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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, 1999.
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, No Par, $1.00 Stated 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 29, 2000, there were 17,971,462 shares outstanding of the
Registrant's common stock, par value $0.01 per share, of which 16,898,688 common
shares having a market value of $209,205,757 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. The Registrant's common and preferred stock, no par, stated value of
$1.00 per share was changed to par value of $0.01 per share on February 17,
2000.
Documents Incorporated by Reference
Portions of the Proxy Statement of NBT BANCORP INC. for the Annual Meeting of
Stockholders to be held on April 25, 2000 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 3-5
Average Balance Sheets 9
Net Interest Income Analysis - Taxable Equivalent Basis 9
Net Interest Income and Volume/Rate Variance - Taxable
Equivalent Basis 10
Securities Portfolio 13
Debt Securities - Maturity/Yield Schedule 32
Loans 13
Maturities and Sensitivities of Loans to Changes in
Interest Rates 14
Nonperforming Assets and Risk Elements 14
Allowance for Loan Losses 11
Maturity Distribution of Time Deposits 15
Return on Equity and Assets 16
Short-Term Borrowings 34,35
Item 2 Properties 19
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, 1999.
Part II. Item 5 Market for the Registrant's Common Stock and Related
Shareholder Matters 16,37
Item 6 Selected Financial Data 6
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 thru 18
Item 7A Quantitative and Qualitative Disclosure About Market Risk 16 thru 18
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets at December 31, 1999 and 1998 22
Consolidated Statements of Income for each of the years in
three-year period ended December 31, 1999 23
Consolidated Statements of Stockholders' Equity for each of
the years in the three-year period ended December 31, 1999 24
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1999 25
Consolidated Statements of Comprehensive Income for each of
the years in the three-year period ended December 31, 1999 26
Notes to Consolidated Financial Statements 27 thru 44
Independent Auditors' Report 21
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.
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. 45
(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 2000 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission.
DESCRIPTION OF BUSINESS
REGISTRANT
NBT Bancorp Inc. ("Registrant") is a registered bank holding company
headquartered in Norwich, New York. The Registrant is the parent holding company
of NBT Bank, N.A. ("Bank"), a national bank. The principal asset of the
Registrant is all of the outstanding shares of common stock of the Bank and its
principal source of revenue is dividends it receives from the Bank. The Bank has
two subsidiaries, NBT Capital Corp. and NBT Financial Services, Inc. NBT Capital
Corp., formed in July of 1998, is a venture capital corporation formed to assist
young businesses develop and grow in the markets we serve.
The Bank is a full service commercial bank providing a broad range of
financial products to individuals, corporations and municipalities. The Bank has
thirty-six branch locations and forty-seven automated teller machines serving a
nine county area in central and northern New York. As of December 31, 1999, the
Bank had 445 full-time and 76 part-time employees. The Bank is not a party to
any collective bargaining agreements, and employee relations are considered to
be good.
On February 17, 2000, the shareholders of NBT Bancorp Inc. and Lake Ariel
Bancorp, Inc. approved a merger of the two companies. On this date, Lake Ariel
Bancorp, Inc. was merged with and into NBT Bancorp Inc. with each issued and
outstanding share of Lake Ariel receiving 0.9961 shares of NBT Bancorp Inc.
common stock. LA Bank, N.A., a former subsidiary of Lake Ariel Bancorp, Inc., is
a commercial bank headquartered in northeast Pennsylvania. LA Bank, N.A., with
approximately $570 million in assets at December 31, 1999, has twenty-two branch
offices in five counties. The combined company, NBT Bancorp Inc., has combined
assets over $1.9 billion and fifty-eight branch locations.
On December 8, 1999, NBT Bancorp Inc. and Pioneer American Holding Company
Corp., the parent company of Pioneer American Bank, N.A., announced they entered
into a definitive agreement of merger. The merger is subject to the approval of
each company's shareholders and of banking regulators, and is expected to close
in the second quarter of 2000. Pioneer American Bank, N.A. is a full service
commercial bank with total assets of approximately $420 million at December 31,
1999. Pioneer American Bank, N.A. has eighteen branches in five counties in
northeast Pennsylvania. Pioneer American Bank, N.A. will ultimately be merged
together with LA Bank, N.A. to form the largest community bank headquartered in
northeast Pennsylvania.
COMPETITION
The banking business is extremely competitive and the Bank encounters intense
competition from other financial institutions located within its market area.
The Bank competes 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 Registrant, as a bank holding company, is regulated under the Bank Holding
Company Act of 1956, as amended ("Act"), and is subject to the supervision of
the Board of Governors of the Federal Reserve System ("FRB"). Generally, the Act
limits the business of bank holding companies to banking, or managing or
controlling banks, performing certain services for subsidiaries, and engaging in
such other activities as the FRB may determine to be so closely related to
banking as to be a proper incident thereto. The Registrant is a legal entity
separate and distinct from the Bank. The principal source of the Registrant's
income is the Bank's earnings, and the principal source of its cash flow is
dividends from the Bank. Federal laws impose limitations on the ability of the
Bank to pay dividends as discussed in the Notes to Consolidated Financial
Statements. FRB policy requires bank holding companies to serve as a source of
financial strength to their subsidiary banks by standing ready to use available
resources to provide adequate capital funds to subsidiary banks during periods
of financial stress or adversity.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), federal banking regulators are required to take prompt
corrective action in respect of depository institutions that do not meet minimum
capital requirements. FDICIA identifies the following capital categories for
financial institutions: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.
Rules adopted by the federal banking agencies under FDICIA provide that an
institution is deemed to be well capitalized if the institution has a ratio of
total capital to risk-weighted assets of 10.0% or greater, a Tier I capital to
risk-weighted assets ratio of 6.0% or greater, and a Tier 1 capital to total
assets ratio of 5.0% or greater and the institution is not subject to an order,
written agreement, capital directive, or prompt corrective action directive to
meet and maintain a specific level for any capital measure. FDICIA imposes
progressively more restrictive constraints on operations, management and capital
distributions, depending on the capital category in which an institution is
classified. At December 31, 1999, the Registrant and the Bank were well
capitalized based on the ratios and guidelines noted above.
3
The Act requires prior approval of the FRB of the acquisition by the
Registrant of more than 5 percent of the voting shares of any bank or any other
bank holding company. The Act allows adequately capitalized and adequately
managed bank holding companies to acquire control of banks in any state subject
to certain limitations. An interstate acquisition may not be approved if
immediately before the acquisition the acquirer controls an FDIC-insured
institution or branch in the state of the institution to be acquired, and if
immediately following the acquisition the acquirer would control 30 percent or
more of the total FDIC-insured deposits in that state; but a state may waive the
30-percent limitation by statute, regulation, or order, or by certain
nondiscriminatory administrative approvals. Likewise, an interstate acquisition
may not be approved if it would violate a deposit ceiling established by laws of
the state of the institution to be acquired or if an acquirer controls or upon
consummation of the acquisition would control more than 10% of the total
deposits of insured depository institutions in the United States. Laws of the
state of the institution to be acquired which limit institutions eligible for
interstate acquisition to those in existence for a minimum period of time (not
to exceed five years) will also bar approval of an interstate acquisition if
nondiscriminatory.
The BHC Act prohibits, with certain exceptions, the Registrant from
acquiring direct or indirect control of more than 5% of the voting shares of any
company that is not a bank or bank holding company and from engaging directly or
indirectly in any activity other than those of banking, managing or controlling
banks or other subsidiaries authorized under the BHC Act, or furnishing services
to or performing services for its subsidiaries. Among the permitted activities
is the ownership of shares of any company the activities of which the Board of
Governors determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
Effective March 11, 2000, pursuant to authority granted under the
Gramm-Leach-Bliley Act, a bank holding company may elect to become a financial
holding company and thereby to engage in a broader range of financial and other
activities than are permissible for traditional bank holding companies. In order
to qualify for the election, all of the depository institution subsidiaries of
the bank holding company must be well capitalized and well managed, as defined
by regulation, and all of its insured depository institution subsidiaries must
have achieved a rating of "satisfactory" or better with respect to meeting
community credit needs. Pursuant to the Gramm-Leach-Bliley Act, financial
holding companies will be permitted to engage in activities that are "financial
in nature" or incidental or complementary hereto, as determined by the Federal
Reserve Board. The Gramm-Leach-Bliley Act identifies several activities as
"financial in nature" including, among others, insurance underwriting and
agency, investment advisory services, merchant banking and underwriting, dealing
or making a market in securities. The Registrant has not, at this time, made any
decision with respect to whether it will elect to become a financial holding
company under the Gramm-Leach-Bliley Act.
The Bank is subject to primary supervision, regulation, and examination by
the Office of the Comptroller of the Currency ("OCC"), whose regulations are
intended primarily for the protection of the Bank's depositors and customers
rather than holders of the Registrant's securities. The Bank is subject to
extensive federal statutes and regulations that significantly affect its
business and activities. The Bank must file reports with its regulators
concerning its activities and financial condition and obtain regulatory approval
to enter into certain transactions. The Bank is 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
and activities, reserves against deposits, establishment of branches and certain
other facilities, limitations on loans to one borrower and loans to affiliates
and insiders, and other aspects of the business of banks. Pursuant to recent
federal legislation the federal banking agencies have adopted standards or
guidelines governing banks' internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation and benefits, asset quality and earnings as well as
other operational and managerial standards deemed appropriate by the agencies.
Regulatory authorities have broad authority to initiate proceedings designed to
prohibit banks from engaging in violations of law and regulation and unsafe and
unsound banking practices.
The Gramm-Leach-Bliley Act does not significantly alter the regulatory
regimes under which the Registrant and the Bank currently operate, as described
above. While certain business combinations not currently permissible will be
possible after March 11, 2000, we cannot predict at this time resulting changes
in the competitive environment or the financial condition of the Registrant or
the Bank. 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.
Various legislation, including proposals to substantially change the
financial institution regulatory system and to expand or contract the powers of
banking institutions and bank 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, 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.
4
DEPOSIT INSURANCE AND OTHER ASSESSMENTS
To the extent allowable by law, the deposits of the Bank are insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC").
During 1999, 1998 and 1997, BIF-assessable deposits were subject to an
assessment schedule providing for an assessment range of 0% to .27%, with banks
in the lowest risk category paying no assessments. The Bank was in the lowest
risk category and paid no FDIC insurance assessments during 1999, 1998 and 1997.
BIF assessment rates are subject to semi-annual adjustment by the FDIC Board of
Directors. The FDIC Board of Directors has retained the 1999, 1998 and 1997 BIF
assessment schedule through June 30, 2000.
In 1996, Congress enacted the Deposit Insurance Funds Act which establishes
a schedule to merge with BIF and Savings Association Insurance Fund ("SAIF").
The act also provides for funding Financing Corp ("FICO") bonds, issued to
provide funding for the Federal Savings and Loan Insurance Corporation prior to
1991. Effective for assessments paid for the period starting January 1, 2000,
BIF-assessable deposits are subject to assessment for payment on the FICO bond
obligation equal to the rate of SAIF-assessable deposits. The FICO assessment is
adjusted quarterly based on call report submissions to reflect changes in the
assessment bases of the respective funds. During 1999, BIF insured banks paid a
rate of .012% for purposes of funding FICO bond obligations, resulting in an
assessment of $134,514 for the Bank. The assessment rate for BIF member
institutions has been set at 2.12 basis points, annually, for the first quarter
of 2000.
5
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
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(in thousands, except per share data) 1999 1998 1997 1996 1995
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YEAR ENDED DECEMBER 31,
Interest and fee income $ 101,959 $ 101,080 $ 96,181 $ 84,387 $ 77,400
Interest expense 41,377 43,677 42,522 36,365 34,840
Net interest income 60,582 57,403 53,659 48,022 42,560
Provision for loan losses 3,900 4,599 3,505 3,175 1,553
Noninterest income excluding
securities gains (losses) 10,290 9,355 8,403 7,683 6,957
Securities gains (losses) 1,507 624 (337) 1,179 145
Noninterest expense 38,507 39,128 35,170 34,422 33,024
Income before income taxes 29,972 23,655 23,050 19,287 15,085
Net income 18,370 19,102 14,749 12,179 9,329
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PER COMMON SHARE*
Basic earnings $ 1.41 $ 1.45 $ 1.12 $ 0.93 $ 0.69
Diluted earnings $ 1.40 $ 1.42 $ 1.11 $ 0.93 $ 0.69
Cash dividends paid $ 0.656 $ 0.587 $ 0.421 $ 0.338 $ 0.292
Stock dividends distributed 5% 5% 5% 5% 5%
Book value at year-end $ 9.66 $ 10.02 $ 9.30 $ 8.24 $ 8.07
Tangible book value at year-end $ 9.16 $ 9.44 $ 8.66 $ 7.47 $ 7.20
Average diluted common
shares outstanding 13,163 13,474 13,335 13,140 13,582
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AT DECEMBER 31,
Assets available for sale $ 345,207 $ 358,645 $ 443,918 $ 373,337 $ 399,625
Securities held to maturity 42,446 35,095 36,139 42,239 40,311
Loans 923,031 821,505 735,482 654,593 588,385
Allowance for loan losses 13,855 12,962 11,582 10,473 9,120
Assets 1,393,617 1,290,009 1,280,585 1,138,986 1,106,266
Deposits 1,108,073 1,044,205 1,014,183 916,319 873,032
Short-term borrowings 115,299 96,589 134,527 88,244 115,945
Long-term debt 35,157 10,171 183 20,195 3,012
Stockholders' equity 126,536 130,632 123,343 106,264 108,044
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KEY RATIOS
Return on average assets 1.38% 1.48% 1.20% 1.10% 0.90%
Return on average equity 14.27% 14.93% 12.97% 11.80% 9.18%
Average equity to average assets 9.66% 9.93% 9.25% 9.29% 9.75%
Net interest margin 4.85% 4.76% 4.67% 4.69% 4.43%
Efficiency 53.86% 57.92% 56.09% 60.74% 65.92%
Cash dividend per share payout 46.86% 41.34% 37.91% 36.50% 42.61%
Tier 1 leverage
(Regulatory guideline 3%) 9.50% 9.33% 8.91% 8.70% 8.80%
Tier 1 risk-based capital
(Regulatory guideline 4%) 14.30% 14.69% 14.88% 14.06% 15.21%
Total risk-based capital
(Regulatory guideline 8%) 15.55% 15.94% 16.13% 15.31% 16.46%
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*All share and per share data has been restated to give retroactive effect to
stock dividends and splits.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this discussion and analysis is to provide the reader with a
concise description of the financial condition and results of operations of NBT
Bancorp Inc. ("Bancorp") and its wholly owned subsidiary, NBT Bank, N.A.
