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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000.
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER 0-14703
NBT BANCORP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1268674
(State of Incorporation)(IRS Employer Identification No.)
52 SOUTH BROAD STREET, NORWICH, NEW YORK 13815
(Address of principal executive offices)(Zip Code)
Registrant's Telephone Number, Including Area Code: 607-337-2265
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
Share Purchase Rights pursuant to Stockholder Rights Plan
(Title of Class)
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this FORM 10-K or any
amendment to this FORM 10-K. _X_.
There are no delinquent filers to the Registrant's knowledge.
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 for such shorter periods 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 ___
As of February 28, 2001, there were 23,804,327 shares outstanding of the
Registrant's common stock, par value $0.01 per share, of which 22,340,763 common
shares having a market value of $378,452,525 were held by nonaffiliates of the
Registrant. There were no shares of the Registrant's preferred stock, par value
$0.01, outstanding at that date. Rights to purchase shares of the Registrant's
preferred stock Series R are attached to the shares of the Registrant's common
stock.
Documents Incorporated by Reference
Portions of the Proxy Statement of NBT BANCORP INC. for the Annual Meeting of
Stockholders to be held on May 3, 2001 are incorporated by reference into Part
III of this FORM 10-K as detailed therein.
An index to exhibits follows the signature page of this Form 10-K.
CROSS REFERENCE INDEX
Part I. Item 1 Business
Description of Business 4-9
Average Balance Sheets 14
Net Interest Income Analysis - Taxable Equivalent Basis 14
Net Interest Income and Volume/Rate Variance - Taxable Equivalent Basis 15
Securities Portfolio 17
Debt Securities - Maturity Schedule 48
Loans 16
Maturities and Sensitivities of Loans to Changes in Interest Rates 16
Nonperforming Assets 20
Allowance for Loan Losses 21-22
Maturity Distribution of Time Deposits 18
Return on Equity and Assets 10
Short-Term Borrowings 52
Item 2 Properties 29
Item 3 Legal Proceedings
In the normal course of business there are various
outstanding legal proceedings. In the opinion of
management, the aggregate amount involved in such
proceedings is not material to the financial condition or
results of operations of the Company.
Item 4 Submission of Matters to a Vote of Security Holders
There has been no submission of matters to a vote of
stockholders during the quarter ended December 31, 2000.
Part II. Item 5 Market for the Registrant's Common Stock and Related Shareholder Matters 25,55
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 10-28
Item 7A Quantitative and Qualitative Disclosure About Market Risk 22-24
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets at December 31, 2000 and 1999 32
Consolidated Statements of Income for each of the years in three-year period ended
December 31, 2000 33
Consolidated Statements of Changes in Stockholders' Equity for each of the years in the
three-year period ended December 31, 2000 34
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 2000 35
Consolidated Statements of Comprehensive Income for each of the years in the
three-year period ended December 31, 2000 36
Notes to Consolidated Financial Statements 37-68
Independent Auditors' Report 31
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure There have been no
changes in or disagreements with accountants on accounting
and financial disclosures.
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CROSS REFERENCE INDEX
Part III. Item 10 Directors and Executive Officers of the Registrant *
Item 11 Executive Compensation *
Item 12 Security Ownership of Certain Beneficial Owners and Management *
Item 13 Certain Relationships and Related Transactions *
Part IV. Item 14 Exhibits, Financial Statement Schedules, and Reports on 8-K
(a)(1) Financial Statements (See Item 8 for Reference).
(2) Financial Statement Schedules normally required on Form 10-K are omitted
since they are not applicable.
(3) Exhibits have been filed separately with the Commission and are available
upon written request.
(b) Reports on Form 8-K. 69
(c) Refer to item 14(a)(3) above.
(d) Refer to item 14(a)(2) above.
* Information called for by Part III (Items 10 through 13) is incorporated by
reference to the Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission.
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DESCRIPTION OF BUSINESS
Registrant. NBT Bancorp Inc. (the "Registrant") is a registered
financial holding company incorporated in the state of Delaware in 1986, with
its principal headquarters located in Norwich, New York. The Registrant is the
parent holding company of NBT Bank, N.A. ("NBT Bank"), Pennstar Bank, N.A.
("Pennstar Bank") (collectively the "Banks") and NBT Financial Services, Inc.
The Registrant's primary business consists of providing commercial banking and
financial services to its customers in its market area through its three direct
operating subsidiaries. The principal assets of the Registrant are all of the
outstanding shares of common stock of its direct subsidiaries, and its principal
source of revenue is the management fees and dividends it receives from these
subsidiaries. The Registrant and all of its subsidiaries had 758 full-time and
136 part-time employees at December 31, 2000. The Registrant is not a party to
any collective bargaining agreements, and employee relations are considered to
be good.
Subsidiaries. NBT Bank is a full service commercial bank formed in
1856, which provides a broad range of financial products to individuals,
corporations and municipalities throughout its Central and Northern New York
market area. NBT Bank has 37 branch locations and 57 automated teller machines.
NBT Bank has two operating subsidiaries, NBT Capital Corp. and NBT Investment
Company, Inc. NBT Capital Corp., formed in 1998, is a venture capital
corporation formed to assist young businesses develop and grow in the markets we
serve. NBT Investment Company, Inc., formed in 2000, is a registered investment
company.
Pennstar Bank is a full service commercial bank formed in 1910, which
provides a broad range of financial products to individuals, corporations and
municipalities throughout its Northeastern Pennsylvania market area. Pennstar
Bank has 41 branch locations and 66 automated teller machines. Pennstar Bank has
two operating subsidiaries, LA Lease, Inc. and Pennstar Realty Trust. LA Lease,
Inc., formed in 1987, provides automobile and equipment leases to individuals
and small business entities. Pennstar Realty Trust, formed in 2000, is a real
estate investment trust.
NBT Financial Services, Inc., formed in 1999, is the parent
company of two operating subsidiaries, Pennstar Financial Services, Inc. and M.
Griffith, Inc. Pennstar Financial Services, Inc., formed in 1997, offers a
variety of financial services products. M. Griffith, Inc., formed in 1951, is a
registered securities broker-dealer which also offers financial and retirement
planning as well as life, accident and health insurance.
Acquisitions. On February 17, 2000, NBT completed its acquisition of
Lake Ariel Bancorp, Inc., the parent holding company of LA Bank, N.A., in
exchange for 4,986,503 shares of NBT Bancorp Inc. common stock. Upon completion
of the merger, which was structured as a tax-free merger and accounted for as a
pooling of interests, LA Bank became a wholly-owned subsidiary of the
Registrant.
On May 5, 2000, NBT completed its acquisition of M. Griffith, Inc.
On July 1, 2000, NBT completed its acquisition of Pioneer American
Holding Company Corp., the parent holding company of Pioneer American Bank,
N.A., in exchange for 5,169,458 shares of NBT Bancorp Inc. common stock. Upon
completion of the merger, which was structured as a tax-free merger and
accounted for as a pooling of interests, Pioneer American Bank became a
wholly-owned subsidiary of the Registrant. LA Bank, N.A. effected a name change
on November 10, 2000 to Pennstar Bank, N.A. and on December 9, 2000, Pioneer
American Bank, N.A. merged into Pennstar Bank, N.A.
COMPETITION
The banking business is extremely competitive, and each of the Banks
encounters intense competition from other financial institutions located within
its market area. The Banks compete not only with other commercial banks but also
with other financial institutions such as thrifts, credit unions, money market
and mutual funds, insurance companies, brokerage firms, and a variety of other
companies offering financial services.
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the
regulatory framework applicable to bank holding companies and national banks and
provides certain specific information relevant to the Registrant. This
regulatory framework primarily is intended for the protection of depositors and
the deposit insurance funds that insure bank deposits, and not for the
protection of security holders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to those provisions. A change in the statutes, regulations, or
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regulatory policies applicable to the Registrant or its subsidiaries may have a
material effect on their business.
Various governmental requirements, including Sections 23A and 23B of
the Federal Reserve Act, limit borrowings by the Registrant from the Banks and
also limit various other transactions between the Registrant and the Banks. For
example, Section 23A of the Federal Reserve Act limits to no more than 10
percent of its total capital the aggregate outstanding amount of any insured
bank's loans and other "covered transactions" with any particular non-bank
affiliate and limits to no more than 20 percent of its total capital the
aggregate outstanding amount of any insured bank's covered transactions with all
of its non-bank affiliates. At December 31, 2000, approximately $6.2 million was
available for loans to the Registrant from NBT Bank and approximately $6.1
million was available for loans to the Registrant from Pennstar Bank. Section
23A of the Federal Reserve Act also generally requires that an insured bank's
loans to its non-bank affiliates be secured, and Section 23B of the Federal
Reserve Act generally requires that an insured bank's transactions with its
non-bank affiliates be on arm's-length terms. Also, the Registrant and its
subsidiaries are prohibited from engaging in certain "tie-in" arrangements in
connection with extensions of credit or provision of property or services.
As national banks, NBT Bank and Pennstar Bank are subject to primary
supervision, regulation, and examination by the Office of the Comptroller of the
Currency ("OCC") and secondary regulation by the Federal Deposit Insurance
Corporation ("FDIC") and the Federal Reserve Board ("FRB"). NBT Bank and
Pennstar Bank are subject to extensive federal statutes and regulations that
significantly affect their business and activities. NBT Bank and Pennstar Bank
must file reports with their regulators concerning their activities and
financial condition and obtain regulatory approval to enter into certain
transactions. NBT Bank and Pennstar Bank are also subject to periodic
examinations by the OCC to ascertain compliance with various regulatory
requirements. Other applicable statutes and regulations relate to insurance of
deposits, allowable investments, loans, acceptance of deposits, trust
activities, mergers, consolidations, payment of dividends, capital requirements,
reserves against deposits, establishment of branches and certain other
facilities, limitations on loans to one borrower and loans to affiliated
persons, and other aspects of the business of banks. Recent federal legislation
has instructed federal agencies to adopt standards or guidelines governing
banks' internal controls, information systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation and benefits,
asset quality, earnings and stock valuation, and other matters. Legislation
adopted in 1994 gives the federal banking agencies greater flexibility in
implementing standards on asset quality, earnings, and stock valuation.
Regulatory authorities have broad flexibility to initiate proceedings designed
to prohibit banks from engaging in unsafe and unsound banking practices.
The Registrant and its subsidiaries are also affected by various other
governmental requirements and regulations, general economic conditions, and the
fiscal and monetary policies of the federal government and the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). The
monetary policies of the Federal Reserve Board influence to a significant extent
the overall growth of loans, investments, deposits, interest rates charged on
loans, and interest rates paid on deposits. The nature and impact of future
changes in monetary policies are often not predictable.
Support of Subsidiary Banks. Under current Federal Reserve Board policy, a
financial holding company is expected to act as a source of financial and
managerial strength to each of its subsidiary banks by standing ready to use
available resources to provide adequate capital funds to its subsidiary banks
during periods of financial adversity and by maintaining the financial
flexibility and capital-raising capacity to obtain additional resources for
assisting its subsidiary banks. The support expected by the Federal Reserve
Board may be required at times when the financial holding company may not have
the resources or inclination to provide it.
Section 55 of the National Bank Act permits the OCC to order the
pro-rata assessment of stockholders of a national bank whose capital has become
impaired. The Registrant is the sole stockholder of NBT Bank and Pennstar Bank.
If a stockholder fails, within three months, to pay that assessment, the OCC can
order the sale of the stockholder's stock to cover the deficiency. In the event
of a financial holding company's bankruptcy, any commitment by the financial
holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank would be assumed by the bankruptcy trustee and entitled to
priority of payment.
If a default occurred with respect to a bank, any capital loans to the
bank from its parent holding company would be subordinate in right of payment to
payment of the bank's depositors and certain of its other obligations.
5
Liability of Commonly Controlled Banks. Any depository institution insured by
the FDIC can be held liable for any loss incurred, or reasonably expected to be
incurred, by the FDIC in connection with the default of a commonly controlled
FDIC-insured depository institution or any assistance provided by the FDIC to a
commonly controlled FDIC-insured depository institution in danger of default.
"Default" generally is defined as the appointment of a conservator or
receiver, and "in danger of default" generally is defined as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance.
Depositor Preference Statute. In the "liquidation or
other resolution" of an institution by any receiver, federal legislation
provides that deposits and certain claims for administrative expenses and
employee compensation against an insured bank are afforded a priority over other
general unsecured claims against that bank, including federal funds and letters
of credit.
Capital Requirements. The Registrant is subject to risk-based capital
requirements and guidelines imposed by the Federal Reserve Board, which are
substantially similar to the capital requirements and guidelines imposed by the
OCC on national banks. For this purpose, a bank's or financial holding company's
assets and certain specified off-balance sheet commitments are assigned to four
risk categories, each weighted differently based on the level of credit risk
that is ascribed to those assets or commitments. In addition, risk-weighted
assets are adjusted for low-level recourse and market-risk equivalent assets. A
bank's or financial holding company's capital, in turn, includes the following
tiers: core ("Tier 1") capital, which includes common equity, non-cumulative
perpetual preferred stock, a limited amount of cumulative perpetual preferred
stock, and minority interests in equity accounts of consolidated subsidiaries,
less goodwill, certain identifiable intangible assets, and certain other assets;
and supplementary ("Tier 2") capital, which includes, among other items,
perpetual preferred stock not meeting the Tier 1 definition, mandatory
convertible securities, subordinated debt and allowances for loan and lease
losses, subject to certain limitations, less certain required deductions.
The Registrant, like other financial holding companies, is required to
maintain Tier 1 and "Total Capital" (the sum of Tier 1 and Tier 2 capital, less
certain deductions) equal to at least 4 percent and 8 percent of its total
risk-weighted assets (including certain off-balance-sheet items, such as unused
lending commitments and standby letters of credit), respectively. At December
31, 2000, the Registrant met both requirements, with Tier 1 and total capital
equal to 10.25 percent and 11.48 percent of total risk-weighted assets.
The Federal Reserve Board and the OCC have adopted rules to incorporate
market and interest rate risk components into their risk-based capital
standards. Amendments to the risk-based capital requirements, incorporating
market risk, became effective January 1, 1998. Under the new market-risk
requirements, capital will be allocated to support the amount of market risk
related to a financial institution's ongoing trading activities.
The Federal Reserve Board also requires financial holding companies to
maintain a minimum "Leverage Ratio" (Tier 1 capital to adjusted total assets) of
3 percent if the financial holding company has the highest regulatory rating and
meets certain other requirements, or of 3 percent plus an additional cushion of
at least 1 to 2 percentage points if the bank holding company does not meet
these requirements. At December 31, 2000, the Registrants' leverage ratio was
7.10 percent.
The Federal Reserve Board may set capital requirements higher than the
minimums noted above for holding companies whose circumstances warrant it. For
example, financial holding companies experiencing or anticipating significant
growth may be expected to maintain strong capital positions substantially above
the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve Board has indicated that it will
consider a "Tangible Tier 1 Leverage Ratio" (deducting all intangibles) and
other indications of capital strength in evaluating proposals for expansion or
new activities or when a financial holding company faces unusual or abnormal
risks. The Federal Reserve Board has not advised NBT of any specific minimum
leverage ratio applicable to it.
NBT Bank and Pennstar Bank are subject to similar risk-based capital
and leverage requirements adopted by the OCC. NBT Bank and Pennstar Bank were in
compliance with the applicable minimum capital requirements as of December 31,
2000. The OCC has not advised NBT Bank or Pennstar Bank of any specific minimum
leverage ratio applicable to it.
Failure to meet capital requirements could subject a bank to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. The Federal Deposit Insurance
6
Corporation Improvements Act of 1991 ("FDICIA"), among other things, identifies
five capital categories for insured banks -- well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized -- and requires federal bank regulatory agencies to implement
systems for "prompt corrective action" for insured banks that do not meet
minimum capital requirements based on these categories. The FDICIA imposes
progressively more restrictive constraints on operations, management, and
capital distributions, depending on the category in which an institution is
classified. Unless a bank is well capitalized, it is subject to restrictions on
its ability to offer brokered deposits, on "pass-through" insurance coverage for
certain of its accounts, and on certain other aspects of its operations. FDICIA
generally prohibits a bank from paying any dividend or making any capital
distribution or paying any management fee to its holding company if the bank
would thereafter be undercapitalized. An undercapitalized bank is subject to
regulatory monitoring and may be required to divest itself of or liquidate
subsidiaries. Holding companies of such institutions may be required to divest
themselves of such institutions or divest themselves of or liquidate other
affiliates. An undercapitalized bank must develop a capital restoration plan,
and its parent holding company must guarantee the bank's compliance with the
plan up to the lesser of 5 percent of the bank's assets at the time it became
undercapitalized or the amount needed to comply with the plan. Critically
undercapitalized institutions are prohibited from making payments of principal
and interest on subordinated debt and are generally subject to the mandatory
appointment of a conservator or receiver.
Rules adopted by the OCC under FDICIA provide that a national bank is
deemed to be well capitalized if the bank has a total risk-based capital ratio
of 10 percent or greater, a Tier 1 risk-based capital ratio of 6 percent or
greater, and a leverage ratio of 5 percent or greater and the institution is not
subject to a written agreement, order, capital directive, or prompt corrective
action directive to meet and maintain a specific level of any capital measure.
It should be noted that a national bank's capital category is determined solely
for the purpose of applying the OCC's prompt corrective action regulations, and
that the capital category may not constitute an accurate representation of the
bank's overall financial condition or prospects.
Brokered Deposits. Under FDIC regulations, no FDIC-insured bank can accept
brokered deposits unless it is well capitalized, or is adequately capitalized
and receives a waiver from the FDIC. In addition, these regulations prohibit any
bank that is not well capitalized from paying an interest rate on brokered
deposits in excess of three-quarters of one percentage point over certain
prevailing market rates.
Dividend Restrictions. The Registrant is a legal entity separate and distinct
from NBT Bank and Pennstar Bank. In general, under the law of the state of its
incorporation, the Registrant cannot pay a cash dividend if such payment would
render it insolvent. The revenues of the Registrant consist primarily of
dividends paid by NBT Bank and Pennstar Bank. Various federal and state
statutory provisions limit the amount of dividends NBT Bank and Pennstar Bank
can pay to the Registrant without regulatory approval. Dividend payments by
national banks are limited to the lesser of the level of undivided profits and,
absent regulatory approval, an amount not in excess of net income for the
current year combined with retained net income for the preceding two years.
At December 31, 2000, approximately $1.3 million and $3.8 million of
the total stockholders' equity of NBT Bank and Pennstar Bank, respectively, were
available for payment of dividends to the Registrant without approval by the
OCC.
In addition, federal bank regulatory authorities have authority to
prohibit NBT Bank and Pennstar Bank from engaging in an unsafe or unsound
practice in conducting their business. Depending upon the financial condition of
the bank in question, the payment of dividends could be deemed to constitute an
unsafe or unsound practice. The ability of NBT Bank and Pennstar Bank to pay
dividends in the future is currently influenced, and could be further
influenced, by bank regulatory policies and capital guidelines.
Deposit Insurance Assessments. The deposits of NBT Bank and Pennstar
Bank are insured up to regulatory limits by the FDIC and, accordingly, are
subject to deposit insurance assessments to maintain the Bank Insurance Fund
(the "BIF") administered by the FDIC. The FDIC has adopted regulations
establishing a permanent risk-related deposit insurance assessment system. Under
this system, the FDIC places each insured bank in one of nine risk categories
based on the bank's capitalization and supervisory evaluations provided to the
FDIC by the institution's primary federal regulator. Each insured bank's
insurance assessment rate is then determined by the risk category in which it is
classified by the FDIC.
In the light of the recent favorable financial situation of the federal
deposit insurance funds and the recent low number of depository institution
failures, effective January 1, 1997 the annual insurance premiums on bank
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deposits insured by the BIF vary between $0.00 per $100 of deposits for banks
classified in the highest capital and supervisory evaluation categories to $0.27
per $100 of deposits for banks classified in the lowest capital and supervisory
evaluation categories. BIF assessment rates are subject to semi-annual
adjustment by the FDIC within a range of up to five basis points without public
comment. The FDIC also possesses authority to impose special assessments from
time to time.
