Item 1. Business
Canandaigua National Corporation
The Canandaigua National Corporation, referred to as The Corporation, was organized on October 31, 1984, and registered under the Bank Holding Company Act of 1956, for the purpose of becoming a one-bank holding company. The formation of the bank holding company was consummated on May 31, 1985, through the exchange of 80,000 shares of Canandaigua National Corporation $50 par value common stock for all of the outstanding shares of The Canandaigua National Bank and Trust Company. The one-bank holding company serves as a means of increasing the scope of banking and financial services in the market area served by The Canandaigua National Bank and Trust Company. The Corporation acquired Greater Funding of New York, Inc. (GFNYI) d/b/a Greater Funding, the Mortgage Company during 1996 by purchasing its remaining 66.3% shares not owned by the Company. GFNYI offers mortgage products that the bank is not licensed to offer, therefore offering their customer base a larger range of products. GFNYI is engaged in underwriting and funding mortgages in western New York State. GFNYI typically resells residential mortgages to entities, which service the loans. The Corporation acquired 100% of Home Town Funding, Inc. (HTF) during 1997. HTF functions are the same as GFNYI above. The Bank will remain the principal source of the Corporation's operating revenue and net income.
The Canandaigua National Bank and Trust Company
The Canandaigua National Bank and Trust Company ("Bank") was incorporated under the laws of The United States of America as a national bank in 1887. Since that time, Bank has operated as a national banking association doing business at several locations in Ontario County and at its branch locations in the town of Mendon and Village of Pittsford in Monroe County, New York.
As of December 31, 1997, Bank had total assets of approximately $418,942,000; total stockholders' equity of approximately $40,932,000; and total deposits of approximately $324,761,000. Its deposits are insured through the Bank Insurance Fund by the Federal Deposit Insurance Corporation.
Bank engages in a full service commercial and consumer banking and trust business. Bank, with its main office at 72 South Main Street, Canandaigua, New York, provides services to its customers through its network of ten branches which include drive-in facilities and customer Bank communication terminals as well as limited banking transaction through the internet. Bank's full service offices are located in Ontario County and in the town of Mendon and Village of Pittsford in Monroe County, New York.
Bank's services include accepting time, demand and savings deposits, NOW accounts, regular savings accounts, money market certificates, investment certificates, fixed rate certificates of deposit and club accounts. Its services also include making secured and unsecured commercial and consumer loans, financing commercial transactions either directly or through regional industrial development corporations, making construction and mortgage loans and the renting of safe deposit facilities. Additional services include making residential mortgage loans, revolving credit loans with overdraft checking protection, small business loans, and student loans. Bank's business loans include seasonal, credit, collateral, and term loans. Trust services provided by Bank include services as executor and trustee under
Item 1. Business
The Canandaigua National Bank and Trust Company - continued
wills and deeds, as guardian and custodian and as trustee and agent for pension, profit sharing, individual retirement account and other employee benefit trusts as well as various investment, pension and estate planning services. Trust services also include service as transfer agent and registrar of Canandaigua National Corporation stock and as paying agent for various bond issues and as escrow agent. In 1995 the Bank formed a subsidiary (CNB Operating Subsidiary No.1, Inc.). The primary business of this company is to sell life insurance to individuals. This company is an agency only. During 1996 the Bank purchased the Burlingham Agency, Inc. The primary business of this company is to sell life insurance to individuals. This company is an agency only. The Bank purchased Burlingham Agency to gain access to an already established business with a customer base. By this purchase the Bank can offer a full line of products.
Bank has a relatively stable deposit base and no material amount of deposits are obtained from a single depositor or group of depositors (including federal, state and local governments). Bank has not experienced any significant seasonal fluctuations in the amount of its deposits nor does Bank rely on foreign sources of funds or income.
Territory Served and Competition
All phases of Bank's business are highly competitive. Bank's market area is generally Ontario County, with concentration in the Canandaigua, New York area. Bank competes with local commercial banks as well as other commercial banks with branches in Bank's market area as well as federal savings and loan associations and non-bank banks and credit unions. Bank considers its competition to be Chase Bank, N.A., Key Bank, National Bank of Geneva, Community Bank, N.A., and WCTA Federal Credit Union located in Canandaigua, New York and Sears Financial Network Center and Fleet Bank, M & T Bank located in Rochester, New York.
Bank, along with other commercial banks, competes with respect to its lending activities as well as in attracting demand deposits, with savings banks, savings and loan associations, insurance companies, regulated small loan companies, non-bank banks and credit unions. Bank also competes with insurance companies, investment counseling firms, mutual funds and other business firms and individuals in corporate trust and investment management services.
Bank is generally competitive with all financial institutions in its service area with respect to interest rates paid on time and savings deposits and interest rates charged on loans and service charges on deposit accounts. Bank employed 248 people as of December 31, 1997.
Supervision and Regulation
Canandaigua National Corporation is incorporated under the laws of the State of New York and is directly supervised by the Federal Reserve Bank under the laws governing one-bank holding companies. In addition, the Corporation reports to the Securities and Exchange Commission under the laws governing corporations with registered securities.
