SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549

                                      FORM 10-K

               Annual Report Pursuant to Section 13 or Section 15(d) of
                         The Securities Exchange Act of 1934

                     For the fiscal year ended December 31, 1996
                            Commission File Number 0-20142

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

                New York                               16-1185097
            (State of Incorporation)                (I.R.S.  Employer
                                                     Identification No.)
           44 Liberty Street
             Bath, New York                              14810
            (Address of principal                      (zip code)
             executive offices)
                                    (607) 776-9661
                 (Registrant's telephone number, including area code)

             Securities registered pursuant to Section 12 (b) of the Act:
                                         None

             Securities registered pursuant to Section 12 (g) of the Act:
                         Common Stock Par Value $5 per Share

       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 (or such shorter period that
       the Registrant was required to file such reports), and (2) has been
       subject to such filing requirements for the past 90 days.

                 Yes    X                  No ______

       Indicate by check mark if disclosure of delinquent filers pursuant to
       Item 405 of Regulation S-K is not contained herein, and will not be
       contained, to the best of registrant's knowledge, in definitive proxy
       or information statements incorporated by reference in Part III of this
       Form 10-K or any amendment to the Form 10-K. 
                                 Not Applicable

           State the aggregate market value of the voting stock held by non-
       affiliates of the registrant as of January 31, 1997.

           Common stock, $5.00 par value - $47,120,134

           Indicate the number of shares outstanding of each of the
       Registrant's classes of common stock as of January 31, 1996.

            1,365,801 shares, common stock, $5.00 par value

           Documents incorporated by reference

           1)  Proxy statement for 1997 Annual Meeting - Part III <PAGE>
 
<PAGE>
                                  TABLE OF CONTENTS


                   PART I
                 

       ITEM    1.  Business                                       1-23

       ITEM    2.  Properties                                    23-24

       ITEM    3.  Legal Proceedings                             24 

       ITEM    4.  Submission of Matters to a                     
                   Vote of Security Holders                      24 

         
                   PART II
        
       ITEM    5.  Market for the Registrant's Securities             
                   and Related Stockholder Matters               24-25

       ITEM    6.  Selected Financial Data                       25-27

       ITEM    7.  Management's Discussion and Analysis of
                   Financial Condition and Results of                 
                   Operations                                    27-31

       ITEM    8.  Financial Statements and 
                   Supplementary Data                            31-58

       ITEM    9.  Changes in and disagreements with Accountants 
                   on Accounting and Financial Disclosure        58 


                   PART III

       ITEM   10.  Directors and Executive Officers
                   of the Registrant                             58 

       ITEM   11.  Executive Compensation                        58 

       ITEM   12.  Security Ownership of Certain Beneficial       
                   Owners and Management                         59  

       ITEM   13.  Certain Relationships and Related
                   Transactions                                  59 


                   PART IV

       ITEM   14.  Exhibits, Financial Statement
                   Schedules and Reports on Form 8-K             59-60

                   
<PAGE>









       PART I

       ITEM 1.  Business

       Bath National Corporation (BNC or the "Company") is a one bank      
       holding company which was incorporated in 1982, and registered under
       the Bank Holding Company Act of 1956.  BNC has no non-bank affiliates. 
       The Company functions primarily as the holder of stock of BNB
       (described below) and assists in the management of BNB as appropriate. 
       The Company is a legal entity separate and distinct from BNB.  The
       right of the Company to participate in any distribution of the assets
       or earnings of BNB is subject to the principal claims of creditors of
       BNB, except to the extent that claims, if any, of the Company itself as
       a creditor may be recognized.  BNC derives all of its income from
       dividends paid to it by the Bank.

           Bath National Bank (BNB or "the Bank"), BNC's only subsidiary, has
       approximately 131 employees.  BNB is a full service commercial bank,
       with trust powers.  The Bank offers personal and business checking
       accounts, savings accounts, money market checking accounts, various
       types of certificates of deposit, commercial loans,
       consumer/installments loans, real estate loans, safe deposit boxes and
       provides such services as banking by mail, drive up teller service,
       night depository, money orders, bond coupon redemptions, cashier and
       travelers checks, credit cards, direct deposit of social security
       funds, wire transfers and automatic teller services (ATM's).  The Bank
       also offers individual retirement accounts.  The Bank is a member of
       the Federal Deposit Insurance Corporation to the extent permitted by
       law.  BNB is included in the Company's consolidated financial
       statements.

       The following discussion of the business of the Company (primarily that
       of BNB) contains certain statistical information concerning the
       Company's operations.

       Market Area and Competition:

       The primary market areas of the Bank include Dundee, Hammondsport,
       Wayland, Hornell, Atlanta, Naples and Bath, New York  from which the
       Bank draws principally all of its business.

       The area has a well developed system of financial institutions,
       including banks, savings and loan associations, and credit unions.  
       The Bank encounters aggressive competition for both deposit and loan
       customers.  The Bank is required to compete with financial institutions
       which are subsidiaries of larger bank holding companies.  The financial
       institutions located in the Bank's market area offer all of the
       services which the Bank offers.  Neither the Company nor the Bank has
       any foreign operations.


<PAGE>












       PART I, Continued

       ITEM 1.  Business, Continued

        Consolidated Average Balances

       The following is a presentation of average assets, liabilities and
       equity of the Company for the years ended December 31, 1996 and 1995,
       with respect to each major category of assets, liabilities and equity.

                                                    AVERAGE ASSETS
                                                (dollars in thousands)

                                           Year Ended         Year Ended
                                        December 31, 1996  December 31, 1995

       Interest Earning
         Deposits with Banks                $  3,300           $  3,800  
       Taxable Investment Securities          51,400             36,000
       Non-Taxable Investment Securities      27,400             22,600
       Federal Funds Sold                      1,500              3,500
       Net Loans                             152,000            142,900

            Total Earning Assets             235,600            208,800

       Other Assets                           16,700             16,400

            Total Assets                    $252,300           $225,200

                                            
                                            AVERAGE LIABILITIES AND EQUITY
                                               (dollars in thousands)

        Non-Interest Bearing
            Deposits                        $ 27,900           $ 26,300
        Interest Bearing Deposits:
            Savings                           45,700             48,100
            NOW Accounts                      33,200             32,400
            Money Market Accounts             12,100             13,000
            Time Deposits                     87,400             72,000
        Federal Home Loan Bank Borrowings      2,500              1,400
        Securities Sold Under Agreement to          
          Repurchase                          11,400              3,100
        Other Liabilities                      1,400              1,400
        Federal Funds Purchased                1,200                500
                                              
            Total Liabilities                222,800            198,200

        Common Stock                           6,800              3,400
        Additional Paid in Capital             1,500              4,400
        Retained Earnings                     21,200             19,200

            Total Equity                      29,500             27,000

            Total Liabilities
              and Equity                    $252,300           $225,200




<PAGE>



        PART I, Continued

        ITEM 1.  Business, Continued

        Analysis of Net Interest Earnings
      
        The following is a presentation of an analysis of the net interest    
        earnings of the Company for years ended December 31, 1996 and 1995,
        respectively, with respect to each major category of interest-earning
        assets and interest-bearing liabilities:

                                          Year Ended December 31, 1996
                                             (dollars in thousands)   
                                                     Interest
                                       Average       Earned        Average
                 Assets                 Amount       or Paid    Yield or Rate 


        Interest-Earning
         Deposits with Banks           $  3,300      $   192        5.81%
        Taxable Investment Securities    51,400        3,517        6.84%
        Non-Taxable Investment        
         Securities <F1>                 27,400        2,043        7.46%
        Federal Funds Sold                1,500           82        5.46%
        Net Loans <F2><F3>              152,000       13,955        9.18%

             Total Earning Assets      $235,600      $19,789        8.40% 


                 Liabilities

        Savings Deposits               $ 45,700      $  1,292       2.82%
        Now Deposits                     33,200           583       1.75%
        Money Market Deposits            12,100           344       2.84%
        Time Deposits                    87,400         4,671       5.34%
        Federal Home Loan Bank
         Borrowings                       2,500           158       6.32%
        Repurchase Agreements            11,400           718       6.30%
        Federal Funds Purchased           1,200            76       6.33%

        Total Interest-Bearing
             Liabilities               $193,500      $  7,842       4.05%


        Interest Income/Earning Assets                              8.40%

        Interest Expense/Earning Assets                             3.33%

        Net Yield                                                   5.07%
[FN]

        <F1> Non-Taxable interest is stated on a tax-equivalent basis, using a
             marginal tax rate of 34%.

        <F2> Net Loans includes non-accrual loans of $820,000.

        <F3> Includes Loan Fees Totaling $62,000 and discount revenue of       
             336,000.                                                         


<PAGE>



            
        PART I, Continued

        ITEM 1.  Business, Continued

        Analysis of Net Interest Earnings, Continued 
                       
                                        Year Ended December 31, 1995
                                             (dollars in thousands)   
                                                     Interest
                                       Average       Earned        Average
                 Assets                 Amount       or Paid    Yield or Rate 


        Interest-Earning
         Deposits with Banks             3,800           224        5.89%
        Taxable Investment Securities   36,000         2,391        6.64%
        Non-Taxable Investment    
         Securities <F1>                22,600         1,748        7.73%
        Federal Funds Sold               3,500           214        6.11%
        Net Loans <F2><F3>             142,900        13,652        9.55%

             Total Earning Assets     $208,800       $18,229        8.73%


                 Liabilities

        Savings Deposits                48,100         1,458        3.03%
        Now Deposits                    32,400           567        1.75%
        Money Market Deposits           13,000           400        3.07%
        Time Deposits                   72,000         3,856        5.36%
        Federal Home Loan Bank
         Borrowings                      1,400            70        5.00%
        Repurchase Agreements            3,000           170        5.66%
        Federal Funds Purchased            500            30        6.00%

        Total Interest-Bearing
             Liabilities              $170,400        $6,551        3.84%


        Interest Income/Earning Assets                              8.73%

        Interest Expense/Earning Assets                             3.14%

        Net Yield                                                   5.59%

[FN]
        <F1> Non-Taxable interest is stated on a tax-equivalent basis, using a
             marginal tax rate of 34%.

        <F2> Net Loans includes non-accrual loans of $435,000.

        <F3> Includes Loan Fees Totaling $65,000 and discount revenue of
             345,000.

<PAGE>










        PART I, Continued

        ITEM 1.  Business, Continued

        Rate/Volume Analysis of Net Interest Income

        The effect on interest income, interest expense, and net interest
        income in the periods indicated, of changes in average balances
        (volume) and changes in rate from the corresponding prior period is
        shown in the tabulation on the following page.  The effect of a
        change in average balance has been determined by applying the average
        rate in the earlier period to the change in average balances. 
        Changes resulting from rate variance from the prior period have been
        determined by applying the average volume in their earlier period to
        the change in average rate from the earlier to the later period. 
        Changes in interest due to both rate and volume have been allocated
        to changes due to volume and changes due to rate based on the
        percentage relationship of such variances to each other.  The final
        column entitled "Total Change" indicates the total change in the
        gross interest income or expense over the prior year as indicated in
        the later year's statement of income.

        The Rate/Volume Analysis for the years ended December 31, 1996 and
        1995, appear in their entirety on the following page.  


<PAGE>



































        PART I, Continued

        ITEM 1.  Business, Continued

                  December 31, 1996 compared with December 31, 1995
                                  (dollars in thousands)

                               Changes in net interest income as a result of: 

                                                                  Total
                                            Volume     Rate      Change
        Interest earned on:
          Interest-earning
           deposits with banks             $  (29)    $   (3)   $   (32)
          Taxable Investment
           Securities                       1,022        104      1,126
          Non-Taxable
              Investment Securities           371        (76)       295
          Federal Funds Sold                 (122)       (10)      (132)
          Net Loans                           869       (566)       303
        Total Interest Income               2,111       (551)     1,560

        Interest paid on:
          Interest-bearing
              deposits                        887        404      1,291 

        Change in net interest
           income                          $1,224     $ (955)    $  269



                    December 31, 1995 compared with December 1994
                                    (dollars in thousands)

                               Changes in net interest income as a result of:

                                                                Total  
                                            Volume     Rate    Change
        Interest earned on:
          Interest-earning
           deposits with banks            $   (30)   $    (5)  $  (35)  
          Taxable Investment
           Securities                         452         33      485 
          Non-Taxable
              Investment Securities           224       (199)      25
          Federal Funds Sold                   58         78      136 
          Net Loans                           451      1,258    1,709

        Total Interest Income               1,155      1,165    2,320 
        Interest paid on 
          Interest-bearing
              deposits                        375      1,609    1,984

        Change in net interest
           income                         $   780   $   (444) $   336



<PAGE>







        PART I, Continued

        ITEM 1.  Business, Continued

        Investments

        Investment securities comprised approximately 33% of the Bank's
        assets at December 31, 1996, with loans comprising approximately 58% 
        of total assets.  The Bank invests primarily in obligations of the
        United States or its agencies or obligations guaranteed as to
        principal and interest by the United States or its agencies, tax
        exempt municipal securities and certificates of deposit issued by
        other financial institutions.  The Bank's policy is to invest in
        highly rated bonds.  The Bank also enters into Federal Funds
        transactions with its principal correspondent bank, and acts as a net
        seller of such funds.  The sale of Federal Funds amounts to a short-
        term loan from the Bank to another bank.

        A tabulation of the Bank's investments is included in its entirety on
        the following page.



<PAGE>






































        PART I, Continued

        ITEM 1.  Business, Continued

        Investments, Continued

        The following tables present, at December 31, 1996 and 1995, the book
        value and market values of both the available for sale (AFS) and the
        held to maturity (HTM) categories of the Bank's investments.  The
        table also indicates the amount of investments due in (i) one year or
        less, (ii) one to five years, (iii) five to ten years, and (iv) over
        ten years.

