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, 1998.
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: 607-337-6000
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
Preferred Stock, No Par, $1.00 Stated Value
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this FORM 10-K or any
amendment to this FORM 10-K. _X_.
There are no delinquent filers to the Registrant's knowledge.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
As of February 28, 1999, there were 12,396,134 shares outstanding of the
Registrant's common stock, No Par, Stated Value $1.00; of which 11,939,628
common shares having a market value of $267,925,252 were held by nonaffiliates
of the Registrant. There were no shares of the Registrant's preferred stock, No
Par, Stated Value $1.00, outstanding at that date.
Documents Incorporated by Reference
Portions of the Proxy Statement of NBT BANCORP INC. dated March 17, 1999 for the
Annual Meeting of Stockholders to be held on April 17, 1999 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.
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<TABLE>
<CAPTION>
CROSS REFERENCE INDEX
<S> <C> <C> <C>
Part I. Item 1 Business
Description of Business II-3,4
Average Balance Sheets II-9
Net Interest Income Analysis - Taxable Equivalent Basis II-9
Net Interest Income and Volume/Rate Variance - Taxable Equivalent Basis II-10
Securities Portfolio II-13
Securities - Maturity/Yield Schedule II-33
Loans II-13
Maturities and Sensitivities of Loans to Changes in Interest Rates II-14
Nonperforming and Risk Assets II-14
Allowance for Loan Losses II-11
Maturity Distribution of Time Deposits II-15
Return on Equity and Assets II-5
Short-Term Borrowings II-35,36
Item 2 Properties II-20
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, 1998.
Part II. Item 5 Market for the Registrant's Common Stock and Related Shareholder Matters II-15,16,38
Item 6 Selected Financial Data II-5
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation II-5 thru 19
Item 7A Quantitative and Qualitative Disclosure About Market Risk II-16 thru 18
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets at December 31, 1998 and 1997 II-24
Consolidated Statements of Income for each of the years in three-year period ended
December 31, 1998 II-25
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended December 31, 1998 II-26
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1998 II-27
Consolidated Statements of Comprehensive Income for each of the years in the
three-year period ended December 31, 1998 II-28
Notes to Consolidated Financial Statements II-29 thru 45
Independent Auditors' Report II-23
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) No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
(c) Refer to item 14(a)(3) above.
(d) Refer to item 14(a)(2) above.
<FN>
* Information called for by Part III (Items 10 through 13) is incorporated by
reference to the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission.
</FN>
</TABLE>
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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 is a full service commercial bank providing a broad range of
financial products. The Bank has thirty-five locations serving a nine county
area in central and northern New York. As of December 31, 1998, the Bank had 452
full-time and 70 part-time employees. The Bank is not a party to any collective
bargaining agreements, and employee relations are considered to be good.
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.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act and made revisions to
several other federal banking statutes. Among other things, 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, 1998, the Registrant and the Bank were well
capitalized based on the ratios and guidelines noted above.
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 Bank is subject to primary supervision, regulation, and examination
by the Office of the Comptroller of the Currency ("OCC"), whose regulations are
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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.
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 1995, BIF reached its statutory target of 1.25% of total insured deposits
and the BIF assessment rates were reduced from .23% to .04% for the highest
rated banks. For 1996, the highest rated banks were not assessed on the level of
their deposits but rather paid a minimum fee of $2,000 to BIF. During 1997 and
1998, 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 1997 and 1998. BIF assessment rates are subject to
semi-annual adjustment by the FDIC Board of Directors. The FDIC Board of
Directors has retained the 1997 and 1998 BIF assessment schedule through June
30, 1999.
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. BIF-assessable deposits are subject to assessment for payment on
the FICO bond obligation at one-fifth the rate of SAIF-assessable deposits
through year-end 1999, or until the insurance funds are merged, whichever occurs
first. The FICO assessment is adjusted quarterly based on call report
submissions to reflect changes in the assessment bases of the respective funds.
During 1998, BIF insured banks paid a rate of .012% for purposes of funding FICO
bond obligations, resulting in an assessment of $120,228 for the Bank. The
assessment rate for BIF member institutions has been set at 1.22 basis points,
annually, for the first quarter of 1999.
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<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C>
Interest and fee income $ 101,080 $ 96,181 $ 84,387 $ 77,400 $ 70,438
Interest expense 43,677 42,522 36,365 34,840 25,742
Net interest income 57,403 53,659 48,022 42,560 44,696
Provision for loan losses 4,599 3,505 3,175 1,553 3,071
Noninterest income excluding
securities gains (losses) 9,355 8,403 7,683 6,957 6,484
Securities gains (losses) 624 (337) 1,179 145 555
Noninterest expense 39,128 35,170 34,422 33,024 38,674
Income before income taxes 23,655 23,050 19,287 15,085 9,990
Net income 19,102 14,749 12,179 9,329 6,508
- -------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE*
Basic earnings $ 1.52 $ 1.18 $ 0.98 $ 0.72 $ 0.50
Diluted earnings $ 1.49 $ 1.16 $ 0.97 $ 0.72 $ 0.50
Cash dividends paid $ 0.616 $ 0.442 $ 0.355 $ 0.307 $ 0.277
Stock dividends distributed 5% 5% 5% 5% 5%
Book value at year-end $ 10.52 $ 9.77 $ 8.65 $ 8.47 $ 7.56
Tangible book value at year-end $ 9.91 $ 9.09 $ 7.84 $ 7.56 $ 6.81
Average diluted common
shares outstanding 12,832 12,700 12,514 12,936 13,140
- -------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31,
Assets available for sale $ 358,645 $ 443,918 $ 373,337 $ 399,625 $ 119,398
Securities held to maturity 35,095 36,139 42,239 40,311 272,466
Loans 821,505 735,482 654,593 588,385 574,718
Allowance for loan losses 12,962 11,582 10,473 9,120 9,026
Assets 1,290,009 1,280,585 1,138,986 1,106,266 1,044,557
Deposits 1,044,205 1,014,183 916,319 873,032 791,443
Short-term borrowings 96,589 134,527 88,244 115,945 140,587
Other borrowings 10,171 183 20,195 3,012 8,734
Stockholders' equity 130,632 123,343 106,264 108,044 98,307
- -------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.48% 1.20% 1.10% 0.90% 0.64%
Return on average equity 14.93% 12.97% 11.80% 9.18% 6.53%
Average equity to average assets 9.93% 9.25% 9.29% 9.75% 9.88%
Net interest margin 4.76% 4.67% 4.69% 4.43% 4.81%
Efficiency 57.92% 56.09% 60.74% 65.92% 70.22%
Cash dividend per share payout 41.34% 37.91% 36.50% 42.61% 56.13%
Tier 1 leverage
(Regulatory guideline 3%) 9.33% 8.91% 8.70% 8.80% 9.05%
Tier 1 risk-based capital
(Regulatory guideline 4%) 14.69% 14.88% 14.06% 15.21% 16.09%
Total risk-based capital
(Regulatory guideline 8%) 15.94% 16.13% 15.31% 16.46% 17.35%
- -------------------------------------------------------------------------------------------------------------------
<FN>
*All share and per share data has been restated to give retroactive effect to stock dividends and splits.
</FN>
</TABLE>
II-5
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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
The Company achieved record operating results during 1998. Net income increased
to $19.1 million, a 29.5% increase over 1997 earnings of $14.7 million. A major
contributing factor to the record results during 1998 was a $3.8 million net
benefit resulting from a corporate realignment. Due to the nature of the
realignment and recent changes in the tax laws, these tax benefits are limited
to 1998 and will not be available in future years. Also contributing to the
improved earnings were increases in net interest and noninterest income,
partially offset by an increase in noninterest expense.
The increase in net interest income was a result of the $56.2 million
(4.8%) growth in average earning assets, primarily due to loan volume increases.
Loan growth was experienced the commercial and mortgage portfolios with average
volume increases of $46.9 million and $21.9 million, respectively.
Deposits of $1,044.2 million at December 31, 1998, were $30.0 million
higher than the previous year-end. Deposits averaged $1,029.8 million for the
year, a 5.8% increase over 1997 average deposits. Demand and time deposits
(certificates) accounted for the increase in average deposits.
In June of 1998, the Company distributed a four-for-three stock split
effected in the form of a 33 1/3% stock dividend. In December 1998, the Company
distributed a 5% stock dividend, the thirty-ninth 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 the stock
dividends and splits.
In July of 1998, the Company announced the formation of a venture
capital subsidiary, NBT Capital Corp. The venture capital subsidiary, licensed
as a Small Business Investment Company by the U. S. Small Business
Administration, was formed to assist young businesses develop and grow in the
markets we serve.
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, may be less favorable than expected, resulting in,
among other things, a deterioration in credit quality; (5) changes may incur in
business conditions and inflation; and (6) unforeseen risks associated with the
Year 2000 issue.
YEAR 2000
The Year 2000 issue presents a number of difficult challenges to the Company.
Information systems are often complex and have been developed over many years
through a variety of computer languages and hardware platforms. The Year 2000
issue refers to the programming of existing software applications using a two
digit year field. This coding presents a potential problem when the year begins
with "20", instead of "19". Computers may interpret the year as 1900 instead of
2000, creating possible system failure or miscalculation of financial data.
A committee continues to direct the Company's Year 2000 activities
under the framework of the FFIEC's Five-Step Program. The FFIEC's Five-Step
Program includes the following phases: Awareness, Assessment, Renovation,
Validation and Implementation. The Awareness Phase, 100% complete, defines the
Year 2000 problem and gains executive level support for the necessary resources
to prepare the Company for Year 2000 compliance. The Assessment Phase, 100%
complete, assesses the size and complexity of the problem and details the
magnitude of the effort necessary to address the Year 2000 issues. Although the
Awareness and Assessment Phases are complete, the Company will continue to
evaluate any new issues as they arise. The Renovation Phase, 100% complete,
includes code enhancements, hardware and software updates, system replacements,
vendor certification, and other associated changes. The Validation Phase, 60%
complete, includes the testing of incremental changes to hardware and software
components. The Validation Phase is scheduled to be substantially complete by
March 31, 1999. The Implementation Phase, 60% complete, certifies that systems
are Year 2000 compliant and have been accepted by the end users. The
Implementation Phase is scheduled to be substantially complete by March 31,
1999. The Company has been addressing Informational Technology (IT) and non IT
systems. The Company has categorized all systems as mission critical, high,
medium or low priority with respect to its ability to influence business
functions. The Company has completed the development of test and validation
methodologies for its IT systems. Testing of applications has begun and is
scheduled to be substantially complete during the first quarter of 1999. In some
cases, the Company will rely on the service providers and software vendors to
facilitate proxy testing with a selected group of users. The Company will review
the test plans and validate the results of the proxy testing to ensure the Year
2000 compliance of those systems. To ensure compliance of non IT systems where
testing is not possible, the Company has contacted the manufacturers and
suppliers for Year 2000 certification. Based on responses from manufacturers and
suppliers of non IT systems, the Company does not anticipate incurring any
material expenses due to unpreparedness of the non IT systems.
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The Company has identified material third party relationships to
minimize the potential loss from unpreparedness of these parties. The Company
continues to work closely with Fiserv, its data services and items processing
provider, regarding Year 2000 compliance.
The Company has tested its mission critical trust accounting system to
ensure Year 2000 compliance. The testing and validation of this system was
completed during the fourth quarter of 1998. Test results were reviewed by
internal staff and did not disclose any Year 2000 issues. In addition, the
system was also tested by the software vendor and two user groups made up of
other banks. Results of these tests did not identify any Year 2000 issues. Other
non mission critical systems in use by the trust department are in the process
of review for Year 2000 compliance and are expected to be complete by June 30,
1999. In addition, the trust department is following the FFIEC's Year 2000
Fiduciary Service Guidance. The fiduciary review includes the following steps:
account and asset administration, third party risk, counter party risk, transfer
agent risk, and client disclosure. A Year 2000 compliance review is being
conducted on those companies in which significant trust assets are invested. As
of December 31, 1998 approximately 86% of significant assets had been
preliminarily reviewed. Updates on the status of these companies will continue
throughout 1999. The trust account review process has been modified to include
specific Year 2000 issues. Third party and counter party fiduciary risk is being
addressed by communicating with various vendors and service providers to
ascertain their Year 2000 compliance. All customers and beneficiaries of the
trust department have been contacted regarding the Company's efforts to identify
and reduce Year 2000 risk.
The Company has evaluated the Year 2000 readiness of its major
borrowers and fund providers to assess their readiness and identify potential
problems. The Company has assessed the preparedness of its 75 largest commercial
borrowers, as well as 25 random commercial borrowers. These borrowers were
evaluated and rated as low, medium or high risk. For the medium and high risk
customers, an action plan for compliance has been developed, up to and including
credit risk downgrades and requests for additional collateral. The Company has
also assessed the preparedness of its 60 largest deposit account relationships,
as well as 45 random depositors. The providers were also evaluated and rated as
high, medium or low risk. The Company has scheduled follow up with the high risk
and material fund providers to ensure they are taking necessary steps to become
Year 2000 compliant. The Company also completed an assessment of its other
material funding sources and counter parties, with no high risk relationships
being identified. Continuous monitoring of significant new relationships is
performed to ensure Year 2000 preparedness. In addition, the Company has
modified its liquidity crisis plan to minimize funding risk due to the Year 2000
issue. The Company will continue to monitor its liquidity funding position and
update the liquidity crisis plan as necessary.
As of December 31, 1998 the Company has incurred approximately $345,000
in expenses directly related to the Year 2000 issue. In addition, the Company
forecasts spending approximately $135,000 by December 31,1999 to ensure Year
2000 readiness. These amounts include the cost of additional hardware and
software, as well as technology consultants contracted to assist in the
preparation for the Year 2000; however, they do not include a valuation for the
considerable time employees spent or will spend on Year 2000 preparedness. The
Company has included the cost of the Year 2000 issue in its 1999 annual budget.
Due to the uniqueness of the Year 2000 issue, it is difficult to quantify the
potential loss in revenue. Based on efforts to ensure systems will function
properly, the Company believes it reasonable that no material loss in revenue
will occur. The Company believes that its reasonably likely worst case Year 2000
scenario is a material increase in credit losses due to Year 2000 problems of
the Company's borrowers, as well as disruption in financial markets causing
liquidity stress. As previously mentioned, the Company has attempted to minimize
these risks by identifying the material borrowers and fund providers and
assessing their progress toward Year 2000 compliance.
The Company is currently developing a business resumption contingency
plan to help ensure continued operations in the event of Year 2000 system
failures. This contingency plan will be consistent with the Company's disaster
recovery plan with modifications for Year 2000 risks. The business resumption
contingency plan is scheduled to be complete by March 31, 1999.
II-7
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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, 1998.
As reflected in Table 1, net interest income, on a taxable equivalent
basis, 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. Average loans increased $79.1 million or 11.4% during the
year, 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.
In comparing 1997 to 1996, net interest income increased $5.5 million
or 11.3% from $49.0 million to $54.5 million. The yield on earning assets
increased 13 basis points, while the cost of interest bearing liabilities
increased 19 basis points.
Average earning assets increased $124.0 million or 11.9% compared to
1996. Average loans increased $78.4 million or 12.7% during 1997, while average
investment securities increased $41.7 million or 9.9%. Average total interest
bearing liabilities increased $105.4 million or 11.9% from 1996 to 1997,
primarily a result of increases in time deposits.
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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 deposits and liabilities on a
taxable equivalent basis. Interest income is adjusted for items exempt from
Federal income taxes and assumes a 35% tax rate.
<TABLE>
<CAPTION>
1998 1997 1996
AVERAGE YIELD/ Average Yield/ Average Yield/
(dollars in thousands) BALANCE INTEREST RATES Balance Interest Rates Balance Interest Rates
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing deposits $ 123 $ 5 4.68% $ 127 $ 5 4.48% $ 304 $ 16 5.26%
Federal funds sold and securities
purchased under agreements to
resell 793 31 3.91 3,749 194 5.17 323 18 5.57
Other short-term investments 5,156 269 5.21 2,536 135 5.31 1,088 57 5.24
Securities available for sale 403,574 27,942 6.92 423,512 29,063 6.86 374,574 24,355 6.50
Loans held for sale 3,080 254 8.25 3,620 298 8.24 4,427 372 8.40
Securities held to maturity:
Taxable 13,139 890 6.78 13,061 914 7.00 11,914 788 6.61
Tax exempt 23,130 1,581 6.83 25,303 1,721 6.80 33,661 2,316 6.88
------ ----- ------ ----- ------- -----
Total securities held to maturity 36,269 2,471 6.81 38,364 2,635 6.87 45,575 3,104 6.81
Loans:
Commercial 354,023 33,388 9.43 307,101 29,662 9.66 263,193 25,579 9.72
Real estate mortgage 147,128 11,927 8.11 125,263 10,668 8.52 119,993 10,184 8.49
Consumer 273,489 25,587 9.36 263,188 24,376 9.26 233,948 21,668 9.26
------- ------ ------- ------ ------- ------
Total Loans 774,640 70,902 9.15 695,552 64,706 9.30 617,134 57,431 9.31
------- ------ --------- ------ ------- ------
Total earning assets 1,223,635 101,874 8.33 1,167,460 97,036 8.31 1,043,425 85,353 8.18
------- ------ ------
Cash and due from banks 32,593 30,918 36,171
Securities available for sale
valuation allowance 5,335 (1,828) (2,752)
Allowance for loan losses (12,388) (11,138) (9,657)
Premises and equipment 20,028 17,269 16,465
Other assets 19,131 25,962 27,316
------ ------- -------
TOTAL ASSETS $1,288,334 $1,228,643 $1,110,968
---------- ---------- ----------
<PAGE>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Money market deposit accounts $ 85,011 2,440 2.87 $ 90,732 2,648 2.92 $ 101,753 2,977 2.93
NOW accounts 129,734 2,122 1.64 118,761 1,904 1.60 108,806 1,873 1.72
Savings deposits 155,109 4,310 2.78 154,771 4,376 2.83 159,373 4,650 2.92
Certificates of deposit 526,701 28,329 5.38 493,551 26,306 5.33 430,464 22,442 5.21
------- ------ ------- ------ ------- ------
Total interest bearing deposits 896,555 37,201 4.15 857,815 35,234 4.11 800,396 31,942 3.99
Short-term borrowings 114,241 6,014 5.26 119,259 6,581 5.52 73,192 3,745 5.12
Other borrowings 8,698 462 5.31 12,189 707 5.80 10,288 678 6.59
----- --- ------ ------- ------- ------
Total interest bearing
liabilities 1,019,494 43,677 4.28% 989,263 42,522 4.30% 883,876 36,365 4.11%
------ ------ ------
Demand deposits 133,262 115,826 116,287
Other liabilities 7,641 9,863 7,565
Stockholders' equity 127,937 113,691 103,240
------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,288,334 $1,228,643 $1,110,968
--------- ---------- ----------
NET INTEREST INCOME $58,197 $54,514 $48,988
------- ------- -------
NET INTEREST MARGIN 4.76% 4.67% 4.69%
----- ----- -----
Taxable equivalent adjustment $ 794 $ 855 $ 966
------- ------- -------
<FN>
(1) For purposes of these computations, nonaccrual loans are included in the
average loan balances outstanding.