As a national bank and member of the Federal Reserve System, the Bank is subject to regulations of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System. As an insured bank under the Federal Deposit Insurance Act, Bank is also regulated by the Federal Deposit Insurance Corporation. Representatives of the Comptroller of the Currency regularly conduct examinations of Bank's affairs and records, and Bank must furnish quarterly reports to the Comptroller.
Government Monetary Policies and Economic Controls
The earnings of Bank are affected by the policies of regulatory authorities including the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation. An important function of the Federal Reserve System is to regulate the money supply and interest rates. Among the instruments used to implement these objectives are open market operations in U.S. Government Securities, changes in reserve requirements against member bank deposits, and changes in the federal discount rate. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid for deposits.
The policies and regulations of the Federal Reserve Board have had, and will probably continue to have, a significant effect on Bank's deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect Bank's operations in the future. The effect of such policies and regulations, if any, upon the future business and earnings of Bank cannot accurately be predicted.
Consolidated Financial and Statistical Data
A detailed review of the business activities of the Corporation and Bank is presented in the following pages.
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential
(1) Non-accrual loans are included in the average loan balance. (2) Loan interest includes fees on loans of $811,885, $753,171, and $610,946 in 1997, 1996, and 1995 respectively. (3) Yields for securities were calculated based on amortized cost of securities.
Note: Volume changes are computed by multiplying the volume difference by the prior year's rate. Rate changes are computed by multiplying the rate difference by the prior year's balance. The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Note: (a) Securities with no stated maturity are included in the "Over Ten Years" category.
(b) Yield on "States and Political Subdivisions" (non-taxable investments) are not reflected on a tax equivalent basis.
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.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table sets forth the maturities and sensitivity to changes in interest rates of the loan portfolio exclusive of real estate mortgage and installment loans as of December 31, 1997.
Remaining Maturity Within One Through Over One Year Five Years Five Years Total (Dollars In Thousands)
Commercial, financial and agricultural $11,091 $ 16,793 $9,725 $37,610 Loans maturing after one year: With a predetermined interest rate $14,957 With a floating or adjustable rate $11,561
The maturities set forth above are based upon contracted maturities. Demand loans, overdrafts and certain time loans, the principal of which will be renewed in whole or in part, are included in the "Within One Year" classification. The Company's loan policy encourages a repayment schedule to be established whenever possible.
B. Maturities and Sensitivities of Loans to Changes In Interest Rates - continued
Bank policy provides that a demand loan should not be renewed more than once, with renewals at the then prevailing interest rates and with the assurance the borrower demonstrates the ability to repay on maturity of the loan.
The Bank provides standby letters of credit commitments which also provide for availability of funds over a period of generally one year. All such commitments have fixed expiration dates and may require the payment of a fee.
The Bank extends lines of credit under which a customer may borrow for various purposes such as letters of credit. The extension of these commitments and lines of credit have been in the normal course of business. In the opinion of Management, at December 31, 1997, there are no material commitments to extend credit which represent unusual risks.
The accrual of interest on commercial and real estate loans is generally discontinued when the loans become 90 days delinquent or when, in management's judgment, the collection of principal and interest is uncertain. Recognition of interest income on non-accrual loans does not resume until management considers principal and interest collectible. Installment loans are generally charged off upon becoming 120 days past due.
Additional gross income of $636,000, $841,000, and $739,000 would have been reported during 1997, 1996, and 1995, respectively, if the loans reported above as non-accrual and restructured loans had been current in accordance with the original terms.
(2) Potential Problem Loans
Loans which are not disclosed pursuant to Item III C. (1), but where known information about credit problems of borrowers causes Management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms which may result in disclosure in Item III C. (1) above. There were no potential problem loans as of December 31, 1997 and 1996.
(1) Loans are shown net of unearned discount. (2)Includes Residential and Commercial Mortgages.
The determination of the allowance for loan losses is based on an analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for loan losses. This analysis is based on management's periodic evaluation, which considers factors such as past loss experience, identification of adverse conditions that may affect a borrower's ability to repay, an assessment of current and expected economic conditions and the estimated value of any underlying collateral. The allowance for loan losses is applicable for any loan losses despite the allocation provided above. In addition, future allocations may change due to circumstances inherent in the loan portfolio
(1)Includes Commercial Mortgages.
Item 2.
Item 2. Properties
Canandaigua National Corporation occupies space at the main office of the Bank. The Corporation owns a building in Pittsford and is occupied by Home Town Funding, Inc and several other unrelated businesses. The Corporation leases real property in Farmington, Mendon, Manchester, Victor (Eastview Mall), Pittsford, under long-term renewable leases. The premises are sublet to the Bank for its Farmington Branch Office.
The Bank's operations are conducted from nine offices located in Ontario County, New York and two offices located in Monroe County, New York. The main office of the Bank is a three-story structure located at 72 South Main Street, Canandaigua, New York. The administrative, operational and electronic data processing offices of the Bank are located in this facility. The Bank owns branch offices which are located on the main street in Victor, New York; Bloomfield, New York; and Honeoye, New York. The Bank subleases space for branch offices in Farmington, New York, at Wade's Supermarket located on Route 96; in Canandaigua, New York at 709 South Main Street; in Shortsville- Manchester in the Bliss Shurfine Foodmart; in the Town of Mendon, Monroe County, New York in the Hitching Post Plaza in the Big-M Food Market; in Victor, New York in the Eastview Mall and in Pittsford, New York at State Street. There are drive-in facilities located at all offices except for the Eastview Mall and Pittsford offices.