                                          1996                1995
         Investment         Book     Market   Avg.   Book     Market   Avg.
          Category          Value    Value    Yield  Value    Value    Yield
                            (dollars in thousands)   (dollars in thousands)

        Available-for-Sale Investments:             

        Obligations of U.S. 
           Treasury and other U.S.
           Agencies and Corporations:


          0 - 1 year        $20,770  $20,329  6.27%  $18,352  $18,233  6.83%
          1 - 5 years        10,303   10,239  6.54%   10,012   10,085  6.26%  
          5 - 10 years        1,982    1,968  7.37%    4,775    4,661  6.09%  
          Over 10 years         947      950  6.97%                         


        Obligations of States and
           Political subdivisions


          0 - 1 year        $ 1,036  $ 1,051  6.85%  $ 2,313  $ 2,351  6.49%  
          1 - 5 years         9,849    9,942  4.56%    5,803    5,897  4.92%  
          5 - 10 years       18,806   19,125  4.90%   15,558   15,768  4.73%
          Over 10 years       1,355    1,360  5.17%      845      869  5.46%


        Other Securities


          0 - 1 year        $   275  $   273  9.45%      895      907  5.14%
          1 - 5 years         1,782    1,809  8.25%    2,133    2,186  8.31%
          5 - 10 years        1,237    1,401  9.23%    1,342    1,562  9.02%
          Over 10 years       2,681    2,681  7.94%    2,430    2,418  7.94%

        Total AFS Securit.  $71,023  $71,128         $64,458  $64,937

        Held-to-Maturity Investments:
                            
        Agency

          1 - 5 years       $20,000  $20,329  7.69%    N/A      N/A

        Total Securities    $91,023  $91,457         $64,458  $64,937



<PAGE>


        PART I, Continued

        ITEM 1.  Business, Continued

        Investments, Continued

        Yields are computed on a tax equivalent basis using a marginal tax
        rate of 34%.

        A total of $33,374,000 of investments was pledged to secure public
        deposits.

        Loan Portfolio:

        The bank engages in a full complement of lending activities,
        including commercial, consumer/instalment, real estate loans and
        accounts receivable financing.  At December 31, 1996, loans secured
        by real estate comprised 53% of the total loan portfolio.  At
        December 31, 1996 none of the real estate loans were being held
        specifically for resale in the secondary market.

        Loans Outstanding:

        The following table presents various categories of loans contained in
        the Bank's loan portfolio on the dates indicated and the total amount
        of all categories on these dates:

                                                  Year Ended December 31,
                                                  (dollars in thousands)


                Loan Type                         1996                1995


        Commercial, Financial and
             Agricultural                       $ 38,224            $ 38,325

        Real Estate - Mortgage                    84,131              78,666

        Installment Loans to Individuals          33,244              29,765

        All Other                                  2,492               3,247

            Sub-Total                            158,091             150,003

        Allowance for Loan Losses                  1,650               1,650


               Loans - Net                      $156,441            $148,353

<PAGE>













        PART I, Continued

        ITEM 1.  Business, Continued

        Loans Outstanding, Continued

        Maturity Distribution and Interest Sensitivity:

        The following tabulation presents an analysis of maturities of
        Commercial, Financial, and Agricultural loans as of December 31, 1996 
        stated in thousands of dollars:
                                              Years To Maturity <PAGE>
             

             Loan Type              1 or less   1 - 5    Over 5    Total

        Commercial, Financial,
           and Agricultural         $ 8,188     $11,267  $18,769   $38,224

        Demand loans, loans having no stated schedule of repayments and no
        stated maturity are reported as due in one year or less.

        The following is a presentation of an analysis of sensitivities of    
        commercial, financial and agricultural loans to changes in interest
        rates as of December 31, 1996, stated in thousands of dollars:


        Loans due after 1 year with predetermined         $  9,982
             Interest Rates


        Loans due after 1 year with floating
             Interest Rates                               $ 20,054






<PAGE>











          
           














        PART I, Continued

        ITEM 1.  Business, Continued

        Non-Performing Loans and Leases:

        The following table presents, for the period indicated, the aggregate
        amount of non-accrual, past due and restructured loans:

                                             Year Ended            Year Ended
             Type of Loan                     12/31/96              12/31/95 

        Loans accounted for on non-accrual
        basis                                $820,000              $435,000

        Number of loans                            13                     9

        Accruing Loans Past due 90 Days
        or more as to principal or
        interest payments                      18,000               209,000

        Number of loans                            38                    17

        Loans not included above which
        are troubled debt restructuring <F1>     ----                  ----

        Number of loans                             0                     0
[FN]
        <F1> These are loans whose terms have been restructured to provide a   
             reduction or deferral of interest or principal because of a       
             deterioration in the financial position of the borrower.

        Accrual of interest income is discontinued on loans when, in the
        opinion of management, collection of such interest income becomes
        doubtful.  When a loan is reclassified to non-accrual status, all
        accrued interest is immediately charged against current income. 
        Accrual of interest on such loans is resumed only when, in
        management's judgment, the collection of said loan is probable.  At
        that time, any accrued interest previously written off is restored
        through current income.  Payments received on non-accrual loans are
        applied to principal.

        Interest income for the year ended December 31, 1996 would have
        included approximately $71,500 of interest income for the above non-
        accrual loans if they had kept current in accordance with their
        original terms.  No interest income was included in income for 1996
        for the non-accrual loans.

        The Bank has not identified significant potential problem loans which
        cause management to have serious doubts as to the ability of such
        borrowers to comply with the present loan repayment terms.

        The Bank has no foreign loans.

        There are no concentrations of credit.



<PAGE>



        PART I, Continued

        ITEM 1.  Business, Continued

        Summary of Loan Loss Experience:

        An analysis of the loan loss experience is furnished in the following
        table for the periods indicated, as well as the allocation of the
        allowance for loan losses.  Loans are presented net of unearned
        income.
                                                   Year Ended December 31,
                                                   (dollars in thousands)

                                                    1996              1995
        Allowance balance at beginning  
        of the year                               $  1,650         $  1,725


        Loans Charged Off:
          Real Estate                                    0                0
          Commercial, Financial & Agricultural         191              212
          Installment Loans to Individuals             111              146
          Credit Cards                                  47               31
                 Total                                 349              389


        Recoveries of Loans Previously Charged Off:
          Real Estate                                    0               17
          Commercial, Financial & Agricultural          14               96
          Installment Loans to Individuals              62               65
          Credit Cards                                   4                4
                 Total                                  80              182   

        Additions charged to 
              Operations                               269              132

        Allowance Balance at end of the year         1,650         $  1,650

        Average loans                             $152,000         $142,900 

        Ratio of net charge-offs during the
              period to Average loans during
              the period                             .18%              .15%



<PAGE>



















        PART I, Continued

        ITEM 1.  Business, Continued

        Summary of Loan Loss Experience, Continued

        At December 31, 1996, the allowance balance was allocated as follows:

                                                            % of loans
                                           Amount           in each type
                Loan Type              (in thousands)       to total loans   

        Commercial, Financial
           and Agricultural              $1,100               24.18%    

        Real Estate - Mortgage               50               53.22%

        Installment loans to individuals    500               21.03%

        All Other                             0                1.57%


                       Total             $1,650              100.00%



        At December 31, 1995, the allowance balance was allocated as follows:

                                                            % of loans
                                           Amount           in each type
                Loan Type              (in thousands)       to total loans

        Commercial, Financial
           and Agricultural                $1,100               25.55%

        Real Estate - Mortgage                 50               52.44%

        Installment loans to individuals      500               19.84%

        All Other                               0                2.17%


                       Total               $1,650              100.00%

        Loan Loss Reserve:

        In considering the adequacy of the Bank's allowance for possible loan
        losses and, thus, the amount of additions of the allowance charged to
        operating expense in 1996, management has focused on the fact that as
        of December 31, 1996, 37% of outstanding loans are in the category of
        commercial loans.  Commercial loans are generally considered by
        management as having greater risk than other categories of loans in
        the Bank's loan portfolio.

        Management considers loans to finance 1-4 family, owner occupied
        property to have minimal risk due to the fact that these loans
        represent conventional residential real estate mortgages where the
        amount of the original loan does not exceed 80% of the appraised
        value of the collateral.
<PAGE>

        PART I, Continued

        ITEM 1.  Business, Continued

        Loan Loss Reserve, Continued

        The Bank's Board of Directors monitors the loan portfolio monthly to
        enable it to evaluate the adequacy of the allowance for loan losses
        quarterly and to implement its policy of identification and isolation
        of potential problem loans.  The loans are rated and the reserve
        established based on an assigned rating.  The provision for loan
        losses charged to operating expenses is based on this established
        reserve.  Factors considered by the Board in rating the loans include
        delinquent loans, underlying collateral value, payment history,
        financial condition of the borrowers, and local and general economic
        conditions affecting collectibility.

        While no assurance can be given, management believes that losses
        during 1997 will be no more than the losses during 1996.  Although
        management of the Company believes that the allowance (as
        supplemented by projected provisions and recoveries) is adequate to
        absorb anticipated losses, there can be no assurance that the Company
        will not sustain losses in any given period which could be
        substantial in relation to the size of the allowance or in relation
        to the estimates set forth above.



<PAGE>





































        PART I, Continued

        ITEM 1.  Business, Continued                                          
                                   
        Deposits

        The bank offers a wide range of commercial and consumer deposit
        accounts, including non-interest bearing checking accounts, money
        market checking accounts (consumer and commercial), individual
        retirement accounts, time certificates of deposit and regular savings
        accounts.  The sources of deposits are residents, businesses,
        employees of businesses and local municipalities within the Bank's
        market area.

        The Bank pays competitive interest rates on time and savings
        deposits.  In addition, the Bank utilizes a service charge fee 
        schedule competitive with other financial institutions in the Bank's
        market area, covering such matters as maintenance fees on checking
        accounts, per item processing fees on checking accounts, returned
        check charges and the like.

        The following table presents, for the periods indicated, the average
        amount of and average rate paid on each of the major deposit
        categories:

                                            Year Ended          Year Ended
                                             12/31/96            12/31/95

                                            Amount    Rate     Amount   Rate
        Deposit Category                           (dollars in thousands)

        Non-Interest Bearing Demand
               Deposits                     $27,900            $27,400

        NOW Deposits                         33,200   1.75%    $32,400  1.73%

        Money Market Deposits                12,100   2.84%    $13,000  3.07%

        Savings Deposits                     45,700   2.82%    $48,100  3.04%

        Time Deposits                        87,400   5.34%    $72,000  5.36%
         (including certificates of deposit)


        The following presents time certificates of deposit of $100,000 or
        more and amounts of their maturities (amounts in thousands):

                                                      Maturity

                                          3 Months                      Over
                                             or       3-6      6-12      12
                                            Less    Months    Months   Months

        Time Certificates of Deposit      $15,255   $9,234    $2,113   $961


<PAGE>





        PART I, Continued

        ITEM 1.  Business, Continued

        Return on Equity and Assets

        Returns on average consolidated assets and average consolidated
        equity for the periods indicated and certain other data are as
        follows:
                                                         Year Ended
                                                         December 31,

                                                     1996          1995

        Return on Average Assets <F1>                 1.37%         1.50%
        Return on Average Equity <F2>                11.69%        12.51%
        Dividend Payout Ratio <F3>                      42%           48%
        Equity to Assets Ratio <F4>    
                     (Average)                       11.69%        11.99% 
   [FN]
        <F1> Net income divided by average assets
        <F2> Net income divided by average equity
        <F3> Dividends declared per share divided by net income per share
        <F4> Average equity divided by average assets

        Liquidity and Asset/Liability Management

        Liquidity is the capacity of a banking enterprise to meet customer
        loan demand, depositor withdrawals and other financial obligations. 
        The most immediate and efficient source of liquidity for the Bank is
        a $11.7 million line of credit with the Federal Home Loan Bank of NY. 
        Based upon the current level of stock ownership, the Bank is
        authorized to borrow up to $9.7 million.  In addition, the Bank has a
        borrowing line with a correspondent bank in the amount of $2 million. 
        Other sources of liquidity include repayment of loans, sale of loans
        and securities maturing within one year, although the usefulness of
        such securities for liquidity purposes is limited to the extent that
        such securities are pledged.  Day to day changes in cash needs caused
        by flows of customer funds in and out of the Bank are generally
        reflected in adjustments to the federal funds position.               
                                   
        Liquidity is managed on the liability side mainly by the Company's
        ability to attract sources of funds (such as large denomination
        certificates of deposit) to supplement maturing earning assets.

        Closely related to the concept of liquidity is the management of the
        Company's asset/liability mix and interest rate sensitivity.  The
        Board of Directors of the Company has the overall responsibility for
        the implementation, communication, coordination and control of the
        asset/liability and interest rate sensitivity policies for the
        Company and the Bank.  These policies are implemented by an
        Asset/Liability Management Committee which is charged with the
        responsibility of assuring balance sheet flexibility primarily with
        respect to liquidity and interest rate sensitivity.  Current,
        prospective and unanticipated liquidity requirements are provided for
        by attempting to preserve the high quality of marketable assets, by
        managing the maturity structure of those assets and by maintaining
        discretionary access to short-term funding sources.  The management
        of interest rate sensitive asset and liability differentials,
        referred to as "gaps", has become increasingly important as a result 
<PAGE>
        PART I, Continued

        ITEM 1.  Business, Continued

        Liquidity and Asset/Liability Management, Continued

        of the more volatile interest rate environment.  The continuing
        deregulation of the banking industry has greatly increased the        
        interest rate sensitivity of the Company's deposit base and has made
        the monitoring of the "gap" between interest rate sensitive assets
        and liabilities critical to continued profitability.  It is
        management's policy to seek to achieve a relatively balanced interest
        rate sensitivity position, with a goal of achieving stability in
        earnings performance, regardless of interest rate volatility.

        The table on pages 29 and 30 under the caption "Interest Rate
        Sensitivity Analysis" provides information on interest sensitive
        assets and liabilities.

        Correspondent Banking

        Correspondent banking involves the provision of services by one bank
        to another bank which cannot provide that service for itself from an
        economic or practical standpoint.  The Bank is required to purchase 
        correspondent services offered by larger banks, including purchase of
        federal funds, security safekeeping, investment services, and wire
        transfer services. 

        Data Processing

        The Bank's installation includes a full complement of hardware and
        software to enable the Bank to provide total processing of its own
        work on a daily basis with the exception of complete ATM processing. 
        The Bank utilizes a service center as its link to the ATM Networks.

        Facilities

        The Bank's main office is located in a freestanding building built on
        property located in Bath, New York.  The Bank has a drive through
        teller facility adjacent to its main office.  The Bank owns a branch
        in Bath, which in addition to drive through teller facilities, houses
        its Electronic Data Processing installation and Mortgage Department.