(2) Securities are shown at average amortized cost.
</FN>
</TABLE>
II-9
<PAGE>
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) Increase (Decrease)
1998 OVER 1997 1997 over 1996
- -----------------------------------------------------------------------------------------------------------
(in thousands) VOLUME RATE TOTAL Volume Rate Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits $ - $ - $ - $ (8) $ (3) $ (11)
Federal funds sold and securities
purchased under agreements to resell (124) (39) (163) 177 (1) 176
Other short-term investments 136 (2) 134 77 1 78
Securities available for sale (1,379) 258 (1,121) 3,308 1,400 4,708
Loans held for sale (45) 1 (44) (67) (7) (74)
Securities held to maturity:
Taxable 5 (29) (24) 79 47 126
Tax exempt (148) 8 (140) (569) (26) (595)
Loans 7,254 (1,058) 6,196 7,295 (20) 7,275
- -----------------------------------------------------------------------------------------------------------
Total interest income 5,699 (861) 4,838 10,292 1,391 11,683
- -----------------------------------------------------------------------------------------------------------
Money market deposit accounts (165) (43) (208) (322) (7) (329)
NOW accounts 179 39 218 165 (134) 31
Savings accounts 10 (76) (66) (132) (142) (274)
Certificates of deposit 1,781 242 2,023 3,353 511 3,864
Short-term borrowings (271) (296) (567) 2,522 314 2,836
Other borrowings (189) (56) (245) 116 (87) 29
- -----------------------------------------------------------------------------------------------------------
Total interest expense 1,345 (190) 1,155 5,702 455 6,157
- -----------------------------------------------------------------------------------------------------------
CHANGE IN FTE NET INTEREST INCOME $ 4,354 $ (671) $3,683 $ 4,590 $ 936 $ 5,526
- -----------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses 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. The
provision for loan losses increased to $4.6 million in 1998 from $3.5 million in
1997, the result of increased charge-offs and loan volumes.
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, have increased
as the Company has experienced a rise in commercial charge-offs. The increase in
commercial charge-offs in 1998 can be primarily attributed to one customer.
Management considered it prudent to increase the dollar level of the allowance
to various asset categories as depicted in the tables. The allowance has been
allocated based on identified problem credits or categorical trends. The
allowance for loan loss was increased to $13.0 million at December 31, 1998 in
response to the increases in charge-offs and loan volumes. At December 31, 1998,
the allowance for loan losses to loans outstanding was 1.58%, compared to 1.57%
at year-end 1997. Management considers the allowance to be adequate and will
continue to target and maintain a minimum allowance equal to the allocated
requirement plus an unallocated portion.
II-10
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
ALLOWANCE FOR LOAN LOSSES
- ----------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1 $11,582 $10,473 $9,120 $9,026 $8,652
Loans charged off:
Commercial and agricultural 1,941 1,193 1,274 967 1,409
Real estate mortgages 234 55 204 112 154
Consumer 1,977 2,040 1,300 1,182 2,159
- ----------------------------------------------------------------------------------------------
Total loans charged off 4,152 3,288 2,778 2,261 3,722
- ----------------------------------------------------------------------------------------------
Recoveries:
Commercial and agricultural 258 197 274 193 291
Real estate mortgages 35 16 20 - -
Consumer 640 679 662 609 734
- ----------------------------------------------------------------------------------------------
Total recoveries 933 892 956 802 1,025
- ----------------------------------------------------------------------------------------------
Net loans charged off 3,219 2,396 1,822 1,459 2,697
Provision for loan losses 4,599 3,505 3,175 1,553 3,071
- ----------------------------------------------------------------------------------------------
Balance at December 31 $12,962 $11,582 $10,473 $9,120 $9,026
- ----------------------------------------------------------------------------------------------
Allowance for loan losses to loans
outstanding at end of year 1.58% 1.57% 1.60% 1.55% 1.57%
Allowance for loan losses to
nonaccrual loans 361% 220% 315% 189% 195%
Nonaccrual loans to total loans 0.44% 0.71% 0.51% 0.82% 0.81%
Nonperforming assets to total assets 0.37% 0.45% 0.40% 0.62% 0.52%
Net charge-offs to average loans
outstanding 0.42% 0.34% 0.29% 0.25% 0.48%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE 4
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
CATEGORY Category Category Category Category
(dollars in PERCENT Percent Percent Percent Percent
thousands) ALLOWANCE OF LOANS Allowance of Loans Allowance of Loans Allowance of Loans Allowance of Loans
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
and agricultural $ 7,039 47.3% $ 5,448 44.4% $ 4,341 43.1% $4,250 42.0% $3,726 37.5%
Real estate
mortgages 400 19.5% 244 18.4% 360 18.3% 412 20.6% 630 22.5%
Consumer 3,999 33.2% 2,365 37.2% 2,335 38.6% 2,048 37.4% 3,538 40.0%
Unallocated 1,524 - 3,525 - 3,437 - 2,410 - 1,132 -
- ----------------------------------------------------------------------------------------------------------------------
Total $12,962 100.0% $11,582 100.0% $10,473 100.0% $9,120 100.0% $9,026 100.0%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST INCOME
Noninterest income consists primarily of trust and custodian fees, service
charges on deposit accounts, gains and losses on the sales of securities, and
fees and service charges for other banking services. Total noninterest income
for 1998 of $10.0 million increased $1.9 million or 23.7% compared to 1997.
Other income in 1997 includes a one-time gain of $0.2 million for the sale of
the Hamden branch to The National Bank of Delaware County. Excluding securities
gains and losses, noninterest income increased $1.0 million or 11.3% in 1998
compared to 1997. Excluding security gains and losses, total noninterest income
for 1997 increased $0.7 million compared to 1996.
Trust income rose during 1998 as managed assets increased. At December
31, 1998, the Trust Department managed $865 million in assets (market value), up
from $701 million at year-end 1997, resulting in a $0.4 million increase in
trust income.
Service charges on deposit accounts remained stable during 1998.
Service charges increased $0.3 million in 1997 compared to 1996. The 1997
increase can be attributed to an emphasis being placed on collection vs. waiver,
particularly for overdraft charges which accounted for a major part of the
increase.
The interest rate environment drives the potential for security gains
and losses. The declining interest rate environment in 1998 provided
opportunities to recognize gains on sales of securities. During 1998, net gains
of $0.6 million were realized from sales of U.S. Treasury and U.S. Government
agencies securities as the Company generated liquidity to fund increased loan
demand and reduced leverage where interest rate spreads no longer provided
acceptable returns.
II-11
<PAGE>
Other income increased 22.5% in 1998 primarily a result of increased
ATM fee income due to increased use and the installation of additional machines
throughout our market areas.
NONINTEREST EXPENSE AND OPERATING EFFICIENCY
Table 5 presents noninterest expense and operating efficiency ratios for each of
the three years ending December 31, 1998. Noninterest expense as a percentage of
average assets of 3.0% in 1998 increased from 2.9% in 1997. This increase is a
result of a rise in noninterest expense during 1998. The 1997 percentage of
noninterest expense to average assets of 2.9% declined from 3.1% in 1996,
resulting from an increase in assets between the reporting periods, while at the
same time maintaining stable noninterest expenses.
Salaries and employee benefits increased $1.3 million, or 7.2% between
1998 and 1997. Salaries and employee benefits were stable between 1997 and 1996.
Expense increases in 1998 were primarily due to a $0.6 million increase in
salaries and a $0.4 million increase in performance based incentives.
Occupancy and equipment expense increased $0.9 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.
Other operating expenses increased $1.7 million between 1998 and 1997.
Contributing to the increase in other operating expense was increased data
processing fees, a result of the outsourcing of the Company's items processing
function during 1997. Professional fee and outside service expenses also
increased during 1998 as a result of professional fees associated with the
corporate realignment.
<TABLE>
<CAPTION>
TABLE 5
NONINTEREST EXPENSE AND OPERATING EFFICIENCY ANALYSIS
Years Ended December 31,
1998 1997 1996 1998/1997 1997/1996
- ----------------------------------------------------------------------------------------------------------------------
PERCENT Percent Percent
OF of of
AVERAGE Average Average Average Average
(dollars in thousands) AMOUNT ASSETS Amount Assets Amount Assets Amount Change Amount Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses:
Personnel $19,202 1.49% $17,905 1.46% $17,817 1.60% $1,297 7.24% $ 88 0.49%
Occupancy and equipment 5,218 0.41% 4,298 0.35% 4,156 0.37% 920 21.41% 142 3.42%
Other 14,708 1.14% 12,967 1.05% 12,449 1.13% 1,741 13.43% 518 4.16%
- ----------------------------------------------------------------------------------------------------------------------
Total noninterest
expense $39,128 3.04% $35,170 2.86% $34,422 3.10% $3,958 11.25% $748 2.17%
- ----------------------------------------------------------------------------------------------------------------------
Expense ratio (1) 2.31% 2.20% 2.41%
Efficiency ratio (2) 57.92% 56.09% 60.74%
Average assets per
employee (in millions) $ 2.6 $ 2.5 $ 2.1
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Noninterest expense less noninterest income, not including security gains
(losses) and other non-recurring income or expense, as a percentage of
average assets.
(2) Noninterest expense, less non-recurring expenses, as a percentage of
tax-effected net interest income plus noninterest income, excluding security
gains (losses).
</FN>
</TABLE>
INCOME TAXES
Income tax expense was $4.6 million for 1998, $8.3 million for 1997, and $7.1
million for 1996. The decreased income taxes during 1998 resulted from a tax
benefit associated with the corporate realignment. The increased income taxes
from 1996 to 1997 correspond to increased income before income taxes. At
December 31, 1998, the Company has deferred tax assets of $6.9 million and
deferred tax liabilities of $3.7 million. Management has determined that a
valuation allowance for the deferred tax assets is not needed at December 31,
1998. Additional information on income taxes is provided in the notes to the
consolidated financial statements.
SECURITIES
The securities portfolio constituted 35.9% and 39.6% of average earning assets
during 1998 and 1997, respectively. At December 31, 1998, 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.
II-12
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
SECURITIES PORTFOLIO
As of December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
(in thousands) COST VALUE Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury $ 10,406 $ 10,481 $ 2,395 $ 2,406 $ 70,811 $ 70,269
Federal Agency and mortgage-backed 335,189 340,383 431,259 435,167 299,202 297,133
State & Municipal and other securities 4,554 4,894 2,967 3,059 1,775 1,800
- -------------------------------------------------------------------------------------------------------------------
Total securities available for sale $350,149 $355,758 $436,621 $440,632 $371,788 $369,202
- -------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
State & Municipal 22,649 22,649 23,692 23,692 32,546 32,546
Other securities 12,446 12,446 12,447 12,447 9,693 9,692
- -------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 35,095 $ 35,095 $ 36,139 $ 36,139 $ 42,239 $ 42,238
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
LOANS
The following Table 7 sets forth the loan portfolio by major categories as of
December 31 for the years indicated.
<TABLE>
<CAPTION>
TABLE 7
COMPOSITION OF LOAN PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
December 31, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in thousands)
Real estate mortgages $149,647 $128,873 $110,288 $107,611 $125,385
Commercial real estate mortgages 178,778 151,129 135,061 108,902 71,631
Real estate construction and
development 10,378 6,602 9,582 13,361 3,890
Commercial and agricultural 209,731 175,362 146,930 138,391 143,632
Consumer 188,549 203,016 204,641 185,276 201,359
Home equity 84,422 70,500 48,091 34,817 28,704
Lease financing - - - 27 117
- -----------------------------------------------------------------------------------------------------------
Total loans $821,505 $735,482 $654,593 $588,385 $574,718
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The loan portfolio is the largest component of earning assets and accounts for
the greatest portion of total interest income. At December 31, 1998, total loans
were $821.5 million, an 11.7% increase from December 31, 1997. 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 those
categories reflected in Table 7.
Real estate mortgages consist primarily of loans secured by first or
second deeds of trust on primary residencies. Beginning in 1996, the Company
began retaining most first mortgage loans within the portfolio. For several
years prior to 1996, fixed-rate mortgages were originated for sale in the
secondary market. The Company sold $0.9 million in mortgage loans during both
1998 and 1997. There were no gains or losses recognized related to sales of
mortgages originated in 1998. At December 31, 1998 and 1997, loans classified as
held for sale consist of higher education 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 $48.9 million at December 31, 1998, 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.
II-13
<PAGE>
Shown in Table 8, 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, 1998. Scheduled repayments
are reported in the maturity category in which the contractual payment is due.
<TABLE>
TABLE 8
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
- -------------------------------------------------------------------------------------------------
AFTER ONE
YEAR BUT
WITHIN AFTER
REMAINING MATURITY AT WITHIN FIVE FIVE
DECEMBER 31, 1998 ONE YEAR YEARS YEARS TOTAL
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
Floating/adjustable rate:
Commercial and agricultural $112,252 $ 76,831 $ 17,274 $206,357
Real estate mortgages 5,931 18,125 37,776 61,832
Consumer 22,727 12,428 29,424 64,579
- -------------------------------------------------------------------------------------------------
Total floating rate loans 140,910 107,384 84,474 332,768
- -------------------------------------------------------------------------------------------------
Fixed Rate:
Commercial and agricultural 38,472 87,507 56,173 182,152
Real estate mortgages 8,419 28,998 60,776 98,193
Consumer 66,635 122,306 19,451 208,392
- -------------------------------------------------------------------------------------------------
Total fixed rate loans 113,526 238,811 136,400 488,737
- -------------------------------------------------------------------------------------------------
Total loans $254,436 $346,195 $220,874 $821,505
- -------------------------------------------------------------------------------------------------
</TABLE>
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets and past due loans are reflected in Table 9 below for the
years indicated.
<PAGE>
<TABLE>
<CAPTION>
TABLE 9
NONPERFORMING ASSETS AND RISK ELEMENTS
- -------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial and agricultural $2,394 $3,856 $2,441 $3,945 $3,552
Real estate mortgages 437 692 251 332 783
Consumer 762 708 628 540 304
- -------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 3,593 5,256 3,320 4,817 4,639
- -------------------------------------------------------------------------------------------------------------------
Other real estate owned 1,164 530 1,242 2,000 840
- -------------------------------------------------------------------------------------------------------------------
Total nonperforming assets 4,757 5,786 4,562 6,817 5,479
- -------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 291 176 418 559 133
Real estate mortgages 341 244 344 448 287
Consumer 526 325 289 325 451
- -------------------------------------------------------------------------------------------------------------------
Total 1,158 745 1,051 1,332 871
- -------------------------------------------------------------------------------------------------------------------
Restructured loans, in compliance with modified terms: - - - 142 -
- -------------------------------------------------------------------------------------------------------------------
Total assets containing risk elements $5,915 $6,531 $5,613 $8,291 $6,350
- -------------------------------------------------------------------------------------------------------------------
Total nonperforming assets to loans 0.58% 0.79% 0.70% 1.16% 0.95%
Total assets containing risk element to loans 0.72% 0.89% 0.86% 1.41% 1.10%
Total nonperforming assets to assets 0.37% 0.45% 0.40% 0.62% 0.52%
Total assets containing risk elements to assets 0.46% 0.51% 0.49% 0.75% 0.61%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Total nonperforming assets decreased $1.0 million or 17.8% from 1997 to 1998;
total assets containing risk elements decreased $0.6 million or 9.4% during the
same period. The effect of nonaccrual and impaired loans on interest income is
presented in the following Table 10.
II-14
<PAGE>
<TABLE>
<CAPTION>
TABLE 10
NONACCRUAL AND IMPAIRED LOANS INTEREST INCOME
- -------------------------------------------------------------------------------------------------------
December 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in thousands)
Income that would have been accrued at original
contract rates $ 278 $ 559 $1,125 $ 765 $ 465
Amount recognized as income 170 148 593 344 216
- -------------------------------------------------------------------------------------------------------
Interest income not accrued $ 108 $ 411 $ 532 $ 421 $ 249
- -------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
Deposits are the largest component of the Company's liabilities and account for
the greatest portion of interest expense. At December 31, 1998, total deposits
were $1,044.2 million, an increase of 3.0% from December 31, 1997. Average
deposits during 1998 of $1,029.8 million were 5.8% higher than the 1997 average.
The preceding Table 1 presents average deposits with accompanying average rates
paid.
<TABLE>
<CAPTION>
TABLE 11
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
- -------------------------------------------------------------------------------
December 31, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Within three months $222,187 $210,226
After three but within six months 39,929 32,467
After six but within twelve months 9,957 11,611
After twelve months 9,954 15,633
- -------------------------------------------------------------------------------
Total $282,027 $269,937
- -------------------------------------------------------------------------------
</TABLE>
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 an original maturity of one day up to one year. Other
borrowings consist of fixed rate FHLB advances with an original maturity greater
than one year. At December 31, 1998, total borrowings of $106.8 million were
down 20.7% compared to the previous year-end total of $134.7 million.
<PAGE>
<TABLE>
<CAPTION>
CAPITAL AND DIVIDENDS
TABLE 12
CAPITAL MEASUREMENTS
- -------------------------------------------------------------------------------
December 31, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
(per share data restated to give retroactive
effect to stock dividends and splits)
Tier 1 leverage ratio 9.33% 8.91%
Tier 1 capital ratio 14.69% 14.88%
Total risk-based capital ratio 15.94% 16.13%
Cash dividends as a percentage of net income 40.37% 37.42%
Per common share:
Book value $10.52 $ 9.77
Tangible book value $ 9.91 $ 9.09
- -------------------------------------------------------------------------------
</TABLE>
II-15
<PAGE>
<TABLE>
<CAPTION>
TABLE 13
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
- -----------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------
(restated to give retroactive effect to stock dividends and splits)
CASH Cash
DIVIDENDS Dividends
QUARTER ENDING HIGH LOW CLOSE DECLARED High Low Close Declared
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 $20.00 $16.79 $20.00 $0.122 $13.61 $11.99 $13.27 $0.102
June 30 24.65 19.29 24.17 0.162 18.29 13.27 18.29 0.102
September 30 25.00 18.46 21.90 0.162 18.20 15.13 17.94 0.116
December 31 25.50 20.71 23.38 0.170 19.78 16.33 19.29 0.122
- -----------------------------------------------------------------------------------------------------------------
For the year $25.50 $16.79 $23.38 $0.616 $19.78 $11.99 $19.29 $0.442
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
On a per share basis, cash dividends declared have been increased in both 1998
and 1997. The dividend increases reflect the Company's earnings and capital
strength. 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, 1998 was the
thirty-ninth consecutive year that the Company declared a stock dividend.
The accompanying Table 13 sets forth the quarterly high, low and
closing sales price for the common stock as reported on the NASDAQ National
Market System, and cash dividends declared per share of common stock. At
December 31, 1998, the total market capitalization of the Company's common stock
was approximately $290.3 million compared with $243.4 million at December 31,
1997. The change in market capitalization is due to the market's perception of
the Company's increasing value. The Company's price to book value ratio was
2.22, 1.97, and 1.42 at December 31, 1998, 1997 and 1996, respectively. The
Company's price was 16, 17, and 13 times diluted earnings per share at December
31, 1998, 1997 and 1996, respectively.
