PINX:CNND Canandaigua National Cp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q


[Ö]

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2012

 

OR

[  ]

 

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


[cnc_10q20120507final002.gif]


CANANDAIGUA NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)


 

 

 

New York
(State or other jurisdiction of
incorporation or organization)

 

16-1234823
(IRS Employer Identification Number)

 

 

 

72 South Main Street
Canandaigua, New York
(Address of principal executive offices)

 


14424
(Zip code)


(585) 394-4260
(Registrant's telephone number, including area code)


    Indicate by check mark whether the registrant (1) has 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, and (2) has been subject to such filing requirements for the past 90 days.


Yes  [Ö]

 

No  [ ]


    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.


Yes  [Ö]

 

No  [ ]


    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.

Large accelerated filer [ ]           Accelerated filer [Ö]            Non-accelerated filer [ ]         Smaller reporting company [ ]


    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ]    No [Ö]


    The registrant had 1,887,154 shares of common stock, par value $5.00, outstanding at April 30,2012.






























Forward-Looking Statements


This report, including information incorporated by reference, contains, and future filings by Canandaigua National Corporation on Forms 10-K, 10-Q and 8-K and future oral and written statements, press releases, and letters to shareholders by Canandaigua National Corporation and its management may contain, certain "forward-looking statements" intended to qualify for the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. When used or incorporated by reference in the Company's disclosures and documents, the words "anticipate," "believe," "contemplate," "estimate," "expect," "foresee," "project," "target," "goal," "budget" and similar expressions 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 discussed within this document and the Company’s most recent Annual Report on Form 10-K. These forward-looking statements are based on currently available financial, economic, and competitive data and management's views and assumptions regarding future events. These forward-looking statements are inherently uncertain, so 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, projected, targeted, or budgeted. Certain matters which management has identified, which may cause material variations are noted elsewhere herein and in the Company’s other publicly filed reports. These forward-looking statements speak only as of the date of the document. We expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein.  We caution readers not to place undue reliance on any of these forward-looking statements.






CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
March 31, 2012


PART I -- FINANCIAL INFORMATION

   

PAGE

 

 

 

Item 1.  Financial Statements (Unaudited)

 

 

 

 

 

  Condensed consolidated balance sheets at March 31, 2012 and December 31, 2011

 

1

 

 

 

  Condensed consolidated statements of income for the three-month periods ended   

 

 

   March 31, 2012 and 2011.

 

2

 

 

 

  Condensed consolidated statements of comprehensive income for the three-month periods ended   

 

 

   March 31, 2012 and 2011.

 

3

 

 

 

  Condensed consolidated statements of stockholders' equity for the three-month periods ended

 

 

  March 31, 2012 and 2011.

 

4

 

 

 

  Condensed consolidated statements of cash flows for the three-month periods ended

 

 

  March 31, 2012 and 2011.

 

5

 

 

 

  Notes to condensed consolidated financial statements

 

6

 

 

 

Item 2.  Management's Discussion and Analysis of Financial

 

 

                Condition and Results of Operations  

 

26

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 


32

 

 

 

Item 4. Controls and Procedures

 

32

 

 

 

PART II -- OTHER INFORMATION

 

 

 

 

 

Item 1.  Legal Proceedings

 

33

 

 

 

Item 1A.  Risk Factors

 

33

 

 

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

33

 

 

 

Item 3.  Defaults Upon Senior Securities

 

33

 

 

 

Item 4.  (Removed and Reserved)

 

33

 

 

 

Item 5.  Other Information

 

33

 

 

 

Item 6.  Exhibits

 

35

 

 

 

SIGNATURES

 

36



PART I  FINANCIAL INFORMATIONItem 1. Financial Statements


CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2012 and December 31, 2011 (Unaudited)
(dollars in thousands, except per share data)





 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

2012 

 

 

2011 

 

Assets

 

 

 

 

 

Cash and due from banks

$

 35,266 

 

 

 52,715 

Interest-bearing deposits with other financial institutions

 

 5,882 

 

 

 6,490 

Federal funds sold

 

 64,425 

 

 

 67,535 

Securities:

 

 

 

 

 

 

 

  - Available for sale, at fair value

 

 107,330 

 

 

 114,258 

 

 

  - Held-to-maturity (fair value of $170,109 in 2012 and $172,517 in 2011)

 

 165,464 

 

 

 167,225 

Loans - net

 

 1,344,268 

 

 

 1,276,426 

Premises and equipment – net

 

 16,015 

 

 

 16,101 

Accrued interest receivable

 

 7,404 

 

 

 6,627 

Federal Home Loan Bank stock and Federal Reserve Bank stock

 

 2,656 

 

 

 2,656 

Goodwill

 

 15,810 

 

 

 15,810 

Intangible assets

 

 6,584 

 

 

 6,787 

Prepaid FDIC assessment

 

 3,647 

 

 

 3,905 

Other assets

 

 24,631 

 

 

 24,935 

 

 

 

Total Assets

$

 1,799,382 

 

 

 1,761,470 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

   

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand

 

 

 

 

 

 

 

Non-interest bearing

$

 232,257 

 

 

 227,284 

 

 

Interest bearing

 

 183,592 

 

 

 175,409 

 

Savings and money market

 

 772,572 

 

 

 745,713 

 

Time

 

 395,104 

 

 

 398,204 

 

 

 

    Total deposits

 

 1,583,525 

 

 

 1,546,610 

Junior subordinated debentures

 

 51,547 

 

 

 51,547 

Accrued interest payable and other liabilities

 

 27,375 

 

 

 27,533 

 

 

 

Total Liabilities

 

 1,662,447 

 

 

 1,625,690 

 

 

 

 

 

 

 

 

 

Canandaigua National Corporation stockholders' equity:

 

 

 

 

 

 

Preferred stock, $.01 par value; 4,000,000 shares

 

 

 

 

 

 

 

  authorized, no shares issued or outstanding

 

 - 

 

 

 - 

 

Common stock, $5.00 par value; 16,000,000 shares

 

 

 

 

 

 

 

  authorized, 1,946,496 shares issued in 2012 and 2011

 

 9,732 

 

 

 9,732 

 

Additional paid-in-capital

 

 8,834 

 

 

 8,834 

 

Retained earnings

 

 121,373 

 

 

 120,675 

 

Treasury stock, at cost (59,242 shares at March 31, 2012

 

 

 

 

 

 

 

  and December 31, 2011)

 

 (4,912)

 

 

 (4,912)

 

Accumulated other comprehensive income, net

 

 (1,040)

 

 

 (1,455)

 

  Total Canandaigua National Corporation Stockholders' Equity

 

 133,987 

 

 

 132,874 

 

Non-controlling interests

 

 2,948 

 

 

 2,906 

 

 

Total Equity

 

 136,935 

 

 

 135,780 

 

 

Total Liabilities and Equity

$

 1,799,382 

 

 

 1,761,470 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



See accompanying notes to condensed consolidated financial statements.