The Deposit Insurance Funds Act provides for assessments to be imposed
on insured depository institutions with respect to deposits insured by the BIF
(in addition to assessments currently imposed on depository institutions with
respect to BIF-insured deposits) to pay for the cost of Financing Corporation
("FICO") funding. The FICO assessments are adjusted quarterly to reflect changes
in the assessment bases of the FDIC insurance funds and do not vary depending
upon a depository institution's capitalization or supervisory evaluations.
During 2000, BIF-insured banks paid an average rate of approximately $0.021 per
$100 for purposes of funding FICO bond obligations, resulting in an assessment
of $226,921 for NBT Bank and $141,753 for Pennstar Bank. The assessment rate for
BIF member institutions has been set at approximately $0.020 per $100 annually
for the first quarter of 2001.
Interstate Banking and Branching. Under the Riegle-Neal Interstate Banking and
Branching Efficiency Act ("Riegle-Neal"), subject to certain concentration
limits and other requirements:
financial holding companies such as the Registrant are permitted to acquire
banks and bank holding companies located in any state;
any bank that is a subsidiary of a financial holding company is permitted
to receive deposits, renew time deposits, close loans, service loans, and
receive loan payments as an agent for any other depository institution
subsidiary of that financial holding company; and
banks are permitted to acquire branch offices outside their home
states by merging with out-of-state banks, purchasing branches in other states,
and establishing de novo branch offices in other states.
The ability of banks to acquire branch offices through purchase or opening of
other branches is contingent, however, on the host state having adopted
legislation "opting in" to those provisions of Riegle-Neal. In addition, the
ability of a bank to merge with a bank located in another state is contingent on
the host state not having adopted legislation "opting out" of that provision of
Riegle-Neal.
Control Acquisitions. The Change in Bank Control Act prohibits a person or group
of persons from acquiring "control" of a financial holding company, unless the
Federal Reserve Board has been notified and has not objected to the transaction.
Under a rebuttable presumption established by the Federal Reserve Board, the
acquisition of 10 percent or more of a class of voting stock of a financial
holding company with a class of securities registered under Section 12 of the
Exchange Act, such as the Registrant, would, under the circumstances set forth
in the presumption, constitute acquisition of control of the bank holding
company.
In addition, a company is required to obtain the approval of the
Federal Reserve Board under the BHC Act before acquiring 25 percent (5 percent
in the case of an acquiror that is a financial holding company) or more of any
class of outstanding common stock of a financial holding company, such as the
Registrant, or otherwise obtaining control or a "controlling influence" over
that financial holding company.
Financial Modernization. The Gramm-Leach-Bliley Act permits qualifying bank
holding companies, after March 11, 2000, to become financial holding companies
and thereby affiliate with securities firms and insurance companies and engage
in other activities that are financial in nature or complementary thereto, as
determined by the Federal Reserve Board. A bank holding company may elect to
become a financial holding company if each of its subsidiary banks (a) is well
capitalized under the prompt corrective action provisions of FDICIA, (b) is well
managed, and (c) has at least a satisfactory rating under the Community
Reinvestment Act. The Gramm-Leach-Bliley Act identifies several activities as
"financial in nature," including, among others, insurance underwriting and
agency, investment advisory services, and underwriting, dealing in or making a
market in securities. Under the Gramm-Leach-Bliley Act, subject to limitations
on investment, a national bank may, through a financial subsidiary of the bank,
engage in activities that are financial in nature, or incidental thereto,
including, among others, insurance underwriting, insurance company portfolio
investment, real estate development and real estate investment if the bank is
well capitalized, well managed and has at least a satisfactory CRA rating.
Subsidiary banks of a financial holding company or national banks with financial
subsidiaries must continue to be well capitalized and well managed in order to
continue to engage in activities that are financial in nature without regulatory
8
actions or restrictions, which could include divestiture of a non-banking
subsidiary or subsidiaries. A bank holding company which does not elect to
become a financial holding company may continue to engage in activities approved
for bank holding companies by the Federal Reserve Board prior to enactment of
the Gramm-Leach-Bliley Act.
The Gramm-Leach-Bliley Act does not significantly alter the regulatory
regimes under which the Registrant and the Banks currently operate, as described
above. While certain business combinations not previously permissible became
possible after March 11, 2000, the Registrant cannot predict at this time
resulting changes in the competitive environment or the financial condition of
itself or the Banks. Using the financial holding company structure, insurance
companies and securities firms may acquire bank holding companies, such as the
Registrant, and may compete more directly with banks or bank holding companies.
In April 2000, the Registrant filed a declaration of election with the Federal
Reserve Board to be treated as a financial holding company pursuant to the
Gramm-Leach-Bliley Act. The election was declared effective by the Federal
Reserve Board as of April 28, 2000. Pursuant to its authority as a financial
holding company to acquire a company engaged in activities that are financial in
nature or incidental to a financial activity, the Registrant acquired M.
Griffith, Inc. on May 5, 2000.
Future Legislation. Various legislation, including proposals to substantially
change the financial institution regulatory system, modify the federal deposit
insurance system, and expand or contract the powers of banking institutions,
bank holding companies and financial holding companies, is from time to time
introduced in Congress. This legislation may change banking statutes and the
operating environment of the combined company and its subsidiaries in
substantial and unpredictable ways. If enacted, such legislation could increase
or decrease the cost of doing business, limit or expand permissible activities
or affect the competitive balance among banks, insurance companies, securities
firms, savings associations, credit unions, and other financial institutions.
The Registrant cannot accurately predict whether any of this potential
legislation will ultimately be enacted, and, if enacted, the ultimate effect
that it, or implementing regulations, would have upon the financial condition or
results of operations of itself or any of its subsidiaries.
9
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
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(in thousands, except per share data) 2000 1999 1998 1997 1996
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YEAR ENDED DECEMBER 31,
Interest, fee and dividend income $ 190,531 $ 164,872 $ 158,428 $ 147,338 $ 129,020
Interest expense 96,021 75,458 74,712 68,892 57,422
Net interest income 94,510 89,414 83,716 78,446 71,598
Provision for loan losses 8,678 5,440 6,149 4,820 4,325
Noninterest income excluding
securities gains (losses) 20,432 17,279 16,164 13,894 12,358
Securities gains (losses) (1,216) 1,803 1,567 34 1,222
Noninterest expense 93,862 62,917 61,254 54,460 52,168
Income before income taxes 11,186 40,139 34,044 33,094 28,685
Net income 7,191 26,257 26,895 22,188 18,914
- ---------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE*
Basic earnings $ 0.31 $ 1.14 $ 1.16 $ 1.00 $ 0.86
Diluted earnings $ 0.30 $ 1.12 $ 1.14 $ 0.98 $ 0.85
Cash dividends paid $ 0.680 $ 0.656 $ 0.587 $ 0.421 $ 0.338
Stock dividends distributed - 5% 5% 5% 5%
Book value at year-end $ 8.77 $ 8.24 $ 8.84 $ 8.31 $ 7.21
Tangible book value at year-end $ 7.60 $ 7.85 $ 8.39 $ 7.89 $ 6.69
Average diluted common
shares outstanding 23,600 23,414 23,691 22,698 22,287
- ---------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31,
Securities available for sale,
at fair value $ 576,372 $ 606,727 $ 553,954 $ 608,709 $ 518,245
Securities held to maturity 102,413 113,318 182,170 120,834 81,525
Loans 1,726,482 1,466,867 1,277,241 1,157,548 1,036,146
Allowance for loan losses 24,349 19,711 18,231 16,450 15,053
Assets 2,655,788 2,380,673 2,169,855 2,018,784 1,767,105
Deposits 2,040,238 1,777,091 1,664,307 1,588,276 1,465,461
Short-term borrowings 132,375 142,267 99,872 137,077 88,544
Long-term debt 234,872 251,970 183,968 84,912 40,493
Stockholders' equity 208,021 191,472 204,038 192,556 157,699
- ---------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 0.29% 1.16% 1.27% 1.15% 1.10%
Return on average equity 3.60% 13.17% 13.53% 13.24% 12.40%
Average equity to average assets 7.98% 8.79% 9.41% 8.68% 8.90%
Net interest margin 4.12% 4.32% 4.34% 4.45% 4.60%
Efficiency 59.11% 57.41% 60.45% 57.73% 60.75%
Cash dividend per share payout 226.67% 58.57% 51.49% 42.96% 39.76%
Tier 1 leverage
(Regulatory guideline 3%) 7.10% 8.63% 8.81% 9.08% 8.55%
Tier 1 risk-based capital
(Regulatory guideline 4%) 10.25% 13.78% 14.68% 15.44% 13.90%
Total risk-based capital
(Regulatory guideline 8%) 11.48% 14.95% 15.87% 16.64% 15.11%
- ---------------------------------------------------------------------------------------------------------------------
*All share and per share data has been restated to give retroactive effect to
stock dividends and splits.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The financial review which follows focuses on the factors affecting the
consolidated financial condition and results of operations of NBT Bancorp Inc.
("NBT") and its wholly owned subsidiaries, NBT Bank, N.A. ("NBT Bank"), Pennstar
Bank, N.A. ("Pennstar"), and NBT Financial Services, Inc. during 2000 and, in
summary form, the preceding two years. Collectively, NBT and its subsidiaries
are referred to herein as "the Company". Net interest income and net interest
margin are presented in this discussion on a fully taxable equivalent (FTE)
basis. Average balances discussed are daily averages unless otherwise described.
The consolidated financial statements and related notes as of December 31, 2000
and 1999 and for each of the years in the three year period ended December 31,
2000 should be read in conjunction with this review. Amounts in prior period
consolidated financial statements are reclassified whenever necessary to conform
to the 2000 presentation.
The Company's primary market area, with 78 branches, is central and northern New
York and northeast Pennsylvania. The Company has been, and intends to continue
to be, a community-oriented financial institution offering a variety of
financial services. The Company's principal business is attracting deposits from
customers within its market area and investing those funds primarily in loans,
and, to a lesser extent, in marketable securities. The financial condition and
operating results of the Company are dependent on its net interest income which
is the difference between the interest and dividend income earned on its earning
assets and the interest expense paid on its interest bearing liabilities,
primarily consisting of deposits and borrowings. Net income is also affected by
provisions for loan losses and noninterest income, such as service charges on
deposit accounts, broker/dealer fees, trust fees, and gains/losses on securities
sales; it is also impacted by noninterest expense, such as salaries and employee
benefits, as well as merger, acquisition and reorganization costs.
The Company's results of operations are significantly affected by general
economic and competitive conditions (particularly changes in market interest
rates), government policies, changes in accounting standards, and actions of
regulatory agencies. Future changes in applicable laws, regulations, or
government policies may have a material impact on the Company. Lending
activities are substantially influenced by the demand for and supply of housing,
competition among lenders, the level of interest rates, the state of the local
and regional economy, and the availability of funds. The ability to gather
deposits and the cost of funds are influenced by prevailing market interest
rates, fees and terms on deposit products, as well as the availability of
alternative investments including mutual funds and stocks.
FORWARD LOOKING STATEMENTS
Certain statements in this filing and future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, contain forward-looking statements,
as defined in the Private Securities Litigation Reform Act. These statements may
be identified by the use of phrases such as "anticipate," "believe," "expect,"
"forecasts," "projects," or other similar terms. There are a number of factors,
many of which are beyond the Company's control that could cause actual results
to differ materially from those contemplated by the forward looking statements.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) competitive pressures among depository and other
financial institutions may increase significantly; (2) revenues may be lower
than expected; (3) changes in the interest rate environment may reduce interest
margins; (4) general economic conditions, either nationally or regionally, may
be less favorable than expected, resulting in, among other things, a
deterioration in credit quality and/or a reduced demand for credit; (5)
legislative or regulatory changes, including changes in accounting standards,
may adversely affect the businesses in which the Company is engaged; (6) costs
or difficulties related to the integration of the businesses of the Company and
its merger partners may be greater than expected; (7) expected cost savings
11
associated with recent mergers and acquisitions may not be fully realized or
realized within the expected time frames; (8) deposit attrition, customer loss,
or revenue loss following recent mergers and acquisitions may be greater than
expected; (9) competitors may have greater financial resources and develop
products that enable such competitors to compete more successfully than the
Company; and (10) adverse changes may occur in the securities markets or with
respect to inflation.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including those described above, could affect the
Company's financial performance and could cause the Company's actual results or
circumstances for future periods to differ materially from those anticipated or
projected.
The Company does not undertake, and specifically disclaims any obligations to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect statements to the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
MERGER AND ACQUISITION ACTIVITY
On February 17, 2000, the Company consummated a merger, whereby Lake Ariel
Bancorp, Inc. (Lake Ariel) and its subsidiaries were merged with and into the
Company with each issued and outstanding share of Lake Ariel exchanged for
0.9961 of a share of NBT common stock. The transaction resulted in the issuance
of approximately 5.0 million shares of NBT common stock. Lake Ariel's commercial
banking subsidiary was LA Bank, N.A.
On July 1, 2000, the Company consummated a merger, whereby Pioneer American
Holding Company Corp. (Pioneer Holding Company) and its subsidiary were merged
with and into the Company with each issued and outstanding share of Pioneer
Holding Company exchanged for 1.805 shares of NBT common stock. The transaction
resulted in the issuance of approximately 5.2 million shares of NBT common
stock. Pioneer Holding Company's commercial banking subsidiary was Pioneer
American Bank, N.A.
The Lake Ariel and Pioneer Holding Company mergers qualified as tax-free
exchanges and were accounted for as poolings-of-interests. accordingly, these
consolidated financial statements have been restated to present the combined
consolidated financial condition and results of operations of all companies as
if the mergers had been in effect for all years presented.
LA Bank, N.A. and Pioneer American Bank, N.A. were commercial banks
headquartered in northeast Pennsylvania with approximately $570 million and $420
million, respectively, in assets at December 31, 1999, and twenty-two and
eighteen branch offices, respectively, in five counties. Immediately following
the mergers described above, NBT was the surviving holding company for NBT Bank,
LA Bank, N.A., Pioneer American Bank, N.A. and NBT Financial Services, Inc. LA
Bank, N.A. effected a name change on November 10, 2000 to Pennstar Bank, N.A.
and on December 9, 2000, Pioneer American Bank, N.A. merged into Pennstar Bank,
N.A.
On May 5, 2000, the Company consummated the acquisition of M. Griffith, Inc., a
Utica, New York based securities firm offering investment, financial advisory
and asset-management services, primarily in the Mohawk Valley region. At that
time, M. Griffith, Inc., a full-service broker-dealer and a Registered
Investment Advisor, became a wholly-owned subsidiary of NBT Financial Services,
Inc. The acquisition was accounted for using the purchase method. As such, both
the assets acquired and liabilities assumed have been recorded on the
consolidated balance sheet of the Company at estimated fair value as of the date
of acquisition. M. Griffith, Inc.'s results of operations are included in the
Company's consolidated statement of income from the date of acquisition forward.
To complete the transaction, the Company issued approximately 421,000 shares of
its common stock, valued at $4.8 million. Goodwill, representing the cost over
net assets acquired, was $3.4 million and is being amortized over fifteen years
on a straight-line basis.
12
On June 2, 2000, one of NBT's subsidiaries, LA Bank, N.A., purchased two
branches from Mellon Bank. Deposits from the Mellon Bank branches were
approximately $36.7 million, including accrued interest payable. In addition,
the Company received approximately $32.2 million in cash as consideration for
net liabilities assumed. The acquisition was accounted for using the purchase
method. As such, both the assets acquired and liabilities assumed have been
recorded on the consolidated balance sheet of the Company at estimated fair
value as of the date of the acquisition. Goodwill, representing the excess of
cost over net assets acquired, was $4.3 million and is being amortized over 15
years on the straight-line basis. The branches' results of operations are
included in the Company's consolidated statement of income from the date of
acquisition forward.
On November 10, 2000, Pennstar Bank, N.A. purchased six branches from Sovereign
Bank. deposits from Sovereign Bank branches were approximately $96.8 million,
including accrued interest payable. Pennstar Bank, N.A. also purchased
commercial loans associated with the branches with a net book balance of $42.4
million. In addition, the Company received $40.9 million in cash consideration
for net liabilities assumed. The acquisition was accounted for using the
purchase method. As such, both the assets acquired and liabilities assumed have
been recorded on the consolidated balance sheet of the Company at estimated fair
value as of the date of the acquisition. Goodwill, representing the excess of
cost over net assets acquired, was $12.7 million and is being amortized over 15
years on a straight-line basis. The branches' results of operations are included
in the Company's consolidated statement of income from the date of acquisition
forward.
On January 2, 2001, the Company announced the signing of a definitive agreement
to acquire First National Bancorp, Inc. (FNB) and its wholly owned subsidiary,
The First National Bank of Northern New York (FNB Bank). FNB Bank is expected to
be merged into NBT Bank, N.A. In the acquisition, shareholders of FNB will
receive five shares of NBT common stock for each share of FNB common stock. NBT
is expected to issue approximately 1.0 million shares of common stock, with a
total value of approximately $15 million, based on the closing price of NBT
stock on January 2, 2001. The acquisition is structured to be tax-free to
shareholders of FNB and will be accounted for using the purchase method of
accounting. Closing the acquisition is subject to approval by FNB's shareholders
and regulatory authorities, and is expected to occur in the second quarter of
2001. At December 31, 2000, FNB had consolidated assets of $114.2 million,
deposits of $102.8 million and equity of $10.0 million. FNB Bank operates six
full-service banking locations in New York State's North Country. NBT also
announced a plan to repurchase in the market approximately 1 million shares of
its common stock specifically for issuance in the transaction.
OVERVIEW
The Company earned net income of $7.2 million ($0.30 diluted earnings per share)
for the year ended December 31, 2000, compared to net income of $26.3 million
($1.12 diluted earnings per share) for the year ended December 31, 1999.
Recurring net income, which excludes the after-tax effect of costs related to
merger and acquisition activity, reorganizations, and net security transactions
was $25.8 million ($1.09 million diluted earnings per share) during 2000
compared to $25.6 million ($1.09 diluted earnings per share) of recurring net
income during 1999. The increase in recurring net income from 1999 to 2000 was
primarily due to an increase in net interest income, total noninterest income
excluding net security losses, and a reduction in tax expense, which were
substantially offset by an increase in the provision for loan losses and total
noninterest expense, excluding merger, acquisition and reorganization costs. Net
income was $26.9 million ($1.14 diluted earnings per share) for the year ended
December 31, 1998, and includes a $3.8 million net income tax benefit recognized
in connection with a corporate realignment. Income before taxes for the year
ended December 31, 1999 of $40.1 million improved $6.1 million (17.9%) over
1998.
Net interest income increased $5.6 million, or 6.0%, to $98.0 million in 2000 as
compared to the prior year, primarily due to growth in earning assets,
particularly loans, and an increase in the yield earned on these earning assets,
offset in part by increased averages of interest bearing liabilities and an
increase in the cost of interest bearing liabilities. When comparing 1999 to
1998, net interest income increased $6.4 million, or 7.5%. The increase in net
interest income was primarily the result of growth in earning assets, primarily
loans, and a reduction in the rate paid on average interest bearing liabilities,
13
offset in part by a decline in the yield earned on those earning assets, and an
increase in average interest bearing liabilities.
ASSET/LIABILITY MANAGEMENT
The Company attempts to maximize net interest income, and net income, while
actively managing its liquidity and interest rate sensitivity through the mix of
various core deposit products and other sources of funds, which in turn fund an
appropriate mix of earning assets. The changes in the Company's asset mix and
sources of funds, and the resultant impact on net interest income are discussed
below.
TABLE 1
AVERAGE BALANCES AND NET INTEREST INCOME
The following table includes the condensed consolidated average balance sheet,
an analysis of interest income/expense and average yield/rate for each major
category of earning assets and interest bearing liabilities on a taxable
equivalent basis. Interest income for tax-exempt securities and loans has been
adjusted to a taxable-equivalent basis using the statutory Federal income tax
rate of 35%.