("Bank") collectively referred to herein as the Company. This discussion will
focus on results of operations, financial position, capital resources, and
asset/liability management.
OVERVIEW
Net income of $18.4 million ($1.40 diluted earnings per share) for 1999 compares
to $19.1 million ($1.42 diluted earnings per share) for 1998. While net income
was down slightly, income before taxes of $30.0 million improved $6.3 million
(26.7%) over 1998. Results for 1999 included merger related expenses of $0.5
million after taxes, while 1998 results included a $3.8 million net tax benefit
resulting from a corporate realignment.
The increase in pretax income for 1999 can be attributed to improvements in
net interest income and noninterest income. The improved net interest income was
a result of continued loan growth. The higher noninterest income was a result of
increased fee income from the continued expansion of our ATM network, increased
service charges from demand deposit account growth and increased securities
gains on the sales of securities available for sale. Additionally, the Company
maintained stable noninterest expense during this period of net interest and
noninterest income growth.
In December 1999, the Company distributed a 5% stock dividend, the fortieth
consecutive year a stock dividend has been declared. Throughout this report,
amounts per common share and common shares outstanding have been retroactively
adjusted to reflect stock dividends and splits.
Certain statements in this release and other public releases by the Company
contain forward-looking information, 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. Actual results may differ materially from these statements since
such statements involve significant known and unknown rules and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) an increase in competitive pressures in the banking
industry; (2) changes in the interest rate environment; (3) changes in the
regulatory environment; (4) general economic environment conditions, either
nationally or regionally, which may be less favorable than expected, resulting
in, among other things, a deterioration in credit quality; and (5) changes which
may incur in business conditions and inflation.
MERGERS AND ACQUISITIONS
On February 17, 2000, the shareholders of NBT Bancorp Inc. and Lake Ariel
Bancorp, Inc. approved a merger whereby Lake Ariel Bancorp, Inc. was merged with
and into NBT Bancorp Inc. with each issued and outstanding share of Lake Ariel
exchanged for 0.9961 shares of NBT Bancorp Inc. common stock. The transaction
resulted in the issuance of 4.9 million shares of NBT Bancorp Inc. common stock,
bringing the Company's outstanding shares to 17.9 million after the merger. The
merger results in NBT Bancorp Inc. being the surviving holding company for NBT
Bank, N.A. and LA Bank, N.A., a former subsidiary of Lake Ariel Bancorp, Inc.
The merger is being accounted for as a pooling-of-interests and qualifies as a
tax-free exchange for Lake Ariel shareholders.
LA Bank, N.A. is a commercial bank headquartered in northeast Pennsylvania
with twenty-two branch offices in five counties and approximately $570 million
in assets at December 31, 1999. On a pro forma basis, the combined company, NBT
Bancorp Inc., has combined assets over $1.9 billion and fifty-eight branch
locations.
On December 8, 1999, NBT Bancorp Inc. and Pioneer American Holding Company
Corp., the parent company of Pioneer American Bank, N.A., announced they entered
into a definitive agreement of merger. The merger is subject to the approval of
each company's shareholders and of banking regulators. The merger is expected to
close in the second quarter of 2000 and is intended to be accounted for as a
pooling-of-interests and qualify as a tax-free exchange for Pioneer American
shareholders. Shareholders of Pioneer American will receive a fixed ratio of
1.805 shares of NBT Bancorp Inc. common stock for each share exchanged. NBT
Bancorp Inc. will issue approximately 5.2 million shares and share equivalents
in exchange for all of the Pioneer American common stock and share equivalents
outstanding.
Pioneer American Bank, N.A. is a full service commercial bank with total
assets of approximately $420 million at December 31, 1999 and eighteen branches
in five counties in northeast Pennsylvania. Pioneer American Bank, N.A. will
ultimately be merged together with LA Bank, N.A. to form the largest community
bank headquartered in northeast Pennsylvania.
7
YEAR 2000
The Company has not experienced any system failure or miscalculation of
financial data as a result of the Year 2000 issue. The Company will continue to
monitor all systems to ensure they are properly functioning as the year
progresses.
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on assets
and the interest paid on deposits and borrowings. Net interest income is one of
the major determining factors in a financial institution's performance as it is
the principal source of earnings. Table 1 presents average balance sheets and a
net interest income analysis on a taxable equivalent basis for each of the years
in the three-year period ended December 31, 1999.
As reflected in Table 1, federal taxable equivalent (FTE) net interest
income of $61.7 million in 1999 increased $3.5 million or 6.0% compared to 1998.
This increase can be attributed to an increase in average earning assets and a
reduction in the cost of interest bearing liabilities.
Average earning assets in 1999 increased $46.9 million or 3.8% compared to
1998. Average loans increased $94.6 million or 12.2% during 1999, while average
investment securities decreased $48.3 million or 11.0%. The increase in average
earning assets was partially offset by a 22 basis point decline in the yield on
earning assets, primarily the result of a 39 basis point decline in the yield on
loans. The decline in the yield earned on loans can be attributed to the
declining interest rate environment experienced during late 1998 and early 1999.
Average interest bearing liabilities during 1999 increased $23.3 million
compared to 1998, the result of increased interest bearing deposits and
borrowings of $9.9 million and $13.4 million, respectively. The increase of
interest bearing liabilities was offset by a 31 basis point reduction in cost,
resulting in a $2.3 million decline in interest expense during 1999 compared to
1998. The reduced cost of interest bearing liabilities during 1999 can be
attributed to all categories and is a result of the previously mentioned
declining interest rate environment during late 1998 and early 1999.
In comparing 1998 to 1997, FTE net interest income increased $3.7 million
or 6.8% from $54.5 million in 1997 to $58.2 million in 1998. Yields on earning
assets and the cost of interest bearing liabilities were stable between 1997 and
1998. In 1998, average earning assets increased $56.2 million or 4.8% compared
to 1997, resulting in a $4.8 million increase in interest income. Average loans
increased $79.1 million or 11.4% during 1998, while average investment
securities decreased $22.0 million or 4.8%. During 1998, average interest
bearing liabilities increased $30.2 million, primarily in the time deposit
category.
An important performance measurement of net interest income is the net
interest margin. Net interest margin, net FTE interest income divided by average
interest-earning assets, is a measure of an entity's ability to utilize its
earning assets in relation to the interest cost of funding. Taxable equivalency
adjusts income by increasing tax exempt income to a level that is comparable to
taxable income before taxes are applied. The net interest margin increased to
4.85% for 1999, up from 4.76% during 1998. The increase in the net interest
margin is primarily a result of the increased interest rate spread, as the
reduction in the cost of interest bearing liabilities exceeded the decline in
yield on earning assets. Also contributing to the improved net interest margin
is increased funding of earning assets from noninterest bearing sources, as the
Company has experienced an increase in demand deposit accounts.
8
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%.
1999 1998 1997
AVERAGE YIELD/ Average Yield/ Average Yield/
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATES Balance Interest Rates Balance Interest Rates
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ASSETS
Interest bearing deposits $ 202 $ 9 4.35% $ 123 $ 5 4.68% $ 127 $ 5 4.48%
Federal funds sold and securities
purchased under agreements to resell 41 2 4.63 793 31 3.91 3,749 194 5.17
Other short-term investments 6,073 296 4.88 5,156 269 5.21 2,536 135 5.31
Securities available for sale 354,202 23,957 6.76 403,574 27,942 6.92 423,512 29,063 6.86
Loans held for sale 3,368 231 6.85 3,080 254 8.25 3,620 298 8.24
Securities held to maturity:
Taxable 13,463 842 6.25 13,139 890 6.78 13,061 914 7.00
Tax exempt 23,898 1,569 6.57 23,130 1,581 6.83 25,303 1,721 6.80
---------- ------ ---------- ------ ---------- ------
Total securities held to maturity 37,361 2,411 6.45 36,269 2,471 6.81 38,364 2,635 6.87
Loans:
Commercial and agricultural 419,778 37,701 8.98 354,023 33,388 9.43 307,101 29,662 9.66
Real estate mortgage 169,330 12,762 7.54 147,128 11,927 8.11 125,263 10,668 8.52
Consumer 280,150 25,681 9.17 273,489 25,587 9.36 263,188 24,376 9.26
---------- ------ ---------- ------ ---------- ------
Total loans 869,258 76,144 8.76 774,640 70,902 9.15 695,552 64,706 9.30
---------- ------ ---------- ------ ---------- ------
Total earning assets 1,270,505 103,050 8.11 1,223,635 101,874 8.33 1,167,460 97,036 8.31
------- ------- ------
Cash and due from banks 36,002 32,593 30,918
Securities available for sale
valuation allowance (5,097) 5,335 (1,828)
Allowance for loan losses (13,548) (12,388) (11,138)
Premises and equipment 20,594 20,028 17,269
Other assets 24,218 19,131 25,962
---------- ---------- ----------
TOTAL ASSETS $1,332,674 $1,288,334 $1,228,643
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Money market deposit accounts $ 81,931 2,266 2.77 $ 85,011 2,440 2.87 $ 90,732 2,648 2.92
NOW deposit accounts 139,265 1,802 1.29 129,734 2,122 1.64 118,761 1,904 1.60
Savings deposits 165,308 4,514 2.73 155,109 4,310 2.78 154,771 4,376 2.83
Time deposits 519,949 26,006 5.00 526,701 28,329 5.38 493,551 26,306 5.33
---------- ------ ---------- ------ ---------- ------
Total interest bearing deposits 906,453 34,588 3.82 896,555 37,201 4.15 857,815 35,234 4.11
Short-term borrowings 106,961 5,252 4.91 114,241 6,014 5.26 119,259 6,581 5.52
Long-term debt 29,411 1,537 5.22 8,698 462 5.31 12,189 707 5.80
---------- ------ ---------- ------ ---------- ------
Total interest bearing
liabilities 1,042,825 41,377 3.97% 1,019,494 43,677 4.28% 989,263 42,522 4.30%
------- ------- ------
Demand deposits 150,856 133,262 115,826
Other liabilities 10,264 7,641 9,863
Stockholders' equity 128,729 127,937 113,691
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,332,674 $1,288,334 $1,228,643
---------- ---------- ----------
NET INTEREST INCOME $ 61,673 $ 58,197 $ 54,514
---------- -------- --------
NET INTEREST MARGIN 4.85% 4.76% 4.67%
---- ---- ----
Taxable Equivalent Adjustment $ 1,091 $ 794 $ 855
---------- -------- --------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan balances outstanding.
(2) Securities are shown at average amortized cost.
9
TABLE 2
ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
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.
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) Increase (Decrease)
1999 OVER 1998 1998 over 1997
- -----------------------------------------------------------------------------------------------------------------
(in thousands) VOLUME RATE TOTAL Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------
Interest bearing deposits $ 4 $ -- $ 4 $ -- $ -- $ --
Federal funds sold and securities
purchased under agreements to resell (35) 6 (29) (124) (39) (163)
Other short-term investments 45 (18) 27 136 (2) 134
Securities available for sale (3,352) (633) (3,985) (1,379) 258 (1,121)
Loans held for sale 22 (45) (23) (45) 1 (44)
Securities held to maturity:
Taxable 22 (70) (48) 5 (29) (24)
Tax exempt 52 (64) (12) (148) 8 (140)
Loans 8,385 (3,143) 5,242 7,254 (1,058) 6,196
- -----------------------------------------------------------------------------------------------------------------
Total interest income 3,842 (2,666) 1,176 4,677 161 4,838
- -----------------------------------------------------------------------------------------------------------------
Money market deposit accounts (87) (87) (174) (165) (43) (208)
NOW deposit accounts 147 (467) (320) 179 39 218
Savings deposits 280 (76) 204 10 (76) (66)
Time deposits (359) (1,964) (2,323) 1,781 242 2,023
Short-term borrowings (371) (391) (762) (271) (296) (567)
Long-term debt 1,083 (8) 1,075 (189) (56) (245)
- -----------------------------------------------------------------------------------------------------------------
Total interest expense 982 (3,282) (2,300) 1,296 (141) 1,155
- -----------------------------------------------------------------------------------------------------------------
CHANGE IN FTE NET INTEREST INCOME $ 2,860 $ 616 $ 3,476 $ 3,381 $ 302 $ 3,683
- -----------------------------------------------------------------------------------------------------------------
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses decreased to $3.9 million in 1999 from $4.6
million in 1998, the result of lower charge-offs and improved asset quality. The
provision is based upon management's judgement as to the adequacy of the
allowance to absorb losses inherent in the current loan portfolio. In assessing
the adequacy of the allowance for loan losses, consideration is given to
historical loan loss experience, value and adequacy of collateral, level of
nonperforming loans, loan concentrations, the growth and composition of the
portfolio, and the results of a comprehensive in-house loan review program
conducted throughout the year. Consideration is given to the results of
examinations and evaluations of the overall portfolio by senior credit
personnel, internal and external auditors, and regulatory examiners.
Accompanying tables reflect the five year history of net charge-offs and
the allocation of the allowance by loan category. Net charge-offs, both as
dollar amounts and as percentages of average loans outstanding, decreased
between 1999 and 1998 as the Company has experienced an improvement in asset
quality. The decrease in net charge-offs in 1999 can be attributed to the real
estate and consumer loan categories. The allowance has been allocated based on
identified problem credits or categorical trends. Although the provision
decreased, the allowance for loan loss increased to $13.9 million at December
31, 1999 from $13.0 million the previous year-end. However, given the growth in
the loan portfolio at December 31, 1999, the allowance for loan losses to loans
outstanding was 1.50%, compared to 1.58% at year-end 1998. Management considers
the allowance to be adequate at December 31, 1999.