Capital is an important factor in ensuring the safety of depositors'
accounts. During both 1998 and 1997, 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 depicted by the capital
ratios in the table. Capital measurements are significantly in excess of both
regulatory minimum guidelines and meet the requirements to be considered well
capitalized for all periods presented.
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.
II-16
<PAGE>
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, 1998 and 1997, the Company's Basic Surplus ratios (net
access to cash and secured borrowings as a percentage of total assets) were
approximately 9% compared to the present internal minimum guideline range of 5%
to 7%. The December 31, 1998 Basic Surplus ratio was in excess of the
guidelines. The Company had unused lines of credit available totalling $266
million to meet its short-term liquidity needs at December 31, 1998 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).
Generally, the lower the amount of this gap, the less sensitive are
earnings to interest rate changes. The matrix indicates that the Company's
assets and liabilities are closely matched in the short-term and as a result,
has minimal interest rate risk over the next twelve months. The Company becomes
asset sensitive after the one-year time frame and, therefore, would benefit in
the long-term from rising interest rates.
II-17
<PAGE>
<TABLE>
<CAPTION>
TABLE 14
SUMMARY STATIC GAP FUNDING MATRIX
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(ASSETS) OVER 60 37-60 25-36 13-24 7-12 4-6
-USES- MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS MAR 99 FEB 99 JAN 99 ONE DAY TOTALS
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
-SOURCES-TOTALS 233 110 93 175 189 96 40 36 258 60 1,290
- --------------------------------------------------------------------------------------------------------------------------
OVER 60 577 233 110 93 141 Long Liabilities 577
MONTHS Short Assets
37-60 15 15 15
MONTHS
25-36 18 18 18
MONTHS
13-24 54 1 53 54
MONTHS
7-12 97 97 97
MONTHS
4-6 94 39 55 94
MONTHS
MAR 99 123 41 40 36 6 123
FEB 99 61 61 61
JAN 99 165 Long Assets 165 165
Short Liabilities
ONE DAY 86 26 60 86
- --------------------------------------------------------------------------------------------------------------------------
TOTALS 1,290 233 110 93 175 189 96 40 36 258 60 1,290
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 utilizes a simulation model which measures the effect
certain assumptions will have on net interest income over a short period of
time, usually one or two years. These assumptions include, but are not limited
to prepayments, potential call options of the investment portfolio and various
interest rate environments. 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, 1998 balance sheet
position.
<TABLE>
<CAPTION>
TABLE 15
INTEREST RATE SENSITIVITY ANALYSIS
- -------------------------------------------------------------
Change in interest rates Percent change in
(in basis points) net interest income
- -------------------------------------------------------------
<S> <C>
+200 (0.98%)
+100 (0.47%)
- -100 (0.19%)
- -200 (0.74%)
- -------------------------------------------------------------
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
Effective January 1, 1998 the Company adopted the remaining provisions of
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
which relate to the accounting for securities lending, repurchase agreements,
and other secured financing activities. These provisions, which were delayed for
implementation by SFAS No. 127, did not have a material impact on the Company.
II-18
<PAGE>
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income includes the reported net income adjusted for items that are currently
accounted for as direct entries to equity, such as the mark to market adjustment
on securities available for sale, foreign currency items and minimum pension
liability adjustments. At the Company, comprehensive income represents net
income plus other comprehensive income, which consists of the net change in
unrealized gains or losses on securities available for sale for the period.
Accumulated other comprehensive income represents the net unrealized gains or
losses on securities available for sale as of the balance sheet dates.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits". This statement revises
employers' disclosures about pension and other post retirement benefit plans. It
does not change the measurement or recognition of these plans. The Company
adopted SFAS No. 132 on January 1, 1998 and has determined its impact to be
revised year-end reporting requirements for pension and post retirement
benefits.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes comprehensive
accounting and reporting requirements for derivative instruments and hedging
activities. SFAS No. 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. The accounting for gains
or losses resulting from changes in the values of those derivatives would be
dependent on the use of the derivative and the type of risk being hedged. The
statement is effective for all quarters of fiscal years beginning after June 15,
1999. At the present time, the Company has not fully analyzed the effect or
timing of the adoption of SFAS No. 133 on the Company's consolidated financial
statements.
FOURTH QUARTER RESULTS
Selected quarterly results are presented in Table 16, Selected Quarterly
Financial Data. Net income for the fourth quarter 1998 of $4.6 million, $0.36
per diluted share, was up from $3.6 million, $0.28 per diluted share, earned in
the fourth quarter 1997. Average loans for the fourth quarter of 1998 increased
11.3% compared to the fourth quarter of 1997.
The 1998 fourth quarter return on average assets of 1.40% was up from
the 1997 ratio of 1.11%. The return on average equity for the fourth quarter
1998 of 13.87% was up from the fourth quarter 1997 ratio of 11.71%. Expense and
efficiency ratios of 2.49% and 60.84%, respectively, for the fourth quarter
1998, increased over the comparable 1997 ratios of 2.30% and 57.86%.
<PAGE>
<TABLE>
<CAPTION>
TABLE 16
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per
share data) FIRST SECOND THIRD FOURTH First Second Third Fourth
Interest and fee income $25,256 $25,276 $25,448 $25,100 $22,283 $23,759 $24,848 $25,291
Interest expense 11,221 11,168 10,885 10,403 9,659 10,559 11,075 11,229
Net interest income 14,035 14,108 14,563 14,697 12,624 13,200 13,773 14,062
Provision for loan losses 1,100 1,150 1,300 1,049 715 1,000 965 825
Noninterest income excluding
securities gains 2,350 2,312 2,353 2,340 2,003 2,270 2,070 2,060
Securities gains (losses) 218 227 168 11 17 1 (90) (265)
Noninterest expense 9,402 9,539 9,707 10,480 8,559 8,266 8,904 9,441
Net income $ 5,072 $ 4,710 $ 4,731 $ 4,589 $ 3,445 $ 4,037 $ 3,702 $ 3,565
Basic earnings per share $ 0.40 $ 0.37 $ 0.38 $ 0.37 $ 0.28 $ 0.32 $ 0.29 $ 0.28
Diluted earnings per share $ 0.39 $ 0.37 $ 0.37 $ 0.36 $ 0.27 $ 0.32 $ 0.29 $ 0.28
Net interest margin 4.75% 4.68% 4.79% 4.80% 4.71% 4.65% 4.64% 4.68%
Return on average assets 1.60% 1.47% 1.46% 1.40% 1.19% 1.33% 1.17% 1.11%
Return on average equity 16.49% 14.92% 14.54% 13.87% 12.82% 14.78% 12.74% 11.71%
Average diluted common
shares outstanding 12,857 12,896 12,845 12,732 12,599 12,674 12,738 12,788
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
II-19
<PAGE>
<TABLE>
<CAPTION>
PROPERTIES
The Company operates the following community banking offices:
Date Square
Name of Office Location County Established Footage
<S> <C> <C> <C> <C>
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 4,897
Earlville 2 S. Main St., Earlville, NY Chenango 08-07-1937 1,222
Grand Gorge Rt. 23 & 30, Grand Gorge, NY Delaware 11-01-1957 3,000
Margaretville Main St., Margaretville, NY Delaware 09-03-1963 3,152
New Berlin 2 S. Main St., New Berlin, NY Chenango 12-21-1946 2,195
Sherburne 30 N. Main St., Sherburne, NY Chenango 08-07-1937 3,393
South Otselic Gladding St., S. Otselic, NY Chenango 10-01-1945 1,326
North Plaza Rt. 12 & 320, Norwich, NY Chenango 10-15-1986 1,849
South Plaza Rt. 12 S., Norwich, NY Chenango 08-20-1986 1,200
Deposit 105 Front St., Deposit, NY Broome 02-12-1971 3,550
Newark Valley 2 N. Main St., Newark Valley, NY Tioga 10-01-1973 3,893
Maine 2647 Main St., Maine, NY Broome 10-01-1973 1,458
Hobart Maple Ave., Hobart, NY Delaware 06-28-1974 2,308
Sidney 13 Division St., Sidney, NY Delaware 12-31-1978 3,500
Oxford 10 North Canal St., Oxford, NY Chenango 03-16-1998 2,000
Greene 80 S. Chenango St., Greene, NY Chenango 12-15-1986 3,200
Binghamton 1256 Front St., Binghamton, NY Broome 03-29-1993 1,900
Hancock 1 E. Main St., Hancock, NY Delaware 10-01-1989 7,500
Oneonta 733 State Highway 28, Oneonta, NY Otsego 01-14-1998 4,600
Clinton 1 Kirkland Ave., Clinton, NY Oneida 10-01-1989 7,960
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 4,179
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 1,000
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
<FN>
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 free-standing automated banking
units. During 1998, the Plattsburgh and Plattsburgh North Offices closed.
</FN>
</TABLE>
II-20
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data) 1998 1997 % Change
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
Interest and fee income $ 101,080 $ 96,181 5.1%
Interest expense 43,677 42,522 2.7%
Net interest income 57,403 53,659 7.0%
Provision for loan losses 4,599 3,505 31.2%
Noninterest income 9,979 8,066 23.7%
Noninterest expense 39,128 35,170 11.3%
Net income 19,102 14,749 29.5%
- -------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings $ 1.52 $ 1.18 28.8%
Diluted earnings 1.49 1.16 28.4%
Cash dividends 0.616 0.442 39.4%
Book value at year-end 10.52 9.77 7.7%
Tangible book value at year-end 9.91 9.09 9.0%
Market price:
High 25.50 19.78 28.9%
Low 16.79 11.99 40.0%
End of year 23.38 19.29 21.2%
- -------------------------------------------------------------------------------------------------------
AT YEAR-END
Assets $ 1,290,009 $ 1,280,585 0.7%
Earning assets 1,217,098 1,214,547 0.2%
Loans 821,505 735,482 11.7%
Allowance for loan losses 12,962 11,582 11.9%
Deposits 1,044,205 1,014,183 3.0%
Stockholders' equity 130,632 123,343 5.9%
- -------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Assets $ 1,288,334 $ 1,228,643 4.9%
Earning assets $ 1,223,635 $ 1,167,460 4.8%
Loans $ 774,640 $ 695,552 11.4%
Deposits $ 1,029,817 $ 973,641 5.8%
Stockholders' equity $ 127,937 $ 113,691 12.5%
Common shares outstanding 12,569,884 12,548,365 0.2%
Diluted common shares outstanding 12,832,175 12,700,416 1.0%
- -------------------------------------------------------------------------------------------------------
ASSET QUALITY
Allowance to loans 1.58% 1.57% 0.6%
Nonperforming assets to assets 0.37% 0.45% (17.8%)
Allowance to nonperforming loans 361% 220% 64.1%
- -------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.48% 1.20% 23.3%
Return on average equity 14.93% 12.97% 15.1%
Net interest margin 4.76% 4.67% 1.9%
Tier 1 leverage 9.33% 8.91% 4.7%
Tier 1 risk-based capital 14.69% 14.88% (1.3%)
Total risk-based capital 15.94% 16.13% (1.2%)
- -------------------------------------------------------------------------------------------------------
<FN>
All share and per share data has been restated to give retroactive effect to stock dividends and splits.
</FN>
</TABLE>
II-21
<PAGE>
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 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 Committee composed
entirely of directors who are not employees of the Company. The Audit Committee
is responsible for recommending to the Board the independent auditors to be
retained for the coming year, subject to stockholder ratification. The Audit
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 Committee reports to the Board on its
activities and findings.
/s/ DARYL R. FORSYTHE
Daryl R. Forsythe
President and Chief Executive Officer
/s/ JOE C. MINOR
Joe C. Minor
Executive Vice President
Chief Financial Officer and Treasurer
II-22
<PAGE>
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
Syracuse, New York
January 22, 1999
II-23
<PAGE>
<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data)
<S> <C> <C>
ASSETS
Cash $ 47,181 $ 37,446
Loans held for sale 2,887 3,286
Securities available for sale, at fair value 355,758 440,632
Securities held to maturity (fair value-$35,095 and $36,139) 35,095 36,139
Loans:
Commercial and agricultural 388,509 326,491
Real estate mortgage 160,025 135,475
Consumer 272,971 273,516
- -------------------------------------------------------------------------------------------------------------------
Total loans 821,505 735,482
Less allowance for loan losses 12,962 11,582
- -------------------------------------------------------------------------------------------------------------------
Net loans 808,543 723,900
Premises and equipment, net 20,241 18,761
Intangible assets, net 7,572 8,642
Other assets 12,732 11,779
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,290,009 $1,280,585
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 154,146 $ 138,985
Savings, NOW, and money market 391,614 358,366
Time 498,445 516,832
- -------------------------------------------------------------------------------------------------------------------
Total deposits 1,044,205 1,014,183
Short-term borrowings 96,589 134,527
Other borrowings 10,171 183
Other liabilities 8,412 8,349
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 1,159,377 1,157,242
- -------------------------------------------------------------------------------------------------------------------
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 13,015,789 and 9,429,963 13,016 9,430
Capital surplus 111,749 96,494
Retained earnings 15,512 22,249
Accumulated other comprehensive income 3,317 2,373
Common stock in treasury at cost, 599,507 and 415,871 shares (12,962) (7,203)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 130,632 123,343
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,290,009 $1,280,585
- -------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
II-24
<PAGE>
<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands, except per share data)
Interest and fee income:
Loans and loans held for sale $70,947 $64,781 $57,660
Securities - taxable 28,742 29,887 25,109
Securities - tax exempt 1,086 1,179 1,527
Other 305 334 91
- -------------------------------------------------------------------------------------------------------
Total interest and fee income 101,080 96,181 84,387
- -------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 37,201 35,234 31,942
Short-term borrowings 6,014 6,581 3,745
Other borrowings 462 707 678
- -------------------------------------------------------------------------------------------------------
Total interest expense 43,677 42,522 36,365
- -------------------------------------------------------------------------------------------------------
Net interest income 57,403 53,659 48,022
Provision for loan losses 4,599 3,505 3,175
- -------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 52,804 50,154 44,847
- -------------------------------------------------------------------------------------------------------
Noninterest income:
Trust 3,115 2,675 2,642
Service charges on deposit accounts 3,749 3,695 3,372
Securities gains (losses) 624 (337) 1,179
Other 2,491 2,033 1,669
- -------------------------------------------------------------------------------------------------------
Total noninterest income 9,979 8,066 8,862
- -------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 19,202 17,905 17,817
Office supplies and postage 1,912 1,801 1,796
Occupancy 2,843 2,598 2,391
Equipment 2,375 1,700 1,765
Professional fees and outside services 2,836 2,201 2,382
Data processing and communications 3,577 2,789 2,280
Amortization of intangible assets 1,070 1,351 1,580
Other operating 5,313 4,825 4,411
- -------------------------------------------------------------------------------------------------------
Total noninterest expense 39,128 35,170 34,422
- -------------------------------------------------------------------------------------------------------
Income before income taxes 23,655 23,050 19,287
Income taxes 4,553 8,301 7,108
- -------------------------------------------------------------------------------------------------------
Net income $19,102 $14,749 $12,179
- -------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.52 $ 1.18 $ 0.98
Diluted $ 1.49 $ 1.16 $ 0.97
- -------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements
All per share data has been restated to give retroactive effect to stock dividends and splits.
</FN>
</TABLE>
II-25
<PAGE>
<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Common Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
- ---------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 8,442 $ 75,464 $24,076 $2,822 $ (2,760) $108,044
Net income 12,179 12,179
5% stock dividend 396 7,254 (7,650) -
Cash dividends - $0.355 per share (4,384) (4,384)
Payment in lieu of fractional shares (13) (13)
Purchase of 433,848 treasury shares (7,241) (7,241)
Sale of 122,675 treasury shares to
employee benefit plans and other
stock plans 13 2,017 2,030
Unrealized loss on securities
available for sale, net of reclassification
adjustment and deferred taxes of $3,005 (4,351) (4,351)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 8,838 82,731 24,208 (1,529) (7,984) 106,264
Net income 14,749 14,749
5% stock dividend 428 10,717 (11,145) -
Cash dividends - $0.442 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 gain on securities
available for sale, net of reclassification
adjustment and 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
Stock dividends and splits 3,586 14,531 (18,117) -
Cash dividends - $0.616 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 gain on securities
available for sale, net of reclassification
adjustment and deferred taxes of $654 944 944
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $13,016 $111,749 $15,512 $3,317 $(12,962) $130,632
- ---------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
II-26
<PAGE>
<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
OPERATING ACTIVITIES:
Net income $ 19,102 $ 14,749 $ 12,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,599 3,505 3,175
Depreciation of premises and equipment 2,047 1,471 1,513
Amortization of premiums and accretion of discounts
on securities (2,051) (236) 254
Amortization of intangible assets 1,070 1,351 1,580
Deferred income tax benefit (1,227) (435) (660)
Proceeds from sale of loans originated for sale 3,661 4,390 4,268
Loans originated for sale (3,262) (3,541) (4,089)
Realized (gains) losses on sales of securities (624) 337 (1,179)
Decrease in interest receivable 1,039 449 1,048
Increase (decrease) in interest payable (509) 809 1
Gain on sale of other real estate owned, net (147) (121) (6)
Sale of branch, net - (219) -
Other, net (210) 1,673 1,038
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 23,488 24,182 19,122
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities 80,171 50,762 43,924
Proceeds from sales 130,293 183,481 218,313
Purchases (121,317) (299,225) (244,333)
Securities held to maturity:
Proceeds from maturities 24,244 24,987 31,811
Purchases (23,200) (18,888) (33,741)
Net increase in loans (91,686) (84,261) (67,013)
Purchase of premises and equipment, net (3,527) (3,925) (1,353)
Proceeds from sales of other real estate owned 1,954 1,980 1,520
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,068) (145,089) (50,872)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 30,022 97,864 43,287
Net increase (decrease) in short-term borrowings (37,938) 46,283 (27,701)
Proceeds from issuance of other borrowings 10,000 - 20,050
Repayments of other borrowings (12) (20,012) (2,867)
Proceeds from issuance of treasury shares to employee
benefit plans and other stock plans 4,059 6,559 2,030
Purchase of treasury stock (9,094) (2,568) (7,241)
Cash dividends and payment for fractional shares (7,722) (5,563) (4,397)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (10,685) 122,563 23,161
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 9,735 1,656 (8,589)
Cash and cash equivalents at beginning of year 37,446 35,790 44,379
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 47,181 $ 37,446 $ 35,790
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 44,186 $ 41,713 $ 36,364
Income taxes 6,778 6,126 7,569
Noncash investing activity:
Transfer of loans held for sale to loans held to maturity - - 1,775
- -------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
II-27
<PAGE>
<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net income $19,102 $14,749 $12,179
- --------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized net holding gains (losses) arising during
period [pre-tax amounts of $2,222; $6,260
and $(6,177)] 1,313 3,702 (3,654)
Less: Reclassification adjustment for net (gains)
losses included in net income [pre-tax amounts
of $(624); $337 and $(1,179)] (369) 200 (697)
- --------------------------------------------------------------------------------------------------------
Total other comprehensive income 944 3,902 (4,351)
- --------------------------------------------------------------------------------------------------------
Comprehensive income $20,046 $18,651 $ 7,828
- --------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
II-28
<PAGE>
NBT BANCORP INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Its only business segment is domestic
commercial banking and the Company is subject to competition from other
financial institutions. The Bank and the Company are subject to the regulations
of certain federal agencies and undergo periodic examinations by those
regulatory agencies.