        The Bank also operates branch offices in Dundee, Hammondsport,
        Hornell, Atlanta, Naples and Wayland, New York.  These branches are 
        equipped with both ATM's and teller stations.  All of the offices,
        with the exception of our Atlanta and Hammondsport Offices, have
        drive-up teller facilities.

        The Company's offices are located in the Bank's main office.

        Employees

        The Bank presently employs approximately 131 persons on a full-time
        equivalent basis, including four senior officers.  It is anticipated
        that the Bank will hire additional persons as needed on a full-time
        basis, including additional tellers and customer service
        representatives.
        The Bank offers certain fringe benefits to its full time employees

<PAGE>


        PART I, Continued

        ITEM 1.  Business, Continued

        Employees, Continued

        including life insurance, health benefits and participation in a
        profit sharing plan/401k plan.

        Monetary Policies 

        The results of operations of the Bank are affected by credit policies
        of monetary authorities, particularly the Federal Reserve Board.  The
        instruments of monetary policy employed by the Federal Reserve Board
        include open market operations in US Government securities, changes
        in the discount rate on member bank borrowings and changes in reserve
        requirements against member bank deposits.  In view of changing
        conditions in the national economy and in the money markets, as well
        as the effect of action by monetary and fiscal authorities, including
        the Federal Reserve Board, no prediction can be made as to possible
        future changes in interest rates, deposit levels, loan demand or the
        business and earnings of the Bank.

        Supervision and Regulation

        The Company and the Bank operate in a highly regulated environment, 
        with their business activities governed by statutes, regulations and
        administrative policies.  The business activities of the Company and
        the Bank are closely supervised by a number of regulatory agencies,
        including the Board of Governors of the Federal Reserve System
        ("Federal Reserve Board") in the case of the Company, and in the case
        of the Bank, the Office of the Comptroller of the Currency
        ("Comptroller") and the Federal Deposit Insurance Corporation
        ("FDIC").

        The Company is regulated by the Federal Reserve Board (Board) under
        the Federal Bank Holding Company Act of 1956, as amended.

        A bank holding company must obtain Board approval before acquiring,
        directly or indirectly, ownership or control of any voting shares of
        a bank or bank holding company if, after such acquisition, it would
        own or control 5% or more of such shares (unless it already owns or
        controls a majority of such shares).  Board approval must also be
        obtained before any bank or bank holding company merges or
        consolidates with another bank holding company.  Furthermore, any
        acquisition by a bank holding company of 5 percent or more of the
        voting shares, or of all or substantially all of the assets, of a
        bank located in another state is subject to approval provided in the 
        Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.  
         
        A bank holding company and its subsidiaries are prohibited from       
        engaging in certain tie-in arrangements in connection with the
        extension of credit or the lease or the sale of any property or the
        furnishing of services.  The subsidiary bank of a bank holding
        company is also subject to certain restrictions imposed by the
        Federal Reserve Act on any extensions of credit to the bank holding
        company or any of its subsidiaries, thereof, and on the taking of
        such stocks or securities as collateral for loans.  The Board
        possesses cease and desist powers over bank holding companies if
        their actions represent unsafe or unsound practices or violations of
        law.


<PAGE>


        PART I, Continued

        ITEM 1.  Business, Continued

        Supervision and Regulation, Continued

        A bank holding company is generally prohibited from acquiring more
        than five percent of any class of voting securities of any company
        which is not a bank and from engaging in any business other than the
        business of banking or managing and controlling banks.  However,
        there are certain activities which have been identified by the Board
        to be so closely related to banking as to be a proper incident 
        thereto and thus permissible for bank holding companies provided that
        the Federal Reserve Board has notice of or has consented to the
        acquisition.

        In addition to the traditional activities of banks such as lending
        and accepting deposit functions, the Bank is permitted to engage in,
        by way of example, the following types of activities: acting as
        investment or financial advisor to subsidiaries and certain outside
        companies; leasing personal and real property or acting as a broker
        with respect thereto; providing management consulting advice to non-
        affiliated banks and non-bank depository institutions; providing
        consumer financial counseling services; operating collection agencies
        and credit bureaus; providing data processing and data transmission
        services; acting as an insurance agent or underwriter with respect to
        limited types of insurance; performing real estate appraisals;
        arranging commercial real estate equity financing; providing
        securities brokerage services; providing certain types of courier
        services; and underwriting and dealing in obligations of the United
        States, the states and their political subdivisions.

        The Company and the Bank are subject to regulatory capital
        requirements imposed by the Federal Reserve Board and the
        Comptroller, respectively, which generally parallel each other.  In
        1989, the Federal Reserve Board issued new risk-based capital
        guidelines for bank holding companies which make regulatory capital
        requirements more sensitive to differences in risk profiles of
        various banking organizations.  These capital adequacy guidelines
        issued by the Federal Reserve Board are applied to bank holding
        companies on a consolidated basis with the banks owned by the holding
        company.  These new requirements were phased in over a three year
        period.  The new guidelines provided that by the end of 1990, banking
        organizations must have had capital (as defined in the new rules)
        equivalent to 7.25% of weighted risk assets.  By the end of 1992,
        when the guidelines became fully effective, banking organizations
        were required to have capital equivalent to 8% of risk assets.  The  
        risk weights assigned to assets are based primarily on credit risk. 
        Depending upon the riskiness of a particular asset, it is assigned to
        a risk category.  For example, securities with an unconditional
        guarantee by the United States Government are assigned to the lowest
        risk category, whereas a risk weight of 50% is assigned to loans
        secured by owner-occupied, one to four family residential mortgages. 
        The aggregate amount of assets assigned to each risk category is
        multiplied by the risk weight assigned to that category to determine
        the weight values, which are added together to determine total risk-
        weighted assets.

        The Federal Reserve Board and the Comptroller have each issued
        minimum capital leverage ratios to be used in tandem with the risk-
<PAGE>
        PART I, Continued

        ITEM 1.  Business, Continued

        Supervision and Regulation, Continued

        based guidelines in assessing the overall capital rules.  Bank
        holding companies and national banks are required to maintain a ratio
        of 3% "Tier 1" capital to total assets (net of goodwill).  "Tier 1"
        capital includes common stockholder's equity, non-cumulative
        perpetual preferred stock and minority interests in the equity
        accounts of consolidated subsidiaries.

        Both the risk-based capital guidelines and the leverage ratios are
        minimum requirements, applicable only to top-rated banking
        institutions.  Institutions operating at or near these levels are
        expected to have well-diversified risk, excellent asset quality, high
        liquidity, good earnings and in general, have to be considered strong
        banking organizations, rating composite 1 under the OCC's CAMELS
        rating system for banks or the BOPEC rating system for bank holding
        companies.  Institutions with a lower rating and institutions with
        high levels of risk or experiencing or anticipating significant
        growth would be expected to maintain ratios 100 to 200 basis points
        above the stated minimums.

        The Company's ratio of capital to assets, as defined by the
        regulations, as of the end of each of its last three fiscal years has
        been as follows:
                                    TIER I                  TOTAL RISK 
                                LEVERAGE RATIO          BASED CAPITAL RATIO
                                         
                               Required    Company     Required     Company
                               Minimum      Ratio      Minimum       Ratio  
        For year ended
           December 31, 1996    3.00%      11.29%       8.00%       21.39%
        For year ended
           December 31, 1995    3.00%      11.96%       8.00%       22.57%
        For year ended
           December 31, 1994    3.00%      12.26%       8.00%       20.26%

        The scope of regulation and permissible activities of the Company and
        the Bank is subject to change by future federal and state
        legislation.

        The Bank is subject to supervision by the Comptroller and the Federal
        Deposit Insurance Corporation.  Various federal and state laws and
        regulations apply to many aspects of the operations of the Bank,
        including capital adequacy, reserves on deposits, loans, investments,
        mergers and acquisitions, and the establishment of branch offices and
        facilities.  Restrictions on rates of interest payable by banks on
        deposits have been essentially eliminated.  The capital adequacy
        guidelines of the Comptroller are substantially the same as those of
        the Federal Reserve Board.

        All of the revenue of the Company available for the payment of
        dividends on the Common Stock results from amounts paid to the
        Company by the Bank.  The Bank is required by Federal law to obtain
        governmental approval for the payment of dividends to the Company if
        the total of all dividends declared by the Bank in any year will
        exceed the total of the Bank's net profits (as defined and 


<PAGE>



        PART I, Continued

        ITEM 1.  Business, Continued

        Supervision and Regulation, Continued

        interpreted by regulation) for that year and the retained net profits
        (as defined) for the preceding two years less any required transfers
        to surplus.  As of January 1, 1997, the Bank could have declared
        aggregate dividends of approximately $4.0 million without the
        approval of regulatory authorities.

        The Comptroller has authority to prohibit a national bank from
        engaging in conduct which, in his opinion, constitutes an unsafe or
        unsound practice in conducting its business.  Thus, depending upon
        the financial condition of the bank in question and other factors,
        the Comptroller may assert that the payment of dividends or other
        funds from a subsidiary bank to a bank holding company could
        constitute, under certain circumstances, an unsafe or unsound banking
        practice.  In addition, the capital guidelines of the Federal Reserve
        Board, the Comptroller and FDIC could limit the amount of dividends
        which the Company may pay in the future.  Furthermore, regulatory
        pressures to reclassify and charge off loans and to establish
        additional loan loss reserves can have the effect of reducing current
        operating earnings and thus impairing an institution's ability to pay
        dividends.

        If at any time, the Federal Reserve Board believes that an activity 
        of the Company constitutes a serious risk to the financial safety,
        soundness, or stability of the Bank or the Company, and is
        inconsistent with sound banking principles or the purposes of the
        Bank Holding Company Act, the Federal Reserve Board may require the
        Company to terminate the activity or to terminate control over the
        Bank.

        On December 19, 1991, the Federal Deposit Insurance Corporation
        Improvement Act of 1991 (FDICIA) was enacted.  Among other things,
        FDICIA requires FDIC to establish a risk-based assessment system for
        FDIC deposit insurance.  FDICIA also contains provisions limiting
        certain activities and business methods of depository institutions,
        including limiting the acceptance of brokered deposits by certain
        depository institutions; placing restrictions on the terms of bank
        investment contracts that may be offered by depository institutions.
        Finally, FDICIA provides for expanded regulation of depository
        institutions and their affiliates, including parent holding
        companies, by such institutions' appropriate Federal banking
        regulator, and requires the appropriate Federal banking regulator to
        take "prompt corrective action" with respect to a depository
        institution if such institution does not meet certain capital
        adequacy standards.

        Governmental Policies and Legislation

        The policies of regulatory authorities, including the Federal Reserve
        Board and the FDIC, have had a significant effect on the operating
        results of commercial banks in the past and are expected to do so in
        the future.  An important function of the Federal Reserve System is
        to regulate aggregate bank credit and money through such means as
        open market dealing in securities, establishment of the discount rate
        on member bank borrowings, and changes in reserve requirements 


<PAGE>
        PART I, Continued

        ITEM 1.  Business, Continued

        Governmental Policies and Legislation, Continued

        against member bank deposits.  Policies at these agencies may be
        influenced by many factors, including inflation, unemployment, short-
        term changes in the international trade balance, and fiscal policies
        of the United States Government.

        The United States Congress has periodically considered and adopted
        legislation which has resulted in, and could result in, further
        deregulation of both banks and financial institutions.  Such
        legislation could modify or eliminate geographic restrictions on 
        banks and bank holding companies and could modify or eliminate
        current prohibitions against the Company's engaging in one or more 
        non-banking activities.  Such legislative changes could place the
        Company in more direct competition with other financial institutions,
        including mutual funds, securities brokerage firms, insurance
        companies and investment banking firms.  No assurance can be given as
        to whether any additional legislation will be adopted and as to the
        effect of such legislation on the business of the Company.

        Significant Accounting Policies

        On May 31, 1993, the Financial Accounting Standards Board issued
        Statement of Financial Accounting Standards No. 114, "Accounting by
        Creditors for Impairment of a loan" (SFAS 114).  SFAS 114 was amended
        by SFAS 118, "Accounting by Creditors for Impairment of a Loan - 
        Income Recognition and Disclosure."  These Statements prescribe
        recognition criteria for loan impairment, generally related to
        commercial type loans and measurement methods for certain impaired
        loans and all loans whose terms are modified in troubled debt
        restructurings subsequent to the adoption of these statements.  A
        loan is considered impaired when it is probable that the borrower 
        will not repay the loan according to the original contractual terms
        of the loan agreement.

        On January 1, 1995, the Bank adopted the provisions of SFAS 114 and
        SFAS 118.  The effect of adoption of these Statements was not
        material to the financial statements.                                 
                
        As a matter of policy, the Bank generally places impaired loans on
        nonaccrual status and recognizes interest income on such loans only
        on a cash basis upon receipt of interest payments from the borrower. 
        Accrual of interest is discontinued on a loan when management
        believes, after considering economics, business conditions and
        collection efforts, that the borrower's financial condition is such
        that collection of interest is doubtful, or after three months of
        nonpayment, whichever is earlier.  Uncollectible interest previously
        accrued is charged off.  Income is subsequently recognized only to
        the extent cash payments are received until, in management's
        judgment, the borrower's ability to make periodic interest and
        principal payments is back to normal, in which case the loan is
        returned to accrual status.

        In January 1994, the Bank adopted the provisions of Statement of
        Financial Accounting Standards No. 115, "Accounting for Certain
        Investments in Debt and Equity Securities" (SFAS 115).  SFAS 115 

<PAGE>

        PART I, Continued

        ITEM 1.  Business, Continued

        Significant Accounting Policies, Continued

        requires that management determine the appropriate classification of
        securities at the date of adoption, and thereafter at the date
        individual investment securities are acquired, and that the
        appropriateness of such classification be reassessed at each balance
        sheet date.  Investments are classifiable in the categories discussed
        below.

        "Held-to-Maturity" securities for which the Bank has the positive
        intent and ability to hold to maturity are reported at cost, adjusted
        for premiums and discounts that are recognized in interest income
        over the period to maturity.

        "Trading" account assets are held for resale in anticipation of short
        term market movements.  Trading account assets, consisting of debt 
        and money market instruments, are stated at fair value.  Gains and
        losses, both realized and unrealized, are included in other income.

        "Available-for-Sale" securities consist of bonds, notes, debentures
        and certain equity securities not classified as trading securities
        nor as held to maturity securities.