10
TABLE 3
ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
Balance at January 1 $12,962 $11,582 $10,473 $ 9,120 $9,026
Loans charged off:
Commercial and agricultural 1,906 1,941 1,193 1,274 967
Real estate mortgages 106 234 55 204 112
Consumer 1,883 1,977 2,040 1,300 1,182
- ---------------------------------------------------------------------------------------------------------------
Total loans charged off 3,895 4,152 3,288 2,778 2,261
- ---------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial and agricultural 227 258 197 274 193
Real estate mortgages 71 35 16 20 --
Consumer 590 640 679 662 609
- ---------------------------------------------------------------------------------------------------------------
Total recoveries 888 933 892 956 802
- ---------------------------------------------------------------------------------------------------------------
Net loans charged off 3,007 3,219 2,396 1,822 1,459
Provision for loan losses 3,900 4,599 3,505 3,175 1,553
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31 $13,855 $12,962 $11,582 $10,473 $9,120
- ---------------------------------------------------------------------------------------------------------------
Allowance for loan losses to loans
outstanding at end of year 1.50% 1.58% 1.57% 1.60% 1.55%
Allowance for loan losses to
nonaccrual loans 328% 361% 220% 315% 189%
Nonaccrual loans to total loans 0.46% 0.44% 0.71% 0.51% 0.82%
Nonperforming assets to total assets 0.32% 0.37% 0.45% 0.40% 0.62%
Net charge-offs to average loans
outstanding 0.35% 0.42% 0.34% 0.29% 0.25%
- ---------------------------------------------------------------------------------------------------------------
TABLE 4
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
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 $ 7,579 49.0% $ 7,039 47.3% $ 5,448 44.4% $ 4,341 43.1% $4,250 42.0%
Real estate
mortgages 394 19.2% 400 19.5% 244 18.4% 360 18.3% 412 20.6%
Consumer 3,339 31.8% 3,999 33.2% 2,365 37.2% 2,335 38.6% 2,048 37.4%
Unallocated 2,543 -- 1,524 -- 3,525 -- 3,437 -- 2,410 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $13,855 100.0% $12,962 100.0% $11,582 100.0% $10,473 100.0% $9,120 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest income consists primarily of trust and custodian fees, service
charges on deposit accounts, gains and losses on the sales of investment
securities, and fees and service charges for other banking services. Total
noninterest income for 1999 of $11.8 million increased $1.8 million or 18.2%
compared to 1998. Excluding securities gains and losses, noninterest income
increased $0.9 million or 10.0% in 1999 compared to 1998. Excluding securities
gains and losses, total noninterest income for 1998 increased $1.0 million over
1997.
Trust income rose during 1999 as managed assets have continued to increase.
At December 31, 1999, the Trust Department managed $891 million in assets
(market value), up from $865 million at year-end 1998, resulting in a $0.2
million increase in trust income.
Service charges on deposit accounts increased $0.5 million in 1999 compared
to 1998. This improvement can be attributed to an increase in service fee and
overdraft income resulting from growth in demand deposits.
Other income increased $0.2 million in 1999 compared to 1998 as a result of
greater ATM fee income. This can be attributed to an increase in the use of
customer debit cards and the installation of additional machines throughout our
market areas. The Company had 47 ATM machines in use at December 31, 1999, up
from 35 at year-end 1998.
11
NONINTEREST EXPENSE AND OPERATING EFFICIENCY
Salaries and employee benefits increased $0.4 million between 1999 and 1998,
primarily the result of increased salaries and performance based incentives.
Salaries and employee benefits increased $1.3 million between 1998 and 1997,
also the result of increases in salaries and performance based incentives.
Equipment expense during 1999 increased $0.3 million compared to 1998 as a
result of the replacement of computers for Year 2000 compliance, as well as the
installation of additional computers throughout the branch network. Equipment
expense increased $0.7 million between 1998 and 1997. This increase can be
attributed primarily to a rise in computer depreciation expense related to the
automation of the branch network computer system completed in the fourth quarter
of 1997.
Professional fees and outside service expense increased $0.6 million during
1998 compared to 1997, primarily a result of professional fees associated with
the corporate realignment.
Data processing and communications expense for 1998 experienced a $0.8
million increase compared to 1997. Contributing to this was increased data
processing fees, a result of the outsourcing of the Company's items processing
function during 1997.
Other operating expense for 1999 experienced a $1.4 million decline
compared to 1998. In addition to a decline in recurring other operating expenses
during 1999, the Company recognized a nonrecurring gain of $0.8 million on the
sale of other real estate owned.
Two important operating efficiency measures that the Company closely
monitors are the efficiency and expense ratios. The efficiency ratio is computed
as total noninterest expense (excluding merger and acquisition expenses, gains
and losses on the sales of OREO and other nonrecurring expenses) divided by net
interest income plus noninterest income (excluding net security gains and losses
and nonrecurring income). The efficiency ratio improved to 53.86% in 1999 from
57.92% for 1998. This improvement was a result of the increases in net interest
and noninterest income between the reporting periods. The expense ratio is
computed as total noninterest expense (excluding nonrecurring charges, such as
merger expenses) less noninterest income (excluding net security gains and
losses and nonrecurring income) divided by average assets. The expense ratio
improved to 2.14% during 1999 from 2.31% in 1998. The improvement in the expense
ratio can be attributed to the increases in noninterest income and average
assets, while at the same time maintaining stable recurring noninterest expense.
INCOME TAXES
The effective income tax rate was 38.7% in 1999, 19.2% in 1998, and 36.0% in
1997. The decrease in rate for 1998 resulted from a tax benefit recognized
during a corporate realignment. Additional information on income taxes is
provided in the notes to the consolidated financial statements.
SECURITIES
The securities portfolio constituted 30.8% and 35.9% of average earning assets
during 1999 and 1998, respectively. The decrease in average securities as a
percentage of average earning assets between 1999 and 1998 can be attributed to
the growth in earning assets resulting from the strong loan growth the Company
has experienced. At December 31, 1999, the securities portfolio consists of 90%
U.S. Government agencies guaranteed securities. All purchases of U.S.
Governmental agencies guaranteed securities are classified as available for
sale. Held to maturity securities are obligations of the State of New York
political subdivisions and do not include any direct obligations of the State of
New York.
12
TABLE 5
SECURITIES PORTFOLIO
As of December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
(in thousands) COST VALUE Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------
Securities Available for Sale:
U.S. Treasury $ 10,400 $ 8,535 $ 10,406 $ 10,481 $ 2,395 $ 2,406
Federal Agency and mortgage-backed 339,405 322,564 335,189 340,383 431,259 435,167
State & Municipal and other securities 10,493 10,487 4,554 4,894 2,967 3,059
- ---------------------------------------------------------------------------------------------------------------------
Total securities $360,298 $341,586 $350,149 $355,758 $436,621 $440,632
- ---------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
State & Municipal 30,000 30,000 22,649 22,649 23,692 23,692
Other securities 12,446 12,446 12,446 12,446 12,447 12,447
- ---------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 42,446 $ 42,446 $ 35,095 $ 35,095 $ 36,139 $ 36,139
- ---------------------------------------------------------------------------------------------------------------------
LOANS
The following Table 6 sets forth the loan portfolio by major categories as of
December 31 for the years indicated.
TABLE 6
COMPOSITION OF LOAN PORTFOLIO
-------------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
(in thousands)
Real estate mortgages $162,734 $149,647 $128,873 $110,288 $107,611
Commercial real estate mortgages 197,629 178,778 151,129 135,061 108,902
Real estate construction and
development 14,077 10,378 6,602 9,582 13,361
Commercial and agricultural 254,852 209,731 175,362 146,930 138,391
Consumer 189,981 188,549 203,016 204,641 185,276
Home equity 103,758 84,422 70,500 48,091 34,817
Lease financing -- -- -- -- 27
-------------------------------------------------------------------------------------------------------------
Total loans $923,031 $821,505 $735,482 $654,593 $588,385
-------------------------------------------------------------------------------------------------------------
The loan portfolio is the largest component of earning assets and accounts for
the greatest portion of total interest income. At December 31, 1999, total loans
were $923.0 million, a 12.4% increase from December 31, 1998. In general, loans
are internally generated and lending activity is confined to New York State,
principally the nine county area served by the Company. The Company does not
engage in highly leveraged transactions or foreign lending activities. There
were no concentration of loans exceeding 10% of total loans other than the
concentration with borrowers in New York State, discussed in note 6 to the
consolidated financial statements, and those categories reflected in Table 6.
Real estate mortgages consist primarily of loans secured by first or second
deeds of trust on primary residencies. The Company sold $0.9 million in mortgage
loans during both 1999 and 1998. There were no gains or losses recognized
related to sales of mortgages originated in 1999 or 1998. At December 31, 1999
and 1998, loans classified as held for sale consist of higher education and
residential mortgage loans with estimated fair market values equal to cost.
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. Agricultural loans
totalled $51.5 million at December 31, 1999, and there are no other substantial
loan concentrations to any one industry or to any one borrower.
Consumer loans consist primarily of installment credit to individuals
secured by automobiles and other personal property. Management believes consumer
loan underwriting guidelines to be conservative. The guidelines are based
primarily on satisfactory credit history, down payment, and sufficient income to
service monthly payments.
13
Shown in Table 7, 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, 1999. Scheduled repayments
are reported in the maturity category in which the contractual payment is due.
TABLE 7
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
---------------------------------------------------------------------------------------------------
AFTER ONE
YEAR BUT
WITHIN AFTER
REMAINING MATURITY AT WITHIN FIVE FIVE
DECEMBER 31, 1999 ONE YEAR YEARS YEARS TOTAL
---------------------------------------------------------------------------------------------------
(in thousands)
Floating/adjustable rate:
Commercial and agricultural $115,802 $ 66,661 $ 23,756 $206,219
Real estate mortgages 3,914 14,108 27,544 45,566
Consumer 23,165 8,242 38,901 70,308
---------------------------------------------------------------------------------------------------
Total floating rate loans 142,881 89,011 90,201 322,093
---------------------------------------------------------------------------------------------------
Fixed Rate:
Commercial and agricultural 47,757 115,683 82,822 246,262
Real estate mortgages 8,495 32,582 90,168 131,245
Consumer 66,811 129,518 27,102 223,431
---------------------------------------------------------------------------------------------------
Total fixed rate loans 123,063 277,783 200,092 600,938
---------------------------------------------------------------------------------------------------
Total loans $265,944 $366,794 $290,293 $923,031
---------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets and past due loans are reflected in Table 8 below for the
years indicated.
TABLE 8
NONPERFORMING ASSETS AND RISK ELEMENTS
- ---------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Commercial and agricultural $3,216 $2,394 $3,856 $2,441 $3,945
Real estate mortgages 319 437 692 251 332
Consumer 693 762 708 628 540
- ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 4,228 3,593 5,256 3,320 4,817
- ---------------------------------------------------------------------------------------------------------------------
Other real estate owned 166 1,164 530 1,242 2,000
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets 4,394 4,757 5,786 4,562 6,817
- ---------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 125 291 176 418 559
Real estate mortgages 247 341 244 344 448
Consumer 135 526 325 289 325
- ---------------------------------------------------------------------------------------------------------------------
Total 507 1,158 745 1,051 1,332
- ---------------------------------------------------------------------------------------------------------------------
Restructured loans, in compliance with modified terms: -- -- -- -- 142
- ---------------------------------------------------------------------------------------------------------------------
Total assets containing risk elements $4,901 $5,915 $6,531 $5,613 $8,291
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets to loans 0.48% 0.58% 0.79% 0.70% 1.16%
Total assets containing risk elements to loans 0.53% 0.72% 0.89% 0.86% 1.41%
Total nonperforming assets to assets 0.32% 0.37% 0.45% 0.40% 0.62%
Total assets containing risk elements to assets 0.35% 0.46% 0.51% 0.49% 0.75%
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets decreased $0.4 million or 7.6% at year-end 1999
compared to 1998, the result of the sales of other real estate owned during
1999. Total assets containing risk elements decreased $1.0 million or 17.1%
during the same period, the result of the sale of other real estate owned and a
reduction in loans ninety days or more past due and still accruing. The effect
of nonaccrual and impaired loans on interest income is presented in the
following Table 9.
14
TABLE 9
NONACCRUAL AND IMPAIRED LOANS INTEREST INCOME
---------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------
(in thousands)
Income that would have been accrued at original
contract rates $500 $278 $559 $1,125 $765
Amount recognized as income 220 170 148 593 344
---------------------------------------------------------------------------------------------------------
Interest income not accrued $280 $108 $411 $ 532 $421
---------------------------------------------------------------------------------------------------------
DEPOSITS
Deposits are the largest component of the Company's liabilities and account for
the greatest portion of interest expense. At December 31, 1999, total deposits
were $1,108.1 million, an increase of 6.1% from December 31, 1998. Average
deposits during 1999 of $1,057.3 million were 2.7% higher than the 1998 average.
The increase in average deposits can be attributed to increases in the demand
and savings categories with increases of $17.6 million and $16.7 million,
respectively, partially offset by a $6.8 million decline in average time
deposits. The increase in demand and savings deposits has contributed to the
Company's improved net interest margin. The preceding Table 1 presents average
deposits with accompanying average rates paid.
TABLE 10
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
-------------------------------------------------------------
December 31, 1999
-------------------------------------------------------------
(in thousands)
Within three months $235,647
After three but within six months 34,629
After six but within twelve months 17,550
After twelve months 5,378
-------------------------------------------------------------
Total $293,204
-------------------------------------------------------------
BORROWED FUNDS
Short-term borrowings include federal funds purchased, securities sold under
agreement to repurchase, and other short-term borrowings which consist primarily
of FHLB advances with original maturities of one day up to one year. Long-term
debt consists of fixed rate FHLB advances with an original maturity greater than
one year. At December 31, 1999, total borrowings of $150.5 million were up 40.9%
compared to the previous year-end total of $106.8 million. Average borrowings
during 1999 of $136.4 million represent a $13.4 million increase over 1998. For
additional information on borrowed funds see notes 10 and 11 to consolidated
financial statements.
CAPITAL AND DIVIDENDS
Capital is an important factor in ensuring the safety of depositors' accounts.
During both 1999 and 1998, the Company earned the highest possible national
safety and soundness rating from two national bank rating services, Bauer
Financial Services and Veribanc, Inc. Their ratings are based on capital levels,
loan portfolio quality, and security portfolio strength.
Capital adequacy is an important indicator of financial stability and
performance. The principal source of capital to the Company is earnings
retention. The Company remains well capitalized as the capital ratios indicate.
Capital measurements are significantly in excess of both regulatory minimum
guidelines and meet the requirements to be considered well capitalized.