SEGMENT REPORTING During 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise
and Related Information". This Statement requires the Company to report
financial and other information about operating segments of the Company for
which such information is available and is utilized by the chief operating
decision makers. Operating segments must also meet certain quantitative
thresholds in order to be considered reportable segments under this Statement.
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. In the opinion of
management, the Company does not have any reportable segments as defined by SFAS
No. 131.
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 The Company considers cash on hand, amounts due from correspondent banks,
cash items in process of collection and institutional money market mutual funds,
to be cash.
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, net of the related tax effect, on available for sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. 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
II-29
<PAGE>
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.
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.
Payments received on nonaccrual and impaired loans are first applied to
principal. Depending on management's assessment of the ultimate collectiblity of
the loan, interest income may be recognized on a cash basis. 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 potential losses in the loan
portfolio when taken as a whole. 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.
COMPANY PREMISES AND EQUIPMENT Company 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 Certain identified intangible assets, including goodwill and
core deposit intangible assets are carried at appraised fair values, net of
accumulated amortization, and are being amortized by the straight line method in
amounts sufficient to write-off those fair values over their estimated useful
lives; such fair values 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. Goodwill, the excess of cost over the fair value of
the net assets acquired, is being amortized over twenty-five years on the
straight line method.
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.
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.
II-30
<PAGE>
INCOME TAXES 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.
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:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Basic EPS:
Weighted average common shares outstanding 12,570 12,548 12,436
Net income available to common shareholders $19,102 $14,749 $12,179
- -------------------------------------------------------------------------------------------------------
Basic EPS $ 1.52 1.18 $ 0.98
- -------------------------------------------------------------------------------------------------------
Diluted EPS:
Weighted average common shares outstanding 12,570 12,548 12,436
Dilutive common stock options 262 152 78
- -------------------------------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 12,832 12,700 12,514
Net income available to common stockholders $19,102 $14,749 $12,179
- -------------------------------------------------------------------------------------------------------
Diluted EPS $ 1.49 $ 1.16 $ 0.97
- -------------------------------------------------------------------------------------------------------
</TABLE>
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 30, 1998, was $11.1 million of which $3.8 million was
required to be on deposit with the Federal Reserve Bank and the remaining $7.3
million was represented by cash on hand.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company does not engage in the use of derivative financial instruments and
currently the Company's only financial instruments with off-balance sheet risk
consist of commitments to originate loans and commitments under unused lines of
credit.
II-31
<PAGE>
<TABLE>
<CAPTION>
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, 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------
U.S. Treasury $ 2,395 $ 11 $ - $ 2,406
Federal Agency 95,590 279 199 95,670
State & Municipal 1,648 31 2 1,677
Mortgage-backed 335,669 4,034 206 339,497
Other securities 1,319 67 4 1,382
- ----------------------------------------------------------------------------------------------------
Total $436,621 $4,422 $411 $440,632
- ----------------------------------------------------------------------------------------------------
</TABLE>
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. Gross realized gains and gross realized losses on the sale of
securities available for sale were $1.6 million and $0.4 million, respectively,
in 1996.
At December 31, 1998 and 1997, securities with amortized costs
totalling $319.5 million and $382.5 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:
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------
State & Municipal $23,692 $- $- $23,692
Other securities 1,518 - - 1,518
Federal Home Loan Bank Stock 10,929 - - 10,929
- ----------------------------------------------------------------------------------------------------
Total $36,139 $- $- $36,139
- ----------------------------------------------------------------------------------------------------
</TABLE>
As a member of the Federal Home Loan Bank (FHLB), the Company holds the required
investment in FHLB stock.
At December 31, 1998 and 1997 substantially all of the mortgage-backed
securities held by the Company were issued or backed by Federal agencies.
II-32
<PAGE>
<TABLE>
<CAPTION>
REMAINING MATURITIES OF SECURITIES AT DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury $ - -% $ - -% $ - -% $ 10,406 5.23% $ 10,406 5.23%
Federal Agency - - - - 13,800 6.70 53,630 7.44 67,430 7.29
State & Municipal 150 4.85 464 6.18 659 6.06 - - 1,273 5.96
Mortgage-backed 447 6.36 27,709 6.52 26,607 6.74 212,996 6.93 267,759 6.86
Other securities - - - - - - 3,281 6.37 3,281 6.37
- -------------------------------------------------------------------------------------------------------------------------------
Amortized cost $ 597 5.98% $28,173 6.51% $41,066 6.72% $280,313 6.96% $350,149 6.88%
- -------------------------------------------------------------------------------------------------------------------------------
Fair value $ 599 $28,584 $41,571 $285,004 $355,758
- -------------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY:
State & Municipal $18,201 6.13% $ 3,300 7.87% $ 1,078 8.01% $ 70 8.35% $ 22,649 6.50%
Other securities - - 7 - 12,439 6.88 - - 12,446 6.87
- -------------------------------------------------------------------------------------------------------------------------------
Amortized cost $18,201 6.13% $ 3,307 7.85% $13,517 6.97% $ 70 8.35% $ 35,095 6.63%
- -------------------------------------------------------------------------------------------------------------------------------
Fair value $18,201 $ 3,307 $13,517 $ 70 $ 35,095
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the tables setting forth the maturity distribution and weighted average
taxable equivalent yield of securities at December 31, 1998, yields on amortized
cost have been calculated based on effective yields weighted for the scheduled
maturity of each security using the marginal federal tax rate of 35%.
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 1998, $2.8 million of such loans were sold. At
December 31, 1998, the aggregate cost and estimated fair value of loans held for
sale were $2.9 million, while at December 31, 1997 aggregate cost and estimated
market value were $3.3 million.
During 1998, $0.9 million in mortgage loans were sold with servicing
retained. At December 31, 1998, the Company serviced $26.4 million of real
estate mortgages on behalf of other financial intermediaries; such loans are not
reflected in the Company's balance sheet.
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the three years ended December 31,
1998, are summarized as follows:
- ---------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $11,582 $10,473 $ 9,120
Provision 4,599 3,505 3,175
Recoveries 933 892 956
- ---------------------------------------------------------------------------------------
17,114 14,870 13,251
Loans charged off 4,152 3,288 2,778
- ---------------------------------------------------------------------------------------
Balance at December 31, $12,962 $11,582 $10,473
- ---------------------------------------------------------------------------------------
</TABLE>
NONPERFORMING ASSETS
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
collectiblity of a substantial portion of the Company's portfolio is susceptible
to changes in market conditions of those areas. Management is not aware of any
material concentrations of credit to any industry or individual borrowers.
The effect of nonaccrual loans on interest income for the years ended
December 31, 1998, 1997, and 1996 was not material. The Company is not committed
to advance additional funds to these borrowers. Nonaccrual loans were $3.6
million and $5.3 million at December 31, 1998 and 1997, respectively.
II-33
<PAGE>
At December 31, 1998, the recorded investment in impaired loans was
$2.4 million. Included in this amount is $1.1 million of impaired loans for
which the specifically allocated allowance for loan loss is $0.2 million. In
addition, included in impaired loans is $1.3 million of impaired loans that, as
a result of the adequacy of collateral values and cash flow analysis do not have
a specific reserve. At December 31, 1997, the recorded investment in impaired
loans was $4.3 million, of which $1.9 million had a specific allowance
allocation of $0.6 million and $2.4 million for which there was no specific
reserve. The average recorded investment in impaired loans was $4.0 million,
$3.1 million and $4.0 million in 1998, 1997 and 1996, respectively. During the
years ended December 31, 1998, 1997 and 1996 the Company recognized $0.1
million, $0.1 million and $0.5 million, respectively, of interest income on
impaired loans, all of which was recognized using the cash basis of income
recognition.
RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has made loans at prevailing
rates and terms to directors, officers, and other related parties. Such loans,
in management's opinion, did not present more than the normal risk of
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:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Balance at January 1, $ 3,563 $ 4,238
New loans 3,463 3,226
Repayments (2,584) (3,901)
- -------------------------------------------------------------------------------
Balance at December 31, $ 4,442 $ 3,563
- -------------------------------------------------------------------------------
</TABLE>
PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Company premises $21,836 $20,047
Equipment 20,630 17,277
Construction in progress 306 2,601
- -------------------------------------------------------------------------------
42,772 39,925
Accumulated depreciation 22,531 21,164
- -------------------------------------------------------------------------------
Total premises and equipment $20,241 $18,761
- -------------------------------------------------------------------------------
</TABLE>
Depreciation of premises and equipment totaled $2.0 million in 1998, and $1.5
million in 1997 and 1996.
Rental expense included in occupancy expense amounted to $0.4 million
annually in 1998, and $0.3 million in 1997 and 1996. The future minimum rental
commitments as of December 31, 1998, for noncancellable operating leases were as
follows: 1999--$0.3 million; 2000--$0.3 million; 2001--$0.3 million; 2002--$0.2
million; and 2003--and beyond--$0.2 million.
INTANGIBLE ASSETS
The Company, in a cash transaction, acquired deposits totalling $42.6 million
and selected loans totalling $1.1 million, of three branches from Community Bank
Systems Inc. effective December 16, 1995. Also included were related accrued
interest payable and receivable and premises and equipment, the amounts of which
were not material. All assets and liabilities acquired were recorded at
appraised fair values at that date, creating additional core deposit intangible
assets and goodwill. Branch acquisition costs for 1997 is an adjustment or
reclassification of amounts recorded for the December 1995 transaction. At
December 31, 1998 and 1997, the accumulated amortization of intangible assets
was $18.2 and $17.1 million, respectively.
II-34
<PAGE>
<TABLE>
<CAPTION>
The table below presents significant balances, amortization and the respective periods of amortization:
- ---------------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Goodwill (25 yrs.):
Beginning balance $5,718 $6,022
Branch acquisition - 35
Amortization (339) (339)
- ---------------------------------------------------------------------------
Ending balance 5,379 5,718
- ---------------------------------------------------------------------------
Core deposit intangible assets (3-12 yrs.):
Beginning balance 2,924 3,931
Branch acquisition - 5
Amortization (731) (1,012)
- ---------------------------------------------------------------------------
Ending balance 2,193 2,924
- ---------------------------------------------------------------------------
Total intangible assets, net $7,572 $8,642
- ---------------------------------------------------------------------------
</TABLE>
DEPOSITS
Time deposits of $100,000 or more aggregated $282.0 million, $269.9 million and
$191.3 million at year-end 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
The following table sets forth the maturity distribution of time certificates of deposit:
- -------------------------------------------------------------------------------
December 31, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Within one year $409,142 $433,472
After one but within two years 56,101 50,215
After two but within three years 18,129 18,225
After three but within four years 8,879 9,219
After four but within five years 6,057 5,617
After five years 137 84
- -------------------------------------------------------------------------------
Total $498,445 $516,832
- -------------------------------------------------------------------------------
</TABLE>
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 $266 million at
December 31, 1998. Securities collateralizing repurchase agreements are held in
safekeeping by a non-affiliated financial institutions and are under the
Company's control.
II-35
<PAGE>
<TABLE>
<CAPTION>
Information related to short-term borrowings is summarized as follows:
- -------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
FEDERAL FUNDS PURCHASED
Balance at year-end $28,000 $25,000 $48,000
Average during the year 35,674 29,501 30,929
Maximum month end balance 60,000 49,000 56,000
Weighted average rate during the year 5.58% 5.70% 5.53%
Weighted average rate at December 31 4.75% 6.13% 7.38%
- -------------------------------------------------------------------------------------------------
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Balance at year-end $38,388 $59,721 $40,244
Average during the year 33,659 51,427 23,893
Maximum month end balance 42,085 95,403 40,244
Weighted average rate during the year 4.01% 5.04% 4.32%
Weighted average rate at December 31 3.61% 5.03% 4.43%
- -------------------------------------------------------------------------------------------------
OTHER SHORT-TERM BORROWINGS
Balance at year-end $30,201 $49,806 $ -
Average during the year 44,908 38,331 18,370
Maximum month end balance 50,165 49,806 50,000
Weighted average rate during the year 5.96% 6.02% 5.45%
Weighted average rate at December 31 5.62% 5.82% -%
- -------------------------------------------------------------------------------------------------
</TABLE>
OTHER BORROWINGS
Other borrowings consists of obligations having an original maturity at issuance
of more than one year. A summary of other borrowings follows:
<TABLE>
<CAPTION>
Maturity Interest Year-end outstanding
(dollars in thousands) Date Rate 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FHLB advance 2005 5.23 10,000 -
FHLB advance 2008 5.33 128 137
FHLB advance 2008 7.20 43 46
- ---------------------------------------------------------------------------------------------
Total $10,171 $183
- ---------------------------------------------------------------------------------------------
</TABLE>
FHLB advances are collateralized by the FHLB stock owned by the Company, certain
of its real estate mortgage loans and mortgage-backed securities.
<PAGE>
INCOME TAXES
Deferred income taxes are recognized for temporary differences between the
financial statement carrying amount and tax basis of assets and liabilities.
<TABLE>
<CAPTION>
Total income taxes were allocated as follows:
- -----------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Income before income taxes $ 4,553 $ 8,301 $ 7,108
Stockholders' equity, capital surplus,
for stock options exercised (117) (329) (36)
Stockholders' equity, for unrealized gain
(loss) on securities 654 2,695 (3,005)
- -----------------------------------------------------------------------------------
Total $ 5,090 $10,667 $ 4,067
- -----------------------------------------------------------------------------------
</TABLE>
II-36
<PAGE>
<TABLE>
<CAPTION>
The significant components of income taxes attributable to operations are:
- -----------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Current:
Federal $4,435 $7,297 $6,331
State 1,345 1,439 1,437
- -----------------------------------------------------------------------------------
5,780 8,736 7,768
Deferred:
Federal (998) (330) (472)
State (229) (105) (188)
- -----------------------------------------------------------------------------------
(1,227) (435) (660)
- -----------------------------------------------------------------------------------
Total $4,553 $8,301 $7,108
- -----------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
December 31, 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Deferred tax assets:
Allowance for loan losses $5,132 $4,586
Deferred compensation 324 306
Postretirement benefit obligation 993 751
Other 492 455
- --------------------------------------------------------------------------------------
Total gross deferred tax assets 6,941 6,098
- --------------------------------------------------------------------------------------
Deferred tax liabilities:
Prepaid pension obligation 396 532
Premises and equipment, primarily due to accelerated
depreciation 644 588
Undistributed earnings of Bank subsidiary - 136
Unrealized gain on securities available for sale 2,292 1,638
Securities discount accretion 328 472
Other 25 49
- --------------------------------------------------------------------------------------
Total gross deferred tax liabilities 3,685 3,415
- --------------------------------------------------------------------------------------
Net deferred tax assets $3,256 $2,683
- --------------------------------------------------------------------------------------
</TABLE>
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.
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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Federal income tax at statutory rate $8,279 $8,068 $6,751
Benefit of federal tax rates below statutory rate (100) - (10)
Tax exempt income (570) (613) (627)
Non-deductible expenses 243 220 241
State taxes, net of federal tax benefit 725 867 812
Federal income tax benefit
from corporate realignment (4,186) - -
Other, net 162 (241) (59)
- -----------------------------------------------------------------------------------
Income taxes $4,553 $8,301 $7,108
- -----------------------------------------------------------------------------------
</TABLE>
II-37
<PAGE>
NONINTEREST EXPENSE
Included in the data processing and communications expense category are data
processing fees of $2.6 million, $1.9 million, and $1.5 million in years 1998,
1997, and 1996, respectively. The future minimum annual commitments for data
processing services as of December 31, 1998 were as follows: 1999--$3.2 million;
2000--$2.9 million; 2001--$2.9 million; 2002--$2.4 million; and 2003--and
beyond--$1.1 million.
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. 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. 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, 1997,
off balance sheet commitments to extend credit for primarily variable rate loans
amounted to $127.4 million secured by $70.1 million in collateral value. The
amount of standby letters of credit at December 31, 1997, amounted to $1.8
million secured by $0.1 million in cash.
At December 31, 1998 and 1997, 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 was not
subject to the market risk associated with such derivative financial
instruments. The Company holds one interest rate cap with an amortized cost of
$49 thousand at December 31, 1998 and $194 thousand at December 31, 1997. The
cap expires in May of 1999.
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.
STOCKHOLDERS' EQUITY
The Company has a Dividend Reinvestment Plan for stockholders under which no new
shares of common stock were issued in 1998 and 1997. There were 736,065 shares
of common stock reserved for future issuance under the plan at December 31, 1998
(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, 1998, the Bank has the ability to pay $18.8
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.
II-38
<PAGE>
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, 1998 the
Company and the Bank meet all capital adequacy requirements to which it is
subject.
As of December 31, 1998 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,
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.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
ACTUAL Adequacy Purposes: Action Provisions:
- -----------------------------------------------------------------------------------------------------------------------
(in thousands) AMOUNT RATIO Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
- -----------------------------------------------------------------------------------------------------------------------
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Company Consolidated $121,792 16.13% $ 60,403 8.00% $ 75,504 10.00%
Bank $115,279 15.31% $ 60,241 8.00% $ 75,301 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Company Consolidated $112,328 14.88% $ 30,201 4.00% $ 45,302 6.00%
Bank $105,840 14.06% $ 30,120 4.00% $ 45,180 6.00%
Tier 1 Capital (to Average Assets):
Company Consolidated $112,328 8.91% $ 37,828 3.00% $ 63,047 5.00%
Bank $105,840 8.43% $ 37,646 3.00% $ 62,743 5.00%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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
II-39
<PAGE>
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.
The Company used a health care trend rate in calculating its
postretirement benefit obligation of 7.5% to 8.5% for 1999, grading down
uniformly to 5.5% for 2005 and thereafter.