        Unrealized holding gains and losses, net of tax, on available for
        sale securities are reported as a net amount in a separate component
        of stockholders' equity until realized.

        Gains and losses on the sale of available for sale securities are 
        determined using the specific identification method.

        Premiums and discounts are recognized in interest income over the
        period to maturity.

        The Bank has classified all its securities as "Available-for-Sale"
        with the exception of certain U.S. Government & Agency Securities, 
        sold under an agreement to repurchase with an amortized cost of
        $20,000,000 as of December 31, 1996.

        ITEM 2.  Properties

        BNC occupies space at the main banking office of BNB.  No real
        properties are owned or leased by BNC.

        The Bank's operations are conducted from eight (8) full service
        facilities located in Bath, Hammondsport, Atlanta, Naples, Wayland,
        Dundee and Hornell, New York.  In addition, the Bank also operates
        two (2) seasonal offices.  One office is located in the Wayland-
        Cohocton Central School and the other is located at the Windmill Farm
        Market between Penn Yan and Dundee, New York.  The main office is
        located at 44 Liberty Street, Bath, New York.  All administrative
        functions of the Bank are conducted at the main office.  There is a
        drive-up facility adjacent to the main bank at 44 Liberty Street. 
        There is another drive-up, walk-up facility at West Washington
        Street, Bath.  BNB owns both the buildings and underlying real estate
        on all of its property.

<PAGE>





        PART I, Continued

        ITEM 2.  Properties, Continued

        The carrying value of property for BNC on a consolidated basis as of
        December 31, 1996 and 1995 is included on page 47 of this 10-K
        document.                                                             
                
        ITEM 3.  Legal Proceedings

        There are no material legal proceedings pending, or to the knowledge
        of management, threatened against the Company or the Bank.

        ITEM 4.  Submission Matters to a Vote of Security Holders
                                    None
         
                                    PART II

        ITEM 5.  Market for Registrant's Common Equity and Related            
                 Stockholder Matters 

             A.  Market Information

        During the period covered by this report and as of the date hereof,
        there is no established public trading market for the Company's
        common stock.

        The range of high and low bid information (in dollars) for each full
        quarterly period for 1996 and 1995, restated to reflect a two for one
        stock split on April 24, 1996, follows:

                                1996                     1995      
                         1Q    2Q   3Q   4Q        1Q   2Q   3Q   4Q

        High             30    32   35   37        25   30   30   30

        Low              30    32   35   34        25   30   30   30


        The high and low bid information represent the price paid for shares
        of stock of the Company by investors purchasing through the Company's
        market makers, First Albany Corporation and Sandler O'Neill &  
        Partners, and trades between holders of Common Stock.

             B. Holders of Common Stock

        As of January 29, 1997, the approximate number of holders of record
        of the Company's common stock was 628.

             C. Dividends

        For 1995 and 1996 the Company paid quarterly cash dividends,
        amounting to a total for the year of $1.20 and $1.05 respectively.
        These dividends have been restated to reflect a two for one stock
        split on April 24, 1996.

        The Bank is restricted in its ability to pay dividends to the Company
        (its only source of income) by banking regulations.  Generally, 

<PAGE>


        PART II, Continued

        ITEM 5.  Market for Registrant's Common Equity and Related            
                 Stockholder Matters, Continued

             C. Dividends, Continued
          
        dividends may be declared and paid in cash or property only out of
        the retained earnings of the Bank.  Dividends may not be declared or
        paid at any time that a bank does not have the paid in capital and
        appropriate retained earnings as required by law.  Dividends may not
        be paid without prior approval of the regulator in excess of 
        specified amounts as may be fixed by banking regulations to ensure
        that banks maintain an adequate capital structure.

        ITEM 6.  Selected Financial Data

        The data appearing on the following page represent selected
        consolidated financial data of the Company for the years ended
        December 31, 1996, 1995, 1994, 1993 and 1992 and are derived from the
        Company's consolidated financial statements.  These data should be
        read in conjunction with the Company's consolidated financial
        statements and the notes thereto and Management's Discussion and
        Analysis of Financial Condition and Results of Operations included
        elsewhere herein and are qualified in their entirety thereby and by
        other detailed information elsewhere in this Form 10K.<PAGE>

<PAGE>




























        PART II, Continued

        ITEM 6.  Selected Financial Data, Continued

                               1996      1995      1994       1993       1992
        Condensed Statements         
        of Income (in
        thousands, except per
        share data)
        Interest Income <F1>$   19,457 $ 17,881  $ 15,911  $ 15,155  $ 15,398 

        Interest Expense 
          Deposits               6,891    6,280     4,506     4,669     5,943
        Interest Expense
          Borrowings               952      271        61         4         3
         
          Net Interest Income   11,614   11,330    11,344    10,482     9,452

        Loan Loss Provision        269      132        77       353       413 

        Net Interest Income        
          After Loan Loss 
          Provision             11,345   11,198    11,267    10,447     9,039

        Other Operating
          Income                 1,518    1,448     1,296     1,270       972

        Other Operating
          Expenses               7,140    6,973     6,738     6,248     6,101

        Income Before
          Income Tax             5,723    5,673     5,825     5,469     3,910

        Tax Equivalent 
          Adjustment               779      668       590       505       422

        Income Taxes (benefit)   1,496    1,627     1,815     1,658     1,119

        Net Income          $    3,448  $ 3,378   $ 3,420   $ 3,306   $ 2,369

        Per Share Data <F2>

        Book Value             22.23      20.90     18.69     18.90     17.23
        Cash Dividends          1.05       1.20      2.51      1.00       .82 
        Net Income              2.52       2.49      2.66      2.64      1.94
        Weighted Average
          Common Shares    1,365,832  1,354,492 1,285,762 1,251,662 1,220,906

        Balance Sheet Data    
        (in thousands, except
        number of outstanding
        shares) at 
        December 31

        Assets                269,238   235,165   209,158   199,202   191,201
        Securities             90,060    64,937    43,878    51,840    51,105
        Loans, Net            156,441   148,353   140,054   125,887   118,588
        Deposits              208,473   197,760   180,866   170,235   168,388
        Equity                 30,363    28,554    25,181    24,125    21,424
        Common Shares
          Outstanding       1,365,801 1,366,234 1,346,780 1,276,960 1,243,056
<PAGE>
        PART II, Continued

        ITEM 6. Selected Financial Date, Continued
[FN]
        <F1> Presented on a tax equivalent basis utilizing a marginal tax rate 
             of 34%.                                                          
        <F2> All per share data has been restated to reflect a two-for-one     
             stock split on April 24, 1996.


        ITEM 7.  Management's Discussion and Analysis of Financial Condition  
                 and Results of Operations.

        Liquidity and Capital Resources:

        Management has not identified any trends, demands, commitments,
        events or uncertainties that will result in or are reasonably likely
        to result in any material decreases or increases in the Company's
        liquidity.

        Liquidity is an important factor in the financial condition of the 
        Company and affects its ability to meet the borrowing needs and
        deposit withdrawal requirements of its customers.  Assets, consisting
        principally of loans and investment securities, are funded by
        customer deposits.

        The investment portfolio is one of the Company's primary sources of
        liquidity.  The Company's primary sources of liquidity are federal
        funds sold and purchased.  Other resources of liquidity include
        repayment of loans and sale of loans.  Maturities of securities and
        principal payments on mortgage backed securities provide a constant
        flow of funds which are available for cash needs.  Interest bearing
        deposits in other financial institutions maturing within one year
        total $1.5 million.  Also, high quality securities are readily
        marketable and provide another level of liquidity.  Maturities in the
        loan portfolio also provide a steady flow of funds.  At December 31,
        1996 loans with an aggregate balance of $11.9 million and securities 
        of $4.2 million were due to mature in one year or less.  Additional
        funds flow from payments on instalment and revolving credit loans and
        from a historically high level of net operating earnings.  The
        Company's liquidity also continues to be enhanced by a relatively
        stable deposit base.  At December 31, 1996, the loan to deposit ratio
        was 76% and the ratio of loans to core deposits (excluding
        certificates of deposit of $100,000 or more) was 87%.

        In addition to the sources of liquidity above, the Bank may borrow
        from the Federal Reserve Bank in the event of a short term liquidity
        deficiency.  The Bank also has an agreement with its correspondent
        bank to borrow overnight federal funds.  During 1996, the Bank had an
        average daily net federal funds sold of $.3 million.  The Bank is
        also a member of, and has a line of credit with, the Federal Home
        Loan Bank of New York, and based upon the current level of stock
        ownership, the Bank is authorized to borrow up to $9.7 million under
        this line.  The Bank borrowed an average of $2.0 million during 1996
        against this line of credit.

        At December 31, 1996, banking regulations required conformity with a 
        minimum risk based capital standard of 8%.  The Bank's risk based
        capital level was approximately 21%.  Neither the Company nor the
        Bank had any material commitments for capital expenditures as of 

<PAGE>




        PART II, Continued

        ITEM 7.  Management's Discussion and Analysis of Financial Condition  
                 and Results of Operations, Continued

        Liquidity and Capital Resources, Continued

        December 31, 1996.  The adequacy of the Bank's capital is reviewed on
        an ongoing basis with reference to the size, composition and quality 
        of the Bank's resources.  An adequate capital base is important for
        continued growth, expansion and added protection against unexpected
        losses.

        During 1996, the Company signed a letter of intent to acquire the
        First State Bank of Canisteo for cash.  Subsequently, the acquisition
        plans were cancelled due to the failure of each party to sign a
        definitive agreement.

        Fiscal 1996 Compared with Fiscal 1995

        Total Bank assets grew from $235.1 million at year end 1995 to $269.2
        million at year end 1996, an increase of 14.5%.  Approximately $18.5
        million of this growth in assets is attributable to a growth strategy
        employed which leverages the bank's capital.  Bath National Bank
        entered into a securities sold with an agreement to repurchase "repo"
        transaction with Salomon Brothers which had the effect of increasing
        both assets and liabilities by $18.5 million.

        Loan demand continues to increase with net loans increasing from
        $148.3 million in 1995 to $156.4 million in 1996 or 5.4%.

        Deposits also continued to grow, realizing an increase of 5.4%, from
        $197.7 million in 1995 to $208.5 million at year end 1996.

        Net income increased from $2.49 per share in 1995 to $2.52 per share
        in 1996.  Net interest income grew only modestly due to interest 
        "spread" pressures.  Since most of the growth in deposits during 1996
        were in the time deposits area, the average cost of funds increased
        at a greater rate than did the average earnings rate.  The provision
        for loan losses increased by $136,000 from 1995 to 1996.  Bank
        Management expects the loan losses in 1997 will be significantly
        less.

        Fiscal 1995 Compared with Fiscal 1994

        Total Bank assets grew from $209 million at year end 1994 to $235
        million at year end 1995, or an increase of 12.4%, while equity
        capital grew from $25.2 million to $28.6 million or an increase of
        13.5% for this period.  Growth in the Bank's assets can be attributed 
        to new deposits in the Naples Branch as well as a significant
        increase in the Hammondsport balances.  An advance from the Federal
        Home Loan Bank of $3.0 million also increased total assets.

        Loan demand continued strong during 1995 with an increase from $140
        million at December 31, 1994 to $148.3 million at December 31, 1995,
        or an increase of 6%.



<PAGE>


        PART II, Continued

        ITEM 7.  Management's Discussion and Analysis of Financial Condition  
                 and Results of Operations, Continued

        Fiscal 1995 Compared with Fiscal 1994, Continued

        Total deposits increased from $180.9 million in 1994 to $197.7
        million in 1995.  This increase was primarily in the form of time
        deposits, which increased by 31.4%.

        An advance from Federal Home Loan Bank of $3 million was outstanding
        as of December 31, 1995.  This advance was matched specifically with
        investments to better leverage the Bank's capital.

        Net income decreased modestly from $3.42 million in 1994 to $3.38
        million for 1995.  Net interest income declined slightly due to 
        falling yields earned on prime rate loans and a decline in yields
        earned on investments.  Interest on deposits increased due to growth
        in time deposits.

        Other expenses increased from $6,738,100 in 1994 to $6,972,600 during
        1995 primarily due to the opening of our Naples Branch and necessary
        staffing requirements.  

        FDIC insurance decreased from $410,000 in 1994 to $210,000 in 1995,
        due primarily to the decrease in the assessment rate for banks with a
        1A classification.

        As discussed in more detail in Supervision and Regulation under Item
        1 above, the capital ratio continues strong at 11.96% for 1995, as
        compared to 12.22% at December 31, 1994.

        Interest Sensitivity Analysis

        The following table sets forth the maturity distribution of the
        Company's interest-earning assets and interest bearing liabilities as
        of December 31, 1996, the Company's interest rate sensitivity gap
        (i.e. interest rate sensitive assets less interest rate sensitive 
        liabilities), the Company's cumulative interest rate sensitivity gap,
        the Company's interest rate sensitivity ratio (i.e. interest rate
        sensitive assets divided by interest rate sensitive liabilities) and
        the Company's cumulative interest rate sensitivity ratio.  The
        following assumptions were used in preparation of this table:
        variable rate loans are included in the period in which their next
        scheduled rate adjustment is expected to take place; fixed rate loans
        are assumed to be repaid in accordance with their contractual terms; 
        no prepayments are advanced on any loans; and securities are included
        in the period in which they mature, or in the case of variable rate
        securities, the period in which the next rate change is anticipated.  
                                     


<PAGE>












        PART II, Continued

        ITEM 7.  Management's Discussion and Analysis of Financial Condition  
                 and Results of Operations, Continued

        Interest Sensitivity Analysis, Continued

                                        Interest Rate Sensitivity Analysis
                                             (dollars in thousands)

                                 0-30  31-90  91-180  181-365  1 - 5   Over 5
        As of
        December 31, 1996:

        Earning Assets:
         Federal Funds Sold       500      
         Loans                 56,889  2,553   4,571   8,805   45,246  38,377
         Securities            14,287  2,759   4,036   2,470   43,410  23,098
         Total Earning Assets  71,676  5,312   8,607  11,275   88,656  61,475 
                                                     
        Interest Bearing Liab.
         Money Market Demand   10,467           
         Interest Bearing
          Deposits             31,557             
         Certificates of Deposit
          Under $100,000        6,441  10,682  14,714  18,877  15,543         
          $100,000 and over     8,645   6,611   9,233   2,113     961         
         Savings Accounts      43,491            
        Securities Sold
         Agreement to Repurch.  2,630             799          18,500         
        FHLB Borrowings
         Federal Funds Purch.   4,825                   1,000                 
                                 
        Total Int. Bear. Liab.108,056  17,293  24,746  21,990  35,004        
        Incremental Gap <F1>  (36,380)(11,981)(16,139)(10,715) 53,652  61,475 
        Cumulative Gap  <F2>  (36,380)(48,361)(64,500)(75,215)(21,563) 39,912 
        Sensitivity Gap <F3>      .66     .31     .35     .51    2.53
        Cumulative Sensit. <F4>   .66     .61     .57     .56     .90    
[FN]
        <F1> Total earning assets less total interest bearing liabilities for  
             each period.
        <F2> Total earning assets less total interest bearing liabilities,     
             cumulative for periods.
        <F3> Total earning assets divided by total interest bearing            
             liabilities.
        <F4> Total earning assets divided by total interest bearing            
             liabilities cumulative for periods.