On a per share basis, cash dividends declared have been increased in both
1999 and 1998. Cash dividends as a percentage of net income for 1999 of 46.44%
increased from the 40.37% paid during 1998. The Company does not have a target
dividend payout ratio, rather the Board of Directors considers the Company's
earnings position and earnings potential when making dividend decisions.
Additionally, 1999 was the fortieth consecutive year that the Company declared a
stock dividend.
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. At December 31, 1999, the
total market capitalization of the Company's common stock was approximately
$203.0 million compared with $290.3 million at December 31, 1998. The Company's
price to book value ratio was 1.60, 2.22, and 1.97 at December 31, 1999, 1998
and 1997, respectively. The Company's price was 11, 16, and 17 times diluted
earnings per share at December 31, 1999, 1998 and 1997, respectively.
15
TABLE 11
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
- ----------------------------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------
(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 $23.33 $19.89 $19.89 $0.162 $19.05 $15.99 $19.05 $0.117
June 30 21.19 19.05 19.52 0.162 23.48 18.37 23.02 0.154
September 30 20.90 16.43 16.49 0.162 23.81 17.58 20.86 0.154
December 31 17.98 14.63 15.50 0.170 24.29 19.72 22.27 0.162
- ----------------------------------------------------------------------------------------------------------------
For the year $23.33 $14.63 $15.50 $0.656 $24.29 $15.99 $22.27 $0.587
- ----------------------------------------------------------------------------------------------------------------
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objectives of asset and liability management are to provide for the
safety of depositor and investor funds, assure adequate liquidity, and maintain
an appropriate balance between interest sensitive earning assets and interest
bearing liabilities. 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 Asset/Liability Management Committee ("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 must also provide the
flexibility to implement appropriate strategies and tactical actions.
Requirements change as loans grow, deposits and securities mature, and payments
on borrowings are made. Interest rate sensitivity management seeks to avoid
widely fluctuating net interest margins and to ensure consistent net interest
income through periods of changing economic conditions.
Given the above, liquidity to the Company is defined as the ability to
raise cash quickly at a reasonable cost without principal loss. 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 established
borrowing facilities with other banks (federal funds), the Federal Home Loan
Bank of New York (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 tactical 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, 1999 and 1998, the Company's Basic Surplus ratios (net
access to cash and secured borrowings as a percentage of total assets) were
approximately 4% and 9%, respectively. The Company had unused lines of credit
available totalling $229 million to meet its short-term liquidity needs at
December 31, 1999 and considered the Basic Surplus adequate to meet liquidity
needs.
Interest rate risk is determined by the relative sensitivities of earning
asset yields and interest bearing liability costs to changes in interest rates.
Overnight federal funds on which rates change daily and loans which are tied to
the prime rate differ considerably from long-term investment securities and
fixed rate loans. Similarly, time deposits over $100,000 and money market
deposit accounts are much more interest sensitive than NOW and savings accounts.
The method by which banks evaluate interest rate risk is to look at the
interest sensitivity gap, the difference between interest sensitive assets and
interest sensitive liabilities repricing during the same period, measured at a
specific point in time. The funding matrix depicted in the accompanying table is
utilized as a primary tool in managing interest rate risk. The matrix arrays
repricing opportunities along a time line for both assets and liabilities. The
time line for sources of funds, liabilities and equity, is depicted on the left
hand side of the matrix. The longest term, most fixed rate sources, are
presented in the upper left hand corner while the shorter term, most variable
rate items, are at the lower left. Similarly, uses of funds, assets, are
arranged across the top moving from left to right.
The body of the matrix is derived by allocating the longest fixed rate
funding sources to the longest fixed rate assets (upper left corner) and shorter
term variable sources to shorter term variable uses (lower right corner). The
result is a graphical depiction of the time periods over which the Company is
expected to experience exposure to rising or falling rates. Since the scales of
the liability (left) and asset (top) sides are identical, all numbers in the
matrix would fall within the diagonal lines if the Company was perfectly matched
across all repricing time frames. Numbers outside the diagonal lines represent
two general types of mismatches: i) liability sensitive, where rate sensitive
liabilities exceed the amount of rate sensitive assets repricing within
applicable time frames (items to the left of/below the diagonal lines) and ii)
asset sensitive, where rate sensitive assets exceed the amount of rate sensitive
liabilities repricing within applicable time frames (items to the right of/above
the diagonal lines).
16
Generally, the lower the amount of this gap, the less sensitive are
earnings to interest rate changes. The matrix indicates that the Company is
liability sensitive in the short term and would be negatively impacted by a
rising rate environment. The Asset/Liability Management Committee will continue
to monitor the Company's gap position and implement appropriate strategies to
minimize the potential interest rate risk of a rising interest rate environment.
TABLE 12
SUMMARY STATIC GAP FUNDING MATRIX
- ------------------------------------------------------------------------------------------------------------------------------------
(ASSETS) OVER 60 37-60 25-36 13-24 7-12 4-6
-USES- MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS MAR 00 FEB 00 JAN 00 ONE DAY TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
-SOURCES- TOTALS 416 196 123 141 108 57 20 19 253 61 1,394
- ------------------------------------------------------------------------------------------------------------------------------------
OVER 60 575 416 159 Long Liabilities 575
MONTHS Short Assets
37-60 26 26 26
MONTHS
25-36 26 11 15 26
MONTHS
13-24 129 108 21 129
MONTHS
7-12 115 115 115
MONTHS
4-6 89 5 84 89
MONTHS
MAR 00 62 24 38 62
FEB 00 73 19 20 19 15 73
JAN 00 231 Long Assets 231 231
Short Liabilities
ONE DAY 68 7 61 68
- --------------------------------------------------------------------------------------------------------------------------------
TOTALS 1,394 416 196 123 141 108 57 20 19 253 61 1,394
- --------------------------------------------------------------------------------------------------------------------------------
While the static gap evaluation of interest rate sensitivity is useful, it is
not indicative of the impact of fluctuating interest rates on net interest
income. Once the Company determines the extent of gap sensitivity, the next step
is to quantify the potential impact of the interest sensitivity on net interest
income. The Company measures interest rate risk based on the potential change in
net interest income under various rate environments. The Company utilizes an
interest rate risk model that simulates net interest income under various
interest rate environments. The model groups assets and liabilities into
components with similar interest rate repricing characteristics and applies
certain assumptions to these products. These assumptions include, but are not
limited to prepayment estimates under different rate environments, potential
call options of the investment portfolio and forecasted volumes of the various
balance sheet items. The following table presents the impact on net interest
income of a gradual twelve-month increase or decrease in interest rates compared
to a stable interest rate environment. The simulation projects net interest
income over the next year using the December 31, 1999 balance sheet position.
17
TABLE 13
INTEREST RATE SENSITIVITY ANALYSIS
--------------------------------------------------------
Change in interest rates Percent change in
(in basis points) net interest income
--------------------------------------------------------
+200 (4.41%)
+100 (2.53%)
-100 1.62%
-200 2.25%
--------------------------------------------------------
FOURTH QUARTER RESULTS
Selected quarterly results are presented in Table 14, Selected Quarterly
Financial Data.
TABLE 14
SELECTED QUARTERLY FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) FIRST SECOND THIRD FOURTH First Second Third Fourth
Interest and fee income $24,009 $24,931 $26,429 $26,590 $25,256 $25,276 $25,448 $25,100
Interest expense 9,514 9,978 10,832 11,053 11,221 11,168 10,885 10,403
Net interest income 14,495 14,953 15,597 15,537 14,035 14,108 14,563 14,697
Provision for loan losses 975 975 975 975 1,100 1,150 1,300 1,049
Noninterest income excluding
securities gains 2,588 2,504 2,607 2,591 2,350 2,312 2,353 2,340
Securities gains 471 199 837 -- 218 227 168 11
Noninterest expense 8,780 9,074 10,086 10,567 9,402 9,539 9,707 10,480
Net income $ 4,811 $ 4,732 $ 4,813 $ 4,014 $ 5,072 $ 4,710 $ 4,731 $ 4,589
Basic earnings per share $ 0.37 $ 0.36 $ 0.37 $ 0.31 $ 0.38 $ 0.36 $ 0.36 $ 0.35
Diluted earnings per share $ 0.36 $ 0.36 $ 0.37 $ 0.31 $ 0.38 $ 0.35 $ 0.35 $ 0.34
Net interest margin 4.96% 4.87% 4.82% 4.78% 4.75% 4.68% 4.79% 4.80%
Return on average assets 1.54% 1.44% 1.40% 1.16% 1.60% 1.47% 1.46% 1.40%
Return on average equity 14.87% 14.59% 15.17% 12.46% 16.49% 14.92% 14.54% 13.87%
Average diluted common
shares outstanding 13,206 13,153 13,137 13,156 13,499 13,541 13,488 13,369
- -----------------------------------------------------------------------------------------------------------------------------
18
PROPERTIES
The Company operates the following community banking offices:
Date Square
Name of Office Location County Established Footage
Norwich 52 S. Broad St., Norwich, NY Chenango 07-15-1856 77,000
Afton 182 Main St., Afton, NY Chenango 09-01-1962 2,779
Bainbridge 9 N. Main St., Bainbridge, NY Chenango 12-07-1938 5,100
Earlville 2 S. Main St., Earlville, NY Chenango 08-07-1937 1,650
Grand Gorge Rt. 23 & 30, Grand Gorge, NY Delaware 11-01-1957 3,000
Margaretville Main St., Margaretville, NY Delaware 09-03-1963 3,200
New Berlin 2 S. Main St., New Berlin, NY Chenango 12-21-1946 2,500
Sherburne 30 N. Main St., Sherburne, NY Chenango 08-07-1937 3,400
South Otselic Gladding St., S. Otselic, NY Chenango 10-01-1945 1,326
North Plaza Rt. 12 & 320, Norwich, NY Chenango 10-15-1986 1,874
South Plaza Rt. 12 S., Norwich, NY Chenango 08-20-1986 1,150
Deposit 105 Front St., Deposit, NY Broome 02-12-1971 4,500
Newark Valley 2 N. Main St., Newark Valley, NY Tioga 10-01-1973 3,822
Maine 2647 Main St., Maine, NY Broome 10-01-1973 1,350
Hobart Maple Ave., Hobart, NY Delaware 06-28-1974 2,400
Sidney 13 Division St., Sidney, NY Delaware 12-31-1978 5,800
Oxford 10 North Canal St., Oxford, NY Chenango 03-16-1998 2,000
Greene 80 S. Chenango St., Greene, NY Chenango 12-15-1986 3,100
Binghamton 1256 Front St., Binghamton, NY Broome 03-29-1993 1,900
Hancock 1 E. Main St., Hancock, NY Delaware 10-01-1989 6,000
Oneonta 733 State Highway 28, Oneonta, NY Otsego 01-14-1998 4,600
Oneonta-East 5582 State Highway Rt. 7, Oneonta, NY Otsego 05-24-1999 2,656
Clinton 1 Kirkland Ave., Clinton, NY Oneida 10-01-1989 10,300
Rome Westgate Westgate Plaza, 1148 Erie Blvd. W., Rome, NY Oneida 10-01-1989 1,950
Utica Business Park 555 French Road, New Hartford, NY Oneida 10-01-1994 3,396
New Hartford 8549 Seneca Turnpike, New Hartford, NY Oneida 12-16-1995 4,200
Rome Black River 853 Black River Blvd., Rome, NY Oneida 10-01-1997 3,000
Gloversville 199 Second Ave. Ext., Gloversville, NY Fulton 10-01-1989 4,263
Northville 192 N. Main St., Northville, NY Fulton 10-01-1989 3,000
Vail Mills Rt. 30, Broadalbin, NY Fulton 10-01-1989 2,000
Lake Placid 81 Main St., Lake Placid, NY Essex 10-01-1989 8,500
Cold Brook Plaza Saranac Ave., Lake Placid, NY Essex 10-01-1989 1,300
Saranac Lake 2 Lake Flower Ave., Saranac Lake, NY Essex 10-01-1989 2,400
Plattsburgh Rt. 3 482 Rt. 3, Plattsburgh, NY Clinton 05-04-1998 6,800
Plattsburgh Margaret St 83 Margaret St., Plattsburgh, NY Clinton 05-18-1998 1,822
Ellenburg Depot 5084 Rt. 11, Ellenburg Depot, NY Clinton 08-28-1993 2,346
The Oxford, South Otselic, Binghamton, Oneonta, Vail Mills, Rome Westgate, Utica
Business Park and Rome Black River Offices are leased. The Company owns all
other banking premises. The Company also has 47 ATM's, all of which are owned.
19
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
generally accepted accounting principles 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 an Audit, Compliance and Loan Review
Committee composed entirely of directors who are not employees of the Company.
The Audit, Compliance and Loan Review Committee is responsible for recommending
to the Board the independent auditors to be retained for the coming year,
subject to stockholder ratification. The Audit, Compliance and Loan Review
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 Audit, Compliance and Loan Review Committee
reports to the Board on its activities and findings.