The net postretirement health benefits expense and funded status are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Components of net periodic benefit cost:
Service cost $ 205 $ 182 $124
Interest cost 261 255 183
Amortization of transition obligation 85 85 85
Amortization of gains and losses 25 28 -
- -------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 576 $ 550 $392
- -------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of the year $ 4,158 $ 2,708
Service cost 205 182
Interest cost 261 255
Plan participant's contributions 95 83
Actuarial (gain) loss (172) 1,108
Benefits paid (197) (178)
- ---------------------------------------------------------------------------------
Benefit obligation at end of year $ 4,350 $ 4,158
- ---------------------------------------------------------------------------------
Components of accrued benefit cost:
Funded status $(4,350) $(4,158)
Unrecognized transition obligation 1,188 1,273
Unrecognized actuarial net loss 1,108 1,306
- ---------------------------------------------------------------------------------
Accrued benefit cost $(2,054) $(1,579)
- ---------------------------------------------------------------------------------
Weighted average discount rate 6.75% 7.00%
- ---------------------------------------------------------------------------------
</TABLE>
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:
<PAGE>
<TABLE>
<CAPTION>
1-PERCENTAGE 1-PERCENTAGE
POINT POINT
INCREASE DECREASE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Effect on total of service and interest cost components $ 127 $ (97)
Effect on postretirement benefit obligation 951 (766)
</TABLE>
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 contributes an amount equal to 100%
of employees 401(k) contributions up to 5% of their annual salary for 1998 and
1997, and up to 3% for 1996. 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 $1.0
million in 1998 and $0.7 million in 1997. During 1996, a combined $0.9 million
was contributed to the Retirement Savings and ESOP plans.
II-40
<PAGE>
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, 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:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Components of net periodic benefit cost:
Service cost $ 701 $ 508 $ 454
Interest cost 1,354 1,181 1,119
Expected return on plan assets (1,705) (1,406) (1,305)
Amortization of initial unrecognized asset (109) (109) (109)
Amortization of prior service cost 257 257 218
Amortization of unrecognized net gain - (36) (20)
- -------------------------------------------------------------------------------------------------
Net periodic pension cost $ 498 $ 395 $ 357
- -------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $(19,490) $(15,910) $(12,284)
Service cost (701) (508) (454)
Interest cost (1,354) (1,181) (1,119)
Prior service cost - - (3,515)
Actuarial gain (1,119) (3,098) (152)
Benefits paid 1,230 1,207 1,614
- -------------------------------------------------------------------------------------------------
Benefit obligation at end of year $(21,434) $(19,490) $(15,910)
- -------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 19,431 $ 15,589 $ 14,879
Actual return on plan assets 3,672 3,266 2,072
Employer contributions 58 1,784 252
Benefits paid (1,230) (1,207) (1,614)
- -------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 21,931 $ 19,432 $ 15,589
- -------------------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation $ 497 $ (58) $ (321)
Unrecognized portion of net asset at transition (1,194) (1,304) (1,413)
Unrecognized net actuarial loss (2,247) (1,399) (2,673)
Unrecognized prior service cost 3,934 4,191 4,448
- -------------------------------------------------------------------------------------------------
Prepaid benefit cost $ 990 $ 1,430 $ 41
- -------------------------------------------------------------------------------------------------
Weighted average assumptions as of December 31,
Discount rate 6.75% 7.00% 7.50%
Expected long-term return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% 4.00%
- -------------------------------------------------------------------------------------------------
</TABLE>
STOCK OPTION PLANS The Company has two stock option plans (Plans). At December
31, 1998, there were 1,658,334 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, 1998, there were 1,020,464 additional shares available
for grant under the Plans. The per share weighted-average fair value of stock
options granted during 1998, 1997 and 1996 was $6.77, $5.14 and $3.14,
respectively on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: 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; 1996 expected dividend yield of 3.16%, expected
volatility of 15.35%, risk-free interest rates of 5.52% and 6.41%, 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
II-41
<PAGE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $19,102 $14,749 $12,179
Pro forma 18,613 14,404 11,977
Basic earnings per share As reported $ 1.52 $ 1.18 $ 0.98
Pro forma 1.48 1.15 0.96
Diluted earnings per share As reported $ 1.49 $ 1.16 $ 0.97
Pro forma 1.45 1.13 0.96
- ---------------------------------------------------------------------------------------------
</TABLE>
Pro forma net income reflects only options granted in 1998, 1997 and 1996.
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,
1996 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:
<TABLE>
<CAPTION>
Number Weighted Average of
of Exercise Price of
Options Options Under Plan
- --------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1995 522,204 $ 9.44
- --------------------------------------------------------------------------------------
Granted 167,470 10.68
Exercised (25,334) 8.39
Lapsed (16,049) 10.47
- --------------------------------------------------------------------------------------
Balance, December 31, 1996 648,291 $ 9.78
- --------------------------------------------------------------------------------------
Granted 166,698 12.25
Exercised (293,165) 9.65
Lapsed (29,294) 10.86
- --------------------------------------------------------------------------------------
Balance, December 31, 1997 492,530 $10.62
- --------------------------------------------------------------------------------------
Granted 171,080 19.08
Exercised (22,563) 8.47
Lapsed (3,177) 11.94
- --------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 637,870 $12.96
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$6.01 - $11.00 311,470 5.90 $ 9.97 236,464 $ 9.79
$11.01 - $16.00 155,320 8.08 12.22 62,128 12.22
$16.01 - $21.00 171,080 9.08 19.08 - -
- --------------------------------------------------------------------------------------------------------------
$6.01 - $21.00 637,870 7.28 $12.96 298,592 $10.29
- --------------------------------------------------------------------------------------------------------------
</TABLE>
II-42
<PAGE>
PARENT COMPANY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
ASSETS
Cash $ 1,875 $ 2,750
Due from subsidiary bank 24 2
Securities available for sale 3,572 3,788
Loans 18 19
Investment in subsidiary bank 125,187 116,811
Other assets 51 117
- --------------------------------------------------------------------------------------
TOTAL ASSETS $130,727 $123,487
- --------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 95 $ 144
- --------------------------------------------------------------------------------------
Total liabilities 95 144
Stockholders' equity 130,632 123,343
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $130,727 $123,487
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Dividends from subsidiary bank $11,500 $ 6,000 $ 9,700
Interest and dividend income 345 322 180
Gain on sale of securities available for sale 16 - 3
- -------------------------------------------------------------------------------------------------------
11,861 6,322 9,883
Interest expense - - 234
Operating expense 257 299 402
- -------------------------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed income of subsidiary bank 11,604 6,023 9,247
Income tax expense (benefit) 61 26 (170)
Equity in undistributed income of subsidiary bank 7,559 8,752 2,762
- -------------------------------------------------------------------------------------------------------
NET INCOME $19,102 $14,749 $12,179
- -------------------------------------------------------------------------------------------------------
</TABLE>
II-43
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
OPERATING ACTIVITIES:
Net income $ 19,102 $ 14,749 $ 12,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and accretion of discounts
on securities (4) (4) (15)
Realized gains on sale of securities available for sale (15) - (3)
(Increase) decrease in other assets 66 (83) 62
Increase (decrease) in other liabilities (49) (3) 15
Undistributed net income of subsidiary bank (7,559) (8,752) (2,762)
Other, net (88) (18) 8
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,453 5,889 9,484
- -------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales of securities 3,416 - 4,979
Purchases (2,965) (3,384) (977)
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 451 (3,384) 4,002
- -------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Repayment of long-term debt - - (2,857)
Treasury shares reissued 4,059 6,559 2,030
Purchase of treasury stock (9,094) (2,568) (7,241)
Cash dividends and payment for fractional shares (7,722) (5,563) (4,397)
- -------------------------------------------------------------------------------------------------------
Net cash used in financing activities (12,757) (1,572) (12,465)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (853) 933 1,021
Cash and cash equivalents at beginning of year 2,752 1,819 798
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,899 $ 2,752 $ 1,819
- -------------------------------------------------------------------------------------------------------
</TABLE>
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, 1998
and 1997. 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.
SHORT-TERM BORROWINGS For short-term borrowings, carrying value approximates
fair value.
II-44
<PAGE>
OTHER BORROWINGS The fair value of other borrowings 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.
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
- ----------------------------------------------------------------------------------------------------
December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash $ 47,181 $ 47,181 $ 37,446 $ 37,446
Loans held for sale 2,887 2,887 3,286 3,286
Securities available for sale 355,758 355,758 440,632 440,632
Securities held to maturity 35,095 35,095 36,139 36,139
Loans:
Commercial and agricultural 388,509 400,716 326,491 326,472
Real estate mortgage 160,025 181,659 135,475 141,229
Consumer 272,971 277,458 273,516 273,719
- ----------------------------------------------------------------------------------------------------
Total loans 821,505 859,833 735,482 741,420
Less allowance for loan losses 12,962 - 11,582 -
- ----------------------------------------------------------------------------------------------------
Net loans 808,543 859,833 723,900 741,420
Accrued interest receivable 6,431 6,431 7,470 7,470
- ----------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Deposits:
Interest bearing:
Savings, NOW and money market 391,614 391,614 358,366 358,366
Certificates of deposit 498,445 500,013 516,832 517,252
Noninterest bearing 154,146 154,146 138,985 138,985
- ----------------------------------------------------------------------------------------------------
Total deposits 1,044,205 1,045,773 1,014,183 1,014,603
Short-term borrowings 96,589 96,589 134,527 134,527
Other borrowings 10,171 10,848 183 183
Accrued interest payable $ 2,731 $ 2,731 $ 3,240 $ 3,240
- ----------------------------------------------------------------------------------------------------
</TABLE>
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.
II-45
<PAGE>
DESCRIPTION OF EXHIBITS
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 15, 1994.
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.
NBT BANCORP INC. 1999 Executive Incentive Compensation Plan.
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 Bancorp Inc. and (Director) made
January 1, 1997.
Restricted Stock Agreement between NBT Bank, National Association and (Director)
made January 1, 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.
Supplemental Retirement Income Plan between NBT Bank, National Association and
Certain Management and Highly Compensated Employees made as of January 1, 1996.
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 JOE C. MINOR, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER OF NBT BANCORP INC.
II-46
<PAGE>
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 ninth
day of March, 1999.
NBT BANCORP INC.
----------------
(Registrant)
By:
/s/ DARYL R. FORSYTHE
---------------------
Daryl R. Forsythe, President
and Chief Executive Officer
/s/ JOE C. MINOR
----------------
Joe C. Minor
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/ DARYL R. FORSYTHE March 9, 1999
- --------------------- -------------
Daryl R. Forsythe, Director DATE
/s/ EVERETT A. GILMOUR March 9, 1999
- ---------------------- -------------
Everett A. Gilmour, Director DATE
/s/ PETER B. GREGORY March 9, 1999
- -------------------- -------------
Peter B. Gregory, Director DATE
/s/ ANDREW S. KOWALCZYK, JR. March 9, 1999
- ---------------------------- -------------
Andrew S. Kowalczyk, Jr., Director DATE
/s/ JOHN C. MITCHELL March 9, 1999
- -------------------- -------------
John C. Mitchell, Director DATE
/s/ PAUL O. STILLMAN March 9, 1999
- -------------------- -------------
Paul O. Stillman, Director DATE
II-47
<PAGE>
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.
<TABLE>
<CAPTION>
FORM
10-K Exhibit
Exhibit Cross
Number Reference
<S> <C> <C>
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 *
15, 1994.
FORM 10-K for the year ended December 31, 1994, filed March 31, 1995 --
Exhibit 3.3.
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 Herein
October 1, 1989, including Amendments adopted through August 31, 1998.
Document is attached as 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 NBT BANCORP INC. 1999 Executive Incentive Compensation Plan. Herein
Document is attached as Exhibit 10.4.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
</TABLE>
II-48
<PAGE>
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
FORM
10-K Exhibit
Exhibit Cross
Number Reference
<S> <C> <C>
10.10 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.
10.11 Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made *
January 1, 1997.
FORM 10-K for the year ended December 31, 1996, filed March 14, 1997 --
Exhibit 10.45.
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, 1997.
FORM 10-K for the year ended December 31, 1996, filed March 14, 1997 --
Exhibit 10.50.
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; C. Vernon Stratton; John C. Mitchell; Janet H.
Ingraham; Everett A. Gilmour; Richard F. Monroe and Peter B. Gregory.
10.13 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.
10.14 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.
10.15 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.
10.16 Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made Herein
January 1, 1999.
Document is attached as 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.
</TABLE>
II-49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX (continued)
FORM
10-K Exhibit
Exhibit Cross
Number Reference
<S> <C> <C>
10.17 Restricted Stock Agreement between NBT Bank, National Association and Herein
(Director) made January 1, 1999.
Document is attached as 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.
10.18 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.
21 A list of the subsidiaries of the registrant is attached as Exhibit 21. Herein
23 Consent of KPMG LLP. Herein
Document is attached as Exhibit 23.
27 Financial Data Schedule. Herein
Document is attached as Exhibit 27.
</TABLE>
II-50
<PAGE>
EXHIBIT 10.2
NBT BANCORP INC. Defined Benefit Pension Plan
Amended and restated as of October 1, 1989,
including Amendments adopted through August 31, 1998.
<PAGE>
NBT BANCORP, INC.
DEFINED BENEFIT PENSION PLAN
Amended and restated as of October 1, 1989,
including amendments adopted through August 31, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - GENERAL PROVISIONS
- ------------------------------
1.01 Designation 1
1.02 Effective Date 1
1.03 Purpose 1
ARTICLE II - DEFINITIONS 2
- ------------------------
ARTICLE III - ELIGIBILITY AND PARTICIPATION REQUIREMENTS
- --------------------------------------------------------
3.01 Eligibility 18
3.02 Becoming a Participant 18
3.03 Eligibility after Reemployment 19
3.04 Eligibility Based on Service in Ineligible
Classification 20
ARTICLE IV - SERVICE CREDITING
- ------------------------------
4.01 Benefit Service 21
4.02 Vesting Service 21
4.03 Treatment of Prior Service after a Break in Service 22
4.04 Retention of Service 23
4.05 Limitation of Service Credited 23
ARTICLE V - VESTING AND FORFEITURES
- -----------------------------------
5.01 Vesting Schedule 24
5.02 Exceptions to Vesting Schedule 24
5.03 Forfeitures 25
5.04 Amendments Affecting Vesting Schedule 26
ARTICLE VI - BENEFITS ELIGIBILITY
- ---------------------------------
6.01 Normal Retirement Benefit 27
6.02 Early Retirement Benefit 27
6.03 Late Retirement Benefit 28
6.04 Disability Retirement Benefit 28
6.05 Preretirement Death Benefit. 28
6.06 Benefits Following Termination of Employment 30
-i-
<PAGE>
TABLE OF CONTENTS (cont'd)
--------------------------
Page
----
ARTICLE VII - COMPUTATION OF BENEFITS
- -------------------------------------
7.01 Normal Retirement Benefit 31
7.02 Early Retirement Benefit 32
7.03 Late Retirement Benefit 32
7.04 Disability Retirement Benefit 33
7.05 Preretirement Death Benefit 33
7.06 Deferred Vested Retirement Benefit 34
7.07 Reemployment After Benefit Commencement 34
7.08 July 1, 1995 Cost-of-Living Increase 35
ARTICLE VIII - BENEFICIARIES
- ----------------------------
8.01 Designation of a Beneficiary 36
8.02 Spouses's Rights 36
8.03 Absence of a Designated Beneficiary 37
8.04 Beneficiaries' Rights 38
ARTICLE IX - DISTRIBUTION REQUIREMENTS
- --------------------------------------
9.01 Form of Distribution 39
9.02 Compliance with Code Section 401(a)(9) 42
9.03 Required Distribution to Participant 42
9.04 Limits on Distribution Periods 44
9.05 Required Distribution to Beneficiary 45
9.06 Location of Participant or Beneficiary Unknown 45
9.07 Facility of Payment 45
9.08 Eligible Rollover Distributions 46
ARTICLE X - FINANCING
- ---------------------
10.01 Fund 48
10.02 Contributions to the Plan 48
10.03 Funding Policy 48
10.04 Return of Employer Contributions 48
-ii-
<PAGE>
TABLE OF CONTENTS (cont'd)
--------------------------
Page
----
ARTICLE XI - ADMINISTRATION
- ---------------------------
11.01 Plan Administrator 50
11.02 Fiduciary and Administrative Duties 51
11.03 General Powers and Discretion of Plan Administrator 51
11.04 Administration of the Fund 52
11.05 Delegation of Powers 52
11.06 Appointment of Professional Assistants and Investment
Managers 53
11.07 Records 53
11.08 Notice of Rollover Treatment 53
11.09 Responsibility of Fiduciaries 53
11.10 Indemnity by Employer 54
11.11 Payment of Fees and Expenses 54
11.12 ERISA Reporting and Disclosure 54
11.13 Service of Legal Process 54
11.14 Claim for Benefits 54
11.15 Denial of Claim 54
11.16 Request for Review of Denial 55
11.17 Review Decision 55
ARTICLE XII - LIMITATIONS ON BENEFITS
- -------------------------------------
12.01 General Rules 57
12.02 Code Section 415 Limitations 57
12.03 Deemed Satisfaction of Maximum Retirement Benefit
Limitation 60
12.04 Maximum Retirement Benefit for Multiple Plans 61
12.05 Exceptions to the Maximum Retirement Benefit Limitation 63
12.06 Increases in Maximum Retirement Benefit 64
ARTICLE XIII - QUALIFIED DOMESTIC RELATIONS ORDERS
- --------------------------------------------------
13.01 General 65
13.02 Required Provisions 65
13.03 Prohibited Provisions 65
13.04 Exception for Certain Payments Made after Earliest
Retirement Age 66
13.05 Plan Procedures with Respect to Domestic Relations
Orders 66
-iii-
<PAGE>
TABLE OF CONTENTS (cont'd)
--------------------------
Page
----
ARTICLE XIV - AMENDMENT, MERGER AND TERMINATION
- -----------------------------------------------
14.01 Amendment 68
14.02 Termination of Plan and Trust 68
14.03 Benefits upon Termination and Partial Termination 68
14.04 Restriction of Benefits to Certain Highly Compensated
Employees 69
14.05 Merger, Consolidation or Transfer of Assets 70
ARTICLE XV - TOP-HEAVY REQUIREMENTS
- -----------------------------------
15.01 General Rules 71
15.02 Determination of Top-Heaviness 72
15.03 Vesting in Employer Contributions under a Top-Heavy Plan 74
15.04 Minimum Required Benefit 75
15.05 Maximum Annual Benefit under a Super Top-Heavy Plan 77
ARTICLE XVI - MISCELLANEOUS PROVISIONS
- --------------------------------------
16.01 No Alienation or Assignment 78
16.02 Adoption of Plan by Another Employer 78
16.03 Status of Employment Relations 78
16.04 Benefits Payable by Trust 78
16.05 Failure of Qualification 78
16.06 Increases in Social Security Benefits 79
16.07 Headings Not Part of This Plan 79
16.08 Gender and Number 79
16.09 Applicable Law 79
-iv-
<PAGE>
ARTICLE I
GENERAL PROVISIONS
------------------
1.01 Designation. This Plan, previously designated The National Bank
and Trust Company of Norwich Employees' Defined Benefit Pension Plan and Trust,
is designated the NBT BANCORP, INC. DEFINED BENEFIT PENSION PLAN. The Plan and
Trust are intended to meet the requirements of Sections 401(a) and 501(a) of the
Internal Revenue Code of 1986, as amended, and the Employee Retirement Income
Security Act of 1974, as amended. The Plan is intended to qualify as a defined
benefit plan.