2000 1999 1998
AVERAGE YIELD/ Average Yield/ Average Yield/
(dollars in thousands) BALANCE INTEREST RATES Balance Interest Rates Balance Interest Rates
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Short-term interest bearing accounts $ 11,136 $ 728 6.54% $ 14,695 $ 708 4.82% $ 19,757 1,011 5.12%
Securities available for sale (2) 625,524 41,977 6.71 622,517 41,149 6.61 545,674 36,562 6.70
Securities held to maturity (2) 110,164 7,665 6.96 108,573 7,568 6.97 175,271 12,844 7.33
Investment in FRB and FHLB Banks 27,650 2,018 7.30 26,376 1,754 6.65 24,176 1,688 6.98
Loans (1) 1,604,791 141,601 8.82 1,366,265 116,687 8.54 1,217,489 108,595 8.92
--------- ------- --------- ------- --------- -------
Total earning assets 2,379,265 193,989 8.15 2,138,426 167,866 7.85 1,982,367 160,700 8.11
------- ------- -------
Other assets 126,245 130,007 129,778
------- ------- -------
TOTAL ASSETS $2,505,510 $2,268,433 $2,112,145
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Money market deposit accounts $ 139,181 5,066 3.64 $ 130,753 3,885 2.97 122,277 3,583 2.93
NOW deposit accounts 210,971 4,212 2.00 197,433 3,375 1.71 179,461 3,455 1.93
Savings deposits 269,494 6,732 2.50 266,601 6,433 2.41 251,716 6,306 2.51
Time deposits 1,001,308 57,781 5.77 848,363 42,872 5.05 840,909 45,529 5.41
--------- ------ ------- ------ ------- ------
Total interest bearing deposits 1,620,954 73,791 4.55 1,443,150 56,565 3.92 1,394,363 58,873 4.22
Short-term borrowings 145,876 8,777 6.02 122,146 6,011 4.92 117,411 6,177 5.26
Long-term debt 239,518 13,453 5.62 232,304 12,882 5.55 164,444 9,662 5.88
------- ------ ------- ------ ------- -----
Total interest bearing liabilities 2,006,348 96,021 4.79% 1,797,600 75,458 4.20% 1,676,218 74,712 4.46%
------ ------ ------
Demand deposits 273,849 251,661 219,724
Other liabilities 25,349 19,810 17,360
Stockholders' equity 199,964 199,362 198,843
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,505,510 $2,268,433 $2,112,145
---------- --------- ----------
NET INTEREST INCOME $ 97,968 $92,408 $85,988
-------- ------- -------
NET INTEREST MARGIN 4.12% 4.32% 4.34%
---- ---- ----
Taxable equivalent adjustment $ 3,458 $ 2,994 $ 2,272
-------- ------- -------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan balances outstanding.
(2) Securities are shown at average amortized cost.
14
EARNING ASSETS
Total average earning assets increased $240.8 million for the year ended
December 31, 2000, to $2.4 billion in 2000. This increase is primarily the
result of continued loan growth at the Company, particularly in commercial type
loans. Interest income for the year ended December 31, 2000 was $194.0 million,
up $26.1 million, or 15.6%, from 1999. The increase in interest income was
caused by both the increase in earning assets and the increase in yields. The
yield on earning assets increased from 7.85% in 1999 to 8.15% in 2000. The
increase in yield was primarily the result of the rising interest rate
environment that prevailed for most of 2000, and the change in the Company's mix
of earning assets, with a greater percentage of the Company's earning assets
invested in higher yielding loans. During 1999, loans were 63.9% of average
earning assets, while in 2000, loans made up 67.4% of average earning assets.
The following table presents changes in interest income and interest expense
attributable to changes in volume (change in average balance multiplied by prior
year rate), changes in rate (change in rate multiplied by prior year volume),
and the net change in net interest income. The net change attributable to the
combined impact of volume and rate has been allocated to each in proportion to
the absolute dollar amounts of change.
TABLE 2
ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
- ----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) Increase (Decrease)
2000 OVER 1999 1999 over 1998
- ----------------------------------------------------------------------------------------------------------------
(in thousands) VOLUME RATE TOTAL Volume Rate Total
- ----------------------------------------------------------------------------------------------------------------
Short-term interest bearing accounts $ (196) $ 216 $ 20 $ (247) $ (56) $ (303)
Securities available for sale 199 629 828 5,085 (498) 4,587
Securities held to maturity 111 (14) 97 (4,676) (600) (5,276)
Investment in FRB and FHLB Banks 87 177 264 149 (83) 66
Loans 20,939 3,975 24,914 12,852 (4,760) 8,092
- ----------------------------------------------------------------------------------------------------------------
Total interest income 19,450 6,673 26,123 12,365 (5,199) 7,166
- ----------------------------------------------------------------------------------------------------------------
Money market deposit accounts 263 918 1,181 251 51 302
NOW deposit accounts 243 594 837 328 (408) (80)
Savings deposits 70 229 299 364 (237) 127
Time deposits 8,343 6,566 14,909 400 (3,057) (2,657)
Short-term borrowings 1,289 1,477 2,766 243 (409) (166)
Long-term debt 404 167 571 3,790 (570) 3,220
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 9,319 11,244 20,563 5,236 (4,490) 746
- ----------------------------------------------------------------------------------------------------------------
CHANGE IN FTE NET INTEREST INCOME $10,131 $(4,571) $ 5,560 $ 7,129 $ (709) $ 6,420
- ----------------------------------------------------------------------------------------------------------------
Loans
The average balance of loans increased from $1.4 billion in 1999 to $1.6 billion
in 2000. The yield on average loans increased from 8.54% in 1999 to 8.82% in
2000, as a rising interest rate environment prevailed for much of 2000. The
increase in the average balance of loans, coupled with the increase in yields,
caused interest income on loans to increase $24.9 million, or 21.4%, from $116.7
million in 1999 to $141.6 million in 2000. When comparing 1999 to 1998, average
loans increased $148.8 million or 12.2%. The benefits of the increase in average
loans was offset by a 38 basis point decline in the yield on average loans when
compared to 1998. The decline in the yield earned on average loans in 1999 can
be attributed to the declining interest rate environment.
15
Total loans were $1.7 billion at December 31, 2000, up from $1.5 billion at
December 31, 1999. The increase in loans was primarily in the commercial and
agricultural loan types, as management continues to focus on these areas.
Commercial and agricultural loans were $499.9 million at December 31, 2000, up
$168.3 million or 50.8% from December 31, 1999. Consumer loans also increased in
2000, from $268.7 million at December 31, 1999 to $304.3 million at December 31,
2000, an increase of $35.6 million or 13.2%. Home equity loans increased $60.0
million to $174.2 million at December 31, 2000. The increases in commercial,
consumer and home equity loans were offset by a $29.9 million decrease in real
estate mortgages, from $382.0 million at December 31, 1999 to $352.1 million at
December 31, 2000. The following table reflects the loan portfolio by major
categories as of December 31 for the years indicated.
TABLE 3
COMPOSITION OF LOAN PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
December 31, 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
Residential real estate mortgages $352,098 $381,961 $371,133 $335,991 $299,590
Commercial real estate mortgages 354,540 347,191 305,564 269,523 227,322
Real estate construction and
development 41,466 23,188 14,983 10,911 13,669
Commercial and agricultural 499,854 331,535 252,508 211,486 184,664
Consumer 304,283 268,703 237,234 247,573 253,185
Home equity 174,241 114,289 95,819 82,064 57,716
- ---------------------------------------------------------------------------------------------------------------
Total loans $1,726,482 $1,466,867 $1,277,241 $1,157,548 $1,036,146
- ---------------------------------------------------------------------------------------------------------------
Real estate mortgages consist primarily of loans secured by first or second
deeds of trust on primary residencies. Loans in the commercial and agricultural
category, as well as commercial real estate mortgages, consist primarily of
short-term and/or floating rate commercial loans made to small to medium-sized
companies. Consumer loans consist primarily of installment credit to individuals
secured by automobiles and other personal property.
The following table, Maturities and Sensitivities of Loans to Changes in
Interest Rates, are the maturities of the loan portfolio and the sensitivity of
loans to interest rate fluctuations at December 31, 2000. Scheduled repayments
are reported in the maturity category in which the contractual payment is due.
TABLE 4
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
- ----------------------------------------------------------------------------------------------------
AFTER ONE
YEAR BUT AFTER
REMAINING MATURITY AT WITHIN WITHIN FIVE FIVE
DECEMBER 31, 2000 ONE YEAR YEARS YEARS TOTAL
- ----------------------------------------------------------------------------------------------------
(in thousands)
Floating/adjustable rate:
Commercial and agricultural $67,995 $ 69,621 $ 28,520 $166,136
Real estate construction
and development 14,545 - - 14,545
- ----------------------------------------------------------------------------------------------------
Total floating rate loans 82,540 69,621 28,520 180,681
- ----------------------------------------------------------------------------------------------------
Fixed Rate:
Commercial and agricultural 124,259 163,131 46,328 333,718
Real estate construction
and development 6,506 7,335 13,080 26,921
- ----------------------------------------------------------------------------------------------------
Total fixed rate loans 130,765 170,466 59,408 360,639
- ----------------------------------------------------------------------------------------------------
Total $213,305 $ 240,087 $ 87,928 $541,320
- ----------------------------------------------------------------------------------------------------
16
Securities
The average balance of securities available for sale was $625.5 million during
2000, which is an increase of $3.0 million, or 0.5%, from $622.5 million in
1999. The increase is primarily the result of a leveraging strategy undertaken
in the middle of 1999. The Company, for the most part, invested funds from
maturing securities available for sale into loans during 2000, as there were
very few purchases of securities available for sale. The yield on average
securities available for sale was 6.71% in 2000 compared to 6.61% in 1999. The
increase in the average balance, coupled with the increase in yield, resulted in
a increase in interest income on securities available for sale of $828,000, from
$41.1 million in 1999 to $42.0 million in 2000.
The average balance of securities held to maturity was $110.2 million during
2000, which is an increase of $1.6 million, from $108.6 million in 1999. The
increase is primarily the result of a leveraging strategy undertaken in the
middle of 1999. The Company, for the most part, invested funds from maturing
securities held to maturity into loans during 2000, as there were very few
purchases of securities held to maturity. The yield on securities held to
maturity was 6.96% in 2000 compared to 6.97% in 1999. Interest income on
securities held to maturity increased $97,000, from $7.6 million in 1999 to $7.7
million during 2000. The following table presents the amortized cost and fair
market value of the securities portfolio as of December 31 for the years
indicated.
TABLE 5
SECURITIES PORTFOLIO
As of December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
(in thousands) COST VALUE Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale:
U.S. Treasury $ 10,393 $ 9,922 $ 10,400 $ 8,535 $ 10,406 $ 10,481
Federal Agency and mortgage-backed 474,356 470,506 534,042 507,758 473,727 479,266
State & Municipal, collateralized
mortgage obligations and other securities 96,465 95,944 97,122 90,434 32,876 33,507
- ------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 581,214 $ 576,372 $ 641,564 $ 606,727 $ 517,009 $ 523,254
- ------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
Federal Agency and mortgage-backed 46,376 45,528 51,578 48,568 122,921 122,871
State & Municipal 55,990 56,258 61,730 60,569 55,799 56,914
Other securities 47 47 10 10 1,943 1,956
- ------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 102,413 $ 101,833 $ 113,318 $ 109,147 $ 180,663 $ 181,741
- ------------------------------------------------------------------------------------------------------------------------
The fair value of securities available for sale totaled $576.4 million at
December 31, 2000, compared to $606.7 million at December 31, 1999. In late
December 2000, the Company decided to sell certain lower yielding federal
agencies and mortgage backed securities with an amortized cost of $21.7 million
and used the proceeds to pay down existing higher rate debt. These lower
yielding securities had net unrealized losses of approximately $1.4 million at
December 31, 2000. As a result of the decision to immediately sell these
securities, they were considered to be other than temporarily impaired, and the
net loss was recorded in the Company's consolidated statement of income for the
year ended December 31, 2000. These securities were sold in early January 2001
at a loss approximating the loss recorded in 2000. These securities were
presented on the Company's December 31, 2000 consolidated balance sheet as
trading securities. Securities held to maturity were $102.4 million at December
31, 2000, compared to $113.3 million at December 31, 1999. During 2000, funds
from the maturity of securities available for sale and securities held to
17
maturity were primarily invested in loans. Additionally, the available for sale
portfolio appreciated in value by $29.0 million during 2000.
FUNDING SOURCES
The Company utilizes traditional deposit products such as time, savings, NOW,
money market, and demand deposits as its primary source for funding. Other
sources, such as short-term FHLB advances, federal funds purchased, securities
sold under agreements to repurchase, brokered time deposits, and long-term FHLB
borrowings are utilized as necessary to support the Company's growth in assets
and to achieve interest rate sensitivity objectives. The average balance of
interest-bearing liabilities increased $208.7 million, or 11.6 %, from $1.8
billion in 1999 to $2.0 billion in 2000. The rate paid on interest-bearing
liabilities increased from 4.20% in 1999 to 4.79% in 2000. The increase in
average balance, coupled with the increase in rates paid, caused an increase in
interest expense of $20.5 million, or 27.2%, from $75.5 million in 1999 to $96.0
million in 2000.
Deposits
Average interest bearing deposits increased $177.8 million, or 12.3%, during
2000, to $1.6 billion. The Company purchased approximately $133.7 million in
deposits in conjunction with the purchase of branches from Mellon Bank and
Sovereign Bank in June and November of 2000, respectively. In addition, most of
the increase in average interest bearing deposits was in time deposits, which
increased $152.9 million, from $848.4 million in 1999 to $1.0 billion in 2000.
The increase in time deposits was primarily the result of the increase in time
deposits greater than $100,000 which includes brokered CD's. Brokered CD's were
approximately $49.4 million at December 31, 1999 and $130.5 million at December
31, 2000 and time deposits greater than $100,000 were approximately $503.8
million at December 31, 2000 as compared to $383.4 million at December 31, 1999,
up 31.4%.
The average rate paid on interest bearing deposits increased from 3.92% in 1999
to 4.55% in 2000. The increase in the average rate paid was again primarily
attributable to time deposits, which are the most expensive interest bearing
deposit. The average rate paid on time deposits during 2000 was 5.77%, as
compared to 5.05% during 1999. Time deposits also made up a greater percentage
of total interest bearing liabilities. During 1999, time deposits were 58.8% of
interest bearing deposits, while in 2000, time deposits made up 61.8% of total
interest bearing deposits. The increase in the average rates paid for interest
bearing liabilities during 2000 was also consistent with the rising interest
rate environment that prevailed for most of the year. The increase in the
average balance of interest bearing time deposits, coupled with the increase in
the average rate paid, caused interest expense on interest bearing deposits to
increase $17.2 million, from $56.6 million in 1999 to $73.8 million in 2000. The
following table presents the maturity distribution of time deposits of $100,000
or more at December 31, 2000.
TABLE 6
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
-----------------------------------------------------------------------
December 31, 2000
-----------------------------------------------------------------------
(in thousands)
Within three months $ 244,991
After three but within six months 106,776
After six but within twelve months 104,544
After twelve months 47,497
-----------------------------------------------------------------------
Total $ 503,808
-----------------------------------------------------------------------
18
Borrowings
Average short-term borrowings increased from $122.1 million in 1999 to $145.9
million in 2000. Consistent with the increasing interest rate environment during
most of 2000, the average rate paid also increased from 4.92% in 1999 to 6.02%
in 2000. The increase in the average balance combined with the increase in the
average rate paid caused interest expense on short-term borrowings to increase
$2.8 million from $6.0 million in 1999 to $8.8 million in 2000.
Average long-term debt increased $7.2 million, from $232.3 million in 1999 to
$239.5 million in 2000. The increase in the average balance, combined with the
increase in the average rate paid form 5.55% in 1999 to 5.62% in 2000, caused a
$571,000 increase in interest expense on long-term debt.
NET INTEREST INCOME
Net interest income for the year ended December 31, 2000 was $98.0 million, up
from $92.4 million in 1999 and $86.0 million in 1998. The increase from 1999 to
2000 was primarily the result of the increase in average earning assets and the
average yield earned on those average earning assets. The impact of these
factors was offset by an increase in average interest-bearing liabilities and
the average rates paid on those interest-bearing liabilities. As a result of
these volume and rate fluctuations, the Company's net interest margin for the
year ended December 31, 2000 was 4.12%, down from 4.32% in 1999.
RISK MANAGEMENT
CREDIT RISK
Credit risk is managed through a network of loan officers, credit committees,
loan policies, and oversight from the senior credit officer and Board of
Directors. Management follows a policy of continually identifying, analyzing,
and grading credit risk inherent in each loan portfolio. An ongoing independent
review, subsequent to management's review, of individual credits in the
commercial loan portfolio is performed by the independent loan review function.
These components of the Company's underwriting and monitoring functions are
critical to the timely identification, classification, and resolution of problem
credits.
Nonperforming Assets
Nonperforming assets include nonperforming loans (loans in nonaccrual status,
loans past due 90 days or more and still accruing interest, and troubled debt
restructured loans) and assets which have been foreclosed (other real estate
owned). Foreclosed assets typically represent residential or commercial
properties. The following table presents nonperforming loans and assets at
December 31 for the years indicated.
19
TABLE 7
NONPERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------------------------
December 31, 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Nonaccrual loans:
Commercial and agricultural $ 10,943 $ 6,141 $ 6,167 $ 6,452 $ 6,845
Real estate mortgages 647 618 744 692 251
Consumer 1,098 837 762 1,242 1,243
- ----------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 12,688 7,596 7,673 8,386 8,339
- ----------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 4,523 1,201 1,365 2,202 418
Real estate mortgages 3,042 641 761 244 344
Consumer 616 184 629 1,778 1,882
- ----------------------------------------------------------------------------------------------------------------------
Total loans 90 days or more past due
and still accruing 8,181 2,026 2,755 4,224 2,644
- ----------------------------------------------------------------------------------------------------------------------
Restructured loans, in compliance with
modified terms: 656 1,014 1,247 2,877 643
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 21,525 10,636 11,675 15,487 11,626
- ----------------------------------------------------------------------------------------------------------------------
Other real estate owned 722 1,438 2,971 2,098 2,083
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 22,247 $ 12,074 $ 14,646 $ 17,585 $ 13,709
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans to loans 1.25% 0.73% 0.91% 1.34% 1.12%
Total nonperforming assets to assets 0.84% 0.51% 0.67% 0.87% 0.78%
Total allowance for loan losses
to nonperforming loans 113.12% 185.32% 156.15% 106.22% 129.48%
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets at December 31, 2000 were $22.2 million, or .84% of
total assets, compared with $12.1 million or 0.51% of assets at December 31,
1999. Nonperforming loans at December 31, 2000 were $21.6 million as compared to
$10.6 million at December 31, 1999. This increase is primarily the result of the
continued process of integrating newly acquired banks into the Company given the
Company's more conservative approach to identifying and resolving nonperforming
loans.
Allowance and Provision for Loan Losses
The allowance for loan losses is maintained at a level estimated by management
to provide adequately for risk of probable losses inherent in the current loan
portfolio. The adequacy of the allowance for loan losses is continuously
monitored. It is assessed for adequacy using a methodology designed to ensure
the level of the allowance reasonably reflects the loan portfolio's risk
profile. It is evaluated to ensure that it is sufficient to absorb all
reasonably estimable credit losses inherent in the current loan portfolio.
For purposes of evaluating the adequacy of the allowance, the Company considers
a number of significant factors that affect the collectibility of the portfolio.
For individually analyzed loans, these include estimates of loss exposure, which
reflect the facts and circumstances that affect the likelihood of repayment of
such loans as of the evaluation date. For homogeneous pools of loans, estimates
of the Company's exposure to credit loss reflect a thorough current assessment
of a number of factors, which could affect collectibility. These factors
include: past loss experience; the size, trend, composition, and nature; changes
in lending policies and procedures, including underwriting standards and
collection, charge-off and recovery practices; trends experienced in
nonperforming and delinquent loans; current economic conditions in the Company's
market; portfolio concentrations that may affect loss experienced across one or
20
more components of the portfolio; the effect of external factors such as
competition, legal and regulatory requirements; and the experience, ability, and
depth of lending management and staff. In addition, various regulatory agencies,
as an integral component of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgment about information
available to them at the time of their examination, which may not be currently
available to management.