Daryl R. Forsythe
President and Chief Executive Officer
Michael J. Chewens, CPA
Executive Vice President
Chief Financial Officer and Treasurer
20
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 subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, cash flows and
comprehensive income for each of the years in the three year period ended
December 31, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NBT Bancorp
Inc. and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Syracuse, New York
January 21, 2000
21
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data)
ASSETS
Cash and cash equivalents $ 46,033 $ 47,181
Loans held for sale 3,621 2,887
Securities available for sale, at fair value 341,586 355,758
Securities held to maturity (fair value-$42,446 and $35,095) 42,446 35,095
Loans 923,031 821,505
Less allowance for loan losses 13,855 12,962
- ---------------------------------------------------------------------------------------------------------------------
Net loans 909,176 808,543
Premises and equipment, net 21,663 20,241
Intangible assets, net 6,592 7,572
Other assets 22,500 12,732
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,393,617 $ 1,290,009
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 164,476 $ 154,146
Savings, NOW, and money market 392,193 391,614
Time 551,404 498,445
- ---------------------------------------------------------------------------------------------------------------------
Total deposits 1,108,073 1,044,205
Short-term borrowings 115,299 96,589
Long-term debt 35,157 10,171
Other liabilities 8,552 8,412
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 1,267,081 1,159,377
- ---------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par, stated value $1.00; shares
authorized-2,500,000 -- --
Common stock, no par, stated value $1.00; shares
authorized-15,000,000; shares issued 13,636,932 and 13,015,789 13,637 13,016
Capital surplus 121,913 111,749
Retained earnings 13,719 15,512
Accumulated other comprehensive (loss) income (11,068) 3,317
Common stock in treasury at cost, 538,936 and 599,507 shares (11,665) (12,962)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 126,536 130,632
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,393,617 $ 1,290,009
- ---------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
22
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Interest and fee income:
Loans and loans held for sale $ 75,862 $ 70,947 $64,781
Securities available for sale 23,928 27,910 29,031
Securities held to maturity 1,862 1,918 2,035
Other 307 305 334
- -----------------------------------------------------------------------------------------------------------
Total interest and fee income 101,959 101,080 96,181
- -----------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 34,588 37,201 35,234
Short-term borrowings 5,252 6,014 6,581
Long-term debt 1,537 462 707
- -----------------------------------------------------------------------------------------------------------
Total interest expense 41,377 43,677 42,522
- -----------------------------------------------------------------------------------------------------------
Net interest income 60,582 57,403 53,659
Provision for loan losses 3,900 4,599 3,505
- -----------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 56,682 52,804 50,154
- -----------------------------------------------------------------------------------------------------------
Noninterest income:
Trust 3,305 3,115 2,675
Service charges on deposit accounts 4,272 3,749 3,695
Securities gains (losses) 1,507 624 (337)
Other 2,713 2,491 2,033
- -----------------------------------------------------------------------------------------------------------
Total noninterest income 11,797 9,979 8,066
- -----------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 19,575 19,202 17,905
Office supplies and postage 1,833 1,912 1,801
Occupancy 2,865 2,843 2,598
Equipment 2,722 2,375 1,700
Professional fees and outside services 2,784 2,836 2,201
Data processing and communications 3,832 3,577 2,789
Amortization of intangible assets 980 1,070 1,351
Other operating 3,916 5,313 4,825
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense 38,507 39,128 35,170
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 29,972 23,655 23,050
Income taxes 11,602 4,553 8,301
- -----------------------------------------------------------------------------------------------------------
Net income $ 18,370 $ 19,102 $14,749
- -----------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.41 $ 1.45 $ 1.12
Diluted $ 1.40 $ 1.42 $ 1.11
- -----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
All per share data has been restated to give retroactive effect to stock
dividends and splits.
23
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Common Capital Retained Comprehensive Treasury
Stock Surplus Earnings (Loss) Income Stock Total
- ----------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data)
BALANCE AT DECEMBER 31, 1996 8,838 82,731 24,208 (1,529) (7,984) 106,264
Net income 14,749 14,749
Issuance of 427,496 shares for
5% stock dividend 428 10,717 (11,145) -
Cash dividends - $0.421 per share (5,544) (5,544)
Payment in lieu of fractional shares (19) (19)
Issuance of 164,030 shares to stock plan 164 2,476 2,640
Purchase of 131,900 treasury shares (2,568) (2,568)
Sale of 197,478 treasury shares to
employee benefit plans and other
stock plans 570 3,349 3,919
Unrealized net gain on securities
available for sale, net of deferred
taxes of $2,695 3,902 3,902
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 9,430 96,494 22,249 2,373 (7,203) 123,343
Net income 19,102 19,102
Issuance of 3,585,826 shares for
5% stock dividend and stock split 3,586 14,531 (18,117) -
Cash dividends - $0.587 per share (7,711) (7,711)
Payment in lieu of fractional shares (11) (11)
Purchase of 353,000 treasury shares (9,094) (9,094)
Sale of 169,364 treasury shares to
employee benefit plans and other
stock plans 724 3,335 4,059
Unrealized net gain on securities
available for sale, net of deferred
taxes of $654 944 944
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 13,016 111,749 15,512 3,317 (12,962) 130,632
Net income 18,370 18,370
Issuance of 621,143 shares for
5% stock dividend 621 10,994 (11,615) -
Cash dividends - $0.656 per share (8,532) (8,532)
Payment in lieu of fractional shares (16) (16)
Purchase of 213,500 treasury shares (4,643) (4,643)
Sale of 274,071 treasury shares to
employee benefit plans and other
stock plans (830) 5,940 5,110
Unrealized net loss on securities
available for sale, net of deferred
taxes of $9,936 (14,385) (14,385)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $13,637 $121,913 $13,719 $(11,068) $(11,665) $126,536
- ----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
24
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES:
Net income $ 18,370 $ 19,102 $ 14,749
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,900 4,599 3,505
Depreciation of premises and equipment 2,210 2,047 1,471
Net accretion on securities (1,676) (2,051) (236)
Amortization of intangible assets 980 1,070 1,351
Deferred income tax benefit (217) (1,227) (435)
Proceeds from sale of loans originated for sale 2,373 3,661 4,390
Loans originated for sale (3,107) (3,262) (3,541)
Net gain on sale of other real estate owned (776) (147) (121)
Net realized (gains) losses on sales of securities (1,507) (624) 337
(Increase) decrease in interest receivable (573) 1,039 449
Increase (decrease) in interest payable 1,273 (509) 809
Sale of branch, net -- -- (219)
Other, net (1,173) (210) 1,673
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,077 23,488 24,182
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities 57,346 80,171 50,762
Proceeds from sales 60,171 130,293 183,481
Purchases (124,483) (121,317) (299,225)
Securities held to maturity:
Proceeds from maturities 22,697 24,244 24,987
Purchases (30,048) (23,200) (18,888)
Net increase in loans (105,035) (91,686) (84,261)
Purchase of premises and equipment, net (3,632) (3,527) (3,925)
Proceeds from sales of other real estate owned 2,276 1,954 1,980
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (120,708) (3,068) (145,089)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 63,868 30,022 97,864
Net increase (decrease) in short-term borrowings 18,710 (37,938) 46,283
Proceeds from issuance of long-term debt 25,000 10,000 --
Repayments of long-term debt (14) (12) (20,012)
Proceeds from issuance of treasury shares to employee
benefit plans and other stock plans 5,110 4,059 6,559
Purchase of treasury stock (4,643) (9,094) (2,568)
Cash dividends and payment for fractional shares (8,548) (7,722) (5,563)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 99,483 (10,685) 122,563
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,148) 9,735 1,656
Cash and cash equivalents at beginning of year 47,181 37,446 35,790
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 46,033 $ 47,181 $ 37,446
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 40,104 $ 44,186 $ 41,713
Income taxes 11,773 6,778 6,126
- -------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
25
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
(in thousands)
Net income $18,370 $19,102 $14,749
- -------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income, net of tax:
Unrealized net holding (losses) gains arising during
period [pre-tax amounts of $(22,814); $2,222
and $6,260] (13,494) 1,313 3,702
Less: Reclassification adjustment for net (gains)
losses included in net income [pre-tax amounts
of $(1,507); $(624) and $337] (891) (369) 200
- -------------------------------------------------------------------------------------------------------------
Total other comprehensive (loss) income (14,385) 944 3,902
- -------------------------------------------------------------------------------------------------------------
Comprehensive income $3,985 $20,046 $18,651
- -------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
26
NBT BANCORP INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NBT Bancorp Inc. ("Bancorp") and its subsidiary follow generally accepted
accounting principles ("GAAP") and reporting practices applicable to the banking
industry. 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 consolidated financial statements include the accounts of Bancorp and its
wholly owned subsidiary, NBT Bank, N.A. ("Bank") collectively referred to herein
as the Company. All significant intercompany transactions have been eliminated
in consolidation. Certain amounts previously reported in the financial
statements have been reclassified to conform with the current presentation. In
the "Parent Company Financial Information," the investment in subsidiary bank is
carried under the equity method of accounting.
Business
The Company provides loan and deposit services to its customers, primarily in
its nine county service area. The Company is subject to competition from other
financial institutions. The Company is also subject to the regulations of
certain federal agencies and undergoes periodic examination by those regulatory
agencies.
Segment reporting
The Company's operations are solely in the financial services industry and
include the provision of traditional banking services. The Company operates
solely in the geographical region of Upstate New York. Management makes
operating decisions and assesses performance based on an ongoing review of its
traditional 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.
Cash and 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.
Securities
The Company classifies its debt securities at date of purchase as either
available for sale or held to maturity. The Company does not hold any securities
considered to be trading. Held to maturity securities are those that the Company
has the ability and intent to hold until maturity. All other securities not
included as held to maturity are classified as available for sale.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at amortized cost. Unrealized holding gains and losses
on available for sale securities are excluded from earnings and are reported in
stockholders' equity as accumulated comprehensive (loss) income, net of income
taxes. Transfers of securities between categories are recorded at fair value at
the date of transfer. 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 and loans held for sale
Loans are recorded at their current unpaid principal balance, net of unearned
income. Loans classified as held for sale, primarily higher education loans, are
carried at the lower of aggregate cost or estimated fair value. Interest income
on loans is primarily accrued based on the principal amount outstanding.
The Company's classification of a loan as a nonaccrual loan is based in
part on bank regulatory guidelines. Loans are placed on nonaccrual status when
timely collection of interest 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
when management concludes circumstances indicate that borrowers may be unable to
meet contractual principal or interest payments. When in the opinion of
management the collection of principal appears unlikely, the loan balance is
charged-off in total or in part. 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.
27
Management, considering current information and events regarding the
borrowers' ability to repay the obligations, considers a loan to be impaired
when it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of collateral if the loan is collateral dependent.
If ultimate repayment of a nonaccrual 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 nonaccrual loan is applied to principal until ultimate repayment
becomes expected. Nonaccrual loans are returned to accrual status when
management determines that the financial condition of the borrower has improved
significantly to the extent that there has been a sustained period of repayment
performance so that the loan is brought current and the collectibility of both
principal and interest appears assured.
Allowance for loan losses
The allowance for loan losses is the amount which, in the opinion of management,
is necessary to absorb probable losses 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 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 losses on loans, 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 carrying amount or fair market value, less any
estimated costs of disposal. Loan losses arising from the acquisition of such
assets are 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 generally accepted accounting principles.
Intangible assets
Intangible assets consist of core deposit intangible assets and goodwill.
Intangible assets equal the excess of the purchase price over the fair value of
the tangible net assets acquired in acquisitions. Intangible assets are being
amortized by the straight line method in amounts sufficient to write-off the
intangible assets over their estimated useful lives; such intangible assets and
useful lives are reviewed annually for events or changes in circumstances that
may indicate that the carrying amount of the assets are not 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 capital surplus. Losses on the sale of treasury stock are
charged to capital surplus to the extent of previous gains, otherwise charged to
retained earnings.
28
Postretirement benefits
The Company uses actuarial based accrual accounting for its postretirement
health care plans, electing to recognize the transition obligation on a delayed
basis over the plan participants' future service periods, estimated to be twenty
years.
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.
NOTE 2 EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share 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. All share and per
share data has been adjusted retroactively for stock dividends and splits. The
following is a reconciliation of basic and diluted earnings per share for the
years presented in the income statement:
- ---------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
Basic EPS:
Weighted average common shares outstanding 13,031 13,198 13,176
Net income available to common shareholders $18,370 $19,102 $14,749
- ---------------------------------------------------------------------------------------------------------------
Basic EPS $ 1.41 $ 1.45 $ 1.12
- ---------------------------------------------------------------------------------------------------------------
Diluted EPS:
Weighted average common shares outstanding 13,031 13,198 13,176
Dilutive common stock options 132 276 159
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares and potential
common stock 13,163 13,474 13,335
Net income available to common stockholders $18,370 $19,102 $14,749
- ---------------------------------------------------------------------------------------------------------------
Diluted EPS $ 1.40 $ 1.42 $ 1.11
- ---------------------------------------------------------------------------------------------------------------
NOTE 3 FEDERAL RESERVE BOARD REQUIREMENT
The Company is required to maintain a reserve balance with the Federal Reserve
Bank of New York. The required average total reserve for the 14 day maintenance
period ending December 29, 1999, was $15.2 million of which $1.0 million was
required to be on deposit with the Federal Reserve Bank and the remaining $14.2
million was represented by cash on hand.
NOTE 4 BUSINESS COMBINATIONS (UNAUDITED)
Lake Ariel Bancorp, Inc.
On February 17, 2000, the stockholders of NBT Bancorp Inc. and Lake Ariel
Bancorp, Inc. approved a merger of the two companies. On this date, Lake Ariel
Bancorp, Inc. and its wholly owned subsidiaries were merged with and into NBT
Bancorp Inc. with each issued and outstanding share of Lake Ariel receiving
0.9961 shares of NBT Bancorp Inc. common stock. The transaction resulted in the
issuance of 4.9 million shares of NBT Bancorp Inc. common stock, bringing the
Company's outstanding shares to 17.9 million after the merger. In addition to
approving the merger, stockholders approved proposals to increase the number of
authorized shares of common stock from 15 million to 30 million and to change
the authorized common and preferred stock to shares having a par value of $0.01
per share.
LA Bank, N.A., a former subsidiary of Lake Ariel Bancorp, Inc., is a
commercial bank headquartered in northeast Pennsylvania. LA Bank, N.A., with
approximately $570 million in assets at December 31, 1999, has twenty-two branch
offices in five counties.
29
The merger qualified as a tax-free exchange for Lake Ariel Bancorp, Inc.
stockholders and is being accounted for as a pooling-of-interests combination.
NBT Bancorp Inc.'s consolidated financial statements presented in future periods
will be restated to include the results of operations of Lake Ariel Bancorp,
Inc. Concurrent with the announcement of the merger, NBT Bancorp Inc. reduced
its stock repurchase plan from 600,000 shares to 200,000 leaving 76,500 shares
remaining for repurchase under the reduced plan.
The following table presents unaudited pro forma data combining the results
of operations of NBT Bancorp Inc. and Lake Ariel Bancorp, Inc. as if the merger
had been consummated on December 31, 1999. This data reflects adjustments to
conform the accounting methods of Lake Ariel Bancorp, Inc. with those of NBT
Bancorp Inc.
-----------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
-----------------------------------------------------------------------------------
(in thousands, except per share data)
Net interest income $74,807 $ 69,883 $ 64,784
Net income 22,175 22,873 18,180
Diluted earnings per share 1.23 1.25 1.05
-----------------------------------------------------------------------------------
Pioneer American Holding Company Corp.