1.02 Effective Date. This Plan originally became effective on October
1, 1986, following the Employer's termination of its participation in the Master
Plan of the New York State Bankers Retirement System. The Employer hereby amends
and restates the Plan effective October 1, 1989 ("Effective Date"), unless a
different effective date is otherwise stated. This restatement governs the
rights of all Employees who have an Hour of Service with the Employer on or
after the Effective Date. The rights of any former Employee who does not have an
Hour of Service on or after the Effective Date shall be governed by the
provisions of the Predecessor Plan in effect when he terminated employment,
unless otherwise provided in this Plan or required by law.
1.03 Purpose. The purpose of this Plan is to provide benefits for
Participants and Beneficiaries (including any Alternate Payees). Contributions
to the Plan, and any income, shall be for the exclusive benefit of Participants
and Beneficiaries and shall not be used for, or diverted to, any other purpose.
<PAGE>
ARTICLE II
DEFINITIONS
-----------
The following terms shall have the following meanings in and for this
Plan.
2.01 Accrued Benefit shall mean the amount that will be paid to the
Participant, under the formula in Section 7.01, expressed as an annual benefit
(straight life annuity) beginning at his Normal Retirement Date. The
Participant's accrued benefit as of a determination date shall be the portion of
the normal retirement benefit accrued under that formula, based on years of
Credited Service through the determination date.
2.02 Actual Retirement Date shall mean the date on which a Participant
retires from service with the Employer, within the meaning of "Retirement" in
this Article of the Plan.
2.03 Actuarial Equivalent or Actuarially Equivalent shall mean a
benefit payable in a different form and/or at a different time than a
Participant's Accrued Benefit, but having the same value as that benefit when
computed using the following actuarial assumptions:
Mortality: 1984 Unisex Mortality Table
Interest: 7 percent per annum
a. Notwithstanding the preceding sentence, for Annuity Starting Dates
that occur before September 1, 1997, the present value of any distribution
(other than a non-decreasing life annuity payable for a period not less than the
life of the Participant or Surviving Spouse) shall be determined using the Code
Section 417(e)(3) interest rates(s) described in subsection (b) below, if such
rate(s) would produce a greater benefit than the assumptions above.
b. The Code Section 417 interest rates are:
i. The Applicable Interest Rate if the present value of the benefit
(using such rate(s)) is not in excess of $25,000; or
ii. 120 percent of the Applicable Interest Rate if the present
value of the benefit exceeds $25,000 (as determined under
subsection (i) above). In no event shall the present value
determined under this subsection (ii) be less than $25,000.
c. Notwithstanding the foregoing of this Section 2.03, and subject to
subsection 2.03(d) below, for Annuity Starting Dates that occur after August 31,
1997, the present value of a lump sum distribution shall be determined by apply-
ing the Applicable Interest Rate and the "Applicable Mortality Table."
-2-
<PAGE>
For purposes of this subsection 2.03(c), the "Applicable Mortality Table" is
the mortality table based on the prevailing commissioners' standard table
(described in Code Section 807(d)(5)(A)) used to determine reserves for group
annuity contracts issued on the date as of which present value is being
determined (without regard to any other subparagraph of Code Section 807(d)
(5)), that is prescribed by the Internal Revenue Service in revenue rulings,
notices or other guidance, published in the Internal Revenue Bulletin.
d. The lump sum distribution payable to a Participant whose Annuity
Starting Date occurs after August 31, 1997 shall not be less than the present
value of the benefit accrued by the Participant through August 31, 1997, when
calculated by using the interest rate and mortality assumptions in the first
sentence of this Section 2.03, based on the Participant's age on the Annuity
Starting Date.
2.04 Adjustment Factor shall mean the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of the Code.
2.05 Affiliated Employer shall mean (a) a member of a "controlled group
of corporations" or group of trades or businesses under common control (as
defined in Code Section 414(b) and (c)) of which the Employer is a member, (b) a
member of an affiliated service group (as defined in Code Section 414(m)) which
includes the Employer, or (c) any other entity that must be aggregated with the
Employer pursuant to Code Section 414(o). The term "controlled group of
corporations" has the meaning given in Code Section 1563(a), but determined
without regard to Code Sections 1563(a)(4) and (e)(3)(C). Further, for purposes
of applying the Code Section 415 limitations on benefits, Code Section
1563(a)(1) shall be applied by substituting the phrase "more than 50 percent"
for the phrase "at least 80 percent," each place that phrase appears. If an
Affiliated Employer is also an Employer maintaining the Plan, the provisions of
the Plan shall apply to that entity as an Employer, rather than only as an
Affiliated Employer.
2.06 Alternate Payee shall mean any spouse, former spouse, child or
other dependent of a Participant who is recognized by a Domestic Relations Order
as having a right to receive all, or a portion of, the benefits payable under
the Plan with respect to such Participant.
2.07 Annual Benefit shall mean a benefit attributable to Employer
contributions payable in the form of a straight life annuity within the meaning
of Code Section 415(b)(2), as further described in Article XII.
2.08 Annuity Starting Date shall mean the first day of the first
period for which an amount is paid to a Participant in any form.
-3-
<PAGE>
2.09 Applicable Interest Rate shall mean:
a. for Annuity Starting Dates that occur before September 1, 1997, the
interest rate or rates that would be used, as of the first day of the Plan Year
that contains the Annuity Starting Date, by the PBGC for purposes of determining
the present value of the Participant's benefits under the Plan, if the Plan had
terminated on that date with insufficient assets to provide benefits guaranteed
by the PBGC; and
b. for Annuity Starting Dates that occur after August 31, 1997, the
annual interest rate on 30-year Treasury securities for the second month that
precedes the Plan Year during which the Annuity Starting Date occurs. (For
example, for Annuity Starting Dates that occur in 1998, the Applicable Interest
Rate shall be the annual interest rate on 30-year Treasury securities for
November 1997, as specified by the Internal Revenue Service in revenue rulings,
notices or other guidance published in the Internal Revenue Bulletin.)
2.10 Beneficiary shall mean any person properly designated by a
Participant pursuant to Article VIII to receive any benefits payable after the
Participant's death.
2.11 Board of Directors shall mean the Board of Directors of the
Employer.
2.12 Break in Service or One-Year Break in Service shall mean a Plan
Year during which a Participant is not credited with more than 500 Hours of
Service; provided that, for the Plan Year that begins on October 1, 1994 and
ends December 31, 1994, a Participant shall not incur a Break in Service if the
Participant is credited with at least 125 Hours of Service during that Plan
Year.
2.13 Code shall mean the Internal Revenue Code of 1986, as amended from
time to time, and implementing Regulations and rulings issued by the Internal
Revenue Service. References to any Section of the Code shall include any
successor provision.
2.14 Compensation shall mean remuneration paid by the Employer to a
Participant in the form of fixed basic annual salary or wages, commissions,
overtime, and cash bonuses actually received; provided that, for Plan Years that
begin prior to January 1, 1995, Compensation shall include remuneration in the
form of severance pay and for Plan Years beginning before October 1, 1993,
Compensation shall not include remuneration in the form of commissions. For all
years, Compensation shall include any amount contributed by the Employer at the
direction of the Participant pursuant to a salary reduction agreement, which
amount is not includable in the Participant's gross income under Code Section
125 (cafeteria plans) or Code Section 402(a)(8) ("401(k)" plans). Compensation
shall not include any other form of remuneration, regardless of the manner
calculated or paid. For example, "Compensation" shall not include amounts
realized from the exercise of stock options or from the disposition of stock or
stock rights, Employer contributions to any public or private benefit plan or
system, or (after December 31, 1994) amounts paid as severance pay.
-4-
<PAGE>
For the Plan Year in which an Employee first becomes a Participant, the term
"Compensation" shall mean only the Compensation he receives after the date he
satisfies the eligibility requirements to participate in the Plan.
The annual Compensation of each Participant taken into account under the Plan
for any Plan Year beginning after December 31, 1988 and before January 1, 1994
shall not exceed $200,000. Each January 1, beginning in 1990 and ending in 1993,
this amount shall be adjusted by the Adjustment Factor, using 1989 as the base
period. The adjusted Compensation limitation shall be effective for Plan Years
beginning within the calendar year of the adjustment.
For Plan Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed $150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases in
the cost of living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which Compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the $150,000 limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the Compensation
limit in effect for that prior determination period. For this purpose, for
determination periods beginning before the first day of the first Plan Year
beginning on or after January 1, 1994, the limit is $150,000.
In applying the $200,000 and $150,000 limitations in Plan Years that begin prior
to January 1, 1997, the Compensation of a Participant who is (i) a Five Percent
Owner, or (ii) a Highly Compensated Employee and one of the ten most Highly
Compensated Employees, ranked on the basis of compensation (within the meaning
of Code Section 414(q)(7)) paid by the Employer during the Plan Year, shall be
treated as including the Compensation of his Spouse and any lineal descendants
who have not attained age 19 before the close of the Plan Year (but only if his
Spouse or lineal descendant also is an Employee). If, as a result of the
application of such rules, the $200,000 limitation or the $150,000 limitation is
exceeded, then (except for purposes of determining the portion of Compensation
included in "Covered Compensation" defined in Article VII), the limitation shall
be prorated among the affected individuals, in proportion to each such
individual's Compensation as determined under this Section prior to the
application of the limitation.
2.15 Defined Benefit Dollar Limitation shall mean the dollar limitation
in effect under Code Section 415(b)(1)(A); specifically, $90,000, as adjusted
each January 1 by the Adjustment Factor. Any adjusted limitation shall apply
to Limitation Years ending with or within the calendar year of the adjustment.
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2.16 Defined Benefit Fraction shall mean the fraction defined in Code
Section 415(e)(2) that is used, with the Defined Contribution Fraction, to
determine the Maximum Retirement Benefit for a Participant who also has
participated in a defined contribution plan of the Employer or an Affiliated
Employer.
2.17 Defined Contribution Fraction shall mean the fraction defined in
Code Section 415(e)(3) that is used, with the Defined Benefit Fraction, to
determine the Maximum Retirement Benefit for a Participant who also has
participated in a defined contribution plan of the Employer or an Affiliated
Employer.
2.18 Determination Date shall mean, with respect to any Plan Year, the
last day of the preceding Plan Year. In the case of a first Plan Year, the
Determination Date shall be the last day of that Plan Year.
2.19 Disability Retirement Date shall mean the date on which a
Participant terminates employment with the Employer because of a Total and
Permanent Disability.
2.20 Domestic Relations Order shall mean any judgment, decree, or order
(including approval of a property settlement agreement) which: (a) relates to
the provision of child support, alimony payments or marital property rights to a
spouse, child or other dependent of a Participant, and (b) is made pursuant to a
state domestic relations law (including a community property law).
2.21 Earliest Retirement Age shall mean the earliest date on which the
Participant can elect to receive retirement benefits under the Plan.
2.22 Early Retirement Date shall mean the date of a Participant's
Retirement, before the Normal Retirement Date, after the Participant has
attained age 55 and earned a "Vested Percentage" (described in Article V) of 100
percent.
2.23 Effective Date shall mean October 1, 1989.
2.24 Employee shall mean any person who receives compensation for
personal services, other than a retainer or fee under a contract, from the
Employer of the Employee and who is treated by the Employer as a common law
employee for employment tax withholding purposes. Any Leased Employees shall be
considered Employees solely for the purposes specified in Code Section 414(n).
Leased Employees shall not be eligible to participate in the Plan.
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2.25 Employer shall mean NBT Bancorp, Inc., NBT Bank, N.A. (formerly
known as The National Bank and Trust Company and The National Bank and Trust
Company of Norwich), and any Affiliated Employer that adopts this Plan. Notwith-
standing the preceding sentence, the term Employer means NBT Bank, N.A. for pur-
poses of Plan administration, and NBT Bancorp, Inc. for purposes of Sections
14.01 and 14.02.
2.26 ERISA shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any implementing regulations and rulings
issued by the Department of Labor or the Internal Revenue Service. References to
any Section of ERISA shall include any successor provision.
2.27 Final Average Compensation shall mean the average of the
Participant's annual Compensation for the five Years of Benefit Service during
the Participant's last ten Years of Benefit Service that produces the highest
average. If a Participant has less than five Years of Benefit Service, the
Participant's Final Average Compensation shall be the average of his annual
Compensation for his total Years of Benefit Service. For Plan Years that begin
prior to October 1, 1993, Final Average Compensation shall be based upon the
Compensation received by the Participant for each applicable calendar year. For
Plan Years that begin after September 30, 1993, Final Average Compensation shall
be based upon the Compensation received by the Participant for each applicable
Plan Year. In all cases, Final Average Compensation shall be based upon
consecutive Years of Benefit Service.
2.28 Five Percent Owner shall mean, as further defined in Code Section
416(i), any person who owns, or is considered as owning under the constructive
ownership rules of Code Section 318, more than five percent of the outstanding
stock of the Employer or stock possessing more than five percent of the total
combined voting power of all stock of the Employer. However, the constructive
ownership rules in Code Section 318(a)(2)(C) shall be applied by substituting
"five percent" for "50 percent." If the Employer is not a corporation, any
person who owns more than five percent of the capital or profits interest in
such organization is a Five Percent Owner.
2.29 Fund shall mean the assets of the Plan.
2.30 Highly Compensated Employee shall mean a highly compensated
employee within the meaning of Code Section 414(q), for Plan Years beginning
after December 31, 1986. As set forth below, the term "Highly Compensated
Employee" includes highly compensated active employees and highly compensated
former employees. In the following subsections, the term "determination year"
means the current Plan Year and the term "look-back year" means the twelve-month
period immediately preceding the determination year.
a. Highly Compensated Active Employee: For Plan Years that begin before
January 1, 1997, highly compensated active employee includes any employee who
performs service for the Employer during the determination year and who:
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i. Received compensation in excess of $75,000, as adjusted
by the Adjustment Factor, during the look-back year;
ii. Received compensation in excess of $50,000, as adjusted
by the Adjustment Factor, during the look-back year,
and was a member of the top-paid group for such year
(generally, the top 20 percent of employees ranked on
the basis of compensation);
iii. Was an officer (as defined in Code Section 416(i)) of the
Employer and received compensation during the look-back
year that is greater than 50 percent of the Defined Bene-
fit Dollar Limitation in effect during the year (if no
officer has satisfied this compensation requirement,
the highest-paid officer shall be treated as a Highly
Compensated Employee);
iv. Is described in the above subsections if the term
"determination year" is substituted for the term "look-
back year", and the employee is one of the 100 employees
who received the most compensation from the Employer dur-
ing the determination year; or
v. Was a Five Percent Owner at any time during the look-back
year or determination year.
For Plan Years that begin on or after January 1, 1997, a highly compensated
active employee includes any Employee who performs services for the Employer
during the determination year and who (I) for the preceding determination year,
received compensation from the Employer in excess of $80,000 (as adjusted bu the
Secretary of the Treasury), or (II) was a Five Percent Owner at any time during
the determination year or the preceding determination years.
b. Highly Compensated Former Employee: A highly compensated former
employee includes any employee who separated from service (or was deemed to have
separated) prior to the determination year, performs no service for the Employer
during the determination year and was a highly compensated active employee for
either the separation year or any determination year ending on or after the
employee's 55th birthday.
c. Family Member Aggregation Rule: For Plan Years that begin before
January 1, 1997, if an employee is, during a determination year or look-back
year, a Family Member of either (i) a Five Percent Owner who is an active or
former employee or (ii) a Highly Compensated Employee who is one of the ten most
Highly Compensated Employees ranked on the basis of compensation paid by the
Employer during such year, then the Family Member and the Five Percent Owner or
top-ten Highly Compensated Employee shall be aggregated. In such case, the
Family Member and Five Percent Owner or top-ten Highly Compensated Employee
shall be treated as a single employee receiving compensation and Plan
contributions or benefits equal to the sum of such compensation and
contributions or benefits of the Family Member and Five Percent Owner or top-ten
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Highly Compensated Employee. For purposes of this Section, the term "Family
Member" includes the spouse, lineal ascendants and descendants of the employee
or former employee and the spouses of such lineal ascendants and descendants.
d. Incorporation of Section 414(q): The determination of who is a
Highly Compensated Employee under the above rules, including the determinations
of the number and identity of employees in the top-paid group, the top 100
employees, the number of employees treated as officers and the compensation that
is considered, shall be made in accordance with Code Section 414(q) and
implementing Regulations, which are hereby incorporated by reference.
2.31 Hour of Service shall mean an hour determined in accordance with
the following provisions. In this definition, the term "computation period"
means the Plan Year, with the following exception. To the extent that a "Year of
Service" is defined as a different period for eligibility purposes, that period
shall be considered a computation period in crediting Hours of Service for
eligibility.
a. General Rules for Crediting Hours: For all purposes under the Plan,
an Employee shall be credited with an Hour of Service for all of the following:
i. Each hour for which the Employee is paid, or entitled to
payment, for the performance of duties for the Employer.
These hours will be credited to the Employee for the com-
putation period in which the duties are performed.
ii. Each hour for which the Employee is paid, or entitled to
payment, by the Employer, on account of a period dur-
ing which no duties are performed (whether or not the
employment relationship has terminated), due to vacation,
holiday, illness, incapacity (including disability),
layoff, jury duty, military duty or leave of absence.
Except as provided in Section 7.04 (relating to disabil-
ity), no more than 501 Hours of Service shall be credited
under this subsection for any single, continuous period,
whether or not such period occurs in a single computation
period.
iii. Each hour for which back pay (irrespective of mitigation
of damages) is either awarded or agreed to by the
Employer. The same Hours of Service will not be credited
both under subsection (i) or (ii), whichever is applic-
able, and this subsection (iii). Under this subsection,
Hours of Service will be credited to the Employee for the
computation period to which the award or agreement per-
tains, rather than the computation period in which the
award, agreement or payment is made.