The Bank provides 24-hour banking services to Bank customers through automatic teller facilities located at each office and through remote Automatic Teller Machines located at the Finger Lakes Community College on Lincoln Hill in the Town of Hopewell, New York, and at F.F. Thompson Hospital located on North Parrish Street, Canandaigua, New York.
The carrying value of the properties as of December 31, 1997, which is required to be included herein pursuant to Item 102 of Regulation S-K, is included under the caption "Notes to Consolidated Financial Statements" set forth on pages 12 through 29 of the 1997 Annual Report to Stockholders and is incorporated herein by reference.
Item 3.
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.
Item 4. Submission of Matters to a Vote of Security Holders NONE
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters
The information required to be included herein, pursuant to Item 201 of Regulation S-K, is incorporated herein by reference from the pages of the 1997 Annual Report to Stockholders and proxy statement set forth below:
Required Information Annual Report Caption Market information "Common Stock Data"
Dividends "Common Stock Data" "Stockholders' Equity"
Holdings: (At December 31, 1997, the Corporation had approximately 756 shareholders.) Information regarding beneficial ownership of the Corporation's stock is set forth in the Corporation's proxy statement and incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion is to focus on information about Canandaigua National Corporation's financial condition and results of operations which is not otherwise apparent from the consolidated financial statements in the annual report. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following discussion and analysis.
Liquidity and Interest Rate Sensitivity Management
Liquidity is defined as the ability to generate adequate amounts of cash to meet the demand for cash from depositors who wish to withdraw funds, borrowers who require funds to meet their credit needs, and the need for operating funds and capital expansion.
Asset liquidity is found in cash, federal funds sold, deposits with other financial institutions, short term security holdings, and loan repayments. On average for 1997, federal funds sold, cash and due from banks, and interest bearing deposits with other banks totaled $15.6 million. The securities portfolio is also an important source of liquidity. As of December 31, 1997, approximately $25.9 million amortized cost of the portfolio will be mature in one year or less. Combining these two major sources of liquidity, the Corporation had $41.5 million of readily available assets, which is 10.8% of average assets for 1997. Management believes that liquidity needs are adequately addressed, but also has short term and long term borrowings available from the Federal Reserve Bank and the Federal Home Loan Bank.
An objective of the Company's asset/liability management policy is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. The Asset/Liability management Committee is responsible for managing interest rate risk.
The Company uses a variety of methods to manage its interest rate risk and does not rely solely on one method. One such method used to manage interest rate risk involves the measurement of interest rate gap. Interest rate gap is the amount by which a bank's rate sensitive assets differ from its rate sensitive liabilities. A positive gap exists when rate sensitive assets exceed rate sensitive liabilities, indicating that a greater volume of assets than liabilities will reprice during a given period. Theoretically, this mismatch will enhance earnings in a rising rate environment and inhibit earnings when rates decline. Conversely, when rate sensitive liabilities exceed rate sensitive assets, the gap is negative, indicating that greater volume of liabilities than assets will reprice during the period. Theoretically, in this case, a rising rate environment will inhibit earnings and declining rates will enhance earnings. The Rate Sensitivity Schedule that follows illustrates the measurement of interest rate gap at December 31, 1997.
The chart indicates that the Corporation was repricing $137.7 million more of interest earning liabilities than interest bearing assets in the 0-3 month range. This gap is not considered to be a problem, as a good portion of the savings balances are not considered sensitive to rate change. However, the Corporation will be challenged in a rising interest rate environment to maintain its interest margins. For the 4-12 month period, the Corporation is modestly liability sensitive, as $6.9 million more of interest bearing liabilities are being repriced than interest earning assets. For the entire one year range, the Corporation is repricing $144.6 million more interest bearing liabilities than assets, or 43.6% of earning assets. This liability sensitivity has increased $35 million and 10.9% of earning assets over last year. The imbalance was due to the increase in advances from FHLB to fund loans with a longer maturity. The Corporation is asset sensitive at $154.2 million for the one to five year range, as interest earning assets increased $39.5 million from last year's amounts, along with an interest bearing liabilities increase of $2.7 million.
For the entire portfolio range, the Corporation is asset sensitive at $84.2 million versus asset sensitivity of $66.9 million last year. With interest rate forecasts continuing to suggest declines, our earnings should be favorably impacted if we can continue to cut liability rates at the same pace as earning assets. We will have some difficulty, however, as short term liability rates are at or near historic lows. Continued declines could lead to deposit outflows, as investors seek higher returns in other available products. We may have to limit our liability rate decreases in order to continue to fund the bank, and that may have a slightly negative impact on historic spreads. Hopefully increasing lending will offset some of the decline.
During 1997, increased consumer lending which was not supported by deposit growth but by short-term borrowings. This led to a decline in the Rate Sensitive Assets/Rate Sensitive Liabilities equation. The Corporation believes this mismatch will continue for sometime and is aware of its challenge to interest rate risk.