On December 8, 1999, NBT Bancorp Inc. and Pioneer American Holding Company
Corp., the parent company of Pioneer American Bank, N.A., announced they entered
into a definitive agreement of merger. The merger is subject to the approval of
each company's stockholders and of banking regulators. The merger is expected to
close in the second quarter of 2000 and is intended to be accounted for as a
pooling-of-interests and qualify as a tax-free exchange for Pioneer American
stockholders. Stockholders of Pioneer American will receive a fixed ratio of
1.805 shares of NBT Bancorp Inc. common stock for each share exchanged. NBT
Bancorp Inc. will issue approximately 5.2 million shares and share equivalents
in exchange for all of the Pioneer American common stock and share equivalents
outstanding.
Pioneer American Bank, N.A. is a full service commercial bank with total
assets of approximately $420 million at December 31, 1999. The Bank has eighteen
branches in five counties in northeast Pennsylvania. Pioneer American Bank, N.A.
will ultimately be merged together with LA Bank, N.A. to form the largest
community bank headquartered in northeast Pennsylvania.
30
NOTE 5 SECURITIES
The amortized cost, estimated fair value and unrealized gains and losses of
securities available for sale are as follows:
-----------------------------------------------------------------------------------------------------
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
U.S. Treasury $ 10,400 $ -- $ 1,865 $ 8,535
Federal Agency 64,479 -- 6,826 57,653
State & Municipal 1,120 4 1 1,123
Mortgage-backed 274,926 1 10,016 264,911
Other securities 9,373 362 371 9,364
-----------------------------------------------------------------------------------------------------
Total $360,298 $ 367 $19,079 $341,586
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
December 31, 1998
-----------------------------------------------------------------------------------------------------
U.S. Treasury $ 10,406 $ 75 $ -- $ 10,481
Federal Agency 67,430 745 85 68,090
State & Municipal 1,273 49 -- 1,322
Mortgage-backed 267,759 4,584 50 272,293
Other securities 3,281 303 12 3,572
-----------------------------------------------------------------------------------------------------
Total $350,149 $ 5,756 $ 147 $355,758
-----------------------------------------------------------------------------------------------------
Gross realized gains and gross realized losses on the sale of securities
available for sale were $1.5 million and $0.01 million, respectively, in 1999.
Gross realized gains and gross realized losses on the sale of securities
available for sale were $0.6 million and $0.02 million, respectively, in 1998.
Gross realized gains and gross realized losses on the sale of securities
available for sale were $0.4 million and $0.7 million, respectively, in 1997.
At December 31, 1999 and 1998, securities with amortized costs totaling
$375.3 million and $319.5 million, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law.
The amortized cost, estimated fair value, and unrealized gains and losses
of securities held to maturity are as follows:
-----------------------------------------------------------------------------------------------------
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
State & Municipal $30,000 $-- $-- $30,000
Other securities 1,517 -- -- 1,517
Federal Home Loan Bank Stock 10,929 -- -- 10,929
-----------------------------------------------------------------------------------------------------
Total $42,446 $-- $-- $42,446
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
December 31, 1998
-----------------------------------------------------------------------------------------------------
State & Municipal $22,649 $-- $-- $22,649
Other securities 1,517 -- -- 1,517
Federal Home Loan Bank Stock 10,929 -- -- 10,929
-----------------------------------------------------------------------------------------------------
Total $35,095 $-- $-- $35,095
-----------------------------------------------------------------------------------------------------
As a member of the Federal Home Loan Bank (FHLB), the Company holds the required
investment in FHLB stock.
At December 31, 1999 and 1998 all of the mortgage-backed securities held by
the Company were issued or backed by Federal agencies.
31
Remaining maturities of debt securities at December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
After One Year After Five Years
Within But Within But Within After Ten Total
One Year Five Years Ten Years Years Portfolio
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury $ -- --% $ -- --% $ -- --% $ 10,400 5.23% $ 10,400 5.23%
Federal Agency -- -- -- -- 21,569 6.65 42,910 7.21 64,479 7.02
State & Municipal -- -- 792 6.10 328 6.13 -- -- 1,120 6.11
Mortgage-backed 213 6.42 12,203 7.17 69,864 6.92 192,646 6.98 274,926 6.97
Other securities -- -- -- -- -- -- 9,373 4.40 9,373 4.40
- -----------------------------------------------------------------------------------------------------------------------------
Amortized cost $ 213 6.42% $12,995 7.10% $91,761 6.85% $255,329 6.85% $360,298 6.86%
- -----------------------------------------------------------------------------------------------------------------------------
Fair value $ 213 $12,871 $88,201 $240,301 $341,586
- -----------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY:
State & Municipal $24,073 6.05% $ 4,296 7.34% $ 1,568 7.43% $ 63 8.35% $ 30,000 6.32%
- -----------------------------------------------------------------------------------------------------------------------------
Amortized cost $24,073 6.05% $ 4,296 7.34% $ 1,568 7.43% $ 63 8.35% $ 30,000 6.32%
- -----------------------------------------------------------------------------------------------------------------------------
Fair value $24,073 $ 4,296 $ 1,568 $ 63 $ 30,000
- -----------------------------------------------------------------------------------------------------------------------------
In the tables setting forth the maturity distribution and weighted average
taxable equivalent yield of securities at December 31, 1999, the yields on
amortized cost of state and municipal securities have been calculated based on
effective yields weighted for the scheduled maturity of each security using the
marginal federal tax rate of 35%. Maturities of mortgage-backed securities are
stated based on their estimated average life.
NOTE 6 LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of loans by category is as follows:
------------------------------------------------------------------
December 31, 1999 1998
------------------------------------------------------------------
(in thousands)
Real estate mortgages $162,734 $149,647
Commercial real estate mortgages 197,629 178,778
Real estate construction and
development 14,077 10,378
Commercial and agricultural 254,852 209,731
Consumer 189,981 188,549
Home equity 103,758 84,422
------------------------------------------------------------------
Total loans $923,031 $821,505
------------------------------------------------------------------
The Company's concentrations of credit risk are reflected in the balance sheet.
The concentrations of credit risk with standby letters of credit, committed
lines of credit and commitments to originate new loans generally follow the loan
classifications. A substantial portion of the Company's loans is secured by real
estate located in central and northern New York. Accordingly, the ultimate
ability to collect on 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.
Changes in the allowance for loan losses for the three years ended December 31,
1999, are summarized as follows:
----------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
----------------------------------------------------------------------------------
Balance at January 1, $12,962 $11,582 $10,473
Provision 3,900 4,599 3,505
Recoveries 888 933 892
----------------------------------------------------------------------------------
17,750 17,114 14,870
Loans charged off 3,895 4,152 3,288
----------------------------------------------------------------------------------
Balance at December 31, $13,855 $12,962 $11,582
----------------------------------------------------------------------------------
32
Nonperforming Loans
The interest income that would have accrued on nonaccrual loans at original
contract rates for the years ended December 31, 1999, 1998, and 1997 was $0.5
million, $0.6 million and $0.6 million, respectively. Approximately $0.2
million, $0.2 million and $0.1 million of interest on the above nonaccrual loans
was collected and recognized as income for the years ended December 31, 1999,
1998 and 1997, respectively. The Company is not committed to advance additional
funds to these borrowers. Nonaccrual loans were $4.2 million and $3.6 million at
December 31, 1999 and 1998, respectively.
At December 31, 1999, the recorded investment in impaired loans was $3.2
million. Included in this amount is $0.3 million of impaired loans for which the
specifically allocated allowance for loan loss is $0.3 million. In addition,
included in impaired loans is $2.9 million of impaired loans that, as a result
of the adequacy of collateral values and cash flow analysis do not have a
specific allocation. At December 31, 1998, the recorded investment in impaired
loans was $2.4 million, of which $1.1 million had a specific allowance
allocation of $0.2 million and $1.3 million for which there was no specific
allocation. The average recorded investment in impaired loans was $2.6 million,
$4.0 million and $3.1 million in 1999, 1998 and 1997, respectively. During the
years ended December 31, 1999, 1998 and 1997 the Company recognized $0.2
million, $0.2 million and $0.1 million, respectively, of interest income on
impaired loans, all of which was recognized using the cash basis of income
recognition.
Loans Held For Sale and Loan Servicing
The Company carries loans held for sale at the lower of aggregate cost or
estimated fair value. It is the Company's practice to sell its higher education
loans to the Student Loan Marketing Association at the Company's cost after the
student leaves school. During 1999, $1.5 million of such loans were sold. At
December 31, 1999, the aggregate cost and estimated fair value of student loans
held for sale were $3.5 million, while at December 31, 1998 aggregate cost and
estimated market value were $2.9 million.
The Company originates mortgage loans, classified as held for sale, for the
State of New York Mortgage Agency. These loans are sold after closing at the
aggregate cost to the Company. At December 31, 1999 the aggregate cost and
estimated fair value of mortgage loans held for sale was $0.1 million. At
December 31, 1998 the aggregate cost and estimated fair value of mortgage loans
held for sale was $0. During 1999, $0.9 million of such loans were sold with
servicing retained. At December 31, 1999, the Company serviced $23.9 million of
real estate mortgages on behalf of other financial intermediaries. Such loans
are not reflected in the Company's balance sheet.
Related Party Loans
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
collectiblity or incorporate other unfavorable features. The aggregate amount of
loans outstanding to qualifying related parties and changes during the years are
summarized as follows:
--------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------
(in thousands)
Balance at January 1, $ 4,442 $ 3,563
New loans 2,637 3,463
Repayments (677) (2,584)
--------------------------------------------------------------------
Balance at December 31, $ 6,402 $ 4,442
--------------------------------------------------------------------
NOTE 7 PREMISES AND EQUIPMENT, NET
A summary of premises and equipment follows:
--------------------------------------------------------------------
December 31, 1999 1998
--------------------------------------------------------------------
(in thousands)
Company premises $22,287 $21,836
Equipment 22,364 20,630
Construction in progress 1,399 306
--------------------------------------------------------------------
46,050 42,772
Accumulated depreciation 24,387 22,531
--------------------------------------------------------------------
Total premises and equipment $21,663 $20,241
--------------------------------------------------------------------
Depreciation of premises and equipment totaled $2.2 million in 1999, $2.0
million in 1998 and $1.5 million in 1997.
Rental expense included in occupancy expense amounted to $0.4 million
annually in 1999 and 1998, and $0.3 million in 1997. The future minimum rental
commitments as of December 31, 1999, for noncancellable operating leases were as
follows: 2000--$0.5 million; 2001--$0.4 million; 2002--$0.3 million; 2003--$0.2
million; and 2004 and beyond--$0.5 million.
33
NOTE 8 INTANGIBLE ASSETS, NET
At December 31, 1999 and 1998, the accumulated amortization of intangible assets
was $19.2 and $18.2 million, respectively. The table below presents significant
balances, amortization and the respective periods of amortization:
----------------------------------------------------------------------
December 31, 1999 1998
----------------------------------------------------------------------
(in thousands)
Goodwill (25 yrs.):
Beginning balance $ 5,379 $ 5,718
Amortization (338) (339)
----------------------------------------------------------------------
Ending balance 5,041 5,379
----------------------------------------------------------------------
Core deposit intangible assets (10-12 yrs.):
Beginning balance 2,193 2,924
Amortization (642) (731)
----------------------------------------------------------------------
Ending balance 1,551 2,193
----------------------------------------------------------------------
Total intangible assets, net $ 6,592 $ 7,572
----------------------------------------------------------------------
NOTE 9 DEPOSITS
Time deposits of $100,000 or more aggregated $293.2 million and $282.0 million
at year-end 1999 and 1998, respectively.
The following table sets forth the maturity distribution of time
certificates of deposit at December 31, 1999:
---------------------------------------------------------
(in thousands)
Within one year $474,096
After one but within two years 49,539
After two but within three years 16,315
After three but within four years 8,062
After four but within five years 3,313
After five years 79
---------------------------------------------------------
TOTAL $551,404
---------------------------------------------------------
NOTE 10 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 $229 million at
December 31, 1999. Securities collateralizing repurchase agreements, with a
market value of $31.8 million at December 31, 1999, are held in safekeeping by
non-affiliated financial institutions and are under the Company's control.
34
Information related to short-term borrowings is summarized as follows:
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------------------
(dollars in thousands)
FEDERAL FUNDS PURCHASED
Balance at year-end $48,000 $28,000 $25,000
Average during the year 36,912 35,674 29,501
Maximum month end balance 63,000 60,000 49,000
Weighted average rate during the year 5.18% 5.58% 5.70%
Weighted average rate at December 31 5.51% 4.75% 6.13%
------------------------------------------------------------------------------------------------
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Balance at year-end $27,049 $38,388 $59,721
Average during the year 32,520 33,659 51,427
Maximum month end balance 37,268 42,085 95,403
Weighted average rate during the year 4.04% 4.01% 5.04%
Weighted average rate at December 31 3.84% 3.61% 5.03%
------------------------------------------------------------------------------------------------
OTHER SHORT-TERM BORROWINGS
Balance at year-end $40,250 $30,201 $49,806
Average during the year 37,529 44,908 38,331
Maximum month end balance 70,250 50,165 49,806
Weighted average rate during the year 5.40% 5.96% 6.02%
Weighted average rate at December 31 5.54% 5.62% 5.82%
------------------------------------------------------------------------------------------------
NOTE 11 LONG-TERM DEBT
Long-term debt consists of FHLB advances having an original maturity at issuance
of more than one year. A summary of long-term debt as of December 31, 1999
follows:
Maturity Interest
(dollars in thousands) Date Rate Amount
-----------------------------------------------------------------------------
FHLB advance 2005 5.23 10,000
FHLB advance 2008 5.33 117
FHLB advance 2008 7.20 40
FHLB advance 2009 5.10 10,000
FHLB advance 2009 5.41 15,000
-----------------------------------------------------------------------------
Total $35,157
-----------------------------------------------------------------------------
FHLB advances are collateralized by the FHLB stock owned by the Company,
mortgage-backed securities with a market value of $37.1 million and a blanket
lien on its residential real estate mortgage loans.