After a thorough consideration and validation of the factors discussed above,
required additions to the allowance for loan losses are made periodically by
charges to the provision for loan losses. These charges are necessary to
maintain the allowance at a level which management believes is reasonably
reflective of overall inherent risk of probable loss in the portfolio. While
management uses available information to recognize losses on loans, additions to
the allowance may fluctuate from one reporting period to another. These
fluctuations are reflective of changes in risk associated with portfolio content
and/or changes in management's assessment of any or all of the determining
factors discussed above.
TABLE 8
ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------
Balance at January 1 $ 19,711 $ 18,231 $ 16,450 $ 15,053 $ 13,519
Loans charged off:
Commercial and agricultural 2,915 2,427 2,528 1,524 1,635
Real estate mortgages 431 392 512 341 598
Consumer 2,259 2,205 2,364 2,605 1,638
- ------------------------------------------------------------------------------------------------
Total loans charged off 5,605 5,024 5,404 4,470 3,871
- ------------------------------------------------------------------------------------------------
Recoveries:
Commercial and agricultural 418 292 273 253 326
Real estate mortgages 23 72 47 18 20
Consumer 599 700 716 776 734
- ------------------------------------------------------------------------------------------------
Total recoveries 1,040 1,064 1,036 1,047 1,080
- ------------------------------------------------------------------------------------------------
Net loans charged off 4,565 3,960 4,368 3,423 2,791
Allowance related to purchase
acquisitions 525 - - - -
Provision for loan losses 8,678 5,440 6,149 4,820 4,325
- ------------------------------------------------------------------------------------------------
Balance at December 31 $ 24,349 $ 19,711 $ 18,231 $ 16,450 $ 15,053
- ------------------------------------------------------------------------------------------------
Allowance for loan losses to loans
outstanding at end of year 1.41% 1.34% 1.43% 1.42% 1.45%
Net charge-offs to average loans
- ------------------------------------------------------------------------------------------------
outstanding 0.28% 0.29% 0.36% 0.31% 0.36%
- ------------------------------------------------------------------------------------------------
Charge-offs increased during 2000 by $643,000, to $5.6 million for the year. The
increase in charge-offs was primarily in the area of commercial and agricultural
loans. This increase was consistent with the increase in commercial and
agricultural loans discussed above. The allowance as a percentage of loans
outstanding was 1.41% at December 31, 2000 and 1.34% at December 31, 1999.
The provision for loan losses in 2000 was $8.7 million, as compared to $5.4
million in 1999 and $6.1 million during 1998. The increase in the provision in
2000 as compared to 1999 was necessitated by significant loan growth, primarily
in the higher risk commercial and consumer type loans as discussed above, and
the increase in nonperforming loans, also as discussed above. The reduction in
the provision from 1998 to 1999 is primarily due to a reduction in nonperforming
21
loans and net loan charge-offs, mitigated by the growth and changing mix of the
loan portfolio.
The following table sets the allocation of the allowance for loan losses by
category, as well as the percentage of loans in each category to total loans, as
prepared by the Company. This allocation is based on management's assessment as
of a given point in time of the risk characteristics of each of the component
parts of the total loan portfolio and is subject to changes as and when the risk
factors of each such component part change. The allocation is not indicative of
either the specific amounts of the loan categories in which future charge-offs
may be taken, nor should it be taken as an indicator of future loss trends. The
allocation of the allowance to each category does not restrict the use of the
allowance to absorb losses in any category. The following table sets forth the
allocation of the allowance for loan losses by loan category.
TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
CATEGORY Category Category Category Category
PERCENT Percent Percent Percent Percent
(dollars in thousands) ALLOWANCE OF LOANS Allowance of Loans Allowance of Loans Allowance of Loans Allowance of Loans
- ------------------------------------------------------------------------------------------------------------------------------
Commercial
and agricultural $ 15,856 49.5% $ 9,091 46.3% $ 8,589 43.7% $ 6,755 41.5% $ 5,581 39.8%
Real estate
mortgages 1,240 22.8% 2,050 27.6% 1,219 30.2% 843 30.0% 1,053 30.2%
Consumer 3,841 27.7% 4,900 26.1% 4.813 26.1% 3,123 28.5% 3,007 30.0%
Unallocated 3,412 - 3,670 - 3,610 - 5,729 - 5,412 -
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 24,349 100.0% $ 19,711 100.0% $ 18,231 100.0% $ 16,450 100.0% $ 15,053 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
MARKET RISK
Interest rate risk is the most significant market risk affecting the Company.
Other types of market risk, such as foreign currency exchange rate risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
Interest rate risk is defined as an exposure to a movement in interest rates
that could have an adverse effect on the Company's net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than earning
assets. When interest-bearing liabilities mature or reprice more quickly than
earning assets in a given period, a significant increase in market rates of
interest could adversely affect net interest income. Similarly, when earning
assets mature or reprice more quickly than interest-bearing liabilities, falling
interest rates could result in a decrease in net interest income.
In an attempt to manage its exposure to changes in interest rates, management
monitors the Company's interest rate risk. Management's asset/liability
committee (ALCO) meets monthly to review the Company's interest rate risk
position and profitability, and to recommend strategies for consideration by the
Board of Directors. Management also reviews loan and deposit pricing, and the
Company's securities portfolio, formulates investment and funding strategies,
and oversees the timing and implementation of transactions to assure attainment
of the Board's objectives in the most effective manner. Notwithstanding the
Company's interest rate risk management activities, the potential for changing
interest rates is an uncertainty that can have an adverse effect on net income.
In adjusting the Company's asset/liability position, the Board and management
attempt to manage the Company's interest rate risk while enhancing the net
interest margin. At times, depending on the level of general interest rates, the
relationship between long and short term interest rates, market conditions and
competitive factors, the Board and management may determine to increase the
22
Company's interest rate risk position somewhat in order to increase its net
interest margin. The Company's results of operations and net portfolio values
remain vulnerable to changes in interest rates and to fluctuations in the
difference between long and short-term interest rates.
The primary tool utilized by ALCO to manage interest rate risk is a balance
sheet/income statement simulation model (interest rate sensitivity analysis).
Information such as principal balance, interest rate, maturity date, cash flows,
next repricing date (if needed), and current rates is uploaded into the model to
create an ending balance sheet. In addition, ALCO makes certain assumptions
regarding prepayment speeds for loans and mortgage related investment securities
along with any optionality within the deposits and borrowings.
The model is first run under an assumption of a flat rate scenario (i.e. no
change in current interest rates) with a static balance sheet over a 12-month
period. A second and third model are run in which a gradual increase and
decrease, respectively, of 200 basis points takes place over a 12 month period.
A fourth and fifth model are run in which a gradual increase and decrease,
respectively, of 100 basis points takes place over a 12 month period. Under
these scenarios, assets subject to prepayments are adjusted to account for
faster or slower prepayment assumptions. Any investment securities or borrowings
that have callable options embedded into them are handled accordingly based on
the interest rate scenario. The resultant changes in net interest income are
then measured against the flat rate scenario. The following table summarizes the
percentage change in net interest income in the rising and declining rate
scenarios over a 12 month period from the forecasted net interest income in the
flat rate scenario.
In the declining rate scenarios, net interest income is projected to be below
the flat rate scenario through the simulation period. Net interest income
experiences a reduction as a result of adjustable rate loans repricing, and
increased cash flow as a result of higher prepayments on loans reinvested at
lower market rates, callable securities reinvested at lower market rates and
limited continued deposit pricing reductions.
In the rising rate scenarios, net interest income is projected to experience a
decline from the flat rate scenario greater than the decline shown in the
downward rate scenarios. Net interest income is projected to remain at lower
levels than in a flat rate scenario through the simulation period primarily due
to a lag in assets repricing while funding costs increase. The potential impact
on earnings is dependent on the ability to lag deposit repricing.
Net interest income for the next twelve months in a +/- 200 basis point scenario
is within the internal policy risk limits of a not more than a 5% change in net
interest income. The following table projects the percent change in net interest
income over the next year using the December 31, 2000 balance sheet position.
TABLE 10
INTEREST RATE SENSITIVITY ANALYSIS
---------------------------------------------------------------
Change in interest rates Percent change in
(in basis points) net interest income
---------------------------------------------------------------
+200 (3.34%)
+100 (1.62%)
-100 (0.78%)
-200 (1.45%)
---------------------------------------------------------------
LIQUIDITY RISK
Liquidity management involves the ability to meet the cash flow requirements of
customers who may be depositors wanting to withdraw funds or borrowers needing
assurance that sufficient funds will be available to meet their credit needs.
The ALCO is responsible for liquidity management and has developed guidelines
which cover all assets and liabilities, as well as off balance sheet items that
are potential sources or uses of liquidity. Liquidity policies must also provide
23
the flexibility to implement appropriate strategies and tactical actions.
Requirements change as loans grow, deposits and securities mature, and payments
on borrowings are made. Liquidity management includes a focus on interest rate
sensitivity management with a goal of avoiding widely fluctuating net interest
margins through periods of changing economic conditions.
The primary liquidity measurement the Company utilizes is called the Basic
Surplus which captures the adequacy of its access to reliable sources of cash
relative to the stability of its funding mix of average liabilities. This
approach recognizes the importance of balancing levels of cash flow liquidity
from short and long-term securities with the availability of dependable
borrowing sources which can be accessed when necessary. Accordingly, the Company
has purchased brokered time deposits, established borrowing facilities with
other banks (Federal funds), the Federal Home Loan Banks of New York and
Pittsburgh (short and long-term borrowings which are denoted as advances), and
repurchase agreements with investment companies.
This Basic Surplus approach enables the Company to adequately manage liquidity
from both operational and contingency perspectives. By tempering the need for
cash flow liquidity with reliable borrowing facilities, the Company is able to
operate with a more fully invested and, therefore, higher interest income
generating, securities portfolio. The makeup and term structure of the
securities portfolio is, in part, impacted by the overall interest rate
sensitivity of the balance sheet. Investment decisions and deposit pricing
strategies are impacted by the liquidity position. At December 31, 2000, the
Company considered its Basic Surplus adequate to meet liquidity needs. At
December 31, 2000, a large percentage of the Company's loans and securities are
pledged as collateral on borrowings. Therefore, future growth of earning assets
will depend upon the Company's ability to obtain additional funding, through
growth of core deposits and collateral management, and may require further use
of brokered time deposits, or other higher cost borrowing arrangements.
OFF-BALANCE SHEET RISK
Commitments to Extend Credit
The Company makes contractual commitments to extend credit and extend lines of
credit which are subject to the Company's credit approval and monitoring
procedures. At December 31, 2000 and 1999, commitments to extend credit in the
form of loans, including unused lines of credit, amounted to $394.7 million and
$421.0 million, respectively. In the opinion of management, there are no
material commitments to extend credit that represent unusual risks.
Stand-By Letters of Credit
The Company guarantees the obligations or performance of customers by issuing
stand-by letters of credit to third parties. These stand-by letters of credit
are frequently issued in support of third party debt, such as corporate debt
issuances, industrial revenue bonds, and municipal securities. The risk involved
in issuing stand-by letters of credit is essentially the same as the credit risk
involved in extending loan facilities to customers, and they are subject to the
same credit origination, portfolio maintenance and management procedures in
effect to monitor other credit and off-balance sheet products. At December 31,
2000 and 1999, outstanding stand-by letters of credit were approximately $6.2
million and $3.9 million, respectively.
CAPITAL RESOURCES
Consistent with its goal to operate a sound and profitable financial
institution, the Company actively seeks to maintain a "well-capitalized"
institution in accordance with regulatory standards. The principal source of
capital to the Company is earnings retention. The Company remains well
capitalized as the capital ratios in the notes to the consolidated financial
statements indicate. Capital measurements are in excess of both regulatory
minimum guidelines and meet the requirements to be considered well capitalized.
24
The Company's principal source of funds to pay cash dividends to its
shareholders is dividends from its subsidiary banks. Various laws and
regulations restrict the ability of banks to pay dividends to their
shareholders. The payment of dividends by the Company in the future will require
the generation of sufficient future earnings by its subsidiaries. For further
disclosures relative to dividend restrictions and regulatory requirements, refer
to Note 13 to the consolidated financial statements.
The accompanying Table 11 sets forth the quarterly high, low and closing sales
price for the common stock as reported on the NASDAQ Stock Market, and cash
dividends declared per share of common stock.
TABLE 11
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
- ------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------
(restated to give retroactive effect to stock dividends and splits)
CASH Cash
DIVIDENDS Dividends
QUARTER ENDING HIGH LOW CLOSE DECLARED High Low Close Declared
- ------------------------------------------------------------------------------------------------------------------
March 31 $ 16.50 $ 11.38 $ 14.50 $ 0.170 $ 23.33 $ 19.89 $ 19.89 $ 0.162
June 30 14.50 9.38 10.69 0.170 21.19 19.05 19.52 0.162
September 30 12.50 9.75 12.00 0.170 20.90 16.43 16.49 0.162
December 31 15.94 11.13 14.63 0.170 17.98 14.63 15.50 0.170
- ------------------------------------------------------------------------------------------------------------------
For the year $ 16.50 $ 9.38 $ 14.63 $ 0.680 $ 23.33 $ 14.63 $ 15.50 $ 0.656
- ------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME AND EXPENSES
NONINTEREST INCOME
Noninterest income is a significant source of revenue for the Company and an
important factor in the Company's results of operations. Noninterest income,
exclusive of net security gains and losses, totaled $20.4 million in 2000, $17.3
million in 1999, and $16.2 million in 1998. The $3.1 million, or 17.9%, increase
in 2000 is primarily the result of an increase in broker/dealer fees of
approximately $2.7 million. The increase in broker/dealer fees is the direct
result of the Company's acquisition of M. Griffith, Inc., a full service
broker/dealer and registered investment advisor, on May 5, 2000. All other
categories of noninterest income remained consistent from 1999 to 2000. The
increase from 1998 to 1999 of $1.1 million, or 6.9%, was primarily related to an
increase in service charges on deposit accounts which increased $1.0 million to
$7.6 million in 1999. All other categories of noninterest income remained
consistent from 1998 to 1999.
During 2000, the Company had net security losses of $1.2 million, compared to
net security gains of $1.8 million during 1999. The net loss during 2000
resulted primarily from the Company's decision in late December 2000, to sell
certain lower yielding federal agencies and mortgage backed securities with an
amortized cost of $21.7 million and use the proceeds to pay down higher rate
debt. These lower yielding securities had net unrealized losses of approximately
$1.4 million at December 31, 2000. As a result of the decision to immediately
sell these securities, they were considered to be other than temporarily
impaired, and the net loss was recorded in the Company's consolidated statement
of income for the year ended December 31, 2000. These securities were sold in
early January 2001 at a loss approximating the loss recorded in 2000. These
securities were presented on the Company's December 31, 2000 consolidated
balance sheet as trading securities.
25
NONINTEREST EXPENSE
Other noninterest expenses are also an important factor in the Company's results
of operations. Noninterest expense was $93.9 million in 2000, compared to $62.9
million in 1999, and $61.3 million in 1998. The increase in 2000 was primarily
the result of $23.6 million in merger, acquisition and reorganization costs
incurred during 2000. Merger, acquisition, and reorganization costs were
$835,000 in 1999.
During 2000, the following merger, acquisition and reorganization costs were
recognized:
Professional fees $ 8,525
Data processing 2,378
Severance 7,278
Branch closing 1,736
Advertising and supplies 1,337
Hardware and software write-off 1,428
Miscellaneous 943
----------------------------------------------------
Total $ 23,625
----------------------------------------------------
With the exception of hardware and software write-offs and certain branch
closing costs, all of the above costs have been or will be paid through normal
cash flow from operations.
At December 31, 2000, after payments of certain merger, acquisition and
reorganization costs, the Company had a remaining accrued liability for merger,
acquisition and reorganization costs as follows:
Professional fees $ 1,306
Data processing 1,445
Severance 6,901
Branch closings 541
Advertising and supplies 355
Miscellaneous 448
----------------------------------------------------
Total $ 10,996
----------------------------------------------------
With the exception of certain severance costs which will be paid out over a
period of time consistent with the respective severance agreements, all of the
above liabilities are expected to be paid during 2001.
Salaries and employee benefits increased $4.7 million, or 15.2%, from $30.7
million in 1999 to $35.4 million in 2000. The increase was the result of normal
salary increases and the addition of M. Griffith, Inc. in May of 2000.
Also impacting the increase in noninterest expense in 2000 as compared to 1999
was the amortization of intangible assets. This amortization expense increased
from $1.3 million in 1999 to $1.7 million in 2000. As a result of the M.
Griffith acquisition and the various branch acquisitions during 2000,
amortization of intangible assets is expected to also increase in 2001.
All other categories of noninterest expense remained fairly consistent from 1999
to 2000.
INCOME TAXES
In 2000, income tax expense was $4.0 million, as compared to $13.9 million in
1999 and $7.1 million in 1998. The Company's effective tax rate was 35.7%,
34.6%, and 21.0% in 2000, 1999, and 1998, respectively. The increase in the
26
effective tax rate during 2000 is primarily the result of non-deductible merger
and acquisition expenses. The relatively low effective tax rate during 1998 was
the result of a corporate realignment.
IMPACT OF INFLATION AND CHANGING PRICES
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increasing cost of the
Company's operations. Unlike most industrial companies, nearly all assets and
liabilities of the Company are monetary. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. In addition, interest rates do not necessarily move in the
direction, or to the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
The Company adopted the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective January 1, 2001. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Changes in the fair value of the derivative financial instruments
are reported in either net income or as a component of comprehensive income.
Consequently, there may be increased volatility in net income, comprehensive
income, and stockholders' equity on an ongoing basis as a result of accounting
for derivatives in accordance with SFAS No. 133.
Special hedge accounting treatment is permitted only if specific criteria are
met, including a requirement that the hedging relationship be highly effective
both at inception and on an ongoing basis. Accounting for hedges varies based on
the type of hedge - fair value or cash flow. Results of effective hedges are
recognized in current earnings for fair value hedges and in other comprehensive
income for cash flow hedges. Ineffective portions of hedges are recognized
immediately in earnings and are not deferred.
The adoption of SFAS No. 133 by The Company on January 1, 2001 did not have a
material effect on the Company's consolidated financial position or results of
operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation". FASB Interpretation No. 44
clarifies the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" for certain issues. The adoption of
this Interpretation did not have a material effect on the Company's financial
position or results of operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", a replacement
of SFAS No. 125. SFAS 140 addresses implementation issues that were identified
in applying SFAS No. 125. This statement revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS No. 125
provisions without reconsideration. SFAS 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. SFAS No. 140 is effective for recognition and reclassification
of collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. This statement is to
be applied prospectively with certain exceptions. Other than those exceptions,
earlier or retroactively application is not permitted. The adoption of SFAS No.
140 did not have a material effect on the Company's consolidated financial
statements.