On a quarterly basis, sensitivity to change in interest rates is also measured using simulation model. The model estimates changes in net interest income and net income under a variety of possible interest rate scenarios. By performing these simulations and comparing them to established policy limits, management has an opportunity to plan for changes in the asset/liability mix or to take other steps that may be necessary to lessen interest rate risk. Based on management's assumptions built into the simulation model and the current mix of the Company's assets and liabilities, management's assessment is that its negative gap position will not have a material adverse effect on its operating results or liquidity in the event of reasonably foreseeable changes in interest rates during 1998. These simulations are based on numerous assumptions regarding the timing and the extent of repricing characteristics. Actual results may differ significantly.
The following table shows the Company's estimated earnings sensitivity profile as of December 31, 1997.
Changes in Interest Rates Percent Change in Net Income (basis points) 12 Months 24 Months +200 over one year -73.65% 6.63 % +100 over one year -36.83 3.32 -100 over one year 36.83 -3.32 +200 over one year 73.65 -6.63
Capital Resources Total Stockholders' equity at December 31, 1997, was $40,932,000, representing an increase of $1,813,000 (or 4.6%) over 1996. Primary capital, defined as shareholders equity plus loan loss reserve, was $44,085,000 at December 31, 1997, or 11.43% of average assets versus $41,794,000 or 12.49% of average assets at December 31, 1996.
The Federal Reserve Board standards require banks and bank holding companies to maintain capital based on "risk adjusted" assets so that categories of assets with potentially higher credit risk will require more capital backing than assets with lower risk. In addition, banks and bank holding companies are required to maintain capital to support, on a risk- adjusted basis, certain off balance sheet activities such as loan commitments and interest rate swaps. Capital is classified into two tiers. Tier 1 capital consists of common shareholders' equity, non-cumulative and cumulative perpetual preferred stock, and minority interests less goodwill and less net unrealized gain on securities available for sale. Tier 2 capital consists of allowances for loan and lease losses, hybrid capital instruments, term subordinated debt, and intermediate-term preferred stock. All banks are required to meet a minimum ratio of 8% of qualifying total capital to risk adjusted total assets with at least 4% Tier 1 capital.
As shown in the table, the Corporation's Tier 1 Risk Based Capital has grown 3.7%, and Total Risk Based Capital has increased 4.6% from year end 1996 levels.
The leverage ratio (Tier 1 Capital divided by total assets less goodwill) must be at least 3%. The Corporation's leverage ratio was 9.69% as of December 31, 1997.
The capital ratios of the Corporation are strongly in excess of minimum regulatory requirements, indicating an ability to meet customer demand and market competition, while providing sufficient earnings to strengthen the capital base annually. The Corporation believes that its strong capital base will allow it to continue a reasonable dividend payment.
Dividends Payments of dividends by the Bank to the Company is limited or restricted in certain circumstances. According to federal banking law, the approval of the Office of the Comptroller of the Currency is required for the declaration of dividends in any year which dividends exceed the total of net income for that year plus retained income for the preceding two years. At December 31, 1997, approximately $5,444,000 was available for payment of dividends to the Company.
Cash dividends for 1997 amounted to $1,609,000, an increase of $195,000 or 13.79% over the $1,414,000 paid in 1996. Dividends paid were 43.1% and 48.0% of 1997 and 1996 earnings respectively.
Results of Operations Net interest income is the difference between interest received from earning assets and interest paid on interest bearing liabilities. It is affected by both the volume and rates applied to both earnings assets and liabilities, and therefore, is an effective measurement of how well management has balanced and reacted to the Corporation's interest rate sensitive assets and liabilities.
For the year ended December 31, 1997, the Corporation had $355.6 million average earning assets, up $47.8 million or 15.5% from the year earlier. Average interest bearing liabilities were $285.0 million for 1997, up $40.2 million or 16.4% from 1996. The increase in earning assets reflects the expansion of our indirect loan product into the Rochester, NY area. Liability growth has begun, due to the Company borrowing from the Federal Home Loan Bank to fund the asset growth. While being mindful of the Corporation's customers' needs, management was able to increase net interest income for 1997 to $18.6 million, up from $16.7 million for 1996, reflecting an increase of 11.35% for 1997.
The yield on interest earning assets was 8.39% in 1997, up from 8.29% in 1996. Cost of funds increased to 3.94% from 3.59% in 1996. Management continued to stress the cost and size control of liabilities during 1997, and therefore the net spread decreased to 4.45% from 4.70% in 1996. Net interest income as a percentage of earning assets (net interest rate margin) decreased to 5.23%, as the $1,896,000 increase in net interest income was derived from successfully managing the changing interest rate environment during the year, in conjunction with the previously mentioned increase in total earning assets. Management believes these results are an indication that its interest rate sensitivity planning is functioning well.
The provision for loan losses in 1997 was $851,000, down $639,000 from 1996. The allowance for loan loss as of December 31, 1997 was $3.2 million, or 1.03% of loans outstanding at year end 1997. This ratio is slightly lower than that of 1996 (1.04%).