        Typically, a banking institution which is "liability sensitive" will
        be expected to benefit from a decrease in interest rates and be
        adversely impacted by an increase in interest rates.  However,
        because (as noted above) the repricing of assets and liabilities is
        frequently subject to management discretion, the correlation between
        an institution's interest sensitivity position and a change in the
        interest rate environment is rarely precise.  Although the Company
        currently is "liability sensitive", within one year after December
        31, 1996 a decline in interest rates would adversely impact the
        Company to the extent that the Company determines not to make a
        corresponding adjustment to the rates paid on NOW and money market
        deposit accounts.



<PAGE>


        PART II, Continued

        ITEM 7.  Management's Discussion and Analysis of Financial Condition  
                 and Results of Operations, Continued

        Inflation:

        Inflation may effect financial institutions through impaired asset
        growth, reduced earnings and substandard capital adequacy ratios. 
        Since the majority of assets and liabilities are monetary in nature,
        variations in economic policies issued by the Federal Reserve Board
        to control interest rates have a greater impact on the profitability
        of a financial institution.  The investment committee continually
        monitors the rate sensitivity of its earning assets and interest
        bearing liabilities to minimize any adverse effects on future
        earnings.

        Future Outlook:

        The profitability of the Company, like all financial institutions, is
        subject to the volatility of interest rates throughout the year.  The
        composition of the Company's balance sheet and the repricing
        frequency of its interest bearing assets and liabilities have a
        direct impact on the interest margin, a key indicator of
        profitability.  Since there will always be economic events and trends
        that will influence the decision making of management, a main goal of
        the Bank is controlling interest rate risk through managing the
        interest sensitivity gap and by controlling the quality of assets
        through credit policies and diversification.  At this time,
        management believes that the Company's balance sheet does not include
        significant concentrations of assets or liabilities that would have a
        material adverse affect on earnings.

        ITEM 8.   Financial Statements and Supplementary Data

        This section contains the consolidated financial statements and
        report of independent auditors.                                       
                                                    <PAGE>
<PAGE>


























                              BATH NATIONAL CORPORATION
                                    AND SUBSIDIARY

                            CONSOLIDATED FINANCIAL REPORT

                                  DECEMBER 31, 1996 <PAGE>



<PAGE>





            
















                                       CONTENTS



                                                            Page  

        INDEPENDENT AUDITOR'S REPORT                         34


        FINANCIAL STATEMENTS

          Consolidated statements of financial condition     35
          Consolidated statements of income                  36
          Consolidated statements of stockholders' equity    37
          Consolidated statements of cash flows              38-39 
          Notes to consolidated financial statements         40-58<PAGE>










<PAGE>














                             INDEPENDENT AUDITOR'S REPORT
                      

        To the Board of Directors and Stockholders
        Bath National Corporation

        We have audited the accompanying consolidated statements of financial
        condition of Bath National Corporation and subsidiary as of December
        31, 1996 and 1995, and the related consolidated statements of income,
        stockholders' equity, and cash flows for each of the three years in
        the period ended December 31, 1996.  These financial statements are
        the responsibility of the Company's management.  Our responsibility
        is to express an opinion on these financial statements based on our
        audits.

        We conducted our audits in accordance with generally accepted
        auditing standards.  Those standards require that we plan and perform
        the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement.  An audit includes
        examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements.  An audit also includes
        assessing the accounting principles used and significant estimates
        made by management, as well as evaluating the overall financial
        statement presentation.  We believe that our audits provide a
        reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to
        above present fairly, in all material respects, the financial
        position of Bath National Corporation and subsidiary as of December
        31, 1996 and 1995, and the results of their operations and their cash
        flows for each of the three years in the period ended December 31,
        1996, in conformity with generally accepted accounting principles.

        As discussed in Notes 1 and 3 to the consolidated financial
        statements, the Company changed its method of accounting for
        investments to adopt the provisions of Statement of Financial
        Accounting Standards No. 115, "Accounting for Certain Investments in
        Debt and Equity Securities", as of January 1, 1994. <PAGE>
 









        URBACH KAHN & WERLIN PC
        Albany, New York
        February 21, 1997
<PAGE>

                              BATH NATIONAL CORPORATION

                    CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                              December 31, 1996 and 1995


            ASSETS                                1996            1995

   Cash and due from banks                    $  9,859,230    $ 10,218,648  
   Interest bearing deposits in other banks      2,956,541       3,535,338
   Securities                                   90,060,159      64,130,934
   Loans, net                                  156,440,628     148,353,049
   Premises and equipment, net                   5,060,702       5,110,156
   Accrued interest receivable                   2,389,093       1,775,135
   Other                                         2,471,400       2,042,287
                                                                          

                                              $269,237,753    $235,165,547

      LIABILITIES AND STOCKHOLDERS' EQUITY 

   LIABILITIES
    Deposits:
     Demand                                   $ 29,137,046    $ 27,398,470
     Savings                                    43,491,468      46,510,131
     NOW accounts                               31,556,534      32,376,060
     Money market accounts                      10,467,440      13,300,657
     Time deposits ($100,000 or more)           27,563,196      16,222,821
     Other time accounts                        66,257,286      61,953,180
                                               208,472,970     197,761,319
    Federal funds purchased                      3,825,000       2,150,000
    Securities sold under agreements to 
      repurchase                                21,928,937       1,070,856
    Borrowed funds                               2,000,000       3,000,000
    Other                                        2,648,253       2,629,610
                                               238,875,160     206,611,785

   COMMITMENTS AND CONTINGENCIES

   STOCKHOLDERS' EQUITY
    Preferred stock, $10 par value, 300,000 
       shares authorized; none issued                -               -
    Common stock, $5 par value, 1,500,000
       shares authorized; issued and 
       outstanding: 1996 - 1,365,801 shares,
       1995 - 683,117 shares                     6,829,005       3,415,585
    Additional paid in capital                   1,494,678       4,923,490
    Undivided profits                           21,980,350      19,966,387 
    Unrealized appreciation on                   
       available-for-sale securities, net           58,560         248,300 
                                                30,362,593      28,553,762

                                              $269,237,753    $235,165,547    
        



   See Notes to Consolidated Financial Statements.

<PAGE>
                          BATH NATIONAL CORPORATION   

                       CONSOLIDATED STATEMENTS OF INCOME
                  Years Ended December 31, 1996, 1995 and 1994

                                            1996        1995        1994      

   Interest income:                          
     Loans                               $13,541,792 $13,235,400 $11,943,514
     Securities                                                              
       Held-to-maturity                    
         U.S. Government and agency
             obligations                     730,550       -           -    
         State and municipal obligations       -         956,712   1,133,757
       Available-for-sale      
         U.S. Government and agency
             obligations                   2,725,582   2,330,407   1,838,356
         State and municipal obligations   1,343,952     192,448       -
     Federal funds sold                       81,539     213,699      78,000
     Deposits in other banks and stocks      254,709     284,974     326,996
                                                                  
          Total interest income           18,678,124  17,213,640  15,320,623
                                          
   Interest expense:
     Deposits                              6,891,164   6,280,052   4,506,048
     Borrowings                              952,038     270,513      60,645
          Total interest expense           7,843,202   6,550,565   4,566,693
           
          Net interest income             10,834,922  10,663,075  10,753,930

   Provision for loan losses                 268,793     132,484      76,798

          Net interest income after
           Provision for loan losses      10,566,129  10,530,591  10,677,132

   Noninterest income:
     Service charges                         762,002     652,036     673,036
     Net realized gains (losses) on sale                                     
      of available-for-sale securities       (21,653)     20,894     (44,209)
     Other                                   778,054     774,630     667,905
          
          Total other income               1,518,403   1,447,560   1,296,732

   Noninterest expenses:
     Salaries and employee benefits        3,806,366   3,751,460   3,460,987
     Occupancy                             1,058,539     975,644   1,010,934
     Other                                 2,275,164   2,245,485   2,266,223

          Total other expenses             7,140.069   6,972,589   6,738,144 <PAGE>
 
   Income before income taxes              4,944,463   5,005,562   5,235,720

   Income taxes                            1,496,384   1,627,000   1,815,239

          NET INCOME                     $ 3,448,079 $ 3,378,562 $ 3,420,481

   NET INCOME PER COMMON SHARE                 $2.52       $2.49       $2.66  
                                                             
   See Notes to Consolidated Financial Statements.                            
<PAGE>
<TABLE>
                         
                                           BATH NATIONAL CORPORATION

                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 Years Ended December 31, 1996, 1995 and 1994 
                                                                     
                                                   Common Stock                                            
                                                                                  Net Unrealized           
<CAPTION>
                                                                                   Appreciation
                                                                                  (Depreciation)  Total
                                        Number             Additional             on Available-   Stock-   
                                          of                Paid in   Undivided    for-sale      holders'  
                                         Shares    Amount    Capital    Profits     Securities    Equity
   <S>                                  <C>     <C>        <C>        <C>         <C>         <C>                               
   Balance, January 1, 1994             638,480 $3,192,400 $2,907,923 $18,024,810 $    -      $24,125,133  
                                                                                        
   Adjustment to recognize                                                                            
    unrealized appreciation on      
    available-for-sale securities,                                                                     
        net of taxes of $396,310          -          -          -           -        594,463      594,463
                                                                    
                                                                                                        
   Change in unrealized             
    depreciation on available-for-
    sale securities, net of tax
    benefit of $941,490                   -          -          -           -     (1,412,237)  (1,412,237)
                                                                                                      
   Sale of common stock                     300      1,500     10,800       -          -           12,300

   Net income - 1994                      -          -          -       3,420,481      -        3,420,481
   Cash dividend declared ($2.51 
    per common share)                     -          -          -      (3,229,123)     -       (3,229,123)
   Dividends reinvested                  34,610    173,050  1,497,792       -          -        1,670,842 

   Balance, December 31, 1994           673,390  3,366,950  4,416,515  18,216,168   (817,774)  25,181,859

   Change in unrealized                                                                               
    appreciation on available-for-                                                                     
    sale securities, net of taxes  
    of $774,880                           -          -          -           -      1,066,074    1,066,074

   Net income - 1995                      -          -          -       3,378,562      -        3,378,562
   Cash dividend declared ($1.20  
    per common share)                     -          -          -      (1,628,343)     -       (1,628,343)
   Dividends reinvested                   9,727     48,635    506,975       -          -          555,610
    
   Balance, December 31, 1995           683,117  3,415,585  4,923,490  19,966,387    248,300   28,553,762<PAGE>
   2-for-1 stock split                  683,117  3,415,585 (3,415,585)      -          -            -

   Fractional shares repurchased           (433)    (2,165)   (13,227)      -          -          (15,392)   
   Changes in unrealized                                                                           
    appreciation on available-for-
    sale securities, net of taxes
    of $181,310                           -          -          -           -       (189,740)    (189,740)

   Net income - 1996                      -          -          -       3,448,079      -        3,448,079

   Cash dividend declared ($1.05                                                                       
    per common share)                     -          -          -      (1,434,116)     -       (1,434,116)

   Balance, December 31, 1996         1,365,801 $6,829,005 $1,494,678 $21,980,350 $   58,560  $30,362,593
</TABLE>
   See Notes to Consolidated Financial Statements.
<PAGE>


























                                        BATH NATIONAL CORPORATION <PAGE>
 
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               Years Ended December 31, 1996, 1995 and 1994 
                                                            
                                              1996       1995       1994    
   CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                           $ 3,448,079 $ 3,378,562 $ 3,420,481 
    Adjustments to reconcile net income
     to net cash provided by operating
     activities:
       Depreciation and amortization         409,581     451,943     461,569
       Provision for loan losses             268,793     132,484     125,000
       Deferred taxes (benefits)              19,481       -         (59,109)
       Loan origination costs deferred       (72,635)      3,917     (27,031)
       Bond premium amortized and 
         discount accreted                   175,703     218,043     184,280
       Losses (gains) on sale of 
         investments                          21,653     (20,894)     44,209 
       Loss on disposed assets                 -          35,216       -
       Changes in:
        Interest receivable                 (613,958)   (291,364)     72,641
        Other assets                        (459,293)   (104,138)   (562,654)
        Other liabilities                    180,474    (581,394)   (381,068) 
           Net cash  provided by 
           operating activities            3,377,878   3,222,375   3,278,318 

   CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from calls and maturities
     of held-to-maturity securities            -          75,000   1,809,972  
    Proceeds from sales and maturities                                         
     of available-for-sale securities     13,926,729   9,644,906  17,028,619
    Purchases of held-to-maturity                                        
     securities                          (20,000,000)   (333,346) (2,503,976)
    Purchases of available-for-sale   
     securities                          (20,424,362)(27,996,216) (6,021,934)
    Federal funds purchased/sold           1,675,000   4,650,000  (2,450,000)
    Net (increase) decrease in interest                                 
     bearing deposits in other banks         578,797    (114,053)  1,650,661
    Increase in loans, net                (8,283,737) (8,435,384) (5,785,127) 
    Capital expenditures                    (329,947)   (883,947)   (489,856)
    Net cash paid in acquisition of bank       -           -        (787,758)
          Net cash provided by (used in)
          investing activities           (32,857,520)(23,393,040)  2,450,601 
                                   
                                                                      
             <PAGE>
 
   CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from Federal Home Loan Bank
     borrowings                                -       3,000,000       -
    Repayments of Federal Home Loan Bank                                
     borrowings                           (1,000,000)      -           -
    Net increase in securities sold 
     under repurchase agreements          20,858,081   1,070,856       -
    Proceeds from sale of common stock         -           -          12,300
    Increase (decrease) in deposits       10,711,651  16,782,676  (3,357,043)
    Fractional shares repurchase             (15,392)      -           -
    Dividends paid, net of reinvestments  (1,434,116) (1,072,733) (1,558,281)
          Net cash provided by (used in)
          financing activities            29,120,224  19,780,799  (4,903,024)

   Net increase (decrease) in cash and
    due from banks                          (359,418)   (389,866)    825,895 
   Cash and due from banks:
    Beginning of year                     10,218,648  10,608,514   9,782,619

    End of year                          $ 9,859,230 $10,218,648 $10,608,514

   See Notes to Consolidated Financial Statements.