27
TABLE 12
SELECTED QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share
data) FIRST SECOND THIRD FOURTH First Second Third Fourth
Interest, fee and
dividend income $ 44,911 $ 46,797 $ 48,921 $ 49,902 $ 38,764 $ 40,149 $ 42,554 $ 43,405
Interest expense 21,610 23,275 24,811 26,325 17,567 18,162 19,448 20,281
Net interest income 23,301 23,522 24,110 23,577 21,197 21,987 23,106 23,124
Provision for loan losses 1,454 2,345 1,619 3,260 1,195 1,340 1,325 1,580
Noninterest income excluding
securities gains (losses) 4,241 4,949 5,436 5,806 4,166 4,413 4,319 4,381
Net securities gains (losses) - 6 137 (1,359) 669 295 839 -
Noninterest expense 17,716 19,685 20,128 36,333 14,597 15,063 16,005 17,252
Net income (loss) $ 5,280 $ 4,069 $ 5,155 $ (7,313) $ 6,659 $ 6,759 $ 7,019 $ 5,820
Basic earnings per share $ 0.23 $ 0.17 $ 0.22 $ (0.31) $ 0.29 $ 0.29 $ 0.30 $ 0.25
Diluted earnings per share $ 0.23 $ 0.17 $ 0.22 $ (0.31) $ 0.28 $ 0.29 $ 0.30 $ 0.25
Net interest margin 4.25% 4.16% 4.12% 3.96% 4.37% 4.34% 4.32% 4.26%
Return (loss) on average assets 0.88% 0.66% 0.81% (1.12)% 1.25% 1.21% 1.20% 0.98%
Return (loss) on average equity 11.10% 8.29% 10.14% (13.95)% 13.19% 13.36% 14.29% 11.83%
Average diluted common
shares outstanding 23,346 23,584 23,709 23,759 23,423 23,395 23,376 23,337
- ------------------------------------------------------------------------------------------------------------------------------------
28
PROPERTIES
The Company operated the following number of community banking branches and
automated teller machines (ATMs) as of December 31, 2000:
NEW YORK STATE BRANCHES ATMS
- -------------- -------- ----
Albany County 1 -
Broome County 3 4
Chenango County 11 15
Clinton County 3 2
Delaware County 5 12
Essex County 3 3
Fulton County 3 3
Oneida County 5 7
Orange County 1 1
Otsego County 2 9
Tioga County 1 2
PENNSYLVANIA BRANCHES ATMS
- ------------ -------- ----
Lackawanna County 20 26
Luzerne County 4 19
Monroe County 4 7
Pike County 3 3
Susquehanna County 6 7
Wayne County 3 3
The Company leases twenty-four of the above listed branches from third parties
under terms and conditions considered by management to be favorable to the
Company. The Company owns all other banking premises. All automated teller
machines are owned.
29
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
Responsibility for the integrity, objectivity, consistency, and fair
presentation of the financial information presented in this Annual Report rests
with NBT Bancorp Inc. management. The accompanying consolidated financial
statements and related information have been prepared in conformity with
accounting principles generally accepted in the United States of America
consistently applied and include, where required, amounts based on informed
judgments and management's best estimates.
Management maintains a system of internal controls and accounting
policies and procedures to provide reasonable assurance of the accountability
and safeguarding of Company assets and of the accuracy of financial information.
These procedures include management evaluations of asset quality and the impact
of economic events, organizational arrangements that provide an appropriate
segregation of responsibilities and a program of internal audits to evaluate
independently the adequacy and application of financial and operating controls
and compliance with Company policies and procedures.
The Board of Directors has appointed a Risk Management Committee
composed entirely of directors who are not employees of the Company. The Risk
Management Committee is responsible for recommending to the Board the
independent auditors to be retained for the coming year. The Risk Management
Committee meets periodically, both jointly and privately, with the independent
auditors, with our internal auditors, as well as with representatives of
management, to review accounting, auditing, internal control structure and
financial reporting matters. The Risk Management Committee reports to the Board
on its activities and findings.
/S/ Daryl R. Forsythe
Daryl R. Forsythe
President and Chief Executive Officer
/S/ Michael J. Chewens
Michael J. Chewens, CPA
Executive Vice President
Chief Financial Officer and Corporate Secretary
30
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NBT Bancorp Inc.:
We have audited the accompanying consolidated balance sheets of NBT Bancorp Inc.
and subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of income, changes in stockholders' equity, cash flows and
comprehensive income for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 NBT Bancorp Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/S/ KPMG LLP
Albany, New York
January 22, 2001
31
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(in thousands, except share and per share data)
ASSETS 2000 1999
----------------- -----------------
Cash and due from banks $ 96,429 74,304
Short term interest bearing accounts 14,233 5,325
Trading securities, at fair value 20,541 -
Securities available for sale, at fair value 576,372 606,727
Securities held to maturity (fair value - $101,833 and $109,147) 102,413 113,318
Federal Reserve and Federal Home Loan Bank stock 27,647 27,654
Loans 1,726,482 1,466,867
Less allowance for loan losses 24,349 19,711
----------------- -----------------
Net loans 1,702,133 1,447,156
Premises and equipment, net 43,457 47,097
Intangible assets, net 27,739 9,081
Other assets 44,824 50,011
----------------- -----------------
Total assets $ 2,655,788 2,380,673
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 302,137 267,895
Savings, NOW, and money market 671,980 605,334
Time 1,066,121 903,862
----------------- -----------------
Total deposits 2,040,238 1,777,091
Short-term borrowings 132,375 142,267
Long-term debt 234,872 251,970
Other liabilities 40,282 17,873
----------------- -----------------
Total liabilities 2,447,767 2,189,201
----------------- -----------------
Stockholders' equity:
Preferred stock, $0.01 par at December 31, 2000; no par, stated - -
value $1.00 at December 31, 1999; shares authorized - 2,500,000
Common stock, $0.01 par value and 30,000,000 shares authorized at December
31, 2000; no par, stated value $1.00 and 15,000,000 shares authorized at
December 31, 1999; issued 24,237,322 and
23,786,450 at December 31, 2000 and 1999, respectively 242 23,786
Additional paid-in-capital 185,041 156,112
Retained earnings 36,689 44,949
Accumulated other comprehensive loss (2,864) (21,710)
Common stock in treasury, at cost, 512,213 and 538,936 shares (11,087) (11,665)
----------------- -----------------
Total stockholders' equity 208,021 191,472
----------------- -----------------
Total liabilities and stockholders' equity $ 2,655,788 2,380,673
================= =================
See accompanying notes to consolidated financial statements.
32
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2000, 1999 and 1998
(in thousands, except per share data)
2000 1999 1998
Interest, fee, and dividend income:
Interest and fees on loans $ 140,725 115,990 108,318
Securities available for sale 40,927 40,254 36,068
Securities held to maturity 6,127 6,166 11,343
Other 2,752 2,462 2,699
---------------- ---------------- ----------------
Total interest, fee, and dividend income 190,531 164,872 158,428
---------------- ---------------- ----------------
Interest expense:
Deposits 73,791 56,565 58,873
Short-term borrowings 8,777 6,011 6,177
Long-term debt 13,453 12,882 9,662
---------------- ---------------- ----------------
Total interest expense 96,021 75,458 74,712
---------------- ---------------- ----------------
Net interest income 94,510 89,414 83,716
Provision for loan losses 8,678 5,440 6,149
---------------- ---------------- ----------------
Net interest income after provision for loan losses 85,832 83,974 77,567
---------------- ---------------- ----------------
Noninterest income:
Service charges on deposit accounts 8,284 7,588 6,562
Broker/dealer fees 2,723 46 24
Trust 3,382 3,305 3,115
Net securities (losses) gains (1,216) 1,803 1,567
Other 6,043 6,340 6,463
---------------- ---------------- ----------------
Total noninterest income 19,216 19,082 17,731
---------------- ---------------- ----------------
Noninterest expense:
Salaries and employee benefits 35,411 30,751 29,277
Occupancy 5,692 5,212 5,026
Equipment 5,728 5,368 4,566
Data processing and communications 5,828 5,392 4,554
Professional fees and outside services 3,754 3,008 4,230
Office supplies and postage 2,954 3,044 3,030
Amortization of intangible assets 1,722 1,323 1,319
Merger, acquisition and reorganization costs 23,625 835 -
Other operating 9,148 7,984 9,252
---------------- ---------------- ----------------
Total noninterest expense 93,862 62,917 61,254
---------------- ---------------- ----------------
Income before income tax expense 11,186 40,139 34,044
Income tax expense 3,995 13,882 7,149
---------------- ---------------- ----------------
Net income $ 7,191 26,257 26,895
================ ================ ================
Earnings per share:
Basic $ 0.31 1.14 1.16
================ ================ ================
Diluted $ 0.30 1.12 1.14
================ ================ ================
See accompanying notes to consolidated financial statements.
Note: All per share data has been restated to give retroactive effect to stock
dividends and splits.
33
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity Years ended December
31, 2000, 1999 and 1998
(in thousands except share and per share data)
ACCUMULATED
ADDITIONAL OTHER COMPRE- COMMON
COMMON PAID-IN- RETAINED HENSIVE STOCK IN
STOCK CAPITAL EARNINGS (LOSS)/INCOME TREASURY TOTAL
---------- ------------ ----------- -------------- ---------- ----------
Balance at December 31, 1997 $ 19,128 127,804 49,718 3,109 (7,203) 192,556
Net income - - 26,895 - - 26,895
Stock dividends and splits 3,814 17,670 (21,484) - - -
Cash dividends - $0.587 per share - - (11,848) - - (11,848)
Payment in lieu of fractional shares - - (16) - - (16)
Purchase of 355,708 treasury shares - - - - (9,127) (9,127)
Issuance of 289,072 shares to employee benefit
plans and other stock plans 117 1,478 - - 3,368 4,963
Costs of sale of common stock through
secondary offering - - (12) - - (12)
Other comprehensive income - - - 627 - 627
---------- ------------ ----------- -------------- ---------- ----------
Balance at December 31, 1998 23,059 146,952 43,253 3,736 (12,962) 204,038
Net income - - 26,257 - - 26,257
Issuance of 621,143 shares for a stock dividend 621 10,994 (11,615) - - -
Cash dividends - $0.656 per share - - (12,930) - - (12,930)
Payment in lieu of fractional shares - - (16) - - (16)
Purchase of 388,711 treasury shares - - - - (6,948) (6,948)
Issuance of 426,454 shares to employee benefit
plans and other stock plans 153 (125) - - 6,489 6,517
Other comprehensive loss - - - (25,446) - (25,446)
Retirement of 128,263 treasury shares of pooled
Company (47) (1,709) - - 1,756 -
---------- ------------ ----------- -------------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 23,786 156,112 44,949 (21,710) (11,665) 191,472
Net income - - 7,191 - - 7,191
Cash dividends - $0.68 per share - - (15,428) - - (15,428)
Payment in lieu of fractional shares - - (23) - - (23)
Issuance of 56,606 shares to employee benefit plans
and other stock plans, including tax benefit 7 582 - - 578 1,167
Change of $1.00 stated value per share to $0.01
par value per share (23,555) 23,555 - - - -
Issuance of 420,989 shares to purchase
M. Griffith, Inc. 4 4,792 - - - 4,796
Other comprehensive income - - - 18,846 - 18,846
---------- ------------ ----------- -------------- ---------- ----------
Balance at December 31, 2000 $ 242 185,041 36,689 (2,864) (11,087) 208,021
========== ============ =========== ============== ========== ==========
See accompanying notes to consolidated financial statements.
Note: Cash dividends per share represent the cash historical dividends per
share of NBT Bancorp Inc., adjusted to give retroactive
effect to stock splits and stock dividends.
34
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
--------------- --------------- ---------------
Operating activities:
Net income $ 7,191 26,257 26,895
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 8,678 5,440 6,149
Depreciation of premises and equipment 5,264 4,815 4,151
Net accretion on securities (678) (1,211) (1,330)
Amortization of intangible assets 1,722 1,323 1,319
Deferred income tax benefit (3,510) (380) (1,015)
Proceeds from sale of loans held for sale 17,615 41,899 46,462
Originations and purchases of loans held for sale (12,284) (40,471) (47,494)
Net gains on sales of loans held for sale (60) (342) (1,013)
Net loss (gains) on sales of securities 1,216 (1,803) (1,567)
Net (gain) loss on sales of other real estate owned (69) (291) 145
Writedowns on other real estate owned 235 220 25
Tax benefit from exercise of stock options 660 296 117
Net (increase) decrease in other assets (3,525) 2,720 (4,156)
Net increase (decrease) in other liabilities 22,724 (866) (1,185)
--------------- --------------- ---------------
Net cash provided by operating activities 45,179 37,606 27,503
--------------- --------------- ---------------
Investing activities:
Net cash and cash equivalents provided by acquisitions 74,434 - -
Securities available for sale:
Proceeds from maturities, calls and principal paydowns 42,260 92,771 116,948
Proceeds from sales 9,296 110,073 184,669
Purchases (12,282) (253,113) (234,275)
Securities held to maturity:
Proceeds from maturities, calls, and principal paydowns 34,347 35,535 71,250
Purchases (23,445) (39,461) (133,053)
Net increase in loans (228,033) (196,595) (121,898)
Net (increase) decrease in FHLB stock 7 (744) (6,415)
Purchases of premises and equipment, net (598) (7,240) (10,984)
Proceeds from sales of other real estate owned 2,125 3,527 2,747
--------------- --------------- ---------------
Net cash used in investing activities (101,889) (255,247) (131,011)
--------------- --------------- ---------------
Financing activities:
Net increase in deposits 129,677 112,784 76,031
Net (decrease) increase in short-term borrowings (9,892) 42,395 (37,205)
Proceeds from issuance of long-term debt 5,000 75,000 120,658
Repayments of long-term debt (22,098) (6,998) (21,542)
Proceeds from the issuance of shares to employee
benefit plans and other stock plans 507 6,221 4,846
Purchase of treasury stock - (6,948) (9,127)
Cash dividends and payment for fractional shares (15,451) (12,946) (11,864)
--------------- --------------- ---------------
Net cash provided by financing activities 87,743 209,508 121,797
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 31,033 (8,133) 18,289
Cash and cash equivalents at beginning of year 79,629 87,762 69,473
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 110,662 79,629 87,762
=============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 89,518 73,641 74,968
Income taxes 9,238 14,486 9,381
=============== =============== ===============
Noncash investing activities:
Transfer of securities available for sale to
trading securities $ 20,286 - -
Transfer of held to maturity securities to securities
available for sale - 71,137 -
Transfer of loans to other real estate owned 1,514 1,923 3,790
Fair value of assets acquired 43,989 - -
Fair value of liabilities assumed 133,891 - -
Common stock issued for acquisitions 4,796 - -
=============== =============== ===============
See accompanying notes to consolidated financial statements.
35
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
----------------- ----------------- ------------------
Net income $ 7,191 26,257 26,895
----------------- ----------------- ------------------
Other comprehensive income (loss), net of tax:
Unrealized net holding gains (losses) arising
during the year (pre-tax amounts of $28,779;
($39,278) and $2,534) 18,127 (24,359) 1,571
Less: Reclassification adjustment for net losses
(gains) included in net income (pre-tax amounts
of $1,216; $(1,803); ($1,567)) 719 (1,087) (944)
----------------- ----------------- ------------------
Total other comprehensive income (loss) 18,846 (25,446) 627
----------------- ----------------- ------------------
Comprehensive income $ 26,037 811 27,522
================= ================= ==================
See accompanying notes to consolidated financial statements
36
NBT BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of NBT Bancorp Inc. ("Bancorp") and
its subsidiaries, NBT Bank, N.A. (NBT Bank), Pennstar Bank, N.A.
(Pennstar), and NBT Financial Services, Inc. conform, in all material
respects, to accounting principles generally accepted in the United
States of America ("GAAP") and to general practices within the banking
industry. Collectively, Bancorp and its subsidiaries are referred to
herein as "the Company".
The preparation of financial statements in conformity with GAAP 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 the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
The following is a description of significant policies and practices:
CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Bancorp and its wholly-owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation. amounts previously
reported in the consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation. In
the "Parent Company Financial Information," the investment in
subsidiaries is carried under the equity method of accounting.
SEGMENT REPORTING
The Company's operations are solely in the community banking industry and
include the provision of traditional banking services. The Company
operates solely in the geographical regions of central and northern New
York and northeastern Pennsylvania. Management makes operating decisions
and assesses performance based on an ongoing review of its community
banking operations, which constitute the Company's only reportable
segment.
TRUST
Assets held by the Company in a fiduciary or agency capacity for its
customers are not included in the accompanying consolidated balance
sheets, since such assets are not assets of the Company. Trust income is
recognized on the accrual method based on contractual rates applied to
the balances of trust accounts.
37
CASH EQUIVALENTS
The Company considers amounts due from correspondent banks, cash items in
process of collection and institutional money market mutual funds to be
cash equivalents for purposes of the consolidated statements of cash
flows.
SECURITIES
The Company classifies its securities at date of purchase as either
available for sale, held to maturity or trading. Held to maturity debt
securities are those that the Company has the ability and intent to hold
until maturity. Available for sale securities are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available for sale securities are excluded from earnings and are reported
in stockholders' equity as a component of accumulated other comprehensive
income or loss. Held to maturity securities are recorded at amortized
cost. Trading securities are recorded at fair value, with net unrealized
gains and losses recognized currently in income. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Non-marketable equity securities are carried at cost. A decline in the
fair value of any available for sale or held to maturity security below
cost that is deemed other than temporary is charged to earnings resulting
in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the interest method.
Dividends and interest income are recognized when earned. Realized gains
and losses on securities sold are derived using the specific
identification method for determining the cost of securities sold.
LOANS
Loans are recorded at their current unpaid principal balance, net of
unearned income and unamortized loan fees and expenses, which are
amortized under the effective interest method over the estimated lives of
the loans. Interest income on loans is primarily accrued based on the
principal amount outstanding.
Loans are placed on nonaccrual status when timely collection of principal
and interest in accordance with contractual terms is doubtful. Loans are
transferred to a nonaccrual basis generally when principal or interest
payments become ninety days delinquent, unless the loan is well secured
and in the process of collection, or sooner when management concludes
circumstances indicate that borrowers may be unable to meet contractual
principal or interest payments. Accrual of interest is discontinued if
the loan is placed on nonaccrual status. When a loan is transferred to a
nonaccrual status, any unpaid accrued interest is reversed and charged
against income. When in the opinion of management the collection of
principal appears unlikely, the loan balance is charged-off in total or
in part.
If ultimate repayment of a non-accrual loan is expected, any payments
received are applied in accordance with contractual terms. If ultimate
repayment of principal is not expected or management judges it to be
prudent, any payment received on a non-accrual loan is applied to
principal until ultimate repayment becomes expected. Nonaccrual loans are
returned to accrual status when they become current as to principal and
interest or demonstrate a period of performance under the contractual
terms and, in the opinion of management, are fully collectible as to
principal and interest.
38
Commercial type loans are considered impaired when it is probable that
the borrower will not repay the loan according to the original
contractual terms of the loan agreement, and all loan types are
considered impaired if the loan is restructured in a troubled debt
restructuring.
The allowance for loan losses related to impaired loans is based on
discounted cash flows using the loan's initial effective interest rate or
the fair value of the collateral for certain loans where repayment of the
loan is expected to be provided solely by the underlying collateral
(collateral dependent loans). The Company's impaired loans are generally
collateral dependent. The Company considers the estimated cost to sell,
on a discounted basis, when determining the fair value of collateral in
the measurement of impairment if those costs are expected to reduce the
cash flows available to repay or otherwise satisfy the loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is the amount which, in the opinion of
management, is necessary to absorb probable losses inherent in the loan
portfolio. The allowance is determined by reference to the market area
the Company serves, local economic conditions, the growth and composition
of the loan portfolio with respect to the mix between the various types
of loans and their related risk characteristics, a review of the value of
collateral supporting the loans, and comprehensive reviews of the loan
portfolio by the Independent Loan Review staff and management. As a
result of the test of adequacy, required additions to the allowance for
loan losses are made periodically by charges to the provision for loan
losses.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, future
additions to the allowance for loan losses may be necessary based on
changes in economic conditions or changes in the values of properties
securing loans in the process of foreclosure. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the allowance
for loan losses based on their judgements about information available to
them at the time of their examination which may not be currently
available to management.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation of premises and equipment is determined using the straight
line method over the estimated useful lives of the respective assets.
Expenditures for maintenance, repairs, and minor replacements are charged
to expense as incurred.
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") consists of properties acquired through
foreclosure or by acceptance of a deed in lieu of foreclosure. These
assets are recorded at the lower of fair value of the asset acquired less
estimated costs to sell or "cost" (defined as the fair value at initial
foreclosure). At the time of foreclosure, or when foreclosure occurs
in-substance, the excess, if any of the loan over the fair market value
of the assets received, less estimated selling costs, is charged to the
allowance for loan losses and any subsequent valuation write-downs are
charged to other expense. Operating costs associated with the properties
are charged to expense as incurred. Gains on the sale of OREO are
included in income when title has passed and the sale has met the minimum
down payment requirements prescribed by GAAP.