The Corporation's investment portfolio book value increased to $71.4 million at December 31, 1997 from $70.0 million at December 31, 1996, reflecting an increase of 2%.
Other income for 1997 increased to $4.3 million from $3.9 million, reflecting an increase of $403,000 or 10.3%. Service charges on deposit accounts were down $127,000 to $1,534,000. Other operating income for 1997 rose to $1,031,000 from $940,000 reflecting an increase of $91,000. Strong demand for our trust services in our traditional markets as well as in our new Pittsford location led to an increase of Trust Income to $1,723,000 up from $1,337,000 in 1996.
Operating expenses totaled $16.7 million, up 10.0% from $15.1 million in 1996. Salaries and employee benefits rose $1.3 million as the Corporation expanded several product areas and purchased two non-traditional financial service providers.
The rate of return on average assets (ROA) and the rate of return on average equity are a good measure of the Corporation's results. For the year 1997, return on average assets increased to .98% from .84%. Return on average equity was 9.6% in 1997 compared to 7.9% in 1996. Management believes the Corporation remains quite healthy.
Accounting Standards
In June 1996, the Financial Accounting Standards Board issued Statement of Accounting Standards (SFAS) No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and is to be applied prospectively. This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Management of the Company does not expect the adoption of SFAS No. 125 will have a material impact on the Company's financial position, results of operations, or liquidity.
In June 1997, FASB issued Statement No. 130 entitled "Reporting Comprehensive Income". Comprehensive Income is defined as "the change in equity(net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners." The Statement is effective for fiscal years beginning after December 15, 1997 and requires that items that meet the definition of components of comprehensive income be reported in a financial statement that is displayed as prominently as other financial statements. While this Statement will increase the Company's financial disclosures, it will have no impact on operating results.
FASB Statement No. 131 entitled "Disclosures about Segments of an Enterprise and Related Information" was also issiued in June 1997. This Statement is effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about disclosures but will have no impact on operating results.
Item 8. Financial Statements and Supplementary Data (Supplementary data has been omitted because it is not applicable)
Financial statements, together with a report thereon of KPMG Peat Marwick LLP dated January 30, 1998 appearing on Page 7-29 of the 1997 Annual Report to Stockholders are incorporated herein by reference. A reference index to the consolidated financial statements and accompanying notes presented in the Annual Report to Stockholders is shown in Item 14 of this filing.
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure NONE
PART III
Item 10. Directors and Executive Officers
(a) Directors
The information with respect to the directors of the Corporation, which is required to be included herein pursuant to Item 401 of Regulation S-K, is included under the caption "Election of Directors" on the Proxy Statement, dated February 25, 1998, and is incorporated herein from the Proxy Statement by reference. There are no arrangements or understandings between any director and any other person pursuant to which the director was selected.
(b) Executive Officers
The name, age and position of the executive officer of the Corporation as of December 31, 1997, is set forth on page 6 of the Proxy Statement dated February 25, 1998 under the caption "Principal Officers" and is incorporated herein by reference. Officers are generally elected annually by the Board of Directors at the meeting of directors immediately following the annual meeting of stockholders. The disclosure of family relationships between the executive officer and directors of the Corporation is set forth on page 4 of the Proxy Statement dated February 25, 1998 and is incorporated herein by reference. There are no arrangements or understandings between the executive officer and any other person pursuant to which the executive officer was selected.
No Director or executive officer of the Corporation has received any remuneration from the Bank or the Corporation in his capacity as a director or executive officer of the Corporation.
The executive officer of the Corporation has been an officer of the Bank for five years or more.
Directors and the executive officer as a group beneficially owned 14,956 shares or 9.31% of the shares outstanding. Shares owned directly total 13,243 and shares held by directors, executive officer, or their spouses in a fiduciary capacity or by their spouses individually total 1,713.
(c) Significant Employees
Not applicable (d) Family Relationship
Disclosed in Item 10 (a) - Directors
(e) Business Experience Disclosed in Item 10 (a) and 10 (b)
(f) None
(g) None
Item 11. Executive Compensation
(a) Cash Compensation
The information required to be included herein regarding executive compensation pursuant to Item 402 of Regulation S-K is included under the caption "Executive Compensation" in registrants definitive proxy statement on page 6 and is incorporated herein by reference.
During the year ended December 31, 1997, officers of the Corporation did not receive any compensation from the Corporation for services rendered in such capacity. All of the above compensation was paid by the Bank for services rendered in the course of their employment with the bank.
(b) Compensation Pursuant to Plans
The Bank has a non-contributory, profit sharing plan covering substantially all full-time employees who have completed one year of service, subject to a minimum number of hours of service with the Bank. Contributions to the profit sharing plan by the Bank are allocated among eligible participants in the proportion that each participant's "points" for the calendar year bear to the total "points" awarded for the calendar year. Participants are awarded one point for each full calendar year of employment and one point for each $100 of compensation paid such participant during that year. Voluntary contributions may be made and invested in a separate "Voluntary Account" in which the participant is always fully vested. Participants become fully-vested with non- contributory allocations upon: reaching the age of 65, disability, death, or 7 years of service as defined by the plan. If employment is otherwise terminated, partial vesting will be accorded depending upon the participant's years of service. Retirement and death benefits may be distributed in a cash lump sum or a series of equal installments, payable at least annually, over a period selected by the Profit Sharing Plan Committee. The amounts contributed to the profit sharing plan by the Bank in 1997, 1996, and 1995 were $763,000, $658,000, and $639,000, respectively.