<PAGE>

                                                                              
             




                                                                














                                                                              
              








                                                                             
                                                                              
                                                                              
                               













                           BATH NATIONAL CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                  Years Ended December 31, 1996, 1995 and 1994

                                            1996        1995       1994    
   SUPPLEMENTAL DISCLOSURES OF CASH 
       FLOW INFORMATION

       Interest paid                   $ 7,415,700 $ 6,471,600 $ 4,478,600    

       Income taxes paid               $ 1,698,800 $ 1,761,700 $ 2,030,800

       Shares of common stock issued                                          
         under the dividend reinvestment
         program in lieu of cash
         dividends of $0, $555,610, and
         $1,670,842 in 1996, 1995 and
         1994, respectively                  -           9,727      34,610



   SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

   Bath National Corporation purchased 100% of the common stock of Atlanta
   National Bank in April 1994.  In conjunction with the acquisition,
   liabilities were assumed as follows:                                       

       Fair value of assets acquired                           $14,888,339
     
       Net cash paid                                               787,758

                   Liabilities assumed, principally deposits   $14,100,581


   See Notes to Consolidated Financial Statements.<PAGE>
<PAGE>














                              BATH NATIONAL CORPORATION
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Note 1. Summary of Significant Accounting Policies

        General

        Bath National Corporation (the "Company"), a bank holding company,
        and its wholly owned subsidiary, Bath National Bank (the Bank), a
        federal-chartered financial institution, are incorporated under the
        laws of New York State.  The accounting and financial reporting
        policies of the entities are in accordance with generally accepted
        accounting principles and general practices within the banking
        industry.

        Consolidation

        The consolidated financial statements include the accounts of the
        Company and its wholly owned subsidiary.  All material intercompany
        accounts and transactions have been eliminated in consolidation.

        Securities

        The Bank has investments in debt and other securities.  Debt
        securities consist primarily of obligations of the U.S. government,
        its agencies and corporations, and state and municipal governments.

        The Bank adopted the provisions of Statement of Financial Accounting
        Standards No. 115, "Accounting for Certain Investments in Debt and
        Equity Securities" (SFAS 115), as of January 1, 1994.  SFAS 115
        requires that management determine the appropriate classification of
        securities at the date of adoption, and thereafter at the date
        individual investment      securities are acquired, and that the
        appropriateness of such classification be reassessed at each balance
        sheet date.  Investments are classifiable in the categories discussed
        below.

        Trading

        Trading account assets are held for resale in anticipation of short
        term market movements.  Trading account assets, consisting of debt
        and money market instruments, are stated at fair value.  Gains and
        losses, both realized and unrealized, are included in other income. 

        Held-to-Maturity<PAGE>
        Securities for which the Bank has the positive intent and ability to
        hold to maturity are reported at cost, adjusted for premiums and
        discounts that are recognized in interest income over the period to
        maturity.

        Available-for-Sale

        Available-for-sale securities consist of bonds, notes, debentures,
        and certain equity securities not classified as trading securities
        nor as held-to-maturity securities.

        Unrealized holding gains and losses, net of tax, on available-for-
        sale securities are reported as a net amount in a separate component
        of stockholders' equity until realized.
<PAGE>
        BATH NATIONAL CORPORATION

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

        Note 1. Summary of Significant Accounting Policies, Continued

        Securities, Continued

        Available-for-Sale, Continued

        Gains and losses on the sale of available-for-sale securities are
        determined using the specific identification method.

        Premiums and discounts are recognized in interest income over the
        period to maturity.

        Loans and Allowance for Loan Losses
           
        Loans are stated at the amount of unpaid principal, adjusted for net 
        deferred loan origination costs, unearned fees and discounts, and an
        allowance for loan losses.  Certain direct loan origination costs are
        deferred and recognized as an adjustment to interest income over the
        estimated life of the loans.  Interest on loans is recognized over
        the term of the loan and is calculated using the simple interest
        method on
        principal amounts outstanding.

        The allowance for loan losses is maintained at a level which, in  
        management's judgment, is adequate to absorb potential losses
        inherent in the loan portfolio.  The amount of the allowance is based
        on management's evaluation of the collectibility of the loan
        portfolio, including the nature of the portfolio, credit
        concentrations, trends in historical loss experience, specific
        impaired loans, and economic conditions.  Allowances for impaired
        loans are generally determined based on collateral values or the
        present value of estimated cash flows.  The allowance is increased by
        a provision for loan losses, which is charged to expense and reduced
        by charge-offs, net of recoveries.  Changes in the allowance relating
        to impaired loans are charged or credited to the provision for loan
        losses.  
        Because of uncertainties inherent in the estimation process,
        management's estimate of credit losses inherent in the loan portfolio
        and the related allowance may change in the near term.  However, the
        amount of the change that is reasonably possible cannot be estimated. 
        In addition, various regulatory agencies, as an integral part of<PAGE>
        their examination process, periodically review the Company's
        allowance for losses on loans.  Such agencies may require the Company
        to recognize additions to the allowances based on their judgments of
        information available to them at the time of their examination.

        The Financial Accounting Standards Board issued Statement of
        Financial Accounting Standards No. 114, "Accounting by Creditors for
        Impairment of a Loan" (SFAS 114).  SFAS 114 was amended by SFAS 118,
        "Accounting by Creditors for Impairment of a Loan - Income
        Recognition and Disclosure."  These Statements prescribe recognition
        criteria for loan impairment, generally related to commercial type
        loans, and measurement
        methods for certain impaired loans and all loans whose terms are
        modified in troubled debt restructurings subsequent to the adoption
        of these statements.  A loan is considered impaired when it is 
<PAGE>
        BATH NATIONAL CORPORATION
      
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Note 1. Summary of Significant Accounting Policies, Continued

        Loans and Allowance for Loan Losses, Continued

        probable that the borrower will not repay the loan according to the
        original contractual terms of the loan agreement.  On January 1,
        1995, the Bank adopted the provisions of SFAS 114 and SFAS 118.  The
        effect of adoption of these Statements was not material to the
        financial statements.

        As a matter of policy, the Bank generally places impaired loans on
        nonaccrual status and recognizes interest income on such loans only
        on a cash basis upon receipt of interest payments from the borrower. 
        Accrual of interest is discontinued on a loan when management
        believes, after considering economics, business conditions and
        collection efforts, that the borrower's financial condition is such
        that collection of interest is doubtful, or after three months of
        nonpayment, whichever is earlier.        Uncollectible interest
        previously accrued is charged off.  Income is subsequently recognized
        only to the extent cash payments are received until, in management's
        judgment, the borrower's ability to make periodic interest and
        principal payments is back to normal, in which case the loan is
        returned to accrual status.

        Premises and Equipment, Net 

        Premises and equipment are stated at cost less accumulated
        depreciation.  Depreciation is provided over the estimated useful
        lives using straight line and accelerated methods.

        Foreclosed Real Estate      

        Real estate properties acquired through, or in lieu of, loan
        foreclosure are to be sold and are initially recorded at fair value
        at the date of foreclosure establishing a new cost basis.  After
        foreclosure, valuations are periodically performed by management and
        the real estate is carried at the lower of carrying amount or fair
        value less cost to sell.  Revenue and  expenses from operations and
        changes in the valuation allowances are included in noninterest
        expense.<PAGE>
        Real estate properties formally acquired in settlement of loans were
        $150,700 and $501,120 at December 31, 1996 and 1995, respectively,
        and are included in other assets.

        Income Taxes

        Income taxes are provided for the tax effects of the transactions
        reported in the financial statements and consist of taxes currently
        due plus deferred taxes related primarily to differences between the
        basis of available-for-sale securities, allowance for loan losses,
        accumulated depreciation, and employee benefits for financial and
        income tax reporting.  Deferred tax assets and liabilities represent
        the future tax return consequences of those differences, which will
        either be taxable or deductible when the assets and liabilities are
        recovered or settled.  Deferred tax assets and liabilities are
        reflected at income tax rates applicable to the period in which the
<PAGE>
        BATH NATIONAL CORPORATION
      
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Note 1. Summary of Significant Accounting Policies, Continued

        Income Taxes, Continued            

        deferred tax assets or liabilities are expected to be realized or
        settled.  As changes in tax laws or rates are enacted, deferred tax
        assets and liabilities are adjusted through a provision for income
        taxes.

        Employee Benefit Plans

        Retirement Benefits: The Bank has a defined contribution pension plan
        and a profit sharing plan, with a salary deferral feature, for those
        employees who meet the eligibility requirements set forth in the
        plans.  Contributions to the defined contribution plan are based on
        formula while contributions to the profit sharing plan are at the
        discretion of the 
        board of directors.

        Postretirement Benefits: The Bank provides certain health care       
        benefits for all retired employees that meet certain eligibility      
        requirements. The Bank's share of the estimated costs that will be
        paid after retirement is generally being accrued by charges to
        expense over the employees' active service periods to the dates they
        are fully eligible for benefits, except that the Bank's unfunded cost
        that existed prior to the adoption of the plan is being accrued
        primarily in a straight line manner.

        Stock Split and Net Income Per Common Share

        On March 21, 1996, the Board of Directors approved a two-for-one
        common stock split, distributable on April 24, 1996 to stockholders
        of record at the close of business on that date.  All per share
        amounts and numbers of shares in the consolidated financial
        statements have been restated to reflect this split.  In addition, an
        amount equal to the $5 par value of the split shares has been
        transferred from additional paid in capital to common stock.

        Net income per common share is computed on the weighted average
        number of shares outstanding during each year.  The weighted average
        number of shares outstanding were 1,365,832, 1,354,492 and 1,285,762<PAGE>
        in 1996, 1995 and 1994, respectively.

        Use of Estimates

        The preparation of the Company's financial statements in conformity
        with generally accepted accounting principles requires management to
        make estimates and assumptions that affect the reported amounts of
        assets and liabilities and disclosure of contingent assets and
        liabilities at the date of the financial statements and reported
        amounts of revenues and expenses during the reporting period.  Actual
        results could differ from those estimates.

        Reclassifications

        Certain items have been reclassified in the 1995 and 1994 financial
        statements to conform with the 1996 presentation.
<PAGE>
        BATH NATIONAL CORPORATION

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Note 2. Cash and Due From Banks 

        The Bank is required to maintain reserve cash balances with the
        Federal Reserve Bank.  The total of those reserve cash balances was
        approximately $4,397,000 and $4,095,000 at December 31, 1996 and
        1995, respectively.
                
        Note 3. Securities

        In January 1994, the Bank adopted Statement of Financial Accounting
        Standards No. 115, "Accounting for Certain Investments in Debt and
        Equity Securities" (SFAS 115).  The January 1, 1994 adjustment to the
        beginning balance for a change in accounting method relating to
        unrealized gains and losses on securities available-for-sale was an
        unrealized gain of $594,463 which is net of a $396,310 deferred tax
        provision.

        The Bank's management evaluated the investment portfolio during 1995
        and determined that the classification of available-for-sale most
        closely matched the investment policy and goals of the Bank for
        certain securities.  This determination resulted in the transfer of
        securities from the held-to-maturity classification as of December 1,
        1995.  The amortized cost of these securities as of December 1, 1995
        was $19,891,000.  Unrealized gains and losses were $364,000 and
        $83,000, respectively.

        The amortized cost and fair values of available-for-sale securities
        as of December 31, 1996 are summarized as follows:
                                                 Gross Unrealized
                                  Amortized
                                    Cost      Gains    Losses     Fair Value

        U.S. Government and     
         agency securities        $15,847,517 $ 57,084 $(128,067) $15,776,534
        State and municipal     
         securities                31,047,869  485,831   (56,996)  31,476,704
        Mortgage-backed and      
         related securities        21,264,901   81,180  (495,503)  20,850,578
        Other                       1,792,924  165,942    (2,523)   1,956,343<PAGE>
                  
                                  $69,953,211 $790,037 $(683,089) $70,060,159

        The amortized cost and fair value of available-for-sale securities as
        of December 31, 1996 by contractual maturity are shown below. 
        Expected maturities differ from contractual maturities in mortgage-
        backed and related securities because the mortgages underlying the
        securities may be called or repaid without any penalties.  Therefore,
        these securities are not included in the maturity categories in the
        following maturity summary.

                                                Amortized           Fair
                                                  Cost              Value

        Due in one year or less                $11,802,358       $11,725,462
        Due after one year through five years   15,661,101        15,772,683
        Due after five years through ten years  20,065,474        20,548,127
<PAGE>
        BATH NATIONAL CORPORATION

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Note 3. Securities, Continued

        Due after ten years                      1,159,377         1,163,309
                                                48,688,310        49,209,581
        Mortgage-backed and related securities  21,264,901        20,850,578
                                            
                                               $69,953,211       $70,060,159


        The amortized cost and fair values of held-to-maturity securities as
        of December 31, 1996 are summarized as follows:
                        
                                               Gross Unrealized
                                    Amortized
                                      Cost      Gains   Losses    Fair Value
        U.S. Government and agency
         Securities               $20,000,000 $329,400 $   -      $20,329,400

        The amortized cost and fair value of securities being held-to-
        maturity as of December 31, 1996 by contractual maturity are shown
        below.