1



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three-month periods ended March 31, 2012 and 2011 (Unaudited)
(dollars in thousands, except per share data)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012 

 

 

2011 

Interest income:

 

 

 

 

 

 

Loans, including fees

$

 16,450 

 

 

 16,079 

 

Securities

 

 1,903 

 

 

 2,070 

 

Federal funds sold

 

 35 

 

 

 90 

 

Other

 

 4 

 

 

 5 

 

 

 

Total interest income

 

 18,392 

 

 

 18,244 

Interest expense:

 

 

 

 

 

 

Deposits

 

 1,503 

 

 

 2,676 

 

Junior subordinated debentures

 

 696 

 

 

 745 

 

 

 

Total interest expense

 

 2,199 

 

 

 3,421 

 

 

 

Net interest income

 

 16,193 

 

 

 14,823 

Provision for loan losses

 

 1,150 

 

 

 750 

 

 

 

Net interest income after provision for loan losses

 

 15,043 

 

 

 14,073 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

Service charges on deposit accounts

 

 2,823 

 

 

 2,585 

 

Trust and investment services income

 

 3,810 

 

 

 3,099 

 

Net gain on sale of mortgage loans

 

 599 

 

 

 370 

 

Loan servicing income, net

 

 204 

 

 

 219 

 

Loan-related fees

 

 72 

 

 

 109 

 

(Loss) on securities transactions, net

 

 (6)

 

 

 (1)

 

Other operating income

 

 680 

 

 

 811 

 

 

 

Total other income

 

 8,182 

 

 

 7,192 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Salaries and employee benefits

 

 10,755 

 

 

 8,001 

 

Occupancy, net

 

 2,046 

 

 

 1,833 

 

Technology and data processing

 

 1,210 

 

 

 1,042 

 

Professional and other services

 

 926 

 

 

 907 

 

Marketing and public relations

 

 609 

 

 

 669 

 

Office supplies, printing and postage

 

 421 

 

 

 414 

 

Intangible amortization

 

 203 

 

 

 222 

 

Other real estate operations

 

 318 

 

 

 228 

 

FDIC insurance

 

 283 

 

 

 679 

 

Other operating expenses

 

 1,373 

 

 

 1,326 

 

 

 

Total operating expenses

 

 18,144 

 

 

 15,321 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 5,081 

 

 

 5,944 

Income taxes

 

 1,510 

 

 

 1,605 

 

 

 

Net income attributable to noncontrolling interests and

 

 

 

 

 

 

 

 

Canandaigua National Corporation

 

 3,571 

 

 

 4,339 

Less: Net income attributable to noncontrolling interests

 

 42 

 

 

 - 

Net income attributable to Canandaigua National Corporation

$

 3,529 

 

 

 4,339 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

 1.87 

 

 

 2.30 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$

 1.83 

 

 

 2.26 

 

 

 

 

 

 

 

 

 



See accompanying notes to condensed consolidated financial statements.


2



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

[WITH RESPECTIVE TAX INFORMATION PRESENTED PARENTHETICALLY]
For the three-month periods ended March 31, 2012 and 2011 (Unaudited)
(dollars in thousands)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012 

 

2011 

Net income

$

 3,571 

 

 4,339 

 

Other comprehensive income:

 

 

 

 

 

 

Change in fair value of

 

 

 

 

 

 

 

interest rate swaps,

 

 

 

 

 

 

 

net of taxes of $ 430 and $417

 

 672 

 

 703 

 

 

Change in unrealized gain on

 

 

 

 

 

 

 

on securities available for sale,

 

 

 

 

 

 

 

net of taxes of ($138) and ($79)

 

 (219)

 

 (163)

 

 

Plus reclassification adjustment

 

 

 

 

 

 

 

for realized gains and losses included in

 

 

 

 

 

 

 

net income on called securities,

 

 

 

 

 

 

 

net of taxes of ($12) and $6

 

 (38)

 

 13 

 

 

 

 

Other comprehensive income

$

 415 

 

 553 

Total comprehensive income

 

 3,986 

 

 4,892 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable

 

 

 

 

 

 

 to the noncontrolling interest

$

 42 

 

 - 

 

Comprehensive income attributable to the Company

$

 3,944 

 

 4,892 



See accompanying notes to condensed consolidated financial statements.


3



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three-month periods ended March 31, 2012 and 2011 (Unaudited)
(dollars in thousands, except share data)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

Additional

 

 

 

 

 

 

 

Other

 

Non-

 

 

 

 

 

 

 

 

Shares

 

Common

 

Paid-in

 

Retained

 

Treasury

 

Comprehensive

 

controlling

 

 

 

 

 

 

 

 

Outstanding

 

Stock

 

Capital

 

Earnings

 

Stock

 

Income (Loss)

 

Interest

 

 

Total

Balance at December 31, 2011

 

 1,887,254 

 

$

 9,732 

 

 

 8,834 

 

 

 120,675 

 

 

 (4,912)

 

 

 (1,455)

 

 

 2,906 

 

 

 135,780 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest rate swaps,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of taxes of $430

 

 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 672 

 

 

 - 

 

 

 672 

 

 

Change in unrealized gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on securities available for sale,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of taxes of ($138)

 

 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 (219)

 

 

 - 

 

 

 (219)

 

 

Plus reclassification adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for realized gains included in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net income on called securities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of taxes of ($12)

 

 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 (38)

 

 

 - 

 

 

 (38)

 

 

Net income attributable to non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

controlling interest and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canandaigua National Corporation

 

 

 

 

 - 

 

 

 - 

 

 

 3,529 

 

 

 - 

 

 

 - 

 

 

 42 

 

 

 3,571 

 

Total comprehensive income

 

 

 

 

 - 

 

 

 - 

 

 

 3,529 

 

 

 - 

 

 

 415 

 

 

 42 

 

 

 3,986 

 

Cash dividend - $ 1.50 per share

 

 

 

 

 - 

 

 

 - 

 

 

 (2,831)

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 (2,831)