The Corporation has an Employee Stock Ownership Plan (ESOP) for employees of its wholly-owned subsidiary, and executive officers are members of the plan. Contributions to the ESOP are allocated among eligible participants in the proportion that each participant's gross compensation bears to total compensation of all participants. Contributions to the plan for 1997, 1996, and 1995 were $52,000, $52,000, and $46,000 respectively.
The Corporation has an incentive stock plan for senior management of the Corporation. Annual contributions are made based on performance factors established by the board of directors. The Corporation has accrued a liability of $909,000 as of December 31, 1997 representing its obligation under the plan. Expenses of the plan amounted to $110,000, $371,000, and $155,000 for the years ended December 31, 1997, 1996 and 1995 and were paid by the Bank.
The following table sets forth the amount of profit sharing benefits set aside or accrued by the Bank, directly or indirectly, under the Profit Sharing Plan for the year ended December 31, 1997 for all executive officers of the Bank. Amount Set Aside or Accrued for Cumulative Name of the Year Ended Accrued Individual December 31, 1997 Benefit - ------------------------------------------------------------------------ George W. Hamlin, IV $21,532 $0000000 Robert G. Sheridan $13,385
The following table sets forth the amount of ESOP benefits set aside or accrued by the Bank, directly or indirectly, under the ESOP for the year ended December 31, 1997 for all executive officers of the Bank. Amount Set Aside or Accrued for Cumulative Name of the Year Ended Accrued Individual December 31, 1997 Benefit - -------------------------------------------------------------------------- George W. Hamlin, IV $ 1,606 $ 16,921 Robert G. Sheridan $ 984
(c) Other Compensation - Option/SAR Grants Table
The information required to be included herein regarding executive compensation pursuant to Item 402 of Regulation S-K is included under the caption "Executive Compensation" in registrants definitive proxy statement on page 7 and is incorporated herein by reference.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
The information required to be included herein regarding executive compensation pursuant to Item 402 of Regulation S-K is included under the caption "Executive Compensation" in registrants definitive proxy statement on page 6 and is incorporated herein by reference.
(e) Long-Term Incentive Plan Awards Table
NONE
(f) Defined Benefit or Actuarial Plan Disclosure
NONE
(g) Compensation of Directors
For the years 1997, and 1996, no compensation was paid to members of the Board of Directors of Canandaigua National Corporation. For the years of 1996 members of the Board of Directors of The Canandaigua National Bank and Trust Company were compensated at the rate of $300 per meeting. For the year 1997, the Chairman of the Board of Directors was compensated at the rate of $450 per meeting attended and the remaining members were compensated at the rate of $425 per meeting attended.
(h) Employment Contracts and Termination of Employment and Change-In- Control Arrangements
NONE
(i) Report on Repricing of Options/SARS
NONE
(j) Compensation Committee Interlocks
NONE
(k) Board Compensation Committee Report on Executive Compensation
The information required to be set forth for this item is set forth in Registrant's definitive proxy statement at page 7 and incorporated herein by reference.
(l) Performance Graph
The information required to be set forth for this item is set forth in Registrant's definitive proxy statement at page 8 and incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a), (b) The information required by Item 403 (a) and (b) of Regulation S-K is included with the information given on pages 1 through 3 of the Proxy Statement and is incorporated herein by reference.
(c) Changes in Control
NONE
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
NONE
(b) Certain Business Relationships
NONE
(c) Indebtedness of Management
Certain directors and executive officers of the Corporation and the Bank and their associates were customers of and had transactions with the Bank in the ordinary course of the Bank's business during 1997. All outstanding loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others, and in the opinion of the Bank, did not involve more than a normal risk of collectibility or present other unfavorable features.
(d) Transactions with Promoters
Not applicable
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements
The following consolidated financial statements of Canandaigua National Corporation and subsidiary have been incorporated by reference in Item 8 on Page 26: Pages* Independent Auditors' Report 7 Consolidated Balance Sheets As of December 31, 1997 and 1996 8 Consolidated Statements of Income For Each of the Years in the 3-Year Period ended December 31, 1997 9 Consolidated Statements of Changes In Stockholders' Equity for Each of the Years in the 3-Year Period ended December 31, 1997 10 Consolidated Statements of Cash Flows For Each of the Years in the 3-Year Period ended December 31, 1997 ...........................11 Notes to Consolidated Financial Statements......................... 12-29 * 1997 Annual Report to Stockholders
(a) 2. Financial Statement Schedules
Schedules are omitted since the required information is either not applicable, not deemed material, or is shown elsewhere in the financial statements or notes thereto.
(a) 3. Exhibits Table
(11) The information required by Item 601(a)(3)(11) of Regulation S-K is set forth on page 7 and 13 of the 1997 Annual Report to the Stockholders and is incorporated herein by reference.