39
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill. Goodwill is the excess
of cost over the fair value of tangible net assets acquired in
acquisitions accounted for using the purchase method of accounting and
not allocated to any specific asset or liability category. Goodwill is
being amortized on a straight-line basis over periods ranging from 15
years to 25 years from the acquisition date. The Company reviews goodwill
on a periodic basis for events or changes in circumstances that may
indicate that the carrying amount of goodwill may not be recoverable.
TREASURY STOCK
Treasury stock acquisitions are recorded at cost. Subsequent sales of
treasury stock are recorded on an average cost basis. Gains on the sale
of treasury stock are credited to additional paid-in-capital. Losses on
the sale of treasury stock are charged to additional paid-in-capital to
the extent of previous gains, otherwise charged to retained earnings.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. The
Company files a consolidated tax return on the accrual basis. Deferred
income taxes are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock based awards measured on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma net income per share disclosures for employee stock-based grants
made in 1995 and thereafter as if the fair value based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosures of SFAS No. 123.
PER SHARE AMOUNTS
Basic earnings per share (EPS) excludes dilution and is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity (such as the Company's dilutive stock options).
40
All share and per share data has been restated to give retroactive effect
to stock splits and stock dividends.
OTHER FINANCIAL INSTRUMENTS
The Company is a party to certain other financial instruments with
off-balance-sheet risk such as commitments to extend credit, unused lines
of credit, and standby letters of credit, as well as certain mortgage
loans sold to investors with recourse. The Company's policy is to record
such instruments when funded.
COMPREHENSIVE INCOME
At the Company, comprehensive income represents net income plus other
comprehensive income, which consists of the net change in unrealized
gains or losses on securities available for sale, net of income taxes,
for the period. Accumulated other comprehensive income represents the net
unrealized gains or losses on securities available for sale, net of
income taxes, as of the consolidated balance sheet dates.
PENSION COSTS
The Company maintains a non contributory, defined benefit retirement and
pension plan covering substantially all employees. Pension costs, based
on actuarial computations of current and future benefits for employees,
are charged to current operating expenses.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," effective January 1,
2001. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. Changes in the
fair value of the derivative financial instruments are reported in either
net income or as a component of comprehensive income. Consequently, there
may be increased volatility in net income, comprehensive income, and
stockholders' equity on an ongoing basis as a result of accounting for
derivatives in accordance with SFAS No. 133.
Special hedge accounting treatment is permitted only if specific criteria
are met, including a requirement that the hedging relationship be highly
effective both at inception and on an ongoing basis. Accounting for
hedges varies based on the type of hedge - fair value or cash flow.
Results of effective hedges are recognized in current earnings for fair
value hedges and in other comprehensive income for cash flow hedges.
Ineffective portions of hedges are recognized immediately in earnings and
are not deferred.
The adoption of SFAS No. 133 by the Company on January 1, 2001 did not
have a material effect on the Company's consolidated financial position
or results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation". FASB
Interpretation No. 44 clarifies the application of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" for
certain issues. The adoption of this Interpretation on July 1, 2000
did not have a material effect on the Company's financial position
or results of operations.
41
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", a replacement of SFAS No. 125. SFAS No. 140 addresses
implementation issues that were identified in applying SFAS No. 125. This
statement revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of the provisions of SFAS No. 125
without reconsideration. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. SFAS No. 140 is effective for recognition
and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. This statement is to be applied prospectively with
certain exceptions. Other than those exceptions, earlier or retroactive
application is not permitted. The adoption of SFAS No. 140 did not have a
material effect on the Company's consolidated financial statements.
(2) MERGER AND ACQUISITION ACTIVITY
On February 17, 2000, the Company consummated a merger, whereby Lake
Ariel Bancorp, Inc. (Lake Ariel) and its subsidiaries were merged with
and into the Company with each issued and outstanding share of Lake Ariel
exchanged for 0.9961 shares of Bancorp common stock. The transaction
resulted in the issuance of approximately 5.0 million shares of Bancorp
common stock. Lake Ariel's commercial banking subsidiary was LA Bank,
N.A.
On July 1, 2000, the Company consummated a merger, whereby Pioneer
American Holding Company Corp. (Pioneer Holding Company) and its
subsidiary were merged with and into the Company with each issued and
outstanding share of Pioneer Holding Company exchanged for 1.805 shares
of Bancorp common stock. The transaction resulted in the issuance of
approximately 5.2 million shares of Bancorp common stock. Pioneer Holding
Company's commercial banking subsidiary was Pioneer American Bank, N.A.
The Lake Ariel and Pioneer Holding Company mergers qualified as tax-free
exchanges and were accounted for as poolings-of-interests. accordingly,
these consolidated financial statements have been restated to present the
combined consolidated financial condition and results of operations of
all companies as if the mergers had been in effect for all years
presented.
LA Bank, N.A. and Pioneer American Bank, N.A. were commercial
banks headquartered in northeast Pennsylvania with approximately
$570 million and $420 million, respectively, in assets at December 31,
1999, and twenty-two and eighteen branch offices, respectively, in
five counties. Immediately following the mergers described above,
Bancorp was the surviving holding company for NBT Bank, LA Bank,
N.A., Pioneer American Bank, N.A. and NBT Financial Services, Inc. On
November 10, 2000, LA Bank, N.A. changed its name to Pennstar Bank,
N.A.. On December 9, 2000, Pioneer American Bank, N.A. was merged
into Pennstar.
42
The following table presents net interest income, net income, and
earnings per share reported by Lake Ariel, Pioneer Holding Company, the
Company without Lake Ariel or Pioneer Holding Company (NBT) and the
Company on a combined basis:
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
----------------- -----------------
(In thousands, except per share data)
Net interest income:
NBT $ 60,582 57,403
Lake Ariel 14,341 12,330
Pioneer Holding Company 14,491 13,983
----------------- -----------------
Combined $ 89,414 83,716
================= =================
Net income:
NBT $ 18,370 19,102
Lake Ariel 3,805 3,771
Pioneer Holding Company 4,082 4,022
----------------- -----------------
Combined $ 26,257 26,895
================= =================
Basic earnings per share:
NBT $ 1.41 1.45
Lake Ariel 0.79 0.79
Pioneer Holding Company 1.41 1.39
Combined 1.14 1.16
Diluted earnings per share:
NBT $ 1.40 1.42
Lake Ariel 0.77 0.77
Pioneer Holding Company 1.39 1.36
Combined 1.12 1.14
On May 5, 2000, the Company consummated the acquisition of M. Griffith,
Inc. a Utica, New York based securities firm offering investment,
financial advisory and asset-management services, primarily in the Mohawk
Valley region. At that time, M. Griffith, Inc., a full-service
broker/dealer and a Registered Investment Advisor, became a wholly-owned
subsidiary of NBT Financial Services, Inc. The acquisition was accounted
for using the purchase method. As such, both the assets acquired and
liabilities assumed have been recorded on the consolidated balance sheet
of the Company at estimated fair value as of the date of acquisition. M.
Griffith, Inc.'s, results of operations are included in the Company's
consolidated statement of income from the date of acquisition forward. To
complete the transaction, the Company issued approximately 421,000 shares
of its common stock, valued at $4.8 million. Goodwill, representing the
cost over net assets acquired, was $3.4 million and is being amortized
over fifteen years on a straight-line basis.
43
On June 2, 2000, one of Bancorp's subsidiaries, LA Bank, N.A.
(subsequently renamed Pennstar), purchased two branches from Mellon Bank.
Deposits from the Mellon Bank branches were approximately $36.7 million,
including accrued interest payable. In addition, the Company received
approximately $32.2 million in cash as consideration for net liabilities
assumed. The acquisition was accounted for using the purchase method. As
such, both the assets acquired and liabilities assumed have been recorded
on the consolidated balance sheet of the Company at estimated fair value
as of the date of the acquisition. Goodwill, representing the excess of
cost over net assets acquired, was $4.3 million and is being amortized
over 15 years on the straight-line basis. The branches' results of
operations are included in the Company's consolidated statement of income
from the date of acquisition forward.
On November 10, 2000, Pennstar purchased six branches from Sovereign
Bank. deposits from the Sovereign Bank branches were approximately $96.8
million, including accrued interest payable. Pennstar also purchased
loans associated with the branches with a net book balance of $42.4
million. In addition, the Company received $40.9 million in cash
consideration for net liabilities assumed. The acquisition was accounted
for using the purchase method. As such, both the assets acquired and
liabilities assumed have been recorded on the consolidated balance sheet
of the Company at estimated fair value as of the date of the acquisition.
Goodwill, representing the excess of cost over net assets acquired, was
$12.7 million and is being amortized over 15 years on a straight-line
basis. The branches' results of operations are included in the Company's
consolidated statement of income from the date of acquisition forward.
During 2000, the following merger, acquisition and reorganization costs
were recognized:
Professional fees $ 8,525
Data processing 2,378
Severance 7,278
Branch closings 1,736
Advertising and supplies 1,337
Hardware and software write-offs 1,428
Miscellaneous 943
----------
$ 23,625
==========
With the exception of hardware and software write-offs and certain branch
closing costs, all of the above costs have been or will be paid through
normal cash flow operations.
At December 31, 2000, after payments of certain merger, acquisition and
reorganization costs, the Company had a remaining accrued liability for
merger, acquisition and reorganization costs as follows:
Professional fees $ 1,306
Data processing 1,445
Severance 6,901
Branch closings 541
Advertising and supplies 355
Miscellaneous 448
----------
$ 10,996
==========
With the exception of certain severance costs which will be paid out over
a period of time consistent with the respective service agreements, all
of the above liabilities are expected to be paid during 2001.
44
PENDING ACQUISITION (UNAUDITED)
On January 2, 2001, the Company announced the signing of a definitive
agreement to acquire First National Bancorp, Inc. (FNB) and its wholly
owned subsidiary, The First National Bank of Northern New York (FNB
Bank). FNB Bank is expected to be merged into NBT Bank, N.A. In the
acquisition, shareholders of FNB will receive five shares of Bancorp
common stock for each share of FNB common stock. Bancorp is expected to
issue approximately 1 million shares of common stock, with a total value
of approximately $15 million, based on the closing price of Bancorp stock
on January 2, 2001. The acquisition is structured to be tax-free to
shareholders of FNB and will be accounted for using the purchase method
of accounting. Closing the acquisition is subject to approval by FNB's
shareholders and regulatory authorities, and is expected to occur in the
second quarter of 2001. At December 31, 2000, FNB Bank had assets of
$114.2 million, deposits of $102.8 million and equity of $10.0 million.
FNB Bank operates six full-service banking locations in New York State's
North Country. NBT also announced a plan to repurchase approximately 1
million shares of its common stock specifically for issuance in the
transaction.
(3) EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per share
for the years presented in the consolidated statements of income:
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- -------------------------- ---------------------------
WEIGHTED PER WEIGHTED PER WEIGHTED PER
NET AVERAGE SHARE NET AVERAGE SHARE NET AVERAGE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------
(In thousands, except per share data)
Basic Earnings per Share $ 7,191 23,461 $ 0.31 $ 26,257 23,096 $ 1.14 $ 26,895 23,199 $ 1.16
Effect of dilutive securities:
Stock based compensation 70 318 492
Contingent shares 69 - -
------- ------ -------
Diluted earnings per share $ 7,191 23,600 $ 0.30 $ 26,257 23,414 $ 1.12 $ 26,895 23,691 $ 1.14
======= ====== =======
There were approximately 743,000, 226,000 and 53,000 stock options for
the years ended December 31, 2000, 1999 and 1998, respectively, that were
not considered in the calculation of diluted earnings per share since the
stock options' exercise prices were greater than the average market price
during these periods.
(4) FEDERAL RESERVE BANK REQUIREMENT
The Company is required to maintain reserve balances with the Federal
Reserve Bank. The required average total reserve for NBT Bank and
Pennstar for the 14 day maintenance period ending December 27, 2000 was
$14.4 million and $13.7 million, respectively.
45
(5) SECURITIES
The amortized cost, estimated fair value and unrealized gains and losses
of securities available for sale are as follows:
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- ----------------- ----------------- ------------------
(IN THOUSANDS)
December 31, 2000:
U.S. Treasury $ 10,393 - 471 9,922
Federal Agency 124,695 186 2,680 122,201
State & municipal 43,304 496 337 43,463
Mortgage-backed 349,661 1,514 2,870 348,305
Collateralized mortgage
obligations 39,782 673 757 39,698
Other securities 13,379 456 1,052 12,783
----------------- ----------------- ----------------- ------------------
Total securities
available for sale $ 581,214 3,325 8,167 576,372
================= ================= ================= ==================
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- ----------------- ----------------- ------------------
(IN THOUSANDS)
December 31, 1999:
U.S. Treasury $ 10,400 - 1,865 8,535
Federal Agency 125,959 - 9,693 116,266
State & municipal 41,623 20 3,141 38,502
Mortgage-backed 408,083 9 16,600 391,492
Collateralized mortgage
obligations 45,392 10 3,568 41,834
Other securities 10,107 362 371 10,098
----------------- ----------------- ----------------- ------------------
Total securities
available for sale $ 641,564 401 35,238 606,727
================= ================= ================= ==================
The following table sets forth information with regard to sales
transactions of securities available for sale:
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
----------------------------------------------
(in thousands)
Proceeds from sales $ 9,296 110,073 184,669
Gross realized gains 151 1,805 1,571
Gross realized losses 1,367 2 4
During 1999, Lake Ariel adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In connection with its adoption of
SFAS No. 133, Lake Ariel transferred approximately $71.1 million of
securities from its held to maturity portfolio to its available for sale
portfolio. These securities were subsequently sold during 1999 at a net
realized gain of $0.18 million.
In late December 2000, the Company decided to sell certain debt
securities with an amortized cost of $21.7 million. These securities had
net unrealized losses of approximately $1.4 million at December 31, 2000.
As a result of the decision to immediately sell these securities, they
were considered to be other than temporarily impaired, and the net loss
was recorded in the Company's consolidated statement of income for the
46
year ended December 31, 2000. These securities were sold in early
January, 2001 at a loss approximating the loss recorded in 2000. These
securities were presented on the Company's December 31, 2000 consolidated
balance sheet as trading securities.
At December 31, 2000 and 1999, securities available for sale with
amortized costs totaling $525.0 million and $479.3 million, respectively,
were pledged to secure public deposits and for other purposes required or
permitted by law. At December 31, 2000, securities available for sale
with an amortized cost of $33.9 were pledged as collateral for securities
sold under repurchase agreements.
The amortized cost, estimated fair value, and unrealized gains and losses
of securities held to maturity are as follows:
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- ----------------- ----------------- ------------------
(IN THOUSANDS)
December 31, 2000:
Mortgage-backed $ 46,376 70 918 45,528
State & municipal 55,990 460 192 56,258
Other securities 47 - - 47
----------------- ----------------- ----------------- ------------------
Total securities held
to maturity $ 102,413 530 1,110 101,833
================= ================= ================= ==================
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- ----------------- ----------------- ------------------
(IN THOUSANDS)
December 31, 1999:
Mortgage-backed $ 51,578 - 3,010 48,568
State & municipal 61,730 170 1,331 60,569
Other securities 10 - - 10
----------------- ----------------- ----------------- ------------------
Total securities held
to maturity $ 113,318 170 4,341 109,147
================= ================= ================= ==================
At December 31, 2000 and 1999, substantially all of the mortgage-backed
securities held by the Company were issued or backed by Federal agencies.
47
The following tables set forth information with regard to contractual
maturities of debt securities at December 31, 2000:
Debt Securities Classified AMORTIZED ESTIMATED
AS AVAILABLE FOR SALE COST FAIR VALUE
------------------------------- ------------ ------------
(in thousands)
Within one year $ 3,254 3,240
From one to five years 102,618 101,558
From five to ten years 177,778 178,136
After ten years 284,185 280,655
---------- ----------
$ 567,835 563,589
========== ==========
Debt Securities Classified AMORTIZED ESTIMATED
AS HELD TO MATURITY COST FAIR VALUE
------------------------------- ------------ ------------
Within one year $ 22,015 22,015
From one to five years 30,542 29,946
From five to ten years 7,965 7,982
After ten years 41,891 41,890
---------- ----------
$ 102,413 101,833
========== ==========
Maturities of mortgage-backed and collateralized mortgage obligations
securities are stated based on their estimated average life. Actual
maturities may differ from estimated average life or contractual
maturities because, in certain cases, borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
Except for U.S. Government securities, there were no holdings, when taken
in the aggregate, of any single issues that exceeded 10% of consolidated
stockholders' equity at December 31, 2000 and 1999.
(6) LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of loans, net of deferred fees and origination costs, by
category is as follows:
DECEMBER 31,
2000 1999
----------------- -----------------
(IN THOUSANDS)
Residential real estate mortgages $ 352,098 381,961
Commercial real estate mortgages 354,540 347,191
Real estate construction and development 41,466 23,188
Commercial and agricultural 499,854 331,535
Consumer 304,283 268,703
Home equity 174,241 114,289
----------------- -------------------
Total loans $ 1,726,482 1,466,867
================= ===================
FHLB advances are collateralized by a blanket lien on the Company's
residential real estate mortgages.
48
Changes in the allowance for loan losses for the three years ended
December 31, 2000, are summarized as follows:
2000 1999 1998
---------------- ----------------- ----------------
(IN THOUSANDS)
Balance at January 1, $ 19,711 18,231 16,450
Allowance related to
purchase acquisitions 525 - -
Provision 8,678 5,440 6,149
Recoveries on loans
previously charged-off 1,040 1,064 1,036
Loans charged-off (5,605) (5,024) (5,404)
--------------- ----------------- ----------------
Balance at December 31, $ 24,349 19,711 18,231
=============== ================= ================
The following table sets forth information with regard to non-performing
loans:
AT DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998
--------------- ----------------- ----------------
(IN THOUSANDS)
Loans in non-accrual status $ 12,688 7,596 7,673
Loans contractually past due
90 days or more and still
accruing interest 8,181 2,026 2,755
Restructured loans 656 1,014 1,247
--------------- ------------------ -----------------
Total non-performing
loans $ 21,525 10,636 11,675
=============== ================= ================
Accumulated interest on the above non-accrual loans of approximately
$764,000, $802,000, and $921,000 would have been recognized as income in
2000, 1999, and 1998, respectively, had these loans been in accrual
status. Approximately $382,000, $249,000, and $193,000 of interest on the
above non-accrual loans was collected in 2000, 1999, and 1998,
respectively.
At December 31, 2000 and 1999, the recorded investment in loans that are
considered to be impaired totaled $11.9 million and $6.3 million,
respectively, for which the related allowance for loan losses is $506,000
and $688,000, respectively. As of December 31, 2000 and 1999, there were
$10.8 million and $4.5 million, respectively, of impaired loans which did
not have an allowance for loan losses due to the adequacy of their
collateral. As of December 31, 2000 and 1999, $656,000 and $1.0 million,
respectively, of restructured loans were considered to be impaired.