NOTE 12 INCOME TAXES
Total income taxes were allocated as follows:
---------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
---------------------------------------------------------------------------------------
(in thousands)
Income before income taxes $11,602 $ 4,553 $ 8,301
Stockholders' equity, capital surplus,
for stock options exercised (296) (117) (329)
Stockholders' equity, for accumulated
comprehensive (loss) income (9,936) 654 2,695
---------------------------------------------------------------------------------------
Total $ 1,370 $ 5,090 $10,667
---------------------------------------------------------------------------------------
35
The components of income tax expense included in operations are as follows:
-----------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
-----------------------------------------------------------------------------------
(in thousands)
Current:
Federal $ 9,228 $ 4,435 $7,297
State 2,591 1,345 1,439
-----------------------------------------------------------------------------------
11,819 5,780 8,736
Deferred:
Federal (358) (998) (330)
State 141 (229) (105)
-----------------------------------------------------------------------------------
(217) (1,227) (435)
-----------------------------------------------------------------------------------
Total $11,602 $ 4,553 $8,301
-----------------------------------------------------------------------------------
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, 1999 1998
---------------------------------------------------------------------------------------
(in thousands)
Deferred tax assets:
Allowance for loan losses $ 5,366 $5,132
Unrealized loss on securities available for sale 7,644 -
Deferred compensation 342 324
Postretirement benefit obligation 1,068 993
Other 433 492
---------------------------------------------------------------------------------------
Total gross deferred tax assets 14,853 6,941
---------------------------------------------------------------------------------------
Deferred tax liabilities:
Prepaid pension obligation 389 396
Premises and equipment, primarily due to accelerated
depreciation 668 644
Unrealized gain on securities available for sale - 2,292
Securities discount accretion 369 328
Other 18 25
---------------------------------------------------------------------------------------
Total gross deferred tax liabilities 1,444 3,685
---------------------------------------------------------------------------------------
Net deferred tax assets $13,409 $3,256
---------------------------------------------------------------------------------------
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
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, 1999 and 1998.
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:
--------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
--------------------------------------------------------------------------------------
(in thousands)
Federal income tax at statutory rate $10,490 $8,279 $8,068
Benefit of federal tax rates below statutory rate - (100) -
Tax exempt income (687) (570) (613)
Non-deductible expenses 316 243 220
State taxes, net of federal tax benefit 1,776 725 867
Federal income tax benefit
from corporate realignment - (4,186) -
Other, net (293) 162 (241)
--------------------------------------------------------------------------------------
Income taxes $11,602 $4,553 $8,301
--------------------------------------------------------------------------------------
36
NOTE 13 NONINTEREST EXPENSE
Included in the data processing and communications expense category are data
processing fees of $2.7 million, $2.6 million, and $1.9 million in years 1999,
1998 and 1997, respectively. The future minimum annual commitments for data
processing services as of December 31, 1999 were as follows: 2000--$3.9 million;
2001--$3.6 million; 2002--$3.0 million; 2003--$1.4 million; and 2004 and
beyond--$0.
NOTE 14 COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Commitments to extend credit include agreements to lend to a
borrower as long as there is not a violation of any condition established in the
contract. Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a borrower to a third party. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the commitments to extend credit and standby letters of credit 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. Collateral for these commitments vary but
may include negotiable instruments, accounts receivable, inventory, property,
plant, equipment and vehicles. At December 31, 1999, off balance sheet
commitments to extend credit for primarily variable rate loans amounted to
$158.3 million secured by $83.8 million in collateral value. The amount of
standby letters of credit at December 31, 1999, amounted to $1.6 million secured
by $0.1 million in cash. At December 31, 1998, off balance sheet commitments to
extend credit for primarily variable rate loans amounted to $165.3 million
secured by $95.0 million in collateral value. The amount of standby letters of
credit at December 31, 1998, amounted to $1.4 million secured by $0.1 million in
cash.
At December 31, 1999 and 1998, the Company held no off balance sheet
derivative financial instruments such as interest rate swaps, forward contracts,
futures, options on financial futures, or interest rate floors, and therefore
was not subject to the market risk associated with such derivative financial
instruments.
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.
NOTE 15 STOCKHOLDERS' EQUITY
The Company has a Dividend Reinvestment Plan for stockholders under which no new
shares of common stock were issued in 1999 and 1998. There were 772,869 shares
of common stock reserved for future issuance under the plan at December 31, 1999
(the number of shares available has been adjusted for stock dividends and
splits).
Certain restrictions exist regarding the ability of the Bank 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 the Bank's
earnings retained in the current year plus retained net profits for the
preceding two years or when the Bank fails to meet certain minimum regulatory
capital standards. At December 31, 1999, the Bank had the ability to pay $21.9
million in dividends to the Company without obtaining prior regulatory approval.
Under the State of Delaware Business Corporation Law, the Company may declare
and pay dividends either out of accumulated net retained earnings or capital
surplus.
The Company currently is authorized to issue 2.5 million shares of
preferred stock, no par value, $1.00 stated value. The Board of Directors is
authorized to fix the particular designations, preferences, rights,
qualifications, and restrictions for each series of preferred stock issued. 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, subject to adjustment. 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, no par value, and $1.00
stated 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 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.
37
Regulatory Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The capital amounts and classification
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 Bank 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, 1999 the Company and
the Bank meet all capital adequacy requirements to which it is subject.
As of December 31, 1999 the most recent notification from The Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Company and the Bank's actual capital amounts and ratios are presented
in the following table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
ACTUAL Adequacy Purposes: Action Provisions:
- ------------------------------------------------------------------------------------------------------------------------
(in thousands) AMOUNT RATIO Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999:
Total Capital (to Risk Weighted Assets):
Company Consolidated $142,495 15.55% $ 73,303 8.00% $ 91,628 10.00%
Bank $132,427 14.59% $ 72,637 8.00% $ 90,796 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Company Consolidated $131,012 14.30% $ 36,651 4.00% $ 54,977 6.00%
Bank $121,047 13.33% $ 36,319 4.00% $ 54,478 6.00%
Tier 1 Capital (to Average Assets):
Company Consolidated $131,012 9.50% $ 41,372 3.00% $ 68,953 5.00%
Bank $121,047 8.84% $ 41,098 3.00% $ 68,497 5.00%
- ------------------------------------------------------------------------------------------------------------------------
As of December 31, 1998:
Total Capital (to Risk Weighted Assets):
Company Consolidated $129,967 15.94% $ 65,214 8.00% $ 81,517 10.00%
Bank $124,646 15.36% $ 64,912 8.00% $ 81,140 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Company Consolidated $119,743 14.69% $ 32,607 4.00% $ 48,910 6.00%
Bank $114,469 14.11% $ 32,456 4.00% $ 48,684 6.00%
Tier 1 Capital (to Average Assets):
Company Consolidated $119,743 9.33% $ 38,513 3.00% $ 64,188 5.00%
Bank $114,469 8.96% $ 38,341 3.00% $ 63,901 5.00%
- ------------------------------------------------------------------------------------------------------------------------
NOTE 16 EMPLOYEE BENEFIT PLANS
Postretirement Benefits Other Than Pensions
Nonpension benefits are accrued over the employees' active service period,
defined as the date of employment up to the date of the employees' eligibility
for such benefits. The Company provides certain health care benefits for retired
employees. The health care plans are contributory for participating retirees and
also requires them to absorb deductibles and coinsurance with contributions
adjusted annually to reflect cost sharing provisions and benefit limitations.
Substantially all of the employees may become eligible for these benefits if
they reach normal retirement age while working for the Company or its
subsidiaries. The benefits are provided by the participants choice of health
maintenance organizations with community rated premiums or self-insured plans
administered by insurance companies, whose premiums are based on the claims paid
during the year. The Company funds the cost of post retirement health care as
benefits are paid. The Company elected to recognize the transition obligation in
the balance sheets and statements of income on a delayed basis over the plan
participant's future service periods, estimated to be twenty years.
38
The Company used a health care trend rate in calculating its postretirement
benefit obligation of 7.0% to 8.0% for 2000, grading down uniformly to 5.5% for
2005 and thereafter.
The net postretirement health benefits expense and funded status are as
follows:
---------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
---------------------------------------------------------------------------------------------
(in thousands)
Components of net periodic benefit cost:
Service cost $ 235 $ 205 $ 182
Interest cost 278 261 255
Amortization of transition obligation 85 85 85
Amortization of gains and losses 24 25 28
---------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 622 $ 576 $ 550
---------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of the year $ 4,350 $ 4,158
Service cost 235 205
Interest cost 278 261
Plan participant's contributions 106 95
Actuarial gain (932) (172)
Benefits paid (222) (197)
------------------------------------------------------------------------------
Benefit obligation at end of year $ 3,815 $ 4,350
------------------------------------------------------------------------------
Components of accrued benefit cost:
Funded status $(3,815) $(4,350)
Unrecognized transition obligation 1,103 1,188
Unrecognized actuarial net loss 152 1,108
------------------------------------------------------------------------------
Accrued benefit cost $(2,560) $(2,054)
------------------------------------------------------------------------------
Weighted average discount rate 7.75% 6.75%
------------------------------------------------------------------------------
Assumed health care cost trend rates have a significant effect on amounts
reported for the health care plans. A one-percentage point change in the health
care trend rates would have the following effects:
1-PERCENTAGE 1-PERCENTAGE
POINT POINT
INCREASE DECREASE
---------------------------------------------------------------------------------------------
(in thousands)
Effect on total of service and interest cost components $ 140 $ (109)
Effect on postretirement benefit obligation 843 (681)
Retirement Savings and Employee Stock Ownership Plan
Effective January 1, 1997, the Company terminated the existing Retirement
Savings Plan and Employee Stock Ownership Plan (ESOP) and merged the assets and
liabilities into the 401(k) and Employee Stock Ownership Plan. The Company
contributed an amount equal to 100% of employees, 401(k) contributions up to 5%
of their annual salary for 1999, 1998 and 1997. In addition, the Company may
also make discretionary ESOP contributions based on the Company's profitability.
Participation in the Plan is contingent upon certain age and service
requirements. Provisions for contributions to the combined Plan amounted to $1.1
million in 1999, $1.0 million in 1998 and $0.7 million in 1997.
39
Pension Plan
The Company has a qualified, noncontributory pension plan covering substantially
all employees. Benefits paid from the plan are based on age, years of service,
compensation prior to retirement and 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.
The net pension expense and the funded status of the plan are as follows:
-------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
-------------------------------------------------------------------------------------------
(in thousands)
Components of net periodic benefit cost:
Service cost $ 892 $ 701 $ 508
Interest cost 1,457 1,354 1,181
Expected return on plan assets (1,935) (1,705) (1,406)
Amortization of initial unrecognized asset (109) (109) (109)
Amortization of prior service cost 257 257 257
Amortization of unrecognized net gain -- -- (36)
-------------------------------------------------------------------------------------------
Net periodic pension cost $ 562 $ 498 $ 395
-------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $(21,434) $(19,490)
Service cost (892) (701)
Interest cost (1,457) (1,354)
Prior service cost -- -
Actuarial gain 2,402 (1,119)
Benefits paid 1,236 1,230
-------------------------------------------------------------------------------------------
Benefit obligation at end of year $(20,145) $(21,434)
-------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 21,931 $ 19,431
Actual return on plan assets 745 3,672
Employer contributions 550 58
Benefits paid (1,236) (1,230)
-------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 21,990 $ 21,931
-------------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation $ 1,845 $ 497
Unrecognized portion of net asset at transition (1,085) (1,194)
Unrecognized net actuarial loss (3,459) (2,247)
Unrecognized prior service cost 3,677 3,934
-------------------------------------------------------------------------------------------
Prepaid benefit cost $ 978 $ 990
-------------------------------------------------------------------------------------------
Weighted average assumptions as of December 31,
Discount rate 7.75% 6.75% 7.00%
Expected long-term return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% 4.00%
-------------------------------------------------------------------------------------------
Stock Option Plans
The Company has two stock option plans (Plans). At December 31, 1999, there were
1,676,948 shares of the Company's common stock reserved for issuance under the
Plans. Under the terms of the Plans, options were 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.
At December 31, 1999, there were 859,057 additional shares available for
grant under the Plans. The per share weighted-average fair value of stock
options granted during 1999, 1998 and 1997 was $5.37, $6.77 and $5.14,
respectively on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: 1999 - expected dividend yield
of 3.72%, expected volatility of 29.05%, risk-free interest rates between 4.63%
and 6.16%, and expected life 7 years; 1998 - expected dividend yield of 2.75%,
expected volatility of 21.86%, risk-free interest rates of 5.49% and 5.62%, and
expected life 7 years; 1997 - expected dividend yield of 2.60%, expected
volatility of 22.56%, risk-free interest rates of 6.52% and 6.58%, and an
expected life of 7 years.
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the 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, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
40
1999 1998 1997
----------------------------------------------------------------------------------------------
Net income As reported $18,370 $19,102 $14,749
Pro forma 17,674 18,613 14,404
Basic earnings per share As reported $ 1.41 $ 1.45 $ 1.12
Pro forma 1.36 1.41 1.09
Diluted earnings per share As reported $ 1.40 $ 1.42 $ 1.11
Pro forma 1.34 1.38 1.08
----------------------------------------------------------------------------------------------
Pro forma net income reflects only options granted after January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of 4 years and compensation cost for options granted prior to January 1,
1995 is not considered.
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.