Balance at March 31, 2012

 

 1,887,254 

 

$

 9,732 

 

 

 8,834 

 

 

 121,373 

 

 

 (4,912)

 

 

 (1,040)

 

 

 2,948 

 

 

 136,935 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2010

 

 1,888,748 

 

$

 9,732 

 

 

 8,823 

 

 

 109,768 

 

 

 (4,728)

 

 

 199 

 

 

 - 

 

 

 123,794 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest rate swaps,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of taxes of $417

 

 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 703 

 

 

 - 

 

 

 703 

 

 

Change in unrealized gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on securities available for sale,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of taxes of $(79)

 

 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 (163)

 

 

 - 

 

 

 (163)

 

 

Plus reclassification adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for realized losses included in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net income on called securities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of taxes of $6

 

 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 13 

 

 

 - 

 

 

 13 

 

 

Net income attributable to non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

controlling interest and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canandaigua National Corporation

 

 

 

 

 - 

 

 

 - 

 

 

 4,339 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 4,339 

 

Total comprehensive income

 

 

 

 

 - 

 

 

 - 

 

 

 4,339 

 

 

 - 

 

 

 553 

 

 

 - 

 

 

 4,892 

 

Purchase of treasury stock

 

 (200)

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 (19)

 

 

 - 

 

 

 - 

 

 

 (19)

 

Cash dividend - $ 1.43 per share

 

 

 

 

 - 

 

 

 - 

 

 

 (2,691)

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 (2,691)

Balance at March 31, 2011

 

 1,888,548 

 

$

 9,732 

 

 

 8,823 

 

 

 111,416 

 

 

 (4,747)

 

 

 752 

 

 

 - 

 

 

 125,976 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



See accompanying notes to condensed consolidated financial statements.


4



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three-month periods ended March 31, 2012 and 2011 (Unaudited)
(dollars in thousands)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012 

 

 

2011 

Cash flow from operating activities:

 

 

 

 

 

 

Net income attributable to Canandaigua National Corporation

$

 3,529 

 

 

 4,339 

 

Adjustments to reconcile net income to

 

 

 

 

 

 

 

Net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 1,597 

 

 

 1,359 

 

 

 

Provision for loan losses

 

 1,150 

 

 

 750 

 

 

 

Gain on sale of premises and equipment and other real estate, net

 

 (122)

 

 

 (17)

 

 

 

Writedown of other real estate

 

 85 

 

 

 - 

 

 

 

Deferred income tax benefit

 

 (859)

 

 

 (384)

 

 

 

Loss (Income) from equity-method investments, net

 

 16 

 

 

 (323)

 

 

 

Loss on calls of securities and write-down, net

 

 6 

 

 

 1 

 

 

 

Gain on sale of mortgage loans, net

 

 (599)

 

 

 (370)

 

 

 

Originations of loans held for sale

 

 (51,160)

 

 

 (35,031)

 

 

 

Proceeds from sale of loans held for sale

 

 47,679 

 

 

 45,267 

 

 

 

Increase in other assets

 

 (723)

 

 

 (864)

 

 

 

Increase (decrease) in all other liabilities

 

 944 

 

 

 (482)

 

 

 

 

Net cash provided by operating activities

 

 1,543 

 

 

 14,245 

 

 

 

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

Proceeds from maturities and calls

 

 18,465 

 

 

 6,865 

 

 

Purchases

 

 (11,929)

 

 

 (7,869)

 

Securities held to maturity:

 

 

 

 

 

 

 

Proceeds from maturities and calls

 

 6,208 

 

 

 4,523 

 

 

Purchases

 

 (4,828)

 

 

 (9,154)

 

Loan originations in excess of principal collections, net

 

 (65,470)

 

 

 23,285 

 

Purchase of premises and equipment, net

 

 (578)

 

 

 (636)

 

Calls of FHLB stock, net of purchases of FHLB and FRB stock

 

 - 

 

 

 (102)

 

Investment in equity-method investments

 

 (209)

 

 

 (3)

 

Proceeds from sale of other real estate

 

 1,505 

 

 

 455 

 

 

 

 

Net cash (used) provided by investing activities

 

 (56,836)

 

 

 17,364 

 

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

Net increase in demand, savings and money market deposits

 

 40,015 

 

 

 62,774 

 

Net decrease in time deposits

 

 (3,100)

 

 

 (13,204)

 

Principal repayments of term borrowings

 

 - 

 

 

 (330)

 

Payments to acquire treasury stock

 

 - 

 

 

 (19)

 

Change in noncontrolling interest, net

 

 42 

 

 

 - 

 

Dividends paid

 

 (2,831)

 

 

 (2,691)

 

 

 

 

Net cash provided by financing activities

 

 34,126 

 

 

 46,530 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 (21,167)

 

 

 78,139 

 

  Cash and cash equivalents - beginning of period

 

 126,740 

 

 

 138,229 

 

  Cash and cash equivalents - end of period

$

 105,573 

 

 

 216,368 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Interest paid

$

 2,213 

 

 

 3,567 

 

Income taxes paid

 

 151 

 

 

 208 

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of noncash investing activities

 

 

 

 

 

 

Real estate acquired in settlement of loans

$

 558 

 

 

 - 

 

 

 

 

 

 

 

 

 

 



See accompanying notes to condensed consolidated financial statements.


5



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    


(1)   Basis of Presentation


The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and applicable regulations of the Securities and Exchange Commission (SEC) and with generally accepted accounting principles for interim financial information. Such principles are applied on a basis consistent with those reflected in the 2011 Annual Report (defined below) of the Company filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  Management has prepared the financial information included herein without audit by an independent registered public accounting firm.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three month periods ended March 31, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Annual Report”).


Amounts in prior periods' condensed consolidated financial statements are reclassified whenever necessary to conform to the current year's presentation.


Management has evaluated the impact of subsequent events on these financial statements to the date of filing of this Form 10-Q with the Securities and Exchange Commission.


(2) Securities


Amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2012 are summarized as follows:


 

 

   

 

March 31, 2012

 

 

   

 

 

 

Gross Unrealized

 

 

 

 

 

   

 

Amortized

 

 

 

 

 

 

 

Fair

 

 

   

 

Cost

 

Gains

 

 

Losses

 

 

Value

 

 

   

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury  

$

 502 

 

 - 

 

 

 - 

 

 

 502 

 

U.S. government sponsored enterprise obligations

 

 51,149 

 

 267 

 

 

 (113)

 

 

 51,303 

 

State and municipal obligations  

 

 51,605 

 

 1,627 

 

 

 (16)

 

 

 53,216 

 

Corporate obligations (1)

 

 1,094 

 

 2 

 

 

 (269)

 

 

 827 

 

Equity securities  

 

 1,292 

 

 190 

 

 

 - 

 

 

 1,482 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

    Total Securities Available for Sale

$

 105,642 

 

 2,086 

 

 

 (398)

 

 

 107,330 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 (1)Amortized cost includes cumulative $360,000 write-down prior to 2010 for other-than-temporary impairment.