49
The following provides additional information on impaired loans for the
periods presented:
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
2000 1999 1998
-------------------- --------------------- --------------------
(IN THOUSANDS)
Average recorded investment
on impaired loans $ 8,391 5,800 7,900
Interest income recognized
on impaired loans 308 200 200
Cash basis interest income
recognized on impaired
loans 308 200 200
RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has made loans at
prevailing rates and terms to directors, officers, and other related
parties. Such loans, in management's opinion, did not present more than
the normal risk of collectibility or incorporate other unfavorable
features. The aggregate amount of loans outstanding to qualifying related
parties and changes during the years are summarized as follows:
2000 1999
----------------- ----------------
(IN THOUSANDS)
Balance at January 1, $ 12,647 7,351
New loans 3,732 6,950
Repayments (6,941) (1,654)
----------------- ----------------
Balance at December 31, $ 9,438 12,647
================= ================
(7) PREMISES AND EQUIPMENT, NET
A summary of premises and equipment follows:
DECEMBER 31,
2000 1999
----------------- -----------------
(IN THOUSANDS)
Land, buildings and improvements $ 47,522 46,655
Equipment 35,875 40,135
Construction in progress 302 1,399
----------------- -------------------
83,699 88,189
Accumulated depreciation 40,242 41,092
----------------- -------------------
Total premises and equipment $ 43,457 47,097
================= ===================
50
Rental expense included in occupancy expense amounted to $1.2 million in
2000, $1.3 million in 1999, and $1.3 million in 1998. The future minimum
rental payments related to noncancellable operating leases with original
terms of one year or more are as follows at December 31, 2000:
(IN THOUSANDS)
2001 $ 1,239
2002 1,089
2003 557
2004 296
2005 200
Thereafter 643
----------------
Total $ 4,024
================
(8) DEPOSITS
The following table sets forth the maturity distribution of time deposits
at December 31, 2000:
(IN THOUSANDS)
Within one year $ 855,101
After one but within two years 155,106
After two but within three years 33,630
After three but within four years 9,409
After four but within five years 12,465
After five years 410
----------------
Total $ 1,066,121
================
Time deposits of $100,000 or more aggregated $503.8 million and $383.4
million at year end 2000 and 1999, respectively.
(9) SHORT-TERM BORROWINGS
Short-term borrowings consist of Federal funds purchased and securities
sold under repurchase agreements, which generally represent overnight
borrowing transactions, and other short-term borrowings, primarily
Federal Home Loan Bank (FHLB) advances, with original maturities of one
year or less. The Company has unused lines of credit available for
short-term financing of approximately $537 million and $326 million at
December 31, 2000 and 1999, respectively. Securities collateralizing
repurchase agreements are held in safekeeping by a non-affiliated
financial institutions and are under the Company's control.
51
Information related to short-term borrowings is summarized as follows:
2000 1999 1998
-------------------- --------------------- --------------------
(DOLLARS IN THOUSANDS)
FEDERAL FUNDS PURCHASED:
Balance at year-end $ 50,000 58,130 28,000
Average during the year 52,218 45,628 36,773
Maximum month end
balance 70,695 88,140 72,300
Weighted average rate
during the year 5.95% 5.23% 5.57%
Weighted average rate at
December 31 6.66% 5.46% 4.55%
SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS:
Balance at year-end $ 27,970 39,187 41,671
Average during the
year 37,036 38,267 35,185
Maximum month end
balance 93,041 52,736 45,368
Weighted average rate
during the year 4.66% 4.09% 4.04%
Weighted average rate
at December 31 4.14% 4.43% 3.66%
OTHER SHORT-TERM
BORROWINGS:
Balance at year-end $ 54,405 44,950 30,201
Average during the
year 56,622 38,251 45,453
Maximum month end
balance 73,831 74,950 50,165
Weighted average rate
during the year 6.48% 5.40% 5.96%
Weighted average rate
at December 31 6.62% 5.45% 5.62%
52
(10) LONG-TERM DEBT
Long-term debt consists of obligations having an original maturity at
issuance of more than one year. A summary as of December 31, 2000 is as
follows:
MATURITY DATE INTEREST RATE AMOUNT
------------- ------------- -------
(DOLLARS IN THOUSANDS)
FHLB advance 2001 6.45-6.77 $ 11,042
FHLB advance 2002 6.27-6.63 32,884
FHLB advance 2003 5.74-5.86 50,000
FHLB advance 2005 4.40-6.41 30,000
FHLB advance 2008 5.06-7.20 35,144
Note payable 2008 6.60 527
FHLB advance 2009 4.97-5.50 75,000
Note payable 2010 6.50 275
--------
Total $234,872
========
FHLB advances are collateralized by the FHLB stock owned by the Company,
certain of its mortgage-backed securities and a blanket lien on its
residential real estate mortgage loans.
(11) INCOME TAXES
The significant components of income tax expense attributable to
operations are:
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
2000 1999 1998
-------------------- --------------------- --------------------
(IN THOUSANDS)
Current:
Federal $ 6,763 11,760 6,819
State 742 2,502 1,345
-------------------- --------------------- --------------------
7,505 14,262 8,164
Deferred:
Federal (2,942) (521) (786)
State (568) 141 (229)
-------------------- --------------------- --------------------
(3,510) (380) (1,015)
-------------------- --------------------- --------------------
Total income tax
expense $ 3,995 13,882 7,149
==================== ===================== ====================
53
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
DECEMBER 31,
----------------------------------------
2000 1999
----------------- -----------------
(IN THOUSANDS)
Deferred tax assets:
Allowance for loan losses $ 9,255 7,075
Net unrealized loss on securities available
for sale 1,979 13,128
Deferred compensation 1,733 1,040
Postretirement benefit obligation 1,267 1,068
Loss on trading securities 504 -
Accrued severance and contract termination costs 678 -
Deferred loan fees, net 516 -
Intangible amortization 493 351
Other 362 510
----------------- -------------------
Total gross deferred tax assets 16,787 23,172
----------------- -------------------
Deferred tax liabilities:
Prepaid pension obligation 823 389
Premises and equipment, primarily due
to accelerated depreciation 1,739 1,290
Equipment leasing 616 567
Securities discount accretion 588 480
Tax bad debt reserve 437 226
Other 21 18
----------------- -------------------
Total gross deferred tax liabilities 4,224 2,970
----------------- -------------------
Net deferred tax assets $ 12,563 20,202
================= ===================
Realization of deferred tax assets is dependent upon the generation of
future taxable income or the existence of sufficient taxable income
within the available carryback period. A valuation allowance is provided
when it is more likely than not that some portion of the deferred tax
asset will not be realized. Based on available evidence, gross deferred
tax assets will ultimately be realized and a valuation allowance was not
deemed necessary at December 31, 2000 and 1999.
54
The following is a reconciliation of the provision for income taxes to
the amount computed by applying the applicable Federal statutory rate of
35% to income before taxes:
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998
----------------- ------------------- -----------------
(IN THOUSDANDS)
Federal income tax at
statutory rate $ 3,915 14,049 11,915
Tax exempt income (2,025) (1,816) (1,546)
Non-deductible expenses 274 443 354
Non-deductible merger expenses 2,122 - -
State taxes, net of federal
tax benefit 113 1,718 725
Federal income tax benefit from
corporate realignment - - (4,186)
Other, net (404) (512) (113)
----------------- ------------------- -----------------
Income tax expense $ 3,995 13,882 7,149
================= =================== =================
(12) STOCKHOLDERS' EQUITY
Certain restrictions exist regarding the ability of the subsidiary banks
to transfer funds to the Company in the form of cash dividends. The
approval of the Comptroller of the Currency is required to pay dividends
in excess of a subsidiary bank's earnings retained in the current year
plus retained net profits for the preceding two years (as defined in the
regulations) or when a bank fails to meet certain minimum regulatory
capital standards. At December 31, 2000, the subsidiary banks have the
ability to pay $5.1 million in dividends to Bancorp without obtaining
prior regulatory approval. Under the State of Delaware General
Corporation Law, the Company may declare and pay dividends either out of
accumulated net retained earnings or capital surplus.
In November 1994, the Company adopted a Stockholder Rights Plan (Plan)
designed to ensure that any potential acquiror of the Company negotiate
with the Board of Directors and that all Company stockholders are treated
equitably in the event of a takeover attempt. At that time, the Company
paid a dividend of one Preferred Share Purchase Right (Right) for each
outstanding share of common stock of the Company. Similar rights are
attached to each share of the Company's common stock issued after
November 15, 1994. Under the Plan, the Rights will not be exercisable
until a person or group acquires beneficial ownership of 20 percent or
more of the Company's outstanding common stock, begins a tender or
exchange offer for 25 percent or more of the Company's outstanding common
stock, or an adverse person, as declared by the Board of Directors,
acquires 10 percent or more of the Company's outstanding common stock.
Additionally, until the occurrence of such an event, the Rights are not
severable from the Company's common stock and, therefore, the Rights will
be transferred upon the transfer of shares of the Company's common stock.
Upon the occurrence of such events, each Right entitles the holder to
purchase one one-hundredth of a share of Series R Preferred Stock, $0.01
par value per share of the Company at a price of $100.
The Plan also provides that upon the occurrence of certain specified
events, the holders of Rights will be entitled to acquire additional
equity interests, in the Company or in the acquiring entity, such
interests having a market value of two times the Right's exercise price
of $100. The Rights, which expire November 14, 2004, are redeemable in
55
whole, but not in part, at the Company's option prior to the time they
are exercisable, for a price of $0.01 per Right.
(13) REGULATORY CAPITAL REQUIREMENTS
Bancorp and the subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the
consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the subsidiary
banks must meet specific capital guidelines that involve quantitative
measures of the banks' assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital
amounts and classifications are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the subsidiary banks to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier 1
Capital to risk-weighted assets, and of Tier 1 capital to average assets.
As of December 31, 2000 and 1999, the Company and the subsidiary banks
meet all capital adequacy requirements to which they were subject.
Under their prompt corrective action regulations, regulatory authorities
are required to take certain supervisory actions (and may take additional
discretionary actions) with respect to an undercapitalized institution.
Such actions could have a direct material effect on an institution's
financial statements. The regulations establish a framework for the
classification of banks into five categories: well capitalized,
adequately capitalized, under capitalized, significantly under
capitalized, and critically under capitalized. As of December 31, 2000,
the most recent notification from the respective banks' (or their
predecessor banks) regulators categorized NBT Bank as well capitalized
and Pennstar as adequately capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized and
adequately capitalized the banks must maintain minimum total risk-based,
Tier 1 risk-based, Tier 1 capital to average asset ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the subsidiary banks' categories.
56
The Company and the subsidiary banks' actual capital amounts and ratios
are presented as follows:
REGULATORY
RATIO REQUIREMENTS
-----------------------------
FOR
MINIMUM CLASSIFICATION
ACTUAL CAPITAL AS WELL
(DOLLARS IN THOUSANDS) AMOUNT RATIO ADEQUACY CAPITALIZED
------- ----- -------- ------------
As of December 31, 2000:
Total capital (to risk weighted assets):
Company combined $ 205,837 11.48% 8.00% 10.00%
NBT Bank 123,419 11.73% 8.00% 10.00%
Pennstar 63,263 8.97% 8.00% 10.00%
Tier I Capital (to risk weighted assets):
Company combined 183,842 10.25% 4.00% 6.00%
NBT Bank 109,973 10.48% 4.00% 6.00%
Pennstar 54,981 7.80% 4.00% 6.00%
Tier I Capital (to average assets):
Company combined 183,842 7.10% 4.00% 5.00%
NBT Bank 109,973 7.40% 4.00% 5.00%
Pennstar 54,981 5.12% 4.00% 5.00%
As of December 31, 1999:
Total capital (to risk weighted assets):
Company combined $ 220,967 14.95% 8.00%
NBT Bank 132,427 14.59% 8.00% 10.00%
LA Bank 40,896 13.03% 8.00% 10.00%
Pioneer Bank 37,279 15.76% 8.00% 10.00%
Tier I Capital (to risk weighted assets):
Company combined 203,722 13.78% 4.00%
NBT Bank 121,047 13.33% 4.00% 6.00%
LA Bank 38,215 12.17% 4.00% 6.00%
Pioneer Bank 34,321 14.51% 4.00% 6.00%
Tier I Capital (to average assets):
Company combined 203,722 8.63% 3.00%
NBT Bank 121,047 8.84% 3.00% 5.00%
LA Bank 38,215 6.85% 3.00% 5.00%
Pioneer Bank 34,321 8.07% 4.00% 5.00%
57
(14) EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company has a qualified, noncontributory pension plan covering
substantially all of its employees. M. Griffith, Inc., Lake Ariel and
Pioneer Holding Company did not provide for pension benefits. As such,
M. Griffith, Inc. and Pennstar employees are not included in this
plan at December 31, 2000. M. Griffith, Inc. and Pennstar employees
began to participate and accrue benefits under this Plan as of
January 1, 2001. No benefit credit was provided in the Company's plan for
service with M. Griffith, Inc., Lake Ariel or Pioneer Holding Company.
Benefits paid from the plan are based on age, years of service,
compensation, social security benefits, and are determined in
accordance with defined formulas. The Company's policy is to fund the
pension plan in accordance with ERISA standards. Assets of the plan
are invested in publicly traded stocks and bonds. Prior to January 1,
2000, the Company's plan was a traditional defined benefit plan based
on final average compensation. On January 1, 2000, the plan was
converted to a cash balance plan with grandfathering provisions for
existing participants.
The net periodic pension expense and the funded status of the plan are as
follows:
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
2000 1999 1998
--------------- ----------------- ----------------
(IN THOUSANDS)
Components of net periodic benefit cost:
Service cost $ 883 892 701
Interest cost 1,492 1,457 1,354
Expected return on plan assets (1,922) (1,935) (1,705)
Amortization of initial unrecognized asset (109) (109) (109)
Amortization of prior service cost 223 257 257
Amortization of unrecognized net gain (62) - -
--------------- ----------------- ----------------
Net periodic pension cost $ 505 562 498
=============== ================= ================
Change in projected benefit obligation:
Benefit obligation at beginning of year (20,145) (21,434) (19,490)
Service cost (883) (892) (701)
Interest cost (1,492) (1,457) (1,354)
Actuarial(loss) gain (1,057) 2,402 (1,119)
Benefits paid 2,049 1,236 1,230
Prior service cost 296 - -
--------------- ----------------- ----------------
Projected benefit obligation
at end of year $ (21,232) (20,145) (21,434)
=============== ================= ================
Change in plan assets:
Fair value of plan assets at beginning of year 21,990 21,931 19,432
Actual return on plan assets 323 745 3,671
Employer contributions - 550 58
Benefits paid (2,049) (1,236) (1,230)
--------------- ----------------- ----------------
Fair value of plan assets at end of year $ 20,264 21,990 21,931
=============== ================= ================
58
AT DECEMBER 31,
-------------------------------------------------------
2000 1999 1998
--------------- ----------------- ----------------
(IN THOUSANDS)
Plan assets (less than) in excess of projected benefit
obligation $ (968) 1,845 497
Unrecognized portion of net asset at transition (976) (1,085) (1,194)
Unrecognized net actuarial loss (740) (3,459) (2,247)
Unrecognized prior service cost 3,157 3,677 3,934
--------------- ----------------- ----------------
Prepaid pension cost $ 473 978 990
=============== ================= ================
Weighted average assumptions as of December 31,
Discount rate 7.25% 7.75% 6.75%
Expected long-term return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% 4.00%
=============== ================= ==============
In addition to the Company's non-contributory defined benefit retirement
and pension plan, the Company provides a supplemental employee retirement
plan to certain executives. The amount of the liability recognized in the
Company's consolidated balance sheets was $3.0 million and $1.5 million
at December 31, 2000 and 1999, respectively. The charges to expense with
respect to this plan amounted to $1.7 million, $0.2 million and $0.2
million for the years ended December 31, 2000, 1999, and 1998,
respectively. The discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25%, 7.75%, and 6.75% at
December 31, 2000, 1999, and 1998, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care benefits for retired employees.
Benefits are accrued over the employees' active service period. Lake
Ariel and Pioneer Holding Company did not provide such benefits to
retired employees. As such, Pennstar employees are not included in this
plan as of December 31, 2000. Pennstar employees began to participate in
this plan and to accrue benefits under this plan as of January 1, 2001.
The plan is contributory for participating retirees, requiring
participants to absorb certain deductibles and coinsurance amounts with
contributions adjusted annually to reflect cost sharing provisions and
benefit limitations called for in the plan. employees become eligible for
these benefits if they reach normal retirement age while working for the
Company. The Company funds the cost of postretirement health care as
benefits are paid. The Company elected to recognize the transition
obligation on a delayed basis over twenty years.
59
The net postretirement health benefits expense and funded status are as
follows:
YEARS ENDED DECEMBER 31,
2000 1999 1998
---------------- --------------- ---------------
(IN THOUSANDS)
Components of net periodic benefit cost:
Service cost $ 199 235 205
Interest cost 294 278 261
Amortization of
transition obligation 85 85 85
Amortization of gains
and losses - 24 25
---------------- --------------- ---------------
Net periodic postretirement
benefit cost $ 578 622 576
================ =============== ===============
Change in accumulated benefit
obligation:
Benefit obligation at beginning
of the year 3,815 4,350 4,158
Service cost 199 235 205
Interest cost 294 278 261
Plan participants' contribution 129 106 95
Actuarial loss (gain) 434 (932) (172)
Benefits paid (260) (222) (197)
---------------- --------------- ---------------
Accumulated benefit
obligation at end of year $ 4,611 3,815 4,350
================ =============== ===============
Components of accrued benefit cost:
Funded status $ (4,611) (3,815) (4,350)
Unrecognized
transition obligation 1,018 1,103 1,188
Unrecognized actuarial
net loss 586 152 1,108
---------------- --------------- ---------------
Accrued benefit cost $ (3,007) (2,560) (2,054)
================ =============== ===============
Weighted average discount
rate 7.25% 7.75% 6.75%
================ =============== ===============
The Company used a health care trend rate in calculating the
postretirement accumulated benefit obligation of 8.0% at December 31,
2000, grading down uniformly to 5.5% for 2005 and thereafter.
60
Assumed health care cost trend rates have a significant effect on amounts
reported for health care plans. A one-percentage point change in the
health care trend rates would have the following effects as of and for
the year ended December 31, 2000:
1-PERCENTAGE 1-PERCENTAGE
POINT POINT
INCREASE DECREASE
------------ ------------
(IN THOUSANDS)
Effect on total service and interest cost
components $ 128 (100)
================= ===================
Effect on postretirement accumulated
benefit obligation $ 966 (786)
================= ===================
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLANS
The Company maintains a 401(k) and employee stock ownership plan (the
Plan). The Company contributes to the Plan based on employees'
contributions out of their annual salary. In addition, the Company may
also make discretionary contributions to the Plan based on profitability.
Participation in the plan is contingent upon certain age and service
requirements. The Company recorded expenses associated with the plan of
$1.0 million in 2000, $1.1 million in 1999 and $1.0 million in 1998.
Additionally, LA Bank, N.A. maintained a profit-sharing plan and a 401(k)
savings plan. The expense associated with these plans was $0.3 million in
2000, $0.2 million in 1999 and $0.3 million in 1998. Pioneer American
Bank, N.A. maintained an ESOP and savings and investment plan. The
expense associated with this plan was $0.2 million in 2000, $0.1 million
in 1999 and $0.1 million in 1998.
On January 1, 2001, the LA Bank, N.A. and Pioneer American Bank, N.A.
plans were merged into the Company's plan.
STOCK OPTION PLANS
At December 31, 2000, the Company has two stock option plans (Plans).
Under the terms of the plans, options are granted to key employees to
purchase shares of the Company's common stock at a price equal to the
fair market value of the common stock on the date of the grant. Options
granted terminate eight or ten years from the date of the grant.
The per share weighted-average fair value of stock options granted during
2000, 1999 and 1998 was $3.35, $5.47 and $6.70, respectively. The fair
value of each award is estimated on the grant date using the
Black-scholes option pricing model with the following weighted-average
assumptions used for grants in the years ended December 31:
2000 1999 1998
---- ---- ----
Dividend yield 5.34% 3.72% 2.75%
Expected volatility 29.88% 29.05% 21.86%
Risk-free interest rates 6.04%-6.62% 4.63%-6.16% 5.49%-5.62%
Expected life 7 years 7 years 7 years
61
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its Plans and, accordingly, no compensation
cost has been recognized for its stock options in the consolidated
financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No.