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Hours under this subsection shall be calculated and credited pursuant to
Department of Labor Regulation 2530.200b-2(b) and (c), which is incorporated
herein by reference.
b. Crediting Hours for Maternity or Paternity Leave to Prevent Break in
Service: Solely to determine whether a Break in Service has occurred, an
Employee who is absent from work for maternity or paternity reasons, or is on a
leave of absence taken in accordance with the Family and Medical Leave Act,
shall receive credit for the Hours of Service that would otherwise have been
credited to the Employee but for such absence. In any case in which such hours
cannot be determined, eight Hours of Service per day of such absence shall be
credited.
i. The Hours of Service credited under this subsection shall
be credited in the computation period in which the
absence begins, if necessary to prevent a Break in Ser-
vice in that period. In all other cases, the Hours of
Service shall be credited to the next computation period.
ii. For purposes of this subsection, an absence from work for
maternity or paternity reasons means an absence by reason
of (A the Employee's pregnancy, (B) the birth of the
Employee's child or the placement of a child with the
Employee in connection with the Employee's adoption of
the child, or (C) the Employee caring for the child for
a period immediately following such birth or placement.
iii. In order to be credited with Hours of Service under this
subsection, the Employee must provide the Plan Adminis-
trator with proof that the period of absence is for a
reason specified in subsection (ii) above.
c. Hours Not Kept: An Employee for whom hours are not normally kept
shall receive credit for 45 Hours of Service for each weekly pay period during
which the Employee performs one Hour of Service under the conditions described
in subsection (a)(i) or (ii) above.
d. Affiliated Employers: For eligibility and vesting purposes (see
Articles III and IV), Hours of Service shall also be credited for employment
with any Affiliated Employer.
e. For eligibility and vesting purposes hereunder, Hours of Service
shall include each hour for which an Employee, who was employed by any banking
institution or banking facility as of the date immediately preceding the date of
the Employer's acquisition of that institution or facility (and which
acquisition occurred on or before December 31, 1994), was credited with an hour
of service under the terms of such former employer's tax-qualified retirement
plan as of the date immediately preceding the date of the Employer's acquisition
of the institution or facility.
f. Hours of Service shall be granted for eligibility and vesting
purposes during a period of military service which does not exceed two years in
duration. Hours of Service shall be credited on the basis of the Employee's
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normal workweek when such leave commenced. For purposes of this subsection (f),
military service is service with the Armed Forces of the United States during
periods of war, national emergency or conscription, subject to the condition
that the Employee returns to active employment with the Employer within the
period his reemployment rights are protected by applicable law. Notwithstanding
the foregoing, Hours of Service shall include qualified military service to the
extent required by Code Section 414(u), if such Code Section would grant more
service to the Employee.
g. Except to the extent required by subsection (a)(ii) above, Hours of
Service shall not be granted for any purpose under the Plan as a result of an
Employee's receipt of severance pay from the Employer.
2.32 Joint and Survivor Annuity shall mean an immediate annuity benefit
payable monthly for life to a Participant, with a survivor annuity for the life
of the Beneficiary which is not less than 50 and not more than 100 percent of
the amount of the annuity which is payable during the joint lives of the
Participant and the Beneficiary.
2.33 Key Employee shall mean an employee within the meaning of Code
Section 416(i). As further set forth in that Code Section, any Employee, former
Employee or Beneficiary will be considered a Key Employee if, for the Plan Year
that contains the Determination Date or any of the four preceding Plan Years,
the employee is:
a. An officer (within the meaning of Code Section 416(i)) having
"annual compensation" from the Employer greater than 50 percent of the Defined
Benefit Dollar Limitation for any such Plan Year;
b. An owner (or considered an owner under Code Section 318) of one of
the ten largest interests in the Employer, who has "annual compensation" from
the Employer greater than the dollar limitation in effect under Code Section
415(c)(1)(A) (currently $30,000);
c. A Five Percent Owner; or
d. A One Percent Owner with "annual compensation" from the Employer of
more than $150,000.
For purposes of this definition, "annual compensation" means Limitation Year
Compensation, plus any amounts contributed by the Employer pursuant to a salary
reduction agreement, which are excludable from the Employee's gross income under
Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code.
2.34 Leased Employee shall mean any person (other than one who is an
employee without regard to a leasing arrangement) who performs services pursuant
to an agreement between the Employer and a leasing organization if:
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a. The services have been performed for the Employer or for the
Employer and related persons (determined in accordance with Code Section
414(n)(6)) on a substantially full-time basis for a period of at least one year;
and
b. For Plan Years that begin before January 1, 1997, the services are
of a type historically performed by employees in the business field of the
Employer and, for Plan Years that begin on or after January 1, 1997, the
services are performed under the primary direction or control of the Employer.
2.35 Limitation Year shall mean the calendar year.
2.36 Limitation Year Compensation shall mean wages, salaries, and fees
for professional services and other amounts received (without regard to whether
or not an amount is paid in cash) for personal services actually rendered in the
course of employment with the Employer to the extent that the amounts are
includable in gross income (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefits,
reimbursements, and expense allowances), and excluding the following:
a. Employer contributions to a plan of deferred compensation, which are
not includable in the Employee's gross income for the taxable year in which
contributed, or Employer contributions under a simplified employee pension plan
(described in Code Section 408(k)) to the extent such contributions are not
includible in the gross income of the Employee, or any distributions from a plan
of deferred compensation;
b. Amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by the Employee either becomes
freely transferable or is no longer subject to a substantial risk of forfeiture;
c. Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
d. Other amounts which received special tax benefits.
Notwithstanding the above definition, for a self-employed individual that
participates in the Plan (if any), Limitation Year Compensation shall mean the
net earnings from self-employment in the trade or business with respect to which
the Plan is established, for which personal services of the individual are a
material income-producing factor. Net earnings will be determined without regard
to items not included in gross income and the deductions allocable to such
items. Net earnings are reduced by contributions by the Employer to a qualified
plan to the extent deductible under Code Section 404. Net earnings shall be
determined with regard to the deduction allowed to the taxpayer by Code Section
164(f) for taxable years beginning after December 31, 1989.
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For Limitation Years beginning after December 31, 1991, for purposes of applying
this Section, Limitation Year Compensation for a Limitation Year is the
Limitation Year Compensation actually paid or made available during such
Limitation Year.
For Limitation Years beginning after December 31, 1997, for purposes of applying
this Section, Limitation Year Compensation paid or made available during such
Limitation Year shall include any elective deferral (as defined in Code Section
402(g)(3)), and any amount which is contributed or deferred by the Employer at
the election of the Employee and which is not includible in the gross income of
the Employee by reason of Code Sections 125 or 457.
2.37 Maximum Retirement Benefit shall mean the maximum Annual Benefit
determined in accordance with Article XII of the Plan and Section 415 of the
Code.
2.38 Minimum Required Benefit shall mean the benefit described in
Article XV which must be provided to Non-Key Employees if the Plan is Top-Heavy
for a Plan Year.
2.39 Minimum Vesting Schedule shall mean the vesting schedule required
by Article XV if the Plan becomes Top-Heavy for one or more Plan Years.
2.40 Non-Key Employee shall mean an Employee who is not a Key Employee.
2.41 Non-Vested Participant shall mean a Participant who is not a
Vested Participant.
2.42 Normal Retirement Age shall mean the date upon which a Participant
attains age 65.
2.43 Normal Retirement Date shall mean the first day of the calendar
month coinciding with or next following a Participant's Normal Retirement Age.
2.44 One Percent Owner shall mean, as further defined in Code Section
416(i), any person who owns, or is considered as owning under the constructive
ownership rules of Code Section 318, more than one percent of the outstanding
stock of the Employer or stock possessing more than one percent of the total
combined voting power of all stock of the Employer. However, the constructive
ownership rules in Code Section 318(a)(2)(C) shall be applied by substituting
"one percent" for "50 percent." If the Employer is not a corporation, any person
who owns more than one percent of the capital or profits interest in such
organization is a One Percent Owner.
2.45 Participant shall mean an Employee who becomes a Participant in
the Plan as provided in Article III.
2.4 PBGC shall mean the Pension Benefit Guaranty Corporation.
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2.47 Permissive Aggregation Group shall mean a group of plans
maintained by the Employer and any Affiliated Employer, which may be aggregated
in determining whether the Plan is Top-Heavy, as further defined in Article XV
of the Plan.
2.48 Plan shall mean the NBT Bancorp, Inc. Defined Benefit Pension
Plan, as amended from time to time. Prior to January 1, 1995, the name of the
Plan was The National Bank & Trust Company of Norwich Employees' Defined Benefit
Pension Plan and Trust.
2.49 Plan Administrator shall mean the person, committee or other
entity appointed to administer the Plan in accordance with Article XI. The Plan
Administrator shall be the "named fiduciary" for the management, operation and
administration of the Plan, within the meaning of Section 402(a) of ERISA.
2.50 Plan Year shall mean the twelve consecutive month period beginning
on October 1st and ending on September 30th; provided, however, that (a) there
shall be a short Plan Year beginning on October 1, 1994 and ending on December
31, 1994, and (b) beginning January 1, 1995, the Plan Year shall be the period
beginning on January 1st and ending on December 31st.
2.51 Predecessor Plan shall mean any prior statement (or restatement)
of the Plan that is being amended and restated by this document.
2.52 Preretirement Survivor Annuity shall mean an annuity for the life
of the Spouse that is payable if a Participant dies before his Annuity Starting
Date, as provided in Articles VI and VII.
2.53 Qualified Domestic Relations Order shall mean a Domestic Relations
Order that creates or recognizes the existence of an Alternate Payee's right to,
or assigns to an Alternate Payee the right to, receive all or a portion of the
benefits that would otherwise be payable with respect to a Participant under the
Plan, and that meets the requirements described in Article XIII.
2.54 Regulation(s) shall mean the Income Tax Regulations promulgated by
the Secretary of the Treasury or his delegate, as amended from time to time,
including proposed and temporary Regulations. References to any Section of the
Regulations shall include any successor provision.
2.55 Required Aggregation Group shall mean a group of plans maintained
by the Employer and any Affiliated Employer, which must be aggregated in
determining whether the Plan is Top-Heavy, as further defined in Article XV of
the Plan.
2.56 Required Beginning Date shall mean the date when distributions
must begin to a Participant, as further defined in Article IX of the Plan.
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2.57 Retirement shall mean voluntary termination of employment with the
Employer for a reason other than death, after a Participant has fulfilled all
requirements for a normal, early or disability retirement benefit.
2.58 Social Security Retirement Age shall mean the earliest age at
which an individual can collect full, unreduced Social Security benefits. The
Social Security Retirement Age is:
a. Age 65 for a Participant who attains age 62 before January 1, 2000
(i.e., born before January 1, 1938);
b. Age 66 for a Participant who attains age 62 after December 31,
1999, but before January 1, 2017 (i.e., born after December 31, 1937, but
before January 1, 1955); and
c. Age 67 for a Participant who attains age 62 after December 31,
2016 (i.e., born after December 31, 1954).
2.59 Spouse or Surviving Spouse shall mean the lawful wife of a male
Participant or the lawful husband of a female Participant. Notwithstanding the
preceding sentence, a former spouse shall be treated as the Spouse or Surviving
Spouse (and a current spouse shall not be treated as the Spouse or Surviving
Spouse) to the extent provided under a Qualified Domestic Relations Order.
2.60 Super Top-Heavy Plan shall mean a plan for which the Top-Heavy
Ratio exceeds 90 percent. As stated in Article XV, if the Plan is Super
Top-Heavy and the Employer has also maintained a defined contribution plan, the
denominators in the Defined Benefit Fraction and the Defined Contribution
Fraction must be reduced when calculating the Maximum Retirement Benefit for
individuals who have participated in both plans.
2.61 Top-Heavy shall mean the status of the Plan when it is a Top-Heavy
Plan (or a Super Top-Heavy Plan).
2.62 Top-Heavy Plan shall mean a plan for which the Top-Heavy Ratio
exceeds 60 percent, including a Super Top-Heavy Plan unless otherwise specified.
2.63 Top-Heavy Ratio shall mean the ratio of the Accrued Benefits of
Key Employees to the Accrued Benefits of all Employees, considering this Plan
and any plans included in a Required Aggregation Group or Permissive Aggregation
Group.
2.64 Top-Heavy Rules shall mean the rules under Code Section 416 and
implementing Regulations that will be applicable if the Plan is a Top-Heavy Plan
for any Plan Year beginning after December 31, 1983.
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2.65 Total and Permanent Disability or Totally and Permanently
Disabled. A Participant shall be considered Totally and Permanently Disabled, if
he is determined to be entitled to, and is in receipt of, disability benefits
under (a) Title II or XVI of the Social Security Act, and (b) any long term
disability income plan sponsored by the Employer.
2.66 Trust shall mean the legal entity resulting from the Trust Agree-
ment between the Employer and the Trustee.
2.67 Trust Agreement shall mean the agreement between the Employer and
the Trustee, or any successor Trustee, establishing the Trust and specifying the
duties of the Trustee.
2.68 Trustee shall mean the trustee or trustees designated by the Board
of Directors.
2.69 Vested Participant shall mean a Participant who has a
nonforfeitable (vested) interest in his Accrued Benefit derived from Employer
contributions to the Plan.
2.70 Years of Benefit Service shall mean a period during which a
Participant participates in the Plan and is entitled to a benefit accrual in
accordance with Section 4.01.
2.71 Year of Eligibility Service shall mean a computation period during
which an Employee is credited with at least 1,000 Hours of Service. The first
eligibility computation period is the 12-consecutive-month period that begins on
the date the Employee first performs an Hour of Service ("employment
commencement date"). Succeeding 12-consecutive-month computation periods begin
on each anniversary of the employment commencement date.
2.72 Year of Vesting Service shall mean:
a. For Plan Years that begin on and after October 1, 1976, each Plan
Year during which an Employee completes at least 1,000 Hours of Service, and
makes any portion of the contribution required of him under the provisions of
the Plan then in effect; provided that, for the Plan Year that begins on October
1, 1994 and ends on December 31, 1994, an Employee shall receive credit for a
Year of Vesting Service if the Employee completes at least 250 Hours of Services
during that Plan Year.
b. For Plan Years that begin prior to October 1, 1976, the applicable
of the following:
i. If a Participant on September 30, 1976, the sum of (A)
"creditable service" to which a Participant was entitled
on September 30, 1976 under the Plan as in effect on such
date, and (B) any uninterrupted service in the employ of
the Employer prior to his Plan membership date which
is not included in (A) above.
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ii. If not a Participant on September 30, 1976, each period of
twelve consecutive months beginning on the date he first
performs an Hour of Service and each anniversary thereof,
during which he completed at least 1,000 Hours of Service,
bu excluding any such period during which such Employee
could have been a participant had he consented to make the
contributions required of him in order to become a Partic-
ipant.
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ARTICLE III
ELIGIBILITY AND PARTICIPATION REQUIREMENTS
------------------------------------------
3.01 Eligibility.
a. An Employee who is employed by the Employer on the Effective Date
shall be eligible to participate in the Plan on the Effective Date, if he has
satisfied the eligibility requirements in subsection (b) below or if he was a
Participant in the Predecessor Plan. In determining previous participation, any
provisions of the Predecessor Plan which excluded Employees from participation
based on the attainment of a specified age shall not be applied after September
30, 1988 to any Employee who performs an Hour of Service on or after October 1,
1988.
b. After the Effective Date, an Employee employed by the Employer shall
be eligible to participate in the Plan as of the first day of the calendar month
that coincides with or next follows the date as of which he has both attained
age 21 and completed a Year of Eligibility Service provided he is employed by
the Employer on that date.
c. In applying the above service requirement, (i) an Employee's service
with any Affiliated Employer shall be taken into account, and (ii) an Employee
who transfers to employment with the Employer pursuant to the September 11, 1995
Purchase and Assumption Agreement between Community Bank, National Association
and the Employer shall receive credit for eligibility service to the extent the
Employee is credited with eligibility service under the qualified retirement
plans of Community Bank, National Association as of the date the Employee
transfers to employment with the Employer.
d. Any person included in a unit of employees covered by a collective
bargaining agreement (as defined in Code Section 7701(a)) between Employee
representatives and the Employer or an Affiliated Employer shall not be eligible
to participate in the Plan, unless such collective bargaining agreement
expressly provides for the inclusion of such persons as Participants in the
Plan.
3.02 Becoming a Participant. Once an Employee satisfies the
requirements in Section 3.01, he shall participate in the Plan automatically.
The Plan Administrator shall, no later than 90 days after the Employee meets the
eligibility requirements, advise the Employee that he has become a Participant,
and provide him with information about the Plan.
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3.03 Eligibility after Reemployment.
a. Reemployment before a Break in Service: Upon being reemployed before
a One-Year Break in Service has occurred, the reemployed Employee shall be
treated as follows:
i. A former Participant shall continue to participate in the
Plan as if his employment had not terminated; provided
that, for Plan Years that begin prior to January 1, 1995,
the period during which the Participant was absent from
employment shall not be included in the Participant's
Years of Benefit Service.
ii. A former Employee who had not yet become a Participant
shall have the period of prior employment counted toward
satisfying the service requirement in Section 3.01 as
if his employment had not terminated. The Employee shall
begin to participate in the Plan in accordance with
Sections 3.01 and 3.02, upon satisfying the eligibility
requirements.
b. Reemployment after a Break in Service: Upon being reemployed after a
Break in Service, the reemployed Employee shall participate in the Plan as
follows:
i. Participation shall be reinstated as of the date of
reemployment for: (A) a former Vested Participant and (B)
a former Non-Vested Participant whose consecutive One-
Year Breaks in Service did not exceed the greater of
five, or his number of Years of Vesting Service before
the Break in Service.
ii. A former Non-Vested Participant with a Break in Service
longe than provided in subsection (i), and a former
Employee wh had not yet become a Participant when he
terminated employment, shall begin to participate in the
Plan as of the first day of the calendar month that
coincides with or next follows the date he again satis-
fies the eligibility requirements in Section 3.01.
In applying the above provisions, the computation period shall be the
eligibility computation period specified in the definition of "Year of
Eligibility Service" in Article II, as though the reemployment date were the
employment commencement date.
Notwithstanding the above provisions, prior service will be credited for a
Participant who received a distribution of his vested benefits, only if the
distribution is repaid as provided in Article V.
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3.04 Eligibility Based on Service in Ineligible Classification.
a. If an Employee who had not been in an eligible class of employees of
the Employer or an Affiliated Employer becomes a member of such a class, his
eligibility to participate in the Plan shall be determined in accordance with
the above provisions of this Article, counting service in the ineligible
classification.
b. An individual who ceases to be a Participant because he is no longer
in an eligible class of employees shall become eligible to participate in the
Plan immediately upon returning to an eligible class of employees.
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ARTICLE IV
SERVICE CREDITING
-----------------
4.01 Benefit Service.
a. For service rendered prior to January 1, 1995, a Participant shall
be entitled to a Year of Benefit Service for each 12-month period of service
with the Employer, beginning on the later of May 9, 1945, or the date the
Participant first became a Participant. To the extent not taken into account
under the preceding sentence, a Participant shall also receive credit for each
completed month (counted as 1/12th of a year) of service with the Employer after
the applicable date described in the preceding sentence and before January 1,
1995.
b. Effective January 1, 1995, Years of Benefit Service shall be
measured by the Hours of Service performed by a Participant during a Plan Year.
A Participant shall receive credit for a Year of Benefit Service for service
rendered after December 31, 1994 only if the Participant performs 1,000 Hours of
Service in a Plan Year. For the Plan Year during which an Employee first becomes
a Participant, the Employee shall be credited with a Year of Benefit Service for
that Plan Year only if the Employee performs 1,000 Hours of Service from the
date participation begins through the end of the Plan Year. No partial Years of
Benefit Service shall be granted.
c. In determining Years of Benefit Service, service with any of the
following listed banking institutions by a Participant who was employed by any
such institution as of September 29, 1989 shall be considered service with the
Employer to the extent the Employee's service was recognized for benefit accrual
purposes under such former employer's qualified defined benefit pension plan as
of September 29, 1989. The banking institutions referred to are: National Bank
of Hancock, Hayes National Bank, Fulton County National Bank and Trust, and Bank
of Lake Placid. For an Employee who was employed at the Key Bank of New York
branches known as Plattsburgh, Plattsburgh North or Ellenburg Depot as of the
date immediately preceding the date of the Employer's acquisition of those
branches, Years of Benefit Service also shall include the Employee's service
with Key Bank of New York to the extent such service was recognized for benefit
accrual purposes under such former employer's qualified defined benefit plan as
of the date immediately preceding the date of the Employer's acquisition of
those branches.