(13) A copy of the 1997 Annual Report to Stockholders is attached hereto as Exhibit A.
(19) A copy of the definitive proxy statement mailed to Stockholders is attached hereto as Exhibit B.
(22)The Canandaigua National Bank and Trust Company is wholly owned by the Registrant. The Bank is incorporated under the laws of The United States of America. Registrant also owns all outstanding stock in Greater Funding of New York, Inc. a New York State licensed mortgage company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CANANDAIGUA NATIONAL CORPORATION
By: George W. Hamlin, IV President
Date: 3/30/98
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date
President/Director George W. Hamlin, IV
Secretary/Director Robert G. Sheridan
Treasurer Gregory S. MacKay
Director Patricia Boland
Director Frank H. Hamlin
Director Stephen D. Hamlin
Director Paul R. Kellogg
Director Eldred M. Sale
Director Caroline C. Shipley
Director Alan J. Stone
Director David Hamlin, Jr.
Director Daniel P. Fuller
Item 8. Financial Statements and Supplementary Data (Supplementary data has been omitted because it is not applicable)
Financial statements, together with a report thereon of KPMG Peat Marwick LLP dated January 30, 1998 appearing on Page 7-29 of the 1997 Annual Report to Stockholders are incorporated herein by reference. A reference index to the consolidated financial statements and accompanying notes presented in the Annual Report to Stockholders is shown in Item 14 of this filing.
Item 9.
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure NONE
PART III
Item 10.
Item 10. Directors and Executive Officers
(a) Directors
The information with respect to the directors of the Corporation, which is required to be included herein pursuant to Item 401 of Regulation S-K, is included under the caption "Election of Directors" on the Proxy Statement, dated February 25, 1998, and is incorporated herein from the Proxy Statement by reference. There are no arrangements or understandings between any director and any other person pursuant to which the director was selected.
(b) Executive Officers
The name, age and position of the executive officer of the Corporation as of December 31, 1997, is set forth on page 6 of the Proxy Statement dated February 25, 1998 under the caption "Principal Officers" and is incorporated herein by reference. Officers are generally elected annually by the Board of Directors at the meeting of directors immediately following the annual meeting of stockholders. The disclosure of family relationships between the executive officer and directors of the Corporation is set forth on page 4 of the Proxy Statement dated February 25, 1998 and is incorporated herein by reference. There are no arrangements or understandings between the executive officer and any other person pursuant to which the executive officer was selected.
No Director or executive officer of the Corporation has received any remuneration from the Bank or the Corporation in his capacity as a director or executive officer of the Corporation.
The executive officer of the Corporation has been an officer of the Bank for five years or more.
Directors and the executive officer as a group beneficially owned 14,956 shares or 9.31% of the shares outstanding. Shares owned directly total 13,243 and shares held by directors, executive officer, or their spouses in a fiduciary capacity or by their spouses individually total 1,713.
(c) Significant Employees
Not applicable (d) Family Relationship
Disclosed in Item 10 (a) - Directors
(e) Business Experience Disclosed in Item 10 (a) and 10 (b)
(f) None
(g) None
Item 11.
Item 11. Executive Compensation
(a) Cash Compensation
The information required to be included herein regarding executive compensation pursuant to Item 402 of Regulation S-K is included under the caption "Executive Compensation" in registrants definitive proxy statement on page 6 and is incorporated herein by reference.
During the year ended December 31, 1997, officers of the Corporation did not receive any compensation from the Corporation for services rendered in such capacity. All of the above compensation was paid by the Bank for services rendered in the course of their employment with the bank.
(b) Compensation Pursuant to Plans
The Bank has a non-contributory, profit sharing plan covering substantially all full-time employees who have completed one year of service, subject to a minimum number of hours of service with the Bank. Contributions to the profit sharing plan by the Bank are allocated among eligible participants in the proportion that each participant's "points" for the calendar year bear to the total "points" awarded for the calendar year. Participants are awarded one point for each full calendar year of employment and one point for each $100 of compensation paid such participant during that year. Voluntary contributions may be made and invested in a separate "Voluntary Account" in which the participant is always fully vested. Participants become fully-vested with non- contributory allocations upon: reaching the age of 65, disability, death, or 7 years of service as defined by the plan. If employment is otherwise terminated, partial vesting will be accorded depending upon the participant's years of service. Retirement and death benefits may be distributed in a cash lump sum or a series of equal installments, payable at least annually, over a period selected by the Profit Sharing Plan Committee. The amounts contributed to the profit sharing plan by the Bank in 1997, 1996, and 1995 were $763,000, $658,000, and $639,000, respectively.
The Corporation has an Employee Stock Ownership Plan (ESOP) for employees of its wholly-owned subsidiary, and executive officers are members of the plan. Contributions to the ESOP are allocated among eligible participants in the proportion that each participant's gross compensation bears to total compensation of all participants. Contributions to the plan for 1997, 1996, and 1995 were $52,000, $52,000, and $46,000 respectively.
The Corporation has an incentive stock plan for senior management of the Corporation. Annual contributions are made based on performance factors established by the board of directors. The Corporation has accrued a liability of $909,000 as of December 31, 1997 representing its obligation under the plan. Expenses of the plan amounted to $110,000, $371,000, and $155,000 for the years ended December 31, 1997, 1996 and 1995 and were paid by the Bank.