123, "Accounting for Stock-Based Compensation", the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
2000 1999 1998
-------------------- --------------------- --------------------
Net income:
As reported $ 7,191 26,257 26,895
Pro forma 6,354 25,519 26,367
Basic earnings per share:
As reported 0.31 1.14 1.16
Pro forma 0.27 1.11 1.14
Diluted earnings per share:
As reported 0.30 1.12 1.14
Pro forma 0.27 1.09 1.11
Because the Company's employee stock options have characteristics
significantly different from those of traded options for which the
Black-Scholes model was developed, and because changes in the subjective
input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
62
The following is a summary of changes in options outstanding:
WEIGHTED
AVERAGE OF
EXERCISE PRICE
NUMBER OF OF OPTIONS
OPTIONS UNDER THE PLANS
----------------- ----------------
Balance at December 31, 1997 1,009,735 $ 8.14
----------------- ----------------
Granted 191,255 18.06
Exercised (101,189) 5.56
Lapsed (3,336) 11.37
----------------- ----------------
Balance at December 31, 1998 1,096,465 8.74
----------------- ----------------
Granted 238,817 20.47
Exercised (167,310) 7.24
Lapsed (17,735) 16.23
----------------- ----------------
Balance at December 31, 1999 1,150,237 14.21
----------------- ----------------
Granted 422,369 14.37
Exercised (277,880) 7.32
Lapsed (30,117) 15.63
----------------- ----------------
Balance at December 31, 2000 1,264,609 $ 14.21
================= ================
The following table summarizes information concerning stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- -------------------------- --------------- --------------- --------------- --------------- ---------------
$4.01-8.50 95,991 0.56 $ 6.47 95,991 $ 6.47
$8.51-13.00 425,693 7.21 12.56 347,286 10.56
$13.01-17.50 358,725 8.91 17.12 1,050 17.12
$17.51-22.00 384,200 7.65 19.47 187,637 19.24
- -------------------------- --------------- --------------- --------------- --------------- ---------------
$4.01-22.00 1,264,609 6.85 $ 14.21 631,964 $ 12.52
========================== =============== =============== =============== =============== ===============
63
(15) COMMITMENTS AND CONTINGENT LIABILITIES
The Company's concentrations of credit risk are reflected in the
consolidated balance sheets. The concentrations of credit risk with
standby letters of credit, unused lines of credit and commitments to
originate new loans and loans sold with recourse generally follow the
loan classifications. At December 31, 2000, approximately 59% of the
Company's loans are secured by real estate located in central and
northern New York and northeastern Pennsylvania. Accordingly, the
ultimate collectibility of a substantial portion of the Company's
portfolio is susceptible to changes in market conditions of those areas.
Management is not aware of any material concentrations of credit to any
industry or individual borrowers.
The Company is a party to certain 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, unused lines of credit, and standby letters of credit, as
well as certain mortgage loans sold to investors with recourse. The
Company's exposure to credit loss in the event of nonperformance by the
other party to the commitments to extend credit, unused lines of credit,
standby letters of credit and loans sold with recourse is represented by
the contractual amount of those instruments. The Company uses the same
credit standards in making commitments and conditional obligations as it
does for on balance sheet instruments.
AT DECEMBER 31,
2000 1999
----------------- -----------------
(IN THOUSANDS)
Commitments to extend credits, primarily
variable rate $ 230,668 214,300
Unused lines of credit 164,062 206,699
Standby letters of credit 6,249 3,926
Loans sold with recourse 20,000 -
In the normal course of business there are various outstanding legal
proceedings. In the opinion of management, the aggregate amount involved
in such proceedings is not material to the consolidated balance sheets or
results of operations of the Company.
64
(16) PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
DECEMBER 31,
ASSETS 2000 1999
----------------- -----------------
(IN THOUSANDS)
Cash and cash equivalents $ 7,632 1,880
Securities available for sale 8,759 7,724
Investment in subsidiaries 207,461 181,043
Other assets 2,403 1,472
----------------- -------------------
Total assets $ 226,255 192,119
================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities $ 18,234 647
----------------- -------------------
Stockholders' equity 208,021 191,472
----------------- -------------------
Total liabilities and stockholders' equity $ 226,255 192,119
================= ===================
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
2000 1999 1998
-------------------- --------------------- --------------------
(IN THOUSANDS)
Dividends from subsidiaries $ 30,000 18,515 15,953
Management fee
from subsidiaries 17,266 - -
Interest and other dividend
income 762 353 345
Net gain on sale of securities
available for sale 151 1,036 16
-------------------- --------------------- --------------------
48,179 19,904 16,314
Operating expense 34,055 1,009 395
-------------------- --------------------- --------------------
Income before income tax
expense (benefit) and
(distributions in excess of)
equity in undistributed
income of subsidiaries 14,124 18,895 15,919
Income tax (benefit) expense (5,738) 223 61
(Distributions in excess of)
equity in undistributed
income of subsidiaries (12,671) 7,585 11,037
-------------------- --------------------- --------------------
Net income $ 7,191 26,257 26,895
==================== ===================== ====================
65
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
2000 1999 1998
-------------------- --------------------- --------------------
(IN THOUSANDS)
Operating activities:
Net income $ 7,191 26,257 26,895
Adjustments to reconcile net
income to net cash provided
by operating activities:
Net gains on sale of securities
available for sale (151) (1,036) (16)
Tax benefit from exercise of
stock options 660 296 117
Distributions in excess of
(equity in undistributed)
income of subsidiaries 12,671 (7,585) (11,037)
Other, net 1,683 (1,432) (548)
-------------------- --------------------- --------------------
Net cash provided by
operating activities 22,054 16,500 15,411
-------------------- --------------------- --------------------
Investing activities:
Securities available for sale:
Proceeds from sales 384 2,301 3,416
Purchases (1,742) (5,717) (2,965)
-------------------- --------------------- --------------------
Net cash (used in) provided
by investing activities (1,358) (3,416) 451
-------------------- --------------------- --------------------
Financing activities:
Proceeds from the issuance of shares
to employee benefit plans
and other stock plans 507 6,221 4,846
Purchase of treasury shares - (6,948) (9,127)
Cash dividends and payment for
fractional shares (15,451) (12,946) (11,864)
-------------------- --------------------- --------------------
Net cash used in
financing activities (14,944) (13,673) (16,145)
-------------------- --------------------- --------------------
Net increase (decrease) in
cash and cash
equivalents 5,752 (589) (283)
Cash and cash equivalents at beginning
of year 1,880 2,469 2,752
-------------------- --------------------- --------------------
Cash and cash equivalents at end
of year $ 7,632 1,880 2,469
==================== ==================== ====================
66
(17) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments.
SHORT TERM INSTRUMENTS
For short-term instruments, such as cash and cash equivalents, accrued
interest receivable, accrued interest payable and short term borrowings,
carrying value approximates fair value.
SECURITIES
Fair values for securities are based on quoted market prices or dealer
quotes, where available. Where quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
LOANS
For variable rate loans that reprice frequently and have no significant
credit risk, fair values are based on carrying values. The fair values
for fixed rate loans are estimated through discounted cash flow analysis
using interest rates currently being offered for loans with similar terms
and credit quality. The fair value of loans held for sale on an aggregate
basis, are based on quoted market prices. Nonperforming loans are valued
based upon recent loss history for similar loans.
DEPOSITS
The fair values disclosed for savings, money market, and noninterest
bearing accounts are, by definition, equal to their carrying values at
the reporting date. The fair value of fixed maturity time deposits is
estimated using a discounted cash flow analysis that applies interest
rates currently offered to a schedule of aggregated expected monthly
maturities on time deposits.
OTHER BORROWINGS
The fair value of other borrowings has been estimated using discounted
cash flow analysis that applies interest rates currently offered for
notes with similar terms.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby letters of
credit are estimated using fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the present credit worthiness of the counterparts. Carrying amounts,
which are comprised of the unamortized fee income, are not significant.
67
Estimated fair values of financial instruments at December 31 are as
follows:
2000 1999
-------------------------------------- --------------------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
AMOUNT VALUE AMOUNT VALUE
----------------- ----------------- ----------------- ------------------
(IN THOUSANDS)
FINANCIAL ASSETS
Cash and cash equivalents $ 110,662 110,662 79,629 79,629
Trading securities 20,541 20,541 - -
Securities available for sale 576,372 576,372 606,727 606,727
Securities held to maturity 102,413 101,833 113,318 109,147
Loans 1,726,482 1,699,421 1,466,867 1,461,915
Less allowance for loan losses 24,349 - 19,711 -
------------- ------- ------- -------
Net loans 1,702,133 1,699,421 1,447,156 1,461,915
Accrued interest receivable 14,382 14,382 13,422 13,422
FINANCIAL LIABILITIES
Deposits:
Interest bearing:
Savings, NOW and
money market $ 671,980 671,980 605,334 605,334
Time deposits 1,066,121 1,068,502 903,862 903,862
Noninterest bearing 302,137 302,137 267,895 267,895
Short-term borrowings 132,375 132,375 142,267 142,267
Long-term debt 234,872 235,734 251,970 246,354
Accrued interest payable 16,428 16,428 9,925 9,925
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance-sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. For example, the Company has a
substantial trust and investment management operation that contributes
net fee income annually. The trust and investment management operation is
not considered a financial instrument, and its value has not been
incorporated into the fair value estimates. Other significant assets and
liabilities include the benefits resulting from the low-cost funding of
deposit liabilities as compared to the cost of borrowing funds in the
market, and premises and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered
in the estimate of fair value.
68
PART IV.
Item 14(b) -- Reports on FORM 8-K
During the quarter ended December 31, 2000, the Company filed the following
Current Reports on Form 8-K:
Current report on Form 8-K, Items 5 and 7, filed with the Securities and
Exchange Commission on October 6, 2000
Current report on Form 8-K, Items 5 and 7, filed with the Securities and
Exchange Commission on November 8, 2000
69
DESCRIPTION OF EXHIBITS
Agreement and Plan of Merger by and between NBT Bancorp Inc. and First National
Bancorp, Inc., dated as of January 2, 2001.
Certificate of Incorporation of NBT BANCORP INC., as amended through
February 17, 2000.
By-laws of NBT BANCORP INC., as amended and restated through April 19, 2000.
NBT BANCORP INC. 401(k) and Employee Stock Ownership Plan made as of
January 1, 2001.
NBT BANCORP INC. Defined Benefit Pension Plan Amended and Restated Effective as
of January 1, 2000.
NBT BANCORP INC. 1993 Stock Option Plan as amended through January 24, 2000.
NBT Bancorp Inc. 2001 Executive Incentive Compensation Plan.
Change in control agreement with Daryl R. Forsythe.
Form of Employment Agreement between NBT Bancorp Inc. and Daryl R. Forsythe made
as of January 1, 2000.
Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank,
National Association and Daryl R. Forsythe made as of January 1, 1995,
and as revised on April 28, 1998, and on January 1, 2000.
Death Benefits Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe made August 22, 1995.
Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, National Association
and Daryl R. Forsythe made as of August 1, 1995.
Form of Employment Agreement between NBT Bancorp Inc. and Martin A. Dietrich
made as of January 1, 2000.
Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank,
National Association and Martin A. Dietrich made as of January 1, 2000.
Form of Employment Agreement between NBT Bancorp Inc. and Michael J. Chewens
made as of June 1, 2000.
Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank,
National Association and Michael J. Chewens made as of June 1, 2000.
NBT Bancorp Inc. and Subsidiaries Master Deferred Compensation Plan of
Directors, adopted February 11, 1992.
Form of Change-In-Control Agreement between NBT Bancorp Inc. and the following
officers of NBT Bancorp Inc. or one or more of its subsidiaries: Michael J.
Chewens and Martin A. Dietrich.
Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made
January 1, 1999.
Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made
January 1, 2000.
Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made
January 1, 2001.
Severance Agreement and Mutual General Release between NBT Bancorp Inc.
and John G. Martines.
Severance Agreement and Mutual General Release between NBT Bancorp Inc.
and Joe C. Minor.
Severance Agreement and Mutual General Release between NBT Bancorp Inc.
and John W. Reuther.
A list of the subsidiaries of the registrant.
Consent of KPMG LLP.
COPIES OF EXHIBITS ARE AVAILABLE UPON PAYMENT OF REPRODUCTION COSTS. SUBMIT YOUR
WRITTEN REQUEST TO MICHAEL J. CHEWENS, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND CORPORATE SECRETARY OF NBT BANCORP INC.
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report on FORM 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, this 26th
day of March, 2001.
NBT BANCORP INC.
(Registrant)
By:
/S/ DARYL R. FORSYTHE
Daryl R. Forsythe, President
and Chief Executive Officer
/S/ MICHAEL J. CHEWENS
Michael J. Chewens
Executive Vice President
Chief Financial Officer and Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the date indicated.
/S/ J. PETER CHAPLIN MARCH 26, 2001
- ---------------------------------------- --------------
J. Peter Chaplin, Director DATE
/S/ RICHARD CHOJNOWSKI MARCH 26, 2001
- ---------------------------------------- --------------
Richard Chojnowski, Director DATE
/S/ DARYL R. FORSYTHE MARCH 26, 2001
- ---------------------------------------- --------------
Daryl R. Forsythe, Director DATE
/S/ EVERETT A. GILMOUR MARCH 26, 2001
- ---------------------------------------- --------------
Everett A. Gilmour, Director DATE
/S/ GENE E. GOLDENZIEL MARCH 26, 2001
- ---------------------------------------- --------------
Gene E. Goldenziel, Director DATE
/S/ PETER B. GREGORY MARCH 26, 2001
- ---------------------------------------- --------------
Peter B. Gregory, Director DATE
/S/ WILLIAM C. GUMBLE MARCH 26, 2001
- ---------------------------------------- --------------
William C. Gumble, Director DATE
/S/ BRUCE D. HOWE MARCH 26, 2001
- ---------------------------------------- --------------
Bruce D. Howe, Director DATE
71
/S/ ANDREW S. KOWALCZYK, JR. MARCH 26, 2001
- ---------------------------------------- --------------
Andrew S. Kowalczyk, Jr., Director DATE
/S/ JOHN G. MARTINES MARCH 26, 2001
- ---------------------------------------- --------------
John G. Martines, Director DATE
/S/ JOHN C. MITCHELL MARCH 26, 2001
- ---------------------------------------- --------------
John C. Mitchell, Director DATE
/S/ JOSEPH G. NASSER MARCH 26, 2001
- ---------------------------------------- --------------
Joseph G. Nasser, Director DATE
/S/ WILLIAM L. OWENS MARCH 26, 2001
- ---------------------------------------- --------------
William L. Owens, Director DATE
/S/ PAUL O. STILLMAN MARCH 26, 2001
- ---------------------------------------- --------------
Paul O. Stillman, Director DATE
72
EXHIBIT INDEX
The following documents are attached as Exhibits to this FORM 10-K or, if
annotated by the symbol *, are incorporated by reference as Exhibits as
indicated by the page number or exhibit cross-reference to the prior filings of
the Registrant with the Commission.
FORM
10-K Exhibit
Exhibit Cross
Number Reference
2.1 Agreement and Plan of Merger by and between NBT Bancorp Inc. and *
First National Bancorp, Inc., dated as of January 2, 2001.
FORM S-4 Registration Statement, file number 333-55360 filed
February 9, 2001 - Annex A
3.1 Certificate of Incorporation of NBT BANCORP INC., as amended through *
February 17, 2000.
FORM S-4 Registration Statement, file number 333-55360 filed
February 9, 2001 - Exhibit 4.1.
3.2 By-laws of NBT BANCORP INC., as amended and restated through April Herein
19, 2000.
Document is attached as Exhibit 3.2.
10.1 NBT BANCORP INC. 401(k) and Employee Stock Ownership Plan made as Herein
of January 1, 2001.
Document is attached as exhibit 10.1
10.2 NBT BANCORP INC. Defined Benefit Pension Plan Amended and Restated Herein
Effective as of January 1, 2000.
Document is attached as exhibit 10.2
10.3 NBT BANCORP INC. 1993 Stock Option Plan as amended *
through January 24, 2000.
FORM 10-Q for the quarterly period ended March 31, 2000, filed
May 15, 2000 -- Exhibit 10.1.
10.4 NBT Bancorp Inc. 2001 Executive Incentive Compensation Plan. Herein
Document is attached as Exhibit 10.4.
10.5 Change in control agreement with Daryl R. Forsythe. Herein
Document is attached as Exhibit 10.5.
10.6 Form of Employment Agreement between NBT Bancorp Inc. and Daryl Herein
R. Forsythe made as of January 1, 2000.
Document is attached as exhibit 10.6.
10.7 Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank, Herein
National Association and Daryl R. Forsythe made as of January 1, 1995,
and as revised on April 28, 1998, and on January 1, 2000.
Document is attached as Exhibit 10.7.
10.8 Death Benefits Agreement between NBT Bancorp Inc., NBT Bank, National Herein
Association and Daryl R. Forsythe made August 22, 1995.
Document is attached as Exhibit 10.8.
10.9 Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, National Herein
Association and Daryl R. Forsythe made as of August 1, 1995.
Document is attached as Exhibit 10.9.
EXHIBIT INDEX (continued)
FORM
10-K Exhibit
Exhibit Cross
Number Reference
10.10 Form of Employment Agreement between NBT Bancorp Inc. and Martin *
A. Dietrich made as of January 1, 2000.
FORM 10-Q for the quarterly period ended March 31, 2000, filed May
13, 2000 -- Exhibit 10.4.
10.11 Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank, *
National Association and Martin A. Dietrich made as of January 1, 2000.
FORM 10-Q for the quarterly period ended March 31, 2000, filed May
13, 2000 -- Exhibit 10.5.
10.12 Form of Employment Agreement between NBT Bancorp Inc. and Michael *
J. Chewens made as of June 1, 2000.
FORM 10-Q for the quarterly period ended September 30, 2000, filed
November 14, 2000 -- Exhibit 10.1.
10.13 Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank, *
National Association and Michael J. Chewens made as of June 1, 2000.
FORM 10-Q for the quarterly period ended September 30, 2000, filed
November 14, 2000 -- Exhibit 10.2.
10.14 NBT Bancorp Inc. and Subsidiaries Master Deferred Compensation Plan Herein
of Directors, adopted February 11, 1992.
Document is attached as Exhibit 10.14.
10.15 Form of Change-In-Control Agreement between NBT Bancorp Inc. and the *
following officers of NBT Bancorp Inc. or one or more of its subsidiaries:
Michael J. Chewens and Martin A. Dietrich.
FORM 10-Q for the quarterly period ended March 31, 2000, filed May
13, 2000 -- Exhibit 10.9.
10.16 Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made *
January 1, 1999.
FORM 10-K for the year ended December 31, 1998, filed March 16, 1999 --
Exhibit 10.16.
Substantially identical contracts for the following directors have been omitted:
Andrew S. Kowalczyk, Jr.; Paul O. Stillman; John C. Mitchell; Everett A. Gilmour
and Peter B. Gregory.
10.17 Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made *
January 1, 2000.
FORM 10-K for the year ended December 31, 1999, filed March 10, 2000 --
Exhibit 10.15.
Substantially identical contracts for the following directors have been omitted:
Andrew S. Kowalczyk, Jr.; Paul O. Stillman; John C. Mitchell; Everett A. Gilmour,
Peter B. Gregory, J. Peter Chaplin, and William L. Owens.
EXHIBIT INDEX (continued)
FORM
10-K Exhibit
Exhibit Cross
Number Reference
10.18 Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made Herein
January 1, 2001.
Document is attached as exhibit 10.18.
Substantially identical contracts for the following directors have been omitted:
J. Peter Chaplin, Richard Chojnowski, Everett A. Gilmour, Gene E. Goldenziel,
Peter B. Gregory, William C. Gumble, Bruce D. Howe, Andrew S. Kowalczyk, Jr.,
John C. Mitchell, Joseph G. Nasser, William L. Owens and Paul O. Stillman.
10.19 Severance Agreement and Mutual General Release between NBT Bancorp Inc. Herein
and John G. Martines.
Document is attached as Exhibit 10.19.
10.20 Severance Agreement and Mutual General Release between NBT Bancorp Inc. Herein
and Joe C. Minor.
Document is attached as Exhibit 10.20.
10.21 Severance Agreement and Mutual General Release between NBT Bancorp Inc. Herein
and John W. Reuther.
Document is attached as Exhibit 10.21.
21 A list of the subsidiaries of the registrant is attached as Exhibit 21. Herein
23 Consent of KPMG LLP. Herein
Document is attached as Exhibit 23.