 

 

  

 

 

 

 

 

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored enterprise obligations

$

 7 

 

 2 

 

 

 - 

 

 

 9 

 

State and municipal obligations  

 

 164,629 

 

 4,520 

 

 

 (182)

 

 

 168,967 

 

Corporate obligations

 

 828 

 

 305 

 

 

 - 

 

 

 1,133 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

    Total Securities Held to Maturity

$

 165,464 

 

 4,827 

 

 

 (182)

 

 

 170,109 



























6



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    



(2) Securities (continued)


The amortized cost and fair value of debt securities by years to maturity as of March 31, 2012, follow (in thousands). Maturities of amortizing securities are classified in accordance with their contractual repayment schedules. Expected maturities will differ from contracted maturities since issuers may have the right to call or prepay obligations without penalties.


  

 

Available for Sale

 

 

Held to Maturity

 

  

 

Amortized  

 

 

 

 

 

Amortized

 

 

 

 

  

 

Cost (1)

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 Years

 

  

 

 

 

 

 

 

 

 

 

 

 Under 1

$

 16,011 

 

 

 16,165 

 

 

 28,646 

 

 

 28,895 

 

 1 to 5

 

 35,050 

 

 

 36,529 

 

 

 118,385 

 

 

 122,171 

 

 5 to 10

 

 48,177 

 

 

 48,268 

 

 

 17,588 

 

 

 17,890 

 

 10 and over

 

 5,112 

 

 

 4,886 

 

 

 845 

 

 

 1,153 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 Total

$

 104,350 

 

 

 105,848 

 

 

 165,464 

 

 

 170,109 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 (1)Amortized cost includes a cumulative $360,000 write-down prior to 2010 for other-than-temporary impairment.

 


The following table presents the fair value of securities with gross unrealized losses at March 31, 2012, aggregated by category and length of time that individual securities have been in a continuous loss position (in thousands).


 

 

Less than 12 months

 

 

Over 12 months

 

 

Total

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

Securities Available for Sale:

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

U.S. government sponsored enterprise obligations

$

 21,965 

 

 

 113 

 

 

 - 

 

 

 - 

 

 

 21,965 

 

 

 113 

 

State and municipal obligations

 

 309 

 

 

 2 

 

 

 1,268 

 

 

 14 

 

 

 1,577 

 

 

 16 

 

Corporate obligations

 

 - 

 

 

 - 

 

 

 1,056 

 

 

 269 

 

 

 1,056 

 

 

 269 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

$

 22,274 

 

 

 115 

 

 

 2,324 

 

 

 283 

 

 

 24,598 

 

 

 398 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

$

 15,819 

 

 

 121 

 

 

 4,572 

 

 

 61 

 

 

 20,391 

 

 

 182 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

$

 15,819 

 

 

 121 

 

 

 4,572 

 

 

 61 

 

 

 20,391 

 

 

 182 


Substantially all of the unrealized losses on the Company's securities were caused by market interest rate changes from those in effect when the specific securities were purchased by the Company. The contractual terms of these securities do not permit the issuer to settle the securities at a price less than par value. Except for certain corporate obligations, all securities rated by an independent rating agency carry an investment grade rating. Because the Company does not intend to sell the securities and it believes it is not likely to be required to sell the securities before recovery of their amortized cost basis, which may be, and is likely to be, maturity, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2012, except as discussed below.


In the available-for-sale portfolio, the Company holds approximately $0.8 million of bank trust-preferred securities with an adjusted cost basis of $1.1 million.  These securities are backed by debt obligations of banks, with approximately $0.7 million of the securities backed by two of the largest U.S. banks and $0.1 million backed by a pool of banks’ debt in the form of a collateralized debt obligation (CDO). As a result of market upheaval, a lack of regular trading market in these securities, and bank failures, the fair value of these securities had fallen sharply in 2008 and continued to fall in the first half of 2009.  The Company recognized cumulative other-than-temporary-impairment (OTTI) amounting to $0.9 million on one CDO over several years. Management sold a portion of this security in 2011 and intends to sell the remainder in whole or in part over time. If the financial condition of the underlying banks deteriorates, further write-downs could occur before a sale, which would be reflected in the statement of operations. The maximum potential write-down would be its current carrying value of less than $0.1 million.



























7



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    



(2) Securities (continued)


Amortized cost and fair value of available-for-sale and held-to-maturity securities at December 31, 2011 are summarized as follows:


 

 

  

 

December 31, 2011

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Gross Unrealized

 

 

 

 

 

  

 

Amortized

 

 

 

 

 

 

 

Fair

 

 

  

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

  

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

$

 502 

 

 

 - 

 

 

 - 

 

 

 502 

 

U.S. government sponsored enterprise obligations

 

 55,766 

 

 

 377 

 

 

 (18)

 

 

 56,125 

 

State and municipal obligations

 

 53,531 

 

 

 1,917 

 

 

 (23)

 

 

 55,425 

 

Corporate obligations

 

 1,093 

 

 

 2 

 

 

 (296)

 

 

 799 

 

Equity securities

 

 1,295 

 

 

 112 

 

 

 - 

 

 

 1,407 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

    Total securities Available for Sale

$

 112,187 

 

 

 2,408 

 

 

 (337)

 

 

 114,258 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1)Amortized cost includes cumulative write-downs of $360,000 prior to 2010 for other-than-temporary impairment.


Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored enterprise obligations

$

 1,007 

 

 

 1 

 

 

 - 

 

 

 1,008 

 

State and municipal obligations

 

 165,348 

 

 

 5,113 

 

 

 (135)

 

 

 170,326 

 

Corporate obligations

 

 870 

 

 

 313 

 

 

 - 

 

 

 1,183 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Total Securities Held to Maturity

$

 167,225 

 

 

 5,427 

 

 

 (135)

 

 

 172,517 


The following table presents the fair value of securities with gross unrealized losses at December 31, 2011, aggregated by category and length of time that individual securities have been in a continuous loss position (in thousands).