                                                 Amortized         Fair
                                                   Cost           Value

        Due after one year through five years   $20,000,000    $20,329,400    

        The amortized cost and fair values of available-for-sale securities
        as of December 31, 1995 are summarized as follows:


                                                 Gross Unrealized
                                    Amortized
                                      Cost      Gains   Losses    Fair Value

        U.S. Government and agency
         securities               $17,836,228 $114,950 $(124,681) $17,826,497
        State and municipal <PAGE>
         securities                24,507,677  461,267   (95,610)  24,873,334
        Mortgage-backed and                                       
         related securities        18,906,944  153,572  (267,611)  18,792,905
        Other                       2,402,085  237,244    (1,131)   2,638,198

                                  $63,652,934 $967,033 $(489,033) $64,130,934


        The amortized cost and fair value of available-for-sale securities as
        of December 31, 1995 by contractual maturity are shown below. 
        Expected maturities differ from contractual maturities in mortgage-
        backed and related securities because the mortgages underlying the
        securities may be called or repaid without any penalties.  Therefore,
        these securities are not included in the maturity categories in the
        following maturity summary.

<PAGE>                                               

        BATH NATIONAL CORPORATION

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Note 3. Securities, Continued
                                               Amortized        Fair
                                                 Cost           Value

        Due in one year or less                $13,612,564      $13,608,039
        Due after one year through five years   13,367,817       13,510,280
        Due after five years through ten years  16,920,356       17,350,413
        Due after ten years                        845,253          869,297
                                                44,745,990       45,338,029
        Mortgage-backed and related securities  18,906,944       18,792,905
                                               
                                               $63,652,934      $64,130,934


        Proceeds from sales of securities during 1996, 1995 and 1994, which
        were principally attributable to those available-for-sale, were
        $6,867,918, $5,728,507 and $13,056,627, respectively, with gross
        gains of $23,080, $23,839 and $151,694 and gross losses of $44,733,
        $2,945 and $195,903 realized on those sales.           

        Securities with a carrying value of $66,136,796 and $45,320,394 and
        market values of $65,875,690 and $45,448,421 at December 31, 1996 and
        1995, respectively, were pledged to secure public deposits,
        securities sold under agreements to repurchase, and for other
        purposes as required or permitted by law.

        Note 4. Loans, Net

        The components of loans at December 31, 1996 and 1995 were as
        follows:  
                                                 1996           1995

        Commercial                          $ 67,078,298   $ 67,125,378
        Installment                           20,145,787     20,021,766
        Real estate mortgage                  41,587,646     36,034,923
        Home equity loans                     19,150,743     18,011,383
        Student                                7,488,854      6,562,524
        Credit card loans                      1,939,241      1,619,651<PAGE>
        Net deferred loan origination
         costs and unearned discounts            700,059        627,424
                                             158,090,628    150,003,049
        Less allowance for loan losses         1,650,000      1,650,000

        Loans, net                          $156,440,628   $148,353,049

        Real estate mortgage and home equity loans consist of:

        Mortgages with fixed rates                          $22,691,552
        Mortgages with variable rates                        18,896,094
        Home equity loans with fixed rates                   13,587,879
        Home equity loans with variable rates                 5,562,864

          Total real estate secured loans                   $60,738,389

<PAGE>


        BATH NATIONAL CORPORATION

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Note 4. Loans, Net

        Changes in the allowance for loan losses for the years ended December
        31, 1996, 1995 and 1994 were as follows:

                                           1996         1995          1994

   Balance, beginning of year           $1,650,000   $1,725,000    $1,600,000  
    Provision for loan losses              268,793      132,484        76,798
   Recoveries credited to the allowance     80,752      181,180       324,481 
   Losses charged to the allowance        (349,545)    (388,664)     (276,279)

   Balance, end of year                 $1,650,000   $1,650,000       $1,725,000


   The Bank has, and may be expected to have in the future, banking transactions
   with directors, principal officers, their immediate families and affiliated
   companies in which they are principal stockholders (commonly referred to as
   related parties).  The aggregate amount of loans to related parties was
   $589,200 and $4,373,200 at December 31, 1996 and 1995, respectively.

   The activity with respect to related parties for the year ending December 31,
   1996 follows:

   Aggregate amount beginning of period                 $ 4,373,200
   New loans                                                595,000
   Repayments                                            (4,379,000)

   Aggregate amount end of period                       $   589,200


   Note 5. Premises and Equipment 

   At December 31, 1996 and 1995, premises and equipment consist of:

                                          1996             1995<PAGE>
   Land                               $  502,389       $  502,389
   Buildings and improvements          5,879,475        5,729,351
   Furniture and equipment             2,628,736        2,452,549
    Total                              9,010,600        8,684,289
   Less accumulated depreciation       3,949,898        3,574,133

   Premises and equipment, net        $5,060,702       $5,110,156

   Depreciation expense was $379,401, $393,354 and $391,064 for the years ended
   December 31, 1996, 1995 and 1994, respectively.


<PAGE>







   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 6. Deposits

   A summary of deposit accounts at December 31, by maturity, is as follows:

                                          1996             1995

   No contractual maturity            $114,661,724     $119,604,109
   Maturity within one year             77,592,337       64,908,427
   Maturity after one year through
    five years                          16,218,909       13,248,783

                                      $208,472,970     $197,761,319


   Note 7. Securities Sold Under Agreements to Repurchase

   Substantially, all securities sold under repurchase agreements were delivered
   to the broker-dealers who arranged the transactions.  The broker-dealers may
   have sold, loaned, or otherwise disposed of such securities to other parties
   in the normal course of their operations, and have agreed to resell to the
   Bank substantially identical securities at the maturities of the agreements. 
   Agreements approximating $18,500,000 mature in July 1999.  The balance of the
   agreements mature in less than four months.

   Information concerning securities sold under agreements to repurchase is
   summarized as follows:

                                              1996          1995

   Average balance during the year        $11,374,200    $3,083,900
   Average interest rate during the year        4.75%         5.05%
   Maximum month-end balance during
     the year                             $22,372,100    $5,650,000

   Securities underlying the agreements
     at year-end:
   Carrying value                         $25,967,387    $2,933,781
   Estimated fair value                   $26,287,794    $2,945,113



<PAGE>














   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 8. Borrowed Funds

   Borrowed funds represent advances from the Federal Home Loan Bank.  The
   advances at December 31, 1996 and 1995 are summarized as follows:

                                        1996

                   Advance            Interest            Maturity
                   Amount              Rate                Date

                   $1,000,000         5.95%               January 1997
                    1,000,000         5.99%               July 1997   
                                                   
                   $2,000,000

                                        1995

                   Advance            Interest            Maturity
                   Amount              Rate                Date

                   $1,000,000         5.90%               July 1996
                   $1,000,000         5.95%               January 1997
                   $1,000,000         5.99%               July 1997

                   $3,000,000<PAGE>


<PAGE>

















   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 9. Income Taxes

   A summary of the components of income taxes is as follows:

                                          Years Ended December 31,

                                     1996           1995          1994      

   Current Tax
     Federal                     $1,097,485     $1,180,000    $1,366,348
     State                          379,418        447,000       508,000
        Total current tax
          expense                 1,476,903      1,627,000     1,874,348
   Deferred tax (benefit)  
     Federal and State               19,481          -           (59,109)

        Total provision for
          income taxes           $1,496,384     $1,627,000    $1,815,239

   A reconciliation of the expected income tax expense, computed at the federal
   statutory rate of 34%, to the income tax expense included in the consolidated
   statements of income is as follows:

                                        Years Ended December 31,

                                     1996           1995          1994

   Statutory provision           $1,681,117     $1,701,891    $1,784,124
   Tax exempt interest             (508,980)      (436,560)     (385,477)
   State income tax, net of
     federal benefit                250,416        295,020       335,280
   Non deductible interest           57,800         49,310        32,656
   Other                             16,031         17,339        48,656

        Total                    $1,496,384     $1,627,000    $1,815,239<PAGE>
   Net deferred tax liabilities (classified as other liabilities) consist of the
   following at December 31, 1996 and 1995:

                                               1996          1995
   Deferred tax liabilities:
     Depreciation                          $  550,670    $  526,480
     Deferred loan fees                       336,029       301,164
     Unrealized gain on available-
       for-sale securities                     50,400       229,700
                                              937,099     1,057,344

   Deferred tax assets:        
     Provision for loan losses                548,153       548,153             
     Employee benefits                        337,891       296,308
                                              886,044       844,461
     Less valuation allowance                   -             -    
                                              886,044       844,461
   Net deferred tax liability              $  (51,055)   $ (212,883)

<PAGE>
   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 10. Employee Benefit Plans and Postretirement Benefits

   Employee Benefit Plans:

   The Bank has a defined contribution pension plan for those employees who meet
   the eligibility requirements set forth in the plan.  Substantially all of the
   Bank's full time employees are covered by the plan. Contributions to the plan
   are based on a formula computation relating to length of service and salary
   level.  The Bank's defined contribution pension plan expense was $214,300,
   $139,200 and $137,900 for 1996, 1995 and 1994, respectively.

   The Bank also has a profit sharing plan, with a salary deferral feature, for
   those employees who meet the eligibility requirements set forth in the plan. 
   Contributions to the plan are at the discretion of the Board of Directors. 
   Substantially all of the Bank's full time employees are covered by the plan. 
   The Bank's profit sharing plan expense was $198,800, $232,400, and $181,100
   for 1996, 1995, and 1994, respectively.

   The Bank has severance compensation agreements with a number of Bank officers
   which do not become effective unless there has been a change incontrol of the
   Bank as defined and the Bank terminates the officers' employment. Under those
   conditions the Bank will pay, as severance, a lump sum payment equal to five
   times the aggregate annual compensation paid to the executive officers during
   the calendar year immediately preceding the change in control.

   Postretirement Benefits:

   TheBank provides health care benefits to retired employees who meet specified
   age and service requirements through a postretirement health care plan in
   which both the bank and retiree share the cost.  The plan provides for
   substantially the same medical insurance coverage as for active employees
   until their death and is integrated with medicare for those retirees aged 65
   or older.

   Postretirement benefit expense was $131,287, $127,706 and $132,888 for 1996,
   1995 and 1994, respectively. <PAGE>
 
   The components of the postretirement benefit cost are as follows:
                          
                                       1996        1995      1994
   Service cost for benefits earned       
    during the year                   $26,690   $ 29,586  $ 29,850
   Interest cost on accumulated   
    postretirement benefit obligation  70,005     64,117    65,385
   Amortization of transition           
    obligation                         26,514     26,514    26,514
   Amortization of net loss             8,078      7,489    11,139

      Net annual postretirement                  
        benefit cost                  $131,287  $127,706  $132,888

   The accumulated postretirement benefit obligation was determined using a
   weighted average discount rate of 8.0%, and a health care cost trend rate of
   6.0%.
<PAGE>

   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 10. Employee Benefit Plans and Postretirement Benefits, Continued

   Postretirement Benefits, Continued:

   Increasing the assumed health care cost trend rates by one percentage point
   in each year and holding all other assumptions constant, would increase the
   accumulated postretirement benefit obligation as of December 31, 1996 by
   approximately $150,000 and increase the aggregate of the service and interest
   cost components of the net periodic postretirement benefit cost for 1996 by
   approximately $23,700.

   The following table sets forth the plan's funded status reconciled with the
   amount shown on the Bank's balance sheet at December 31, 1996 and 1995:

   Accumulated postretirement benefit obligation:
                                                       1996       1995
   Retirees                                          $489,213   $469,210
   Fully eligible active plan participants             99,721     47,093
   Other active plan participants                     360,236    357,548

   Accumulative postretirement benefit obligation 
     in excess of plan assets                         949,170    873,851
   Unrecognized transition obligation                (424,239)  (450,753)
   Unrecognized net loss due to changes in                               
     assumptions                                     (202,852)  (187,126)
          
          Accrued postretirement benefit cost        $322,079   $235,972

   Note 11.Regulatory Matters               

   The Bank is subject to various regulatory capital requirementsadministered by
   the federal banking agencies.  Failure to meet minimum capital requirements
   can initiate certain mandatory-and possibly additional discretionary-actions
   by regulators that, if undertaken, could have a direct material effect on the
   Bank's financial statements.  Under capital adequacy guidelines and the
   regulatory framework for prompt corrective action, the Bank must meetspecific
   capital guidelines that involve quantitative measures of the Bank's assets,
   liabilities, and certain off-balance-sheet items as calculated under
   regulatory accounting practices.  The Bank's capital amounts and
   classifications are also subject to qualitative judgments by the regulators
   about components, risk weightings and other factors.

   Quantitative measures established by regulation to ensure capital adequacy
   require the Bank to maintain minimum amounts and ratios (set forth in the
   table below) of total and Tier 1 capital (as defined in the regulations) to
   risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
   average assets (as defined).  Management believes, as of December 31, 1996,
   that the Bank meets all capital adequacy requirements to which it is subject.

   As of December 31, 1996, the most recent notification from the Office of
   Controller of the Currency categorized the Bank as well capitalized under the
   regulatory framework for prompt corrective action.  To be categorized as well
   capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-
   based, and Tier 1 leverage ratios as set forth in the table.  There 
<PAGE>

   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 11. Regulatory Matters, Continued

   are no conditions or events since that notification that management believes
   have changed the institution's category.

   The Bank's actual capital amounts and ratios are also presented in the table.
                                       
                                           For Capital
                                                                To Be Well
                           Actual       Adequacy Purposes:      Capitalized:
                      Amount     Ratio    Amount    Ratio    Amount     Ratio
   As of December 
    31, 1996:       

   Total Capital  
    (to Risk
    Weighted Assets)$30,363,000 21.39%  $11,357,000 >8.0%  $14,196,000 >10.0% 
   Tier 1 Capital    
    (to Risk        
    Weighted Assets) 30,014,000 21.14%    5,679,000 >4.0%    8,518,000 > 6.0%
   Tier 1 Capital
    (to Average
     Assets)         30,014,000 11.89%   10,094,000 >4.0%   12,617,000 > 5.0%

   As of December
    31, 1995:

   Total Capital
    (to Risk
    Weighted Assets) 28,554,000 22.57%   10,122,000 >8.0%   12,652,000 >10.0%
   Tier 1 Capital
    (to Risk
    Weighted Assets) 27,988,000 22.12%    5,061,000 >4.0%    7,561,000 > 6.0%
   Tier 1 Capital
    (to Average
     Assets)         27,988,000 12.60%    8,886,000 >4.0%   11,108,000 > 5.0%<PAGE>
   The Bank is restricted as to the amount of dividends which can be paid. 
   Dividends declared by national banks that exceed the net income (as defined)
   for the current year plus retained net income for the preceding two yearsmust
   be approved by the Comptroller of the Currency.  Under the formula, dividends
   of approximately $3,956,000 may be paid without prior regulatory approval. 
   Regardless of formal regulatory restrictions, the Bank may not pay dividends
   that would result in capital levels being reduced below the minimum
   requirements shown above.