The following table sets forth the amount of profit sharing benefits set aside or accrued by the Bank, directly or indirectly, under the Profit Sharing Plan for the year ended December 31, 1997 for all executive officers of the Bank. Amount Set Aside or Accrued for Cumulative Name of the Year Ended Accrued Individual December 31, 1997 Benefit - ------------------------------------------------------------------------ George W. Hamlin, IV $21,532 $0000000 Robert G. Sheridan $13,385
The following table sets forth the amount of ESOP benefits set aside or accrued by the Bank, directly or indirectly, under the ESOP for the year ended December 31, 1997 for all executive officers of the Bank. Amount Set Aside or Accrued for Cumulative Name of the Year Ended Accrued Individual December 31, 1997 Benefit - -------------------------------------------------------------------------- George W. Hamlin, IV $ 1,606 $ 16,921 Robert G. Sheridan $ 984
(c) Other Compensation - Option/SAR Grants Table
The information required to be included herein regarding executive compensation pursuant to Item 402 of Regulation S-K is included under the caption "Executive Compensation" in registrants definitive proxy statement on page 7 and is incorporated herein by reference.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
The information required to be included herein regarding executive compensation pursuant to Item 402 of Regulation S-K is included under the caption "Executive Compensation" in registrants definitive proxy statement on page 6 and is incorporated herein by reference.
(e) Long-Term Incentive Plan Awards Table
NONE
(f) Defined Benefit or Actuarial Plan Disclosure
NONE
(g) Compensation of Directors
For the years 1997, and 1996, no compensation was paid to members of the Board of Directors of Canandaigua National Corporation. For the years of 1996 members of the Board of Directors of The Canandaigua National Bank and Trust Company were compensated at the rate of $300 per meeting. For the year 1997, the Chairman of the Board of Directors was compensated at the rate of $450 per meeting attended and the remaining members were compensated at the rate of $425 per meeting attended.
(h) Employment Contracts and Termination of Employment and Change-In- Control Arrangements
NONE
(i) Report on Repricing of Options/SARS
NONE
(j) Compensation Committee Interlocks
NONE
(k) Board Compensation Committee Report on Executive Compensation
The information required to be set forth for this item is set forth in Registrant's definitive proxy statement at page 7 and incorporated herein by reference.
(l) Performance Graph
The information required to be set forth for this item is set forth in Registrant's definitive proxy statement at page 8 and incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a), (b) The information required by Item 403 (a) and (b) of Regulation S-K is included with the information given on pages 1 through 3 of the Proxy Statement and is incorporated herein by reference.
(c) Changes in Control
NONE
Item 13.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
NONE
(b) Certain Business Relationships
NONE
(c) Indebtedness of Management
Certain directors and executive officers of the Corporation and the Bank and their associates were customers of and had transactions with the Bank in the ordinary course of the Bank's business during 1997. All outstanding loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others, and in the opinion of the Bank, did not involve more than a normal risk of collectibility or present other unfavorable features.
(d) Transactions with Promoters
Not applicable
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements
The following consolidated financial statements of Canandaigua National Corporation and subsidiary have been incorporated by reference in Item 8 on Page 26: Pages* Independent Auditors' Report 7 Consolidated Balance Sheets As of December 31, 1997 and 1996 8 Consolidated Statements of Income For Each of the Years in the 3-Year Period ended December 31, 1997 9 Consolidated Statements of Changes In Stockholders' Equity for Each of the Years in the 3-Year Period ended December 31, 1997 10 Consolidated Statements of Cash Flows For Each of the Years in the 3-Year Period ended December 31, 1997 ...........................11 Notes to Consolidated Financial Statements......................... 12-29 * 1997 Annual Report to Stockholders
(a) 2. Financial Statement Schedules
Schedules are omitted since the required information is either not applicable, not deemed material, or is shown elsewhere in the financial statements or notes thereto.
(a) 3. Exhibits Table
(11) The information required by Item 601(a)(3)(11) of Regulation S-K is set forth on page 7 and 13 of the 1997 Annual Report to the Stockholders and is incorporated herein by reference.
(13) A copy of the 1997 Annual Report to Stockholders is attached hereto as Exhibit A.
(19) A copy of the definitive proxy statement mailed to Stockholders is attached hereto as Exhibit B.
(22)The Canandaigua National Bank and Trust Company is wholly owned by the Registrant. The Bank is incorporated under the laws of The United States of America. Registrant also owns all outstanding stock in Greater Funding of New York, Inc. a New York State licensed mortgage company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CANANDAIGUA NATIONAL CORPORATION
By: George W. Hamlin, IV President
Date: 3/30/98
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date
President/Director George W. Hamlin, IV
Secretary/Director Robert G. Sheridan
Treasurer Gregory S. MacKay
Director Patricia Boland
Director Frank H. Hamlin
Director Stephen D. Hamlin
Director Paul R. Kellogg
Director Eldred M. Sale
Director Caroline C. Shipley
Director Alan J. Stone
Director David Hamlin, Jr.
Director Daniel P. Fuller