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

 

Over 12 months

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

Securities Available for Sale:

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

U.S. government sponsored enterprise obligations

$

 7,610 

 

 

 18 

 

 

 - 

 

 

 - 

 

 

 7,610 

 

 

 18 

 

State and municipal obligations

 

 355 

 

 

 3 

 

 

 996 

 

 

 20 

 

 

 1,351 

 

 

 23 

 

Corporate obligations

 

 - 

 

 

 - 

 

 

 759 

 

 

 296 

 

 

 759 

 

 

 296 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

$

 7,965 

 

 

 21 

 

 

 1,755 

 

 

 316 

 

 

 9,720 

 

 

 337 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

$

 7,886 

 

 

 80 

 

 

 4,647 

 

 

 55 

 

 

 12,533 

 

 

 135 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

$

 7,886 

 

 

 80 

 

 

 4,647 

 

 

 55 

 

 

 12,533 

 

 

 135 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(3) Loans and Allowance for Loan Losses


Loans, other than loans designated as held for sale, are stated at the principal amount outstanding net of deferred origination costs. Interest and deferred fees and costs on loans are credited to income based on the effective interest method. Loans held for sale are carried at the lower of cost or fair value.




8



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    


The accrual of interest on commercial and real estate loans is generally 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. Loans are returned to accrual status when the doubt no longer exists about the loan's collectability and the borrower has demonstrated a sustained period of timely payment history. Specifically, the borrower will have resumed paying the full amount of scheduled interest and principal payments; all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within a reasonable period (six months); and there is a sustained period of repayment performance (generally a minimum of six months) by the borrower, in accordance with the contractual terms involving payments of cash or cash equivalents.  Interest on consumer loans is accrued until the loan becomes 120 days past due at which time principal and interest are generally charged off.


Management, considering current information and events regarding the borrowers’ ability to repay their obligations, considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, and sufficient information exists to make a reasonable estimate of the inherent loss, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, at the loan’s observable fair value or the fair value of underlying collateral if the loan is collateral-dependent.  In the absence of sufficient, current data to make a detailed assessment of collateral values or cash flows, management measures impairment on a pool basis using historical loss factors equivalent to similarly impaired loans. Impairment reserves are included in the allowance for loan losses through a charge to the provision for loan losses. Cash receipts on impaired loans are generally applied to reduce the principal balance outstanding. In considering loans for evaluation of specific impairment, management generally excludes smaller balance, homogeneous loans: residential mortgage loans, home equity loans, and all consumer loans, unless such loans were restructured in a troubled debt restructuring. These loans are collectively evaluated for risk of loss on a pool basis.


Loans


The Company's market area is generally Ontario County and Monroe County of New York State. Substantially all loans are made in its market area. Accordingly, the ultimate collectability of a substantial portion of the Company's loan portfolio is susceptible to changes in the economic conditions in this area. The Company's concentrations of credit risk are as disclosed in the following table of loan classifications. The concentrations of credit risk in related loan commitments and letters of credit parallel the loan classifications reflected. Other than general economic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower.


The major classifications of loans at March 31, 2012 and December 31, 2011, follow (in thousands), along with a description of their underwriting and risk characteristics:


 

 

 

2012

 

2011

 

 

 

 

 

 

Commercial and industrial

$

 198,118 

 

 198,744 

Mortgages:

 

 

 

 

 

Commercial

 

 493,457 

 

 467,413 

 

Residential  - first lien

 

 262,770 

 

 256,173 

 

Residential  - second lien

 

 100,368 

 

 101,877 

Consumer:

 

 

 

 

 

Automobile - indirect

 

 261,619 

 

 227,541 

 

Other

 

 24,087 

 

 25,583 

Loans held for sale

 

 11,636 

 

 7,556 

 

 

 

 

 

 

 

  Total loans

 

 1,352,055 

 

 1,284,887 

Plus - Net deferred loan costs

 

 9,054 

 

 7,634 

Less - Allowance for loan losses

 

 (16,841)

 

 (16,095)

 

 

 

 

 

 

 

  Loans - net

$

 1,344,268 

 

 1,276,426 


Commercial and Industrial Loans: These loans generally include term loans and lines of credit.  Such loans are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisition of real estate, expansion and improvements) and equipment purchases. As a general practice, a collateral lien is placed on equipment or other assets owned by the borrower.  These loans carry a higher risk than commercial real estate loans by the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable. To reduce the risk, management also attempts to secure secondary collateral, such as real estate, and obtain personal guarantees of the borrowers.  To further reduce risk and enhance liquidity, these loans generally carry variable rates of interest, repricing in three- to five-year periods, and have a maturity of five years or less. Lines of credit generally have terms of one year or less and carry floating rates of interest (e.g., prime plus a margin).




9



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    


Commercial Mortgages: Commercial real estate loans are made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are secured by first liens on the real estate, which may include apartments, commercial structures housing businesses, healthcare facilities, and other non-owner occupied facilities.  These loans are considered by the Company to be less risky than commercial and industrial loans, since they are secured by real estate and buildings. The loans typically have adjustable interest rates, repricing in three- to five-year periods, and require principal payments over a 10- to 25-year period.  Many of these loans include call provisions within 10 to 15 years of their origination. The Company’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower's financial condition, and the underlying cash flows. These loans are typically originated in amounts of no more than 80% of the appraised value of the property serving as collateral.


Residential First-Lien Mortgages: We originate adjustable-rate and fixed-rate, one-to-four-family residential real estate loans for the construction, purchase or refinancing of a mortgage.  These loans are collateralized by owner-occupied properties located in the Company’s market area. They are amortized over five to 30 years. Substantially all residential loans secured by first mortgage liens are originated by CNB Mortgage and sold to either the Bank or third-party investors.  Generally, fixed-rate mortgage loans with a maturity or call date of ten years or less and a rate of 5% or more are retained in the Company’s portfolio.  For longer term, fixed-rate residential mortgages without escrow, the Company generally retains the servicing, but sells the right to receive principal and interest to Federal Home Loan Mortgage Company, also known as Freddie Mac.  All loans not retained in the portfolio or sold to Freddie Mac are sold to unrelated third parties with servicing released.  This practice allows the Company to manage interest rate risk, liquidity risk, and credit risk.  From time to time, the Company may also purchase residential mortgage loans which are originated and serviced by third parties. In an effort to manage risk of loss and strengthen secondary market liquidity opportunities, management typically uses secondary market underwriting, appraisal, and servicing guidelines.  Loans on one-to-four-family residential real estate are mostly originated in amounts of no more than 85% of appraised value or have private mortgage insurance. Mortgage title insurance and hazard insurance are normally required. Construction loans have a unique risk, because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including at each loan draw period.