   Note 12.Commitments and Contingencies

   Financial instruments with off balance sheet risk:

   The Bank is party to financial instruments with off balance sheet risk in the
   normal course of business to meet the financing needs of its customers. These
   financial instruments include commitments to extend credit and standbyletters
   of credit.  These instruments involve, to varying degrees, elements of credit
   risk in excess of the amount recognized in the balance sheets.
<PAGE>
   BATH NATIONAL CORPORATION
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 12. Commitments and Contingencies, Continued

   The Bank's exposure to credit loss in the event of non performance by the
   other party to the financial instrument for commitments to extend credit and
   standby letters of credit is represented by the contractual amount of those
   instruments.  The Bank uses the same credit policies in making 
   commitments and conditional obligations as they do for on balance sheet
   instruments.  A summary of the Bank's commitments at December 31, 1996 is as
   follows:

   Revolving open-end lines secured by
    1-4 family residential properties                $ 4,044,633
   Credit card lines                                   4,795,792
   Commercial real estate, construction
    and land development                               3,683,869
   Commercial and similar letters of credit, net         285,860
   Other unused commitments                           11,541,035

                                                     $24,351,189

   Commitments to extend credit are agreements to lend to a customer as long as
   there is no violation of any condition established in the contract.  Since
   many of the commitments are expected to expire without being drawn upon, the
   total commitment amounts do not necessarily represent future cash
   requirements.  The Bank evaluates each customer's creditworthiness on a case
   by case basis.  The amount of collateral obtained if deemed necessary by the
   Bank upon extension of credit is based on management's credit evaluation of
   the counterparty. Collateral held varies but may include accounts receivable,
   inventory, property, equipment, and income producing commercial properties.

   Standby letters of credit are conditional commitments issued by the Bank
   to guarantee the performance of a customer to a third party. Those guarantees
   are primarily issued to support private borrowing arrangements.  The credit
   risk involved in issuing letters of credit is essentially the same as that
   involved in extending loan facilities to customers. Collateral held varies as
   specified above and is required in instances where the Bank deems necessary.

   Concentrations of credit risk: <PAGE>
 
   The Company and the Bank are located in the Southern Tier of the Finger Lakes
   region of New York State.  The Bank grants commercial, consumer and
   residential loans primarily to customers in Allegheny, Livingston, Ontario,
   Schuyler, Steuben and Yates counties.  The Bank's loan portfolio consists
   primarily of commercial, installment and real estate secured loans.  A
   substantial portion of its debtor's ability to honor their contracts is
   dependent upon the economic conditions of the region.

   All of the Bank's loans, commitments to extend credit, and standby letters of
   credit have been granted to customers in the Bank's market area.  Investments
   in securities issued by state and political subdivisions also involve
   governmental entities within the Bank's market area.  The concentrations of
   credit by type of loan are set forth in Note 4.  The distribution of
   commitments to extend credit approximates the distribution of loans
   outstanding.  Standby letters of credit were granted primarily to commercial
   borrowers.
<PAGE>

   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 13. Disclosure About Fair Value of Financial Instruments

   Line of Credit:

   The Bank has credit available from the Federal Home Loan Bank and
   Manufacturers and Traders Bank in the amount of $7,730,000 and $2,000,000,
   respectively, at the overnight federal funds rate.

   Fair value of financial instruments:

   The fair values shown below represent management's estimates of values at
   which the various types of financial instruments could be exchanged in
   transactions between willing, unrelated parties.  They do not necessarily
   represent amounts that would be received or paid in actual trades of specific
   financial instruments.                                                  
                                               1996               1995
                                        Carrying   Fair     Carrying  Fair
                                         Amount    Value     Amount   Value
   Financial Assets:
    Cash and short term investments    $ 12,816  $ 12,816  $ 13,753  $ 13,753  
   Securities                           90,060    90,390    64,130    64,130
    Loans, net                          156,441   157,340   148,353   150,327
                                       $259,317  $260,546  $226,236  $228,210
   Financial Liabilities:
    Deposits                           $208,473  $208,535  $197,761  $198,073
    Federal funds purchased               3,825     3,825     2,150     2,150
    Securities sold under agreements
     to repurchase                       21,929    21,929     1,071     1,071
    Borrowed funds                        2,000     2,000     3,000     3,000

                                       $236,227  $236,289  $203,982  $204,294

   Unrecognized financial instruments
    Commitments to extend credit       $ 24,214  $ 24,214  $ 19,311  $ 19,311

   The specific estimation methods and assumptions used can have a substantial
   impact on the resulting fair values of financial instruments.  Following is a
   brief summary of the significant methods and assumptions used in the above <PAGE>
 
   table:

   Cash and short term investments:

   For those short term instruments, the carrying amount is a reasonable
   estimate of fair value.

   Securities:

   For a securities held as investments, fair value equals quoted market price,
   if available.  If a quoted market price is not available, fair value is
   estimated using quoted market prices for similar securities.


<PAGE>



   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 13.Disclosures About Fair Value of Financial Instruments, Continued

   Loans, Net:

   For certain homogeneous categories of loans, such as residential mortgages,
   credit card receivables, and other consumer loans, fair value is estimated
   using the quoted market prices for securities backed by similar loans,
   adjusted for differences in loan characteristics.  The fair value of other
   types of loans is estimated by discounting the future cash flows using the
   current rates at which similar loans would be made to borrowers with similar
   credit ratings and for the same remaining maturities.

   Deposits:

   The fair value of demand deposits, savings accounts, and certain money market
   deposits is the amount payable on demand at the reporting date.  The fair
   value of fixed maturity certificates of deposit is estimated using the rates
   currently offered for deposits of similar remaining maturities.

   Commitments to extend credit and standby letters of credit:

   The fair value of commitments is estimated using the fees currently chargedto
   enter into similar agreements, taking into account the remaining terms of the
   agreements and the present creditworthiness of the counterparties.  For fixed
   rate loan commitments, fair value also considers the difference between
   current levels of interest rates and the committed rates.  The fair value of
   letters of credit is based on fees currently charged for similar agreementsor
   on the estimated cost to terminate them or otherwise settle the obligations
   with the counterparties at the reporting date.

   Note 14.Acquisitions

   In April 1994, the Bank completed the purchase of Atlanta National Bank,
   located in the Hamlet of Atlanta, Steuben County, New York.  The transaction
   added approximately $14 million deposits.  The transaction has been accounted
   for under the "purchase method" of accounting, whereby the purchase price has
   been allocated to the underlying assets acquired and the liabilities assumed
   based on their respective fair values at the date of acquisition. Capitalized
   acquisition costs are categorized as "goodwill" and are classified in "other
   assets" in the accompanying consolidated balance sheet.  Such amount is being
   amortized over a period of fifteen years.


<PAGE>












   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 15.Parent Company Only Financial Information

   Parent company (Bath National Corporation) only condensed financial
   information is as follows:

                    CONDENSED STATEMENTS OF FINANCIAL CONDITION
                             December 31, 1996 and 1995

                   ASSETS                       1996         1995

   Cash                                     $     2,920   $       282
   Dividend receivable                          615,000       681,000
   Investment in subsidiary                  30,391,234    28,586,061

        Total assets                        $31,009,154   $29,267,343

      LIABILITIES AND STOCKHOLDERS' EQUITY

   LIABILITIES
    Dividend payable                        $   614,610   $   680,238
    Other liabilities                            31,951        33,343
                                                646,561       713,581

   STOCKHOLDERS' EQUITY
    Common stock                              6,829,005     3,415,585
    Additional paid in capital                1,494,678     4,923,490
    Undivided profits                        21,980,350    19,966,387
    Unrealized appreciation on available-
     for-sale securities, net                    58,560       248,300
                                             30,362,593    28,553,762

        Total liabilities and 
         stockholders' equity               $31,009,154   $29,267,343


                         CONDENSED STATEMENTS OF OPERATIONS
                    Years Ended December 31, 1996, 1995 and 1994<PAGE>
                                          1996        1995        1994

   Revenue                           $    -      $    -      $     -

   Expenses
    Other operating expenses              1,835       4,728      11,703

   Loss before equity in earnings
    of subsidiary                        (1,835)     (4,728)    (11,703)

   Equity in earnings of subsidiary   3,449,914   3,383,290   3,432,184

   Net income                        $3,448,079  $3,378,562  $3,420,481



<PAGE>


   BATH NATIONAL CORPORATION

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note 15. Parent Company Only Financial Information Continued

                         CONDENSED STATEMENTS OF CASH FLOW
                    Years Ended December 31, 1996, 1995 and 1994

                                         1996         1995       1994
   CASH FLOWS FROM OPERATING
   ACTIVITIES   

   Net income                       $ 3,448,079  $ 3,378,562 $ 3,420,481
   Adjustments to reconcile net
    income to net cash used in
    operating activities:
      Net earnings of subsidiary     (3,449,914)  (3,383,290) (3,432,184)
      Change in other liabilities        (1,392)      (3,740)     (1,548)
         Net cash used in operating
           activities                    (3,227)      (8,468)    (13,251)

   CASH FLOWS FROM INVESTING
   ACTIVITIES
    Cash dividend received            1,506,000    1,623,000     636,000

   CASH FLOWS FROM FINANCING
   ACTIVITIES
    Proceeds from shares sold              -            -         12,300
    Cash dividends paid              (1,500,135)  (1,619,826)   (632,195)
         Net cash used in financing
           activities                (1,500,135)  (1,619,826)   (619,895)

   Net increase (decrease) in cash        2,638       (5,294)      2,854 

   Cash, January 1                          282        5,576       2,722

   Cash, December 31                $     2,920  $       282 $     5,576


   ITEM 9.   Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosures
                                        None                                 

                                   Part III      
                                 
   ITEM 10.  Directors and Executive Officers of the Registrant 

   Information under this Item 10 has been included in the Registrant's Proxy
   Statement, included on pages 6 through 8, for its 1997 Annual Meeting filed
   with the Securities and Exchange Commission in March 1997 and which is
   incorporated herein by reference.
                                                                       
   ITEM 11.  Executive Compensation 

   Information under this Item 11 has been included in the Registrant's Proxy
   Statement, pages 8 through 11, for its 1997 Annual Meeting filed with the
   Securities and Exchange Commission in March 1997 and which is incorporated
   herein by reference.
<PAGE>

   PART III, Continued

   ITEM 12.  Security Ownership of certain Beneficial Owners and       
             Management                                                  

   Information under this Item 12 has been included in Registrant's Proxy
   Statement, page 7, for its 1997 Annual Meeting filed with the Securities and
   Exchange Commission in March 1997 and which is incorporated herein by
   reference.

   ITEM 13.  Certain Relationships and Related Transactions  

   Information under this Item 13 has been included in the Registrant's Proxy
   Statement, page 11, for its 1997 Annual Meeting filed with the Securities and
   Exchange Commission in March 1997 and which is  incorporated herein by
   reference.


                                    PART IV

   ITEM 14.  Exhibits, Financial Statement Schedules, and Reports on
             Form 8-K   

   A. Financial Statements, Financial Statement Schedules and Exhibits

      1. Financial Statements                                   

         The information required under this section is located in Item 8 of
         this 10-K report.   

   B. Reports on Form 8-K

      No reports on form 8-K were required to be filed for the
      fourth quarter of 1996. <PAGE>
 


<PAGE>


















   PART IV, Continued

   ITEM 14. Exhibits, Financial Statement Schedules, and Reports on 
            Form 8-K, Continued  

   C. Exhibits 

      The following exhibits are filed with this report.

            S-K
        Exhibit No.     Description of Exhibit

           3.1          Certificate of Incorporation*

           3.2          By-Laws of Registrant*

           4.1          Specimen Common Stock Certificate*

          10.1          Deferred Compensation Agreement*

          10.2          Severance Agreement of Robert H. Cole*

          10.3          Early Retirement Plan - Officers*

          10.4          Trustee Fee Plan*

          22            Subsidiaries of the Registrant*

                        Registrant has only one subsidiary as follows:
                                    Bath National Bank
                                    Bath, New York

   *Filed with Registrant's Form 10-K for the year ended December 31, 1991 and
   incorporated herein by reference thereto.

   ** Submitted to the Securities Exchange Commission on or about March 22, 1996
   in connection with Rule 14a-3.

   D. Financial Statements Schedules                             <PAGE>
                                                                        
      Financial Statements Schedules are omitted in this particular section 
      since the required information is inapplicable or the required information
      is presented in the Consolidated Financial Statements and related Notes to
      Consolidated Financial Statements presented as Item 8 in Part II.

<PAGE>















                                     SIGNATURES

   Pursuant to the requirements of Section 13 of the Securities and Exchange Act
   of 1934, the registrant has duly caused this report to be signed on its
   behalf by the undersigned, hereunto duly authorized as of the 20th day of
   March, 1997.

                                             BATH NATIONAL CORPORATION




                                             By:
                                               Robert H. Cole, President
                                               Chief Executive Officer

   Pursuant to the requirements of the Securities and Exchange Act of 1934, this
   report has been signed below by the following persons on behalf of the
   registrant and in the capacities indicated all as of the 20th day of March, 
   1997.

   Principal Executive Officer:


   _____________________________
   Robert H. Cole, President
   Chief Executive Officer and
   Director


   Principal Financial and Accounting Officer



   ________________________________________
   Edward C. Galpin, Vice President,
   Chief Financial Officer, and Director<PAGE>

   Directors:


   _____________________________
   Laverne H. Billings, Director




   ______________________________
   Theodore P. Capron, Director

<PAGE>

   _________________________
   Herbert Fort, Director




   ___________________________
   Lisle E. Hopkins, Director




   ___________________________
   Lawrence Howell, Director





   _________________________
   Constance Manikas, Director




   _____________________________
   Douglas McCabe, Director




   __________________________
   Joseph F. Meade, Jr., Director <PAGE>
 




   ____________________________
   Freeman H. Smith, III, Director




   _____________________________
   Patrick Sullivan, Director




   ____________________________
   Alan J. Wilcox, Director <PAGE>