999, 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 officer as a group beneficially owned 13,217
shares or 8.28% of the shares outstanding. Shares owned directly total 12,504
and shares held by directors, executive officer, or their spouses in a fiduciary
capacity or by their spouses individually total 713.
(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 23, 1999, 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
Page 30
Item 11. Executive Compensation
(a) Cash Compensation
The information required to be included herein regarding executive
compensation pursuant to Item 402 of Regulation S-K is included under the
caption "Executive Compensation" on the Proxy Statement, dated February 23,
1999, and is incorporated herein from the Proxy Statement by reference.
During the year ended December 31, 1998, officers of the Corporation did
not receive any compensation from the Corporation for services rendered in such
capacity. All compensation was paid by the Bank for services rendered in the
course of their employment with the Bank.
(b) Compensation Pursuant to Plans
The Bank has a non-contributory, profit sharing plan covering substantially
all full-time employees who have completed one year of service, subject to a
minimum number of hours of service with the Bank. Contributions to the profit
sharing plan by the Bank are allocated among eligible participants in the
proportion that each participant's "points" for the calendar year bear to the
total "points" awarded for the calendar year. Participants are awarded one
point for each full calendar year of employment and one point for each $100 of
compensation paid such participant during that year. Voluntary contributions
may be made and invested in a separate "Voluntary Account" in which the
participant is always fully vested. Participants become fully-vested with
non-contributory allocations upon: reaching age 65, disability, death, or 7
years of service as defined by the plan. If employment is otherwise terminated,
partial vesting will be accorded depending upon the participant's years of
service. Retirement and death benefits may be distributed in a cash lump sum or
a series of equal installments, payable at least annually, over a period
selected by the Profit Sharing Plan Committee. The amounts contributed to the
profit sharing plan by the Bank in 1998, 1997, and 1996 were $835,000, $763,000,
and $658,000, respectively.
The Corporation has an Employee Stock Ownership Plan (ESOP) for employees
of its wholly-owned subsidiaries, and executive officers are members of the
plan. Contributions to the ESOP are allocated among eligible participants in the
proportion that each participant's gross compensation bears to total
compensation of all participants. Contributions to the plan for 1998, 1997, and
1996 were $63,000, $62,000, and $52,000 respectively.
The Corporation has an incentive stock plan for senior management of the
Corporation. Annual contributions are made based on performance factors
established by the board of directors. The Corporation has accrued a liability
of $1,033,000 as of December 31, 1998 representing its obligation under the
plan. Expenses of the plan amounted to $137,000, $110,000, and $371,000 for the
years ended December 31, 1998, 1997 and 1996 and were accrued by the Bank.
The following table sets forth the amount of profit sharing benefits set
aside or accrued by the Bank, directly or indirectly, under the Profit Sharing
Plan for the year ended December 31, 1998 for all executive officers of the
Bank.
Amount Set Aside
or Accrued for Cumulative
Name of the Year Ended Accrued
Individual December 31, 1998 Benefit
- ------------------------------------------------------------------------
George W. Hamlin, IV $22,569 $1,260,545
Robert G. Sheridan 15,255 759,951
The following table sets forth the amount of ESOP benefits set aside or
accrued by the Bank, directly or indirectly, under the ESOP for the year ended
December 31, 1998 for all executive officers of the Bank.
Page 31
(b) Compensation Pursuant to Plans (continued)
Amount Set Aside
or Accrued for Cumulative
Name of the Year Ended Accrued
Individual December 31, 1998 Benefit
- --------------------------------------------------------------------------
George W. Hamlin, IV $ 1,786 $ 32,690
Robert G. Sheridan $ 1,192 $ 16,054
(c) Other Compensation - Option/SAR Grants Table
The information required to be included herein regarding executive
compensation pursuant to Item 402 of Regulation S-K is included under the
caption "Executive Compensation" on the Proxy Statement, dated February 23,
1999, and is incorporated herein from the Proxy Statement by reference.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
The information required to be included herein regarding executive
compensation pursuant to Item 402 of Regulation S-K is included under the
caption "Executive Compensation" on the Proxy Statement, dated February 23,
1999, and is incorporated herein from the Proxy Statement by reference.
(e) Long-Term Incentive Plan Awards Table
None
(f) Defined Benefit or Actuarial Plan Disclosure
None
(g) Compensation of Directors
The information required to be included herein regarding director
compensation pursuant to Item 402 of Regulation S-K is included under the
caption "Board of Directors Compensation" on the Proxy Statement, dated February
23, 1999, and is incorporated herein from the Proxy Statement by reference.
(h) Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
None
(i) Report on Repricing of Options/SARS
None
(j) Compensation Committee Interlocks
None
(k) Board Compensation Committee Report on Executive Compensation
The information required to be included herein regarding the Board of
Director's Compensation Committee pursuant to Item 402 of Regulation S-K is
included following the caption "Stock Appreciation Rights (SAR) and Phantom
Stock Awards (PSA)" in the Proxy Statement, dated February 23, 1999, and is
incorporated herein from the Proxy Statement by reference.
Page 32
(l) Performance Graph
The performance graph information required to be included herein pursuant
to Item 402 of Regulation S-K is included under the caption "Performance Graph"
in the Proxy Statement, dated February 23, 1999, 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 23, 1999, and is
incorporated herein from the Proxy Statement by reference.
(c) Changes in Control
None
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 1998. All outstanding loans and
commitments included in such transactions were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others, and in the opinion of the Bank, did not
involve more than a normal risk of collectibility or present other unfavorable
features.
(d) Transactions with Promoters
Not applicable
Page 33
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 1998
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, 1998 and 1997
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996
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.
(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
December 31, 1994
(13) Annual Report to Shareholders for
the year ended December 31, 1998
(20) Definitive Proxy Statement to
Shareholders dated February 23, 1999
(21) Subsidiaries
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
Page 34
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 30, 1999 By: /s/ George W. Hamlin, IV
George W. Hamlin, IV, President
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/ George W. Hamlin, IV President/Director March 30, 1999
- ---------------------------
(George W. Hamlin, IV)
/s/ Robert G. Sheridan Secretary/Director March 30, 1999
- ---------------------------
(Robert G. Sheridan)
/s/ Gregory S. MacKay Treasurer March 30, 1999
- ---------------------------
(Gregory S. MacKay)
/s/ Patricia A. Boland Director March 30, 1999
- ---------------------------
Patricia A. Boland
/s/ James S. Fralick Director March 30, 1999
- ---------------------------
James S. Fralick
/s/ Daniel P. Fuller Director March 30, 1999
- ---------------------------
Daniel P. Fuller
/s/ David Hamlin, Jr. Director March 30, 1999
- ---------------------------
David Hamlin, Jr.
/s/ Frank H. Hamlin, poa Director March 30, 1999
- ---------------------------
Frank H. Hamlin
/s/ Stephen D. Hamlin Director March 30, 1999
- ---------------------------
Stephen D. Hamlin
/s/ Richard P. Miller, Jr. Director March 30, 1999
- ---------------------------
Richard P. Miller, Jr.
/s/ Caroline C. Shipley Director March 30, 1999
- ---------------------------
Caroline C. Shipley
/s/ Alan J. Stone Director March 30, 1999
- ---------------------------
Alan J. Stone
Page 35
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, 1998
(20) Definitive Proxy Statement to
Shareholders dated February 23, 1999
(21) Subsidiaries
(27) Financial Data Schedule
Page 36