Residential Second-Lien Mortgages: The Company originates home equity lines of credit and second mortgage loans (loans secured by a second [junior] lien position on one-to-four-family residential real estate).  These loans carry a higher risk than first mortgage residential loans as they are in a second position relating to collateral.  Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows.  A security interest, with title insurance when necessary, is taken in the underlying real estate.


Consumer Loans:  The Company funds a variety of consumer loans, including direct and indirect automobile loans, recreational vehicle loans, boat loans, aircraft loans, home improvement loans, and personal loans (collateralized and uncollateralized). Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from one to ten years, based upon the nature of the collateral and the size of the loan. The majority of consumer loans are underwritten on a secured basis using the underlying collateral being financed or a customer's deposit account. A small amount of loans are unsecured, which carry a higher risk of loss.


Loans Held for Sale:  These are the Residential First-Lien Mortgages, discussed above, which are sold to Freddie Mac and other third parties. These loans are carried at their lower of cost or fair value, calculated on a loan-by-loan basis.


Allowance for Loan Losses


The allowance for loan losses is a valuation reserve for probable and inherent losses in the loan portfolio. Credit losses arise primarily from the loan portfolio, but may also be derived from other credit-related sources, when drawn upon, such as commitments, guarantees, and standby letters of credit. Additions are made to the allowance through periodic provisions, which are charged to expense. All losses of principal are charged to the allowance when incurred or when a determination is made that a loss is expected. Subsequent recoveries, if any, are credited to the allowance.


The Company has established a process to assess the adequacy of the allowance for loan losses and to identify the risks in the loan portfolio. This process consists of the identification of specific and pool-based reserves for impaired commercial loans and residential mortgages, and the calculation of general reserves, which is a formula-driven allocation.


The calculation of the general reserve involves several steps. A historical loss factor is applied to each loan by loan type and loan classification. The historical loss factors are calculated using a loan-by-loan, trailing eight-quarter net loss migration analysis for commercial loans. For all other loans, a portfolio-wide, trailing eight-quarter net loss migration analysis is used. Adjustments are then made to the historical loss factors based on current-period quantitative objective elements (delinquency, non-performing assets, classified/criticized loan trends, charge-offs, concentrations of credit, recoveries, etc.) and subjective elements (economic conditions, portfolio growth rate, portfolio management, credit policy, and others). This methodology is applied to the commercial, residential mortgage, and consumer portfolios, and their related off-balance sheet exposures. Any allowance for off-balance sheet exposures is recorded in Other Liabilities.


While management uses available information to recognize losses on loans, future additions to the allowance may be necessary. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.



























10



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    



A summary of the changes in the allowance for loan losses follows (in thousands). Notwithstanding the estimated allocations set forth in any table, the entirety of the allowance is available to absorb losses in any portfolio:


 

 

For the Three-Month Periods

 

 

Ended March 31,

 

 

 

 

 

 

 

 

2012

 

 

2011

 

 

 

 

 

 

Balance at the beginning of period

$

 16,095 

 

 

 15,635 

Loans charged off

 

 (710)

 

 

 (705)

Recoveries of loans charged off

 

 306 

 

 

 230 

Provision charged to operations

 

 1,150 

 

 

 750 

 

 

 

 

 

 

Balance at end of period

$

 16,841 

 

 

 15,910 


The following tables present an analysis of the allowance for loan losses by loan type, including a summary of the loan types individually and collectively evaluated for impairment as of March 31, 2012 and 2011 (in thousands):


 

 

 

 

 

 

Residential

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mortgage  -

 

mortgage  -

 

 

 

 

 

Loans

 

 

 

 

 

 

Commercial

 

Commercial

 

first

 

second

 

Consumer -

 

Consumer -

 

held for

 

 

 

 

 

 

 and industrial

 

mortgage

 

position

 

position

 

 indirect

 

other

 

sale

 

Unallocated

 

Total

Beginning Balance

$

 6,393 

 

 994 

 

 1,786 

 

 521 

 

 4,839 

 

 916 

 

 - 

 

 646 

 

 16,095 

Charge-offs

 

 (191)

 

 - 

 

 (75)

 

 (3)

 

 (283)

 

 (158)

 

 - 

 

 - 

 

 (710)

Recoveries

 

 38 

 

 2 

 

 6 

 

 2 

 

 175 

 

 83 

 

 - 

 

 - 

 

 306 

Provision

 

 (1,362)

 

 286 

 

 190 

 

 14 

 

 1,130 

 

 381 

 

 - 

 

 511 

 

 1,150 

Ending Balance

$

 4,878 

 

 1,282 

 

 1,907 

 

 534 

 

 5,861 

 

 1,222 

 

 - 

 

 1,157 

 

 16,841 

of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount for loans individually

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment

$

 1,079 

 

 443 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 1,522 

Amount for loans collectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment

$

 3,799 

 

 839 

 

 1,907 

 

 534 

 

 5,861 

 

 1,222 

 

 - 

 

 1,157 

 

 15,319 

Balance of loans individually

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment

$

 3,668 

 

 11,545 

 

 - 

 

 29 

 

 - 

 

 - 

 

 - 

 

 - 

 

 15,242 

Balance of loans collectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment

$

 194,450 

 

 481,912 

 

 262,770 

 

 100,339 

 

 261,619 

 

 24,087 

 

 11,636 

 

 9,054 

 

 1,345,867 


 

 

 

 

 

 

Residential

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mortgage  -

 

mortgage  -

 

 

 

 

 

Loans

 

 

 

 

 

 

Commercial

 

Commercial

 

first

 

second

 

Consumer -

 

Consumer -

 

held for

 

 

 

 

 

 

 and industrial

 

mortgage

 

position

 

position

 

 indirect

 

other

 

sale

 

Unallocated

 

Total

Beginning Balance

$

 6,364 

 

 1,371 

 

 1,304 

 

 563 

 

 4,196 

 

 1,155 

 

 - 

 

 682 

 

 15,635 

Charge-offs

 

 (155)

 

 - 

 

 - 

 

 - 

 

 (402)

 

 (148)

 

 - 

 

 - 

 

 (705)

Recoveries

 

 15 

 

 - 

 

 - 

 

 1 

 