The following is a summary of changes in options outstanding:
Number Weighted Average of
of Exercise Price of
Options Options Under Plans
---------------------------------------------------------------------------------------
Balance, December 31, 1996 680,706 $ 9.31
---------------------------------------------------------------------------------------
Granted 175,033 11.67
Exercised (307,823) 9.19
Lapsed (30,759) 10.34
---------------------------------------------------------------------------------------
Balance, December 31, 1997 517,157 $10.11
---------------------------------------------------------------------------------------
Granted 179,634 18.17
Exercised (23,691) 8.07
Lapsed (3,336) 11.37
---------------------------------------------------------------------------------------
Balance, December 31, 1998 669,764 $12.34
---------------------------------------------------------------------------------------
Granted 230,165 20.47
Exercised (64,303) 8.91
Lapsed (17,735) 16.23
---------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 817,891 $14.81
---------------------------------------------------------------------------------------
The following table summarizes information concerning currently outstanding and
exercisable options:
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
- --------------------------------------------------------------------------------------------------------
$5.01 - $10.50 263,201 5.15 $ 9.66 234,904 $ 9.59
$10.51 - $16.00 155,832 7.08 11.64 93,499 11.64
$16.01 - $21.50 398,858 8.66 19.46 69,913 18.17
- --------------------------------------------------------------------------------------------------------
$5.01 - $21.50 817,891 7.23 $14.81 398,316 $11.58
- --------------------------------------------------------------------------------------------------------
41
NOTE 17 PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
- ---------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- ---------------------------------------------------------------------------------------
(in thousands)
ASSETS
Cash and cash equivalents $ 1,750 $ 1,875
Due from subsidiary bank 288 24
Securities available for sale 7,724 3,572
Loans 18 18
Investment in subsidiary bank 116,577 125,187
Other assets 253 51
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $126,610 $130,727
- ---------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 74 $ 95
- ---------------------------------------------------------------------------------------
Total liabilities 74 95
Stockholders' equity 126,536 130,632
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $126,610 $130,727
- ---------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
(in thousands)
Dividends from subsidiary bank $12,500 $11,500 $ 6,000
Interest and dividend income 353 345 322
Gain on sale of securities available for sale 1,036 16 -
- ---------------------------------------------------------------------------------------------------------
13,889 11,861 6,322
Interest expense 6 - -
Operating expense 888 257 299
- ---------------------------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed income of subsidiary bank 12,995 11,604 6,023
Income tax expense 223 61 26
Equity in undistributed income of subsidiary bank 5,598 7,559 8,752
- ---------------------------------------------------------------------------------------------------------
NET INCOME $18,370 $19,102 $14,749
- ---------------------------------------------------------------------------------------------------------
42
CONDENSED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
-------------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES:
Net income $ 18,370 $ 19,102 $ 14,749
Adjustments to reconcile net income to net cash
provided by operating activities:
Net accretion on securities -- (4) (4)
Net realized gains on sale of securities available for sale (1,036) (16) --
(Decrease) in other assets (21) 66 (83)
Increase (decrease) in other liabilities (201) (49) (3)
Undistributed net income of subsidiary bank (5,598) (7,559) (8,752)
Other, net 122 (87) (18)
-------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,636 11,453 5,889
-------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales of securities 2,301 3,416 -
Purchases (5,717) (2,965) (3,384)
-------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (3,416) 451 (3,384)
-------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Treasury shares reissued 5,110 4,059 6,559
Purchase of treasury stock (4,643) (9,094) (2,568)
Cash dividends and payment for fractional shares (8,548) (7,722) (5,563)
-------------------------------------------------------------------------------------------------------
Net cash used in financing activities (8,081) (12,757) (1,572)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 139 (853) 933
Cash and cash equivalents at beginning of year 1,899 2,752 1,819
-------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,038 $ 1,899 $ 2,752
-------------------------------------------------------------------------------------------------------
NOTE 18 FAIR VALUES OF FINANCIAL INSTRUMENTS
A financial instrument is defined as cash, evidence of an ownership interest in
an entity, or a contract that imposes the obligation to deliver, receive, or
exchange cash or other financial instruments between willing entities on
potentially favorable or unfavorable terms. There are no off balance sheet
derivative financial instruments at December 31, 1999 and 1998. The following
methods and assumptions were used to estimate the fair value of each class of
financial instruments.
Cash and cash equivalents
For these short-term instruments, 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 analyses 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.
Accrued interest receivable and payable
For these short-term instruments, carrying value approximates fair value.
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 certificates of deposit is estimated
using a discounted cash flow analysis that applies interest rates currently
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
43
Short-term borrowings
For short-term borrowings, carrying value approximates fair value.
Long-term debt
The fair value of long-term debt has been estimated using discounted cash flow
analyses that apply interest rates currently being 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 immaterial.
Estimated fair values of financial instruments
--------------------------------------------------------------------------------------------------------
December 31, 1999 1998
--------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(in thousands) AMOUNT VALUE Amount Value
--------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and cash equivalents $ 46,033 $ 46,033 $ 47,181 $ 47,181
Loans held for sale 3,621 3,621 2,887 2,887
Securities available for sale 341,586 341,586 355,758 355,758
Securities held to maturity 42,446 42,446 35,095 35,095
Loans 923,031 911,275 821,505 859,833
Less allowance for loan losses 13,855 -- 12,962 --
--------------------------------------------------------------------------------------------------------
Net loans 909,176 911,275 808,543 859,833
Accrued interest receivable 7,004 7,004 6,431 6,431
--------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Deposits:
Interest bearing:
Savings, NOW and money market 392,193 392,193 391,614 391,614
Certificates of deposit 551,404 549,680 498,445 500,013
Noninterest bearing 164,476 164,476 154,146 154,146
--------------------------------------------------------------------------------------------------------
Total deposits 1,108,073 1,106,349 1,044,205 1,045,773
Short-term borrowings 115,299 115,299 96,589 96,589
Long-term debt 35,157 34,370 10,171 10,848
Accrued interest payable $ 4,004 $ 4,004 $ 2,731 $ 2,731
--------------------------------------------------------------------------------------------------------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
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.
44
Part IV.
Item 14(b) -- Reports on FORM 8-K
During the quarter ended December 31, 1999, the Company filed the following
Current Reports on Form 8-K:
(1) A report filed December 16, 1999 stating that NBT Bancorp Inc. and Pioneer
American Holding Company Corp. announced that they had entered into an
Agreement and Plan of Merger, dated as of December 7, 1999.
(2) A report filed December 22, 1999 announcing changes adopted by the
Registrant's Board of Directors on November 22, 1999 to the NBT Bancorp
Inc. Stockholders Rights Agreement.
45
DESCRIPTION OF EXHIBITS
Agreement and Plan of Merger by and between NBT Bancorp Inc. and Pioneer
American Holding Company Corp., dated as of December 7, 1999
Certificate of Incorporation of NBT BANCORP INC., as amended through April 18,
1998.
By-laws of NBT BANCORP INC., as amended and restated through November 22, 1999.
NBT BANCORP INC. 401(k) and Employee Stock Ownership Plan made as of January 1,
1997.
NBT BANCORP INC. Defined Benefit Pension Plan Amended and restated as of
October 1, 1989, including Amendments adopted through August 31, 1998.
NBT BANCORP INC. 1993 Stock Option Plan as amendment through April 28, 1998.
Change in control agreement with Daryl R. Forsythe.
Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe made as of January 1, 1995.
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.
NBT Bancorp Inc. and Subsidiaries Master Deferred Compensation Plan of
Directors, adopted February 11, 1992.
Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, National Association
and (Key Management Group) made as of January 2, 1997.
Restricted Stock Agreement between NBT Bank, National Association and Daryl R.
Forsythe made January 1, 1997.
Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made
January 1, 1998.
Restricted Stock Agreement between NBT Bank, National Association and (Director)
made January 1, 1998.
Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made
January 1, 1999.
Restricted Stock Agreement between NBT Bank, National Association and (Director)
made January 1, 1999.
Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made January
1, 2000.
Restricted Stock Agreement between NBT Bank, National Association and (Director)
made January 1, 2000.
Supplemental Retirement Income Plan between NBT Bank, National Association and
Certain Management and Highly Compensated Employees made as of January 1,
1996.
Form of Employment Agreement with John G. Martines
Form of Employment Agreement with John W. Reuther
A list of the subsidiaries of the registrant.
Consent of KPMG LLP.
Financial Data Schedule.
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 TREASURER OF NBT BANCORP INC.
46
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 10th
day of March, 2000.
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 Treasurer
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 10, 2000
- ---------------------------------- --------------
J. Peter Chaplin, Director DATE
/s/ DARYL R. FORSYTHE March 10, 2000
- ---------------------------------- --------------
Daryl R. Forsythe, Director DATE
/s/ EVERETT A. GILMOUR March 10, 2000
- ---------------------------------- --------------
Everett A. Gilmour, Director DATE
/s/ PETER B. GREGORY March 10, 2000
- ---------------------------------- --------------
Peter B. Gregory, Director DATE
/s/ ANDREW S. KOWALCZYK, JR. March 10, 2000
- ---------------------------------- --------------
Andrew S. Kowalczyk, Jr., Director DATE
/s/ DAN B. MARSHMAN March 10, 2000
- ---------------------------------- --------------
Dan B. Marshman, Director DATE
/s/ JOHN C. MITCHELL March 10, 2000
- ---------------------------------- --------------
John C. Mitchell, Director DATE
/s/ WILLIAM L. OWENS March 10, 2000
- ---------------------------------- --------------
William L. Owens, Director DATE
/s/ PAUL O. STILLMAN March 10, 2000
- ---------------------------------- --------------
Paul O. Stillman, Director DATE
47
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 Pioneer American Holding Company Corp., dated as of
December 7, 1999
FORM S-4 Registration Statement, file number 333-30988 filed
February 23, 2000 -- Appendix A
3.1 Certificate of Incorporation of NBT BANCORP INC., as amended *
through April 18, 1998.
FORM 10-Q for the quarterly period ended March 31, 1998,
filed May 15, 1998 -- Exhibit 10.3.
3.2 By-laws of NBT BANCORP INC., as amended and restated through *
November 22, 1999.
FORM S-4\A Registration Statement, file number 333-93197
filed January 11, 2000 -- Exhibit 3.
10.1 NBT BANCORP INC. 401(k) and Employee Stock Ownership Plan *
made as of January 1, 1997.
FORM 10-K for the year ended December 31, 1997, filed
March 16, 1998 -- Exhibit 10.1
10.2 NBT BANCORP INC. Defined Benefit Pension Plan Amended and *
restated as of October 1, 1989, including Amendments adopted
through August 31, 1998.
FORM 10-K for the year ended December 31, 1998, filed
March 16, 1999 -- Exhibit 10.2
10.3 NBT BANCORP INC. 1993 Stock Option Plan as amended through *
April 18, 1998.
FORM 10-Q for the quarterly period ended March 31, 1998,
filed May 15, 1998 -- Exhibit 10.4.
10.4 Change in control agreement with Daryl R. Forsythe. *
FORM 10-K for the year ended December 31, 1994, filed
March 31, 1995 -- Exhibit 10.21.
10.5 Supplemental Retirement Agreement between NBT Bancorp Inc., *
NBT Bank, National Association and Daryl R. Forsythe made as
of January 1, 1995.
FORM 10-Q for the quarterly period ended September 30, 1995,
filed November 13, 1995 -- Exhibit 10.1.
10.6 Death Benefits Agreement between NBT Bancorp Inc., NBT Bank, *
National Association and Daryl R. Forsythe made August 22,
1995.
FORM 10-Q for the quarterly period ended September 30, 1995,
filed November 13, 1995 -- Exhibit 10.2.
10.7 Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, *
National Association and Daryl R. Forsythe made as of
August 1, 1995.
FORM 10-Q for the quarterly period ended September 30, 1995,
filed November 13, 1995 -- Exhibit 10.4.
10.8 NBT Bancorp Inc. and Subsidiaries Master Deferred *
Compensation Plan of Directors, adopted February 11, 1992.
FORM 10-Q for the quarterly period ended September 30, 1995,
filed November 13, 1995 -- Exhibit 10.3.
48
EXHIBIT INDEX (continued)
FORM
10-K Exhibit
Exhibit Cross
Number Reference
10.9 Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, *
National Association and (Key Management Group) made as of
January 2, 1997.
FORM 10-K for the year ended December 31, 1996, filed
March 14, 1997 -- Exhibit 10.40.
Substantially identical contracts for the following have
been omitted: John R. Bradley, Senior Vice President,
Commercial Banking Division Head; Martin A. Dietrich, Senior
Vice President, Retail Division Head; Joe C. Minor, Senior
Vice President, Chief Financial Officer and Treasurer; and
John D. Roberts, Senior Vice President, Trust Division Head.
10.10 Restricted Stock Agreement between NBT Bank, National *
Association and Daryl R. Forsythe made January 1, 1997.
FORM 10-K for the year ended December 31, 1996, filed
March 14, 1997 -- Exhibit 10.55.
10.11 Restricted Stock Agreement between NBT Bancorp Inc. and *
(Director) made January 1, 1998.
FORM 10-Q for the quarterly period ended March 31, 1998,
filed May 15, 1998 -- Exhibit 10.1.
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.
10.12 Restricted Stock Agreement between NBT Bank, National *
Association and (Director) made January 1, 1998.
FORM 10-Q for the quarterly period ended March 31, 1998,
filed May 15, 1998 -- Exhibit 10.2
Substantially identical contracts for the following
directors have been omitted: Dan B. Marshman; Kenneth M.
Axtell; J. Peter Chaplin; Andrew S. Kowalxzyk, Jr.; Paul O.
Stillman; William L. Owens; John C. Mitchell; Janet H.
Ingraham; Everett A. Gilmour; Richard F. Monroe and Peter B.
Gregory.
10.13 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.
10.14 Restricted Stock Agreement between NBT Bank, National *
Association and (Director) made January 1, 1999.
FORM 10-K for the year ended December 31, 1998, filed
March 16, 1999 -- Exhibit 10.17.
Substantially identical contracts for the following
directors have been omitted: Dan B. Marshman; Kenneth M.
Axtell; J. Peter Chaplin; Andrew S. Kowalxzyk, Jr.; Paul O.
Stillman; William L. Owens; John C. Mitchell; Janet H.
Ingraham; Everett A. Gilmour; Richard F. Monroe and Peter B.
Gregory.
49
EXHIBIT INDEX (continued)
FORM
10-K Exhibit
Exhibit Cross
Number Reference
10.15 Restricted Stock Agreement between NBT Bancorp Inc. and Herein
(Director) made January 1, 2000.
Document is attached as exhibit 10.18
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, Dan B. Marshman and William L.
Owens.
10.16 Restricted Stock Agreement between NBT Bank, National Herein
Association and (Director) made January 1, 2000.
Document is attached as exhibit 10.19
Substantially identical contracts for the following
directors have been omitted: Dan B. Marshman; Kenneth M.
Axtell; J. Peter Chaplin; Andrew S. Kowalxzyk, Jr.; Paul O.
Stillman; William L. Owens; John C. Mitchell; Janet H.
Ingraham; Everett A. Gilmour; Richard F. Monroe and Peter B.
Gregory.
10.17 Supplemental Retirement Income Plan between NBT Bank, *
National Association and Certain Management and Highly
Compensated Employees made as of January 1, 1996.
FORM 10-Q for the quarterly period ended June 30, 1997, filed
August 13, 1997 - Exhibit 10.3.
10.18 Form of Employment Agreement with John G. Martines *
Schedule 13D, filed August 18, 1999 - Exhibit 2.4
10.19 Form of Employment Agreement with John W. Reuther *
Schedule 13D, filed December 16, 1999 - Exhibit 2.4
21 A list of the subsidiaries of the registrant is attached as Herein
Exhibit 21.
23 Consent of KPMG LLP. Herein
Document is attached as Exhibit 23.
27 Financial Data Schedule. Herein
Document is attached as Exhibit 27.
50