4.02 Vesting Service.
a. An Employee shall be entitled to credit for a Year of Vesting
Service for purposes of determining his vested interest in his Accrued Benefit
derived from Employer contributions for all Years of Vesting Service unless
excluded by subsection (b) or Section 4.03.
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b. For purposes of this Section, service shall not include the
following:
i. Service before age 22, if the Employee fails to be credi-
ted with an Hour of Service after September 30, 1985;
ii. Service with the Employer during any period for which the
Employer did not maintain this Plan or a predecessor
Plan; or
iii. Service for periods during which the Employee declined to
make any portion of required Employee contributions to
the Plan.
c. An Employee who transfers to employment with the Employer pursuant
to the September 11, 1995 Purchase and Assumption Agreement between Community
Bank, National Association and the Employer shall receive credit for Years of
Vesting Service to the extent the Employee is credited with vesting service
under the qualified retirement plans of Community Bank, National Association as
of the date the Employee transfers to employment with the Employer.
4.03 Treatment of Prior Service after a Break in Service.
a. Vested Participant: If a Vested Participant is reemployed after a
One-Year Break in Service, his prior Years of Vesting Service and Years of
Benefit Service shall be taken into account in determining his vested percentage
in his Accrued Benefit derived from Employer contributions as of the date he is
reemployed. Notwithstanding the preceding sentence, a Vested Participant who
receives a full distribution of his vested Accrued Benefit following his
termination of employment, shall receive credit for the prior Years of Vesting
Service and Years of Benefit Service only if he repays the distribution in
accordance with Section 5.03.
b. Non-Vested Participant:
i. If a Non-Vested Participant is reemployed after a One-Year
Break in Service, his prior Years of Vesting Service
and Years of Benefit Service shall not be taken into
account, if the number of consecutive One-Year Breaks in
Service equals or exceeds the greater of: (i) five
or (ii) the Participant's Years of Vesting Service prior
to the Break in Service.
ii. If the Non-Vested Participant has a shorter Break in
Service than that described in subsection (i), he shall
receive credit for his prior Years of Vesting Service and
Years of Benefit Service in the same manner as provided
for a Vested Participant in subsection (a) above.
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c. Prior Break in Service: In applying the above provisions, the
aggregate number of Years of Vesting Service and Years of Benefit Service before
the Break in Service shall be deemed not to include any Years of Vesting Service
or Years of Benefit Service not required to be taken into account under this
Section by reason of any prior Break in Service.
4.04 Retention of Service. A Participant's benefit accrual and vested
interest in benefits under the Plan up to the Effective Date shall be determined
according to the Predecessor Plan as in effect immediately prior to the
Effective Date. On the Effective Date and thereafter, a Participant's benefit
accrual and vested interest shall not be reduced by termination of employment,
Breaks in Service or for any other reason, except as provided in the Plan.
4.05 Limitation of Service Credited. No more than one Year of Vesting
Service and one Year of Benefit Service shall be credited with respect to any
12-month period. The foregoing sentence shall not prevent the crediting of a
full Year of Vesting Service for the Plan Year that begins on October 1, 1994
and ends on December 31, 1994 for an Employee who completes at least 250 Hours
of Service in that Plan Year.
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ARTICLE V
VESTING AND FORFEITURES
-----------------------
5.01 Vesting Schedule. Except as provided in Section 5.02 below, a
Participant's Accrued Benefit shall become vested in accordance with the
applicable schedule below.
a. An Employee who is credited with at least one Hour of Service after
the Effective Date, but who is not credited with at least one Hour of Service
after December 31, 1994, shall become vested in accordance with the following
schedule:
Years of Vesting Service Vested Percentages
- --------------------------------------------------------------------------------
Less than 3 years 0%
3 years but less than 4 years 20%
4 years but less than 5 years 40%
5 years but less than 6 years 60%
6 years but less than 7 years 80%
7 years or more 100%
b. An Employee who is credited with Hours of Service only after
December 31, 1994 shall become vested in accordance with the following schedule:
Years of Vesting Service Vested Percentage
------------------------ -----------------
Less than 5 years 0%
5 years or more 100%
c. An Employee who (i) is credited with at least one Hour of Service
during the period that begins on the Effective Date and ends on December 31,
1994, and (ii) is credited with at least one Hour of Service after December 31,
1994, shall become vested in accordance with the schedule above that provides
the greatest Vested Percentage for the Employee.
5.02 Exceptions to Vesting Schedule. Notwithstanding the above
schedule, the following rules shall apply in determining a Participant's vested
interest in his Accrued Benefit:
a. In case of a change in the vesting schedule, the rules in Section
5.04 shall be applied to Participants affected by the change.
b. The Minimum Vesting Schedule in Article XV shall become applicable
if the Plan is Top-Heavy for one or more Plan Years. (The rules in Section 5.04
apply to any change to or from the Minimum Vesting Schedule.)
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c. A Participant shall become 100 percent vested in his Accrued Benefit
upon (i) the Participant's attainment of Normal Retirement Age while still
actively employed by the Employer, (ii) the Participant's death at a time when
he is actively employed by the Employer, or (iii) the Participant's termination
of employment due to Total and Permanent Disability.
5.03 Forfeitures. If a Participant terminates his employment with the
Employer at a time when he is not 100 percent vested in his Accrued Benefit
derived from Employer contributions, the nonvested portion of the benefit shall
be forfeited subject to the following provisions:
a. Time of Forfeiture: If a Participant terminates employment with the
Employer and receives a distribution from the Plan, his nonvested benefits shall
be forfeited when the distribution is made. If the Participant does not receive
a distribution, his nonvested benefits shall be forfeited as of the end of the
Plan Year in which he incurs five consecutive One-Year Breaks in Service. For
purposes of this subsection, if the present value of the Participant's vested
Accrued Benefit is zero, he shall be deemed to have received a distribution of
the Accrued Benefit when he terminated employment.
b. Use of Forfeiture: Any benefits forfeited pursuant to this Section
shall be used to reduce future Employer contributions to the Plan. In no event
shall the remaining Participants receive additional benefits as a result of the
forfeitures.
c. Restoration of Forfeited Amounts:
i. A Participant who forfeited benefits when he received a
distribution from the Plan shall have the right to
restore his Accrued Benefit to the extent forfeited, pro-
vided that he resumes employment and repays to the Plan
the full amount of the distribution plus interest (using
the interest rates determined under Section 411(c)(2)(C)
of the Code). Any repayment pursuant to this subsection
must be made before the earlier of (A) five years after
the first date on which the Participant is subsequently
reemployed by the Employer; or (B) the close of the first
period of five consecutive One-Year Breaks in Service
after the distribution was made.
ii. If a Participant who was deemed to receive a distribution
pursuant to subsection (a) above resumes employment with
the Employer before incurring five consecutive One-Year
Breaks in Service, the amount of the Accrued Benefit as
of the date of the deemed distribution shall be restored
when he again participates in the Plan (see Section 3.03)
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<PAGE>
5.04 Amendments Affecting Vesting Schedule.
a. In the case of an Employee who is a Participant on (i) the date an
amendment changing the vesting schedule is adopted, or (ii) if later, the date
the amendment is effective, the vested percentage of his Accrued Benefit
(determined as of the applicable date) shall not be less than the percentage
calculated under the terms of the Plan without regard to the amendment.
b. If the vesting schedule in Section 5.01 is amended, or the Plan is
amended in any way that, directly or indirectly, adversely affects the
computation of a Participant's nonforfeitable percentage in his future benefit
accruals (including an automatic change to or from the Minimum Vesting Schedule
if the Plan becomes Top-Heavy), a Participant who is an Employee with at least
three Years of Service may elect to have the nonforfeitable percentage of his
Accrued Benefit determined without regard to the amendment. For Participants who
do not have at least one Hour of Service in a Plan Year beginning after December
31, 1988, the preceding sentence shall be applied by substituting "five Years of
Service" for "three Years of Service." In determining a Participant's Years of
Service for purposes of this subsection, the exclusions set forth in Section
4.02 shall not apply.
c. A Participant's right to make an election under subsection (b) shall
be governed by the following:
i. The Plan Administrator shall provide each affected
Participant with written notice and an election form
regarding his right to elect to remain under the former
vesting schedule.
ii. The election period shall begin with the date the
amendment is adopted (or deemed to be made) and shall end
on the date which is the latest of: (A) 60 days after the
date the amendment is adopted; (B) 60 days after the date
the amendment becomes effective; or (C) 60 days after
the date the notice described in subsection (i)
above is issued by the Plan Administrator.
iii. A Participant who does not timely file a properly
completed election form shall be subject to the amended
vesting schedule.
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ARTICLE VI
BENEFITS ELIGIBILITY
--------------------
6.01 Normal Retirement Benefit.
a. A Participant shall be eligible to receive benefits upon Retirement
on his Normal Retirement Date, provided he completes an application in
accordance with subsection (b).
b. To commence receipt of benefit payments, a Participant must submit a
signed written application to the Plan Administrator in which he elects an
Annuity Starting Date and form of distribution (in compliance with Article IX).
Upon proper application, the Plan Administrator shall begin to distribute
benefits as soon as administratively feasible.
c. If a Participant continues in employment after his Normal Retirement
Date for at least 40 Hours of Service monthly, the Participant shall not receive
any benefit payments during the period of such employment. However, benefits
shall continue to accrue, and the Participant shall be eligible to receive a
late retirement benefit as provided in this Article and Article VII.
d. In the case of a Participant described in subsection (c), the Plan
Administrator shall establish procedures to give the Participant the notice
required by Department of Labor Regulation 29 C.F.R. ss. 2530.203-3(b)(4) no
later than the end of the first calendar month or payroll period in which the
Plan does not pay benefits due to the continued employment. Benefit payments to
the Participant shall commence no later than the first day of the third calendar
month after the calendar month in which he ceases to be employed at the level
described in subsection (c).
e. Notwithstanding the above provisions, the payment of benefits shall
begin once a Participant has reached his Required Beginning Date.
6.02 Early Retirement Benefit.
a. Upon written notice to the Plan Administrator, a Participant may
elect to receive benefits upon Retirement on an Early Retirement Date. The
payment of benefits shall be effective as of the first day of the month
coinciding with or next following the elected Early Retirement Date.
b. A Participant who terminates employment with a nonforfeitable right
to an Accrued Benefit after satisfying the service requirement for an early
retirement benefit, but before satisfying the age requirement, may elect to
receive early retirement benefits when he later satisfies the age requirement.
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6.03 Late Retirement Benefit. A Participant who delays his Retirement
until after his Normal Retirement Date shall continue to accrue benefits and
shall be eligible to receive a late retirement benefit as of the earlier of (a)
the first day of the month coinciding with or next following his Actual
Retirement Date, or (b) his Required Beginning Date.
6.04 Disability Retirement Benefit.
a. A Participant who terminates employment because he is Totally and
Permanently Disabled, before reaching his Normal Retirement Date, shall be
eligible to receive benefits commencing on the Participant's Normal Retirement
Date.
b. A Participant must file a written application with the Plan
Administrator to receive disability retirement benefits. Upon receiving an
application, the Plan Administrator shall determine whether the Participant is
Totally and Permanently Disabled as defined in Article II.
6.05 Preretirement Death Benefit. Effective as of January 1, 1995, if a
Participant dies before the Annuity Starting Date, death benefits shall be
provided in accordance with this Section and the provisions of Article VII
regarding preretirement death benefits. If a Participant dies prior to January
1, 1995 and prior to the Annuity Starting Date, only the Preretirement Survivor
Annuity shall be payable and shall be payable only to the Surviving Spouse. If
the Participant is unmarried at the time of death (prior to the Annuity Starting
Date and prior to January 1, 1995), no preretirement death benefit shall be
payable.
a. The Participant's Accrued Benefit shall be paid as a Preretirement
Survivor Annuity for the life of the Surviving Spouse, as provided in Article
VII, unless:
i. The Participant is unmarried or another exception to
spousal rights in Section 8.02 applies; or
ii. The Participant waives the Preretirement Survivor Annuity
with spousal consent in accordance with subsection (c)
below.
b. If benefits are not being paid as a Preretirement Survivor Annuity
pursuant to subsection (a), the Participant's designated Beneficiary shall
receive preretirement death benefits as provided in Article VII.
c. Waiver of Preretirement Survivor Annuity: A Participant may
effectively waive the Preretirement Survivor Annuity, and elect to have the
other preretirement death benefit paid to another Beneficiary as follows:
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i. The election ust be made in writing and delivered to the
Plan Administrator during the period that begins on the
first day of the Plan Year in which the Participant
attains age 35, and ends on the date of the Participant's
death. However, if a Participant terminates employment
before the first day of the Plan Year in which he would
attain age 35, the election period shall begin on the
termination date.
ii. The Participant's Spouse must consent to the election, in
a consent which satisfies the requirements in Section
8.02(e).
iii. The election must be made after the Plan Administrator
provides the Participant with a notice regarding the
Preretirement Survivor Annuity that is comparable to
the notice regarding the Joint and Survivor Annuity
described in Section 9.01. The Plan Administrator must
provide this notice during whichever of the following
periods ends last:
A. The period beginning with the first day of the Plan
Year in which the Participant attains age 32 and end-
ing with the close of the Plan Year preceding the Plan
Year in which the Participant attains age 35;
B. A reasonable period ending after the Employee becomes
a Participant; or
C. A reasonable period ending after the Preretirement
Survivor Annuity requirements first apply to a
Participant.
Notwithstanding the foregoing, notice must be provided
within a reasonable period after termination of employ-
ment in the case of a Participant who terminates employ-
ment with the Employer before attaining age 35.
For purposes of this subsection, a reasonable period
after a specified event is the end of the two year period
beginning one year prior to the date the event occurs
and ending one year after that date. In the case of a
Participant who terminated employment before the Plan
Year in which he attains age 35, the notice shall be
provided within the two-year period beginning one year
prior to termination and ending one year after term-
ination. If such a Participant thereafter returns to
employment with the Employer, his notice period shall be
redetermined.
iv. Notwithstanding the election period described in
subsection (i), a Participant who will not yet attain
age 35 as of the end of any current Plan Year may make a
special election, in the form and method required by
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subsection (i), for the period that begins on the date of
such election and ends on the first day of the Plan Year
in which the Participant will attain age 35. Such an
election shall not be valid unless the Spouse consents
and the Participant receives a written explanation of the
Preretirement Survivor Annuity, as described in sub-
sections (ii) and (iii). Preretirement Survivor Annuity
coverage automatically will be reinstated as of the first
day of the Plan Year in which the Participant will attain
age 35. Any new waiver thereafter will be subject to
all of the requirements of this Article.
Notwithstanding the preceding provisions, a revocation of a prior waiver of the
Preretirement Survivor Annuity may be made by a Participant without the consent
of the Spouse at any time prior to the commencement of benefits. The number of
revocations shall not be limited.
d. The Plan Administrator shall require satisfactory written proof of
the Participant's death before paying benefits under this Section. The Plan
Administrator shall also require whatever proof is necessary, in the particular
case, to establish the right of any person to receive the benefit.
6.06 Benefits Following Termination of Employment. If a Vested
Participant terminates employment at a time when he is not eligible for benefits
under any of the preceding Sections of this Article, his benefits shall be
distributed in accordance with the following provisions and the provisions of
Article VII regarding deferred vested retirement benefits.
a. Benefits Not in Excess of $3,500: If the value of Participant's
vested Accrued Benefit does not exceed $3,500, the entire vested amount shall be
paid to the Participant in a single lump sum. Payment shall be made as soon as
administratively feasible following the termination of employment. No consent is
required for this distribution.
b. Benefits in Excess of $3,500: If the present value of a
Participant's vested Accrued Benefit derived from Employer (and any Employee)
contributions exceeds (or at the time of any prior distribution exceeded)
$3,500, he will be entitled to a deferred vested benefit. This means that
benefits will only be distributed at times when the Participant or his
Beneficiary is eligible to receive benefits under the preceding Sections of this
Article.
c. Notwithstanding the foregoing of this Section 6.06, for Annuity
Starting Dates that occur on or after January 1, 1998, this Section 6.06 shall
be applied by deleting $3,500 and inserting $5,000 in each place that $3,500
appears.
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ARTICLE VII
COMPUTATION OF BENEFITS
-----------------------
7.01 Normal Retirement Benefit.
a. The annual normal retirement benefit of a Participant who becomes
eligible for benefits under Section 6.01 shall equal the sum of the amounts
described in (i), (ii) and (iii) below, with that sum then reduced by the amount
described in (iv) below.
i. The Participant's accrued benefit under the Predecessor
Plan as of September 30, 1989.
ii. For Years of Benefit Service earned after September 30,
1989 and before January 1, 1995, the sum of (A)
1.60 percent of the Participant's Final Average Compen-
sation for each such Year of Benefit Service, plus (B)
.60 percent of the Participant's Final Average Compen-
sation that is in excess of Covered Compensation for each
such Year of Benefit Service.
iii. For Years of Benefit Service earned after December 31,
1994, the sum f (A) 1.25 percent of the Participant's
Final Average Compensation for each such Year of Benefit
Service, plus (B) .60 percent of the Participant's Final
Average Compensation that is in excess of Covered
Compensation for each such Year of Benefit Service.
iv. The annual normal retirement benefit payable to the
Participant from the Retirement Plan of Irving Bank
Corporation and Affiliated Companies, or any successor
plan, as a result of the Participant's employment with
National Bank of Hancock, Hayes National Bank, Fulton
Count National Bank and Trust, and/or Bank of Lake
Placid through September 29, 1989.
In applying the foregoing formula, the Plan shall at all times satisfy the
overall permitted disparity limit of Regulation 1.401(l)-5.
b. For purposes of this Section, "Covered Compensation" means the
amounts prescribed in tables published by the Commissioner of the Internal
Revenue Service pursuant to Regulation 1.401(l)-1(c)(7)(ii).
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c. For purposes of this Section 7.01, the number of Years of Benefit
Service taken into account under the Plan shall be limited to the greater of (i)
30, or (ii) the number of Years of Benefit Service completed by the Participant
as of December 31, 1994 (up to a maximum of 40). For purposes of this subsection
(c), Years of Benefit Service completed by the Participant through September 30,
1989 shall be taken into account.
d. Notwithstanding Section 7.01(a), the annual normal retirement
benefit of a Participant who is actively employed and performs at least one Hour
of Service after September 30, 1989 shall not be less than the excess of the
amount described in (i) below, over the amount described in (ii) below.
i. The sum of (A) 1.60 percent of the Participant's Final
Average Compensation determined as of December 31, 1994
for each Year of Benefit Service earned through December
31, 1994 (up to a maximum of 40 years), plus (B) .65 per-
cent of the Participant's Final Average Compensation
determined as