 141 

 

 73 

 

 - 

 

 - 

 

 230 

Provision

 

 (348)

 

 300 

 

 362 

 

 23 

 

 206 

 

 (269)

 

 - 

 

 476 

 

 750 

Ending Balance

$

 5,876 

 

 1,671 

 

 1,666 

 

 587 

 

 4,141 

 

 811 

 

 - 

 

 1,158 

 

 15,910 

of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount for loans individually

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment

$

 705 

 

 80 

 

 101 

 

 47 

 

 - 

 

 - 

 

 - 

 

 - 

 

 933 

Amount for loans collectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment

$

 5,171 

 

 1,591 

 

 1,565 

 

 540 

 

 4,141 

 

 811 

 

 - 

 

 1,158 

 

 14,977 

Balance of loans individually

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment

$

 1,508 

 

 1,449 

 

 669 

 

 54 

 

 - 

 

 - 

 

 - 

 

 - 

 

 3,680 

Balance of loans collectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment

$

 197,067 

 

 431,604 

 

 234,606 

 

 93,904 

 

 173,412 

 

 27,170 

 

 4,247 

 

 5,540 

 

 1,167,550 


The balance in the allowance for loan losses increased to $16.8 million at March 31, 2012 compared to $16.1 million December 31, 2011, and from $15.9 million at March 31, 2011. In determining the level of allowance necessary, we considered a number of factors.  The most significant factor in the first quarter of 2012 was growth in the portfolio, which amounted to an annualized rate of 21% for the three-month period from December 31, 2011, and 16% for the twelve-month period from March 31, 2011.  However, the balance in the allowance did not increase by these percentages due to specific portfolio factors, which include, (a) a reduction in the loss factor applied to Substandard-rated Commercial and Industrial Loans, (b) an increase in reserves for impaired loans, (c) a decline in



11



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    


annualized net charge-offs, and (d) a decline in the ratio of non-performing loans to total loans.  Economic conditions were also considered in our determination of the allowance.  Given improvements we have seen in the economy, we have reduced our economic qualitative factors.  


More specifically, since December 31, 2011, we have reduced the allocated allowance to Commercial and Industrial loans as discussed above.  Increases in allocations for the other major loan categories occurred principally due to loan portfolio growth, while the unallocated portion has increased principally due to a combination of factors related to changes in the portfolio and related quantitative and qualitative factors.


In monitoring the credit quality of the portfolio, management applies a credit quality indicator to substantially all commercial loans. These quality indicators, as more fully described in the 2011 Annual Report, range from one through eight in increasing risk of loss. These ratings are used as inputs to the calculation of the allowance for loan losses. Loans rated 1 through 4 are generally allocated a lesser percentage allocation in the allowance for loan losses than loans rated from 5 through 8. Residential Mortgage Loans are generally rated 9, unless they are used to partially collateralize commercial loans, in which case they carry the rating of the respective commercial loan relationship, or if management wishes to recognize a well defined weakness or loss potential to more accurately reflect credit risk. Unrated loans are allocated a percentage of the allowance for loan losses on a pooled-basis.


The following tables present the loan portfolio as of March 31, 2012 and December 31, 2011 by credit quality indicator (in thousands). Except for loans in the 9 and unrated categories, credit quality indicators are reassessed for each applicable loan at least annually, generally upon the anniversary of the loan’s origination or receipt and analysis of the borrower’s financial statements, when applicable, or in the event that information becomes available that would cause us to re-evaluate.


Loans in category 9 and unrated are evaluated for credit quality after origination based upon delinquency status. (See Aging Analysis table).


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Indicator Analysis as of March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mortgage  -

 

mortgage  -

 

 

 

 

 

Loans

 

Deferred

 

 

 

 

Commercial

 

Commercial

 

first

 

second

 

Consumer -

 

Consumer -

 

held for

 

Fees and

 

 

 

 

 and industrial

 

mortgage

 

position

 

position

 

 indirect

 

other

 

sale

 

Costs

 

Total

1-Superior

$

 10,377 

 

 - 

 

 - 

 

 - 

 

 - 

 

 816 

 

 - 

 

 - 

 

 11,193 

2-Good

 

 8,268 

 

 26,459 

 

 1,656 

 

 3,172 

 

 - 

 

 1,084 

 

 - 

 

 - 

 

 40,639 

3-Satisfactory

 

 69,249 

 

 195,085 

 

 1,280 

 

 564 

 

 - 

 

 - 

 

 - 

 

 - 

 

 266,178 

4-Watch

 

 43,078 

 

 209,335 

 

 4,834 

 

 106 

 

 - 

 

 - 

 

 - 

 

 - 

 

 257,353 

5-Special Mention

 

 12,041 

 

 6,289 

 

 1,009 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 19,339 

6-Substandard

 

 22,395 

 

 31,573 

 

 4,263 

 

 225 

 

 - 

 

 - 

 

 - 

 

 - 

 

 58,456 

7-Doubtful

 

 - 

 

 - 

 

 7 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 7 

Subtotal

$

 165,408 

 

 468,741 

 

 13,049 

 

 4,067 

 

 - 

 

 1,900 

 

 - 

 

 - 

 

 653,165 

9 and not rated

 

 32,710 

 

 24,716 

 

 249,721 

 

 96,301 

 

 261,619 

 

 22,187 

 

 11,636 

 

 9,054 

 

 707,944 

Total

$

 198,118 

 

 493,457 

 

 262,770 

 

 100,368 

 

 261,619 

 

 24,087 

 

 11,636 

 

 9,054 

 

 1,361,109 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Indicator Analysis as of December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mortgage  -

 

mortgage  -

 

 

 

 

 

Loans

 

Deferred

 

 

 

 

Commercial

 

Commercial

 

first

 

second

 

Consumer -

 

Consumer -

 

held for

 

Fees and

 

 

 

 

 and industrial

 

mortgage

 

position

 

position

 

 indirect

 

other

 

sale

 

Costs

 

Total

1-Superior

$

 9,814 

 

 105 

 

 - 

 

 - 

 

 - 

 

 913 

 

 - 

 

 - 

 

 10,832 

2-Good

 

 8,826 

 

 26,195 

 

 1,718 

 

 2,560 

 

 - 

 

 - 

 

 - 

 

 - 

 

 39,299 

3 Satisfactory

 

 68,246 

 

 177,882 

 

 1,409 

 

 576 

 

 - 

 

 - 

 

 - 

 

 - 

 

 248,113 

4 Watch

 

 43,928 

 

 210,901 

 

 6,045 

 

 269 

 

 - 

 

 - 

 

 - 

 

 - 

 

 261,143 

5 Special Mention

 

 7,864 

 

 4,645 

 

 1,127 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 13,636 

6 Substandard

 

 29,440 

 

 30,018 

 

 4,496 

 

 453 

 

 - 

 

 100 

 

 - 

 

 - 

 

 64,507 

7 Doubtful

 

 - 

 

 - 

 

 - 

 

 7 

 

 - 

 

 - 

 

 - 

 

 - 

 

 7 

8 Loss

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 Subtotal

$

 168,118 

 

 449,746 

 

 14,795 

 

 3,865 

 

 - 

 

 1,013 

 

 - 

 

 - 

 

 637,537 

9 and not rated

 

 30,626 

 

 17,667 

 

 241,378 

 

 98,012 

 

 227,541 

 

 24,570 

 

 7,556 

 

 7,634 

 

 654,984 

Total

$

 198,744 

 

 467,413 

 

 256,173 

 

 101,877 

 

 227,541 

 

 25,583 

 

 7,556 

 

 7,634 

 

 1,292,521 



























12



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    




A summary of information regarding nonaccruing loans and other nonperforming assets as of March 31, 2012, December 31, 2011, and March 31, 2011 follows (in thousands):


 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

 

2012 

 

 

2011 

 

 

2011 

 

 

 

 

 

 

 

 

 

 

 

Accruing loans 90 days or more delinquent

$

 554 

 

 

 969 

 

 

 208 

Nonaccruing loans

 

 19,358 

 

 

 17,307 

 

 

 22,760 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total nonperforming loans

 

 19,912 

 

 

 18,276 

 

 

 22,968 

Other real estate owned

 

 3,562 

 

 

 4,632 

 

 

 3,836 

 

(less write-down of other real estate owned)

 

 (435)

 

 

 (397)

 

 

 (551)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total nonperforming assets

$

 23,039 

 

 

 22,511 

 

 

 26,253 



























13



CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

    



The following tables present, as of March 31, 2012 and December 31, 2011, additional details about the loan portfolio in the form of an aging analysis of the loan portfolio. Amounts exclude deferred fees and costs (in thousands).


During the first quarter of 2012, we experienced an increase in past-due commercial mortgages, particularly in non-accrual loan, which was caused by one relationship.  Based upon available appraisals, we believe loans underlying the relationship are secured by collateral with values exceeding our carrying value.  We are in the process of re-appraising the collateral.  Also during the quarter we experienced an increase in past-due residential mortgages.  This is a seasonal trend which we historically experience in the first quarter of each year. However, included in the 60-89 category is one loan approximating $1.0 million, which, given the borrower’s payment patterns,  is likely to become non-accrual in the second quarter. We believe the underlying collateral, based upon appraisals on hand, is adequately secured.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aging Analysis as of March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 Days

 

 

 

 

 

 

 

> 90 Days

 

 

 

 

 

30-59 Days

 

60-89 Days  

 

Or

 

Total

 

 

 

Total

 

and

 

Non-Accrual

 

 

 

Past Due

 

Past Due

 

Greater

 

Past Due

 

Current

 

Loans

 

Accruing

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

$

 335 

 

 250 

 

 3,841 

 

 4,426 

 

 193,692 

 

 198,118 

 

 88 

 

 3,753 

Commercial mortgages

 

 1,497 

 

 1,326 

 

 11,572 

 

 14,395 

 

 479,062 

 

 493,457 

 

 - 

 

 11,572 

Residential - first lien

 

 3,084 

 

 1,415 

 

 4,249 

 

 8,748 

 

 254,022 

 

 262,770 

 

 390 

 

 3,859 

Residential - junior lien

 

 341 

 

 90 

 

 174 

 

 605 

 

 99,763 

 

 100,368 

 

 - 

 

 174 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automobile - Indirect

 

 1,310 

 

 726 

 

 61 

 

 2,097 

 

 259,522 

 

 261,619 

 

 61 

 

 - 

 

Other

 

 204 

 

 21 

 

 15 

 

 240 

 

 23,847 

 

 24,087 

 

 15 

 

 - 

Loans held-for-sale

 

 - 

 

 - 

 

 - 

 

 - 

 

 11,636 

 

 11,636 

 

 - 

 

 - 

 

 

$

 6,771 

 

 3,828 

 

 19,912 

 

 30,511 

 

 1,321,544 

 

 1,352,055 

 

 554 

 

 19,358 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aging Analysis as of December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 Days

 

 

 

 

 

 

 

> 90 Days

 

 

 

 

 

30-59 Days

 

60-89 Days  

 

Or

 

Total

 

 

 

Total

 

and

 

Non-Accrual

 

 

 

Past Due

 

Past Due

 

Greater

 

Past Due

 

Current

 

Loans

 

Accruing

 

Loans

Commercial and industrial

$

 395 

 

 432 

 

 3,992 

 

 4,819 

 

 193,925 

 

 198,744 

 

 75 

 

 3,917 

Commercial mortgages

 

 2,184 

 

 - 

 

 9,078 

 

 11,262 

 

 456,151 

 

 467,413 

 

 - 

 

 9,078 

Residential - first lien

 

 633 

 

 55 

 

 4,453 

 

 5,141 

 

 251,032 

 

 256,173 

 

 652 

 

 3,801 

Residential - junior lien

 

 444 

 

 91 

 

 419 

 

 954 

 

 100,923 

 

 101,877 

 

 8 

 

 411 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automobile - indirect

 

 1,766 

 

 653 

 

 165 

 

 2,584 

 

 224,957 

 

 227,541 

 

 165 

 

 - 

 

Other

 

 257 

 

 88 

 

 169 

 

 514 

 

 25,069 

 

 25,583 

 

 69 

 

 100 

Loans held-for-sale

 

 - 

 

 - 

 

 - 

 

 - 

 

 7,556 

 

 7,556 

 

 - 

 

 - 

Total

$

 5,679 

 

 1,319 

 

 18,276 

 

 25,274 

 

 1,259,613 

 

 1,284,887 

 

 969 

 

 17,307 




A summary of information regarding impaired loans follows (in thousands):


 

 

 

 

 

 

 

 

 

 

 

As of and for

 

 

As of and for

 

 

As of and for

 

the three-month

 

 

the year

 

the three-month

 

 

period ended

 

 

ended

 

 

period ended

 

 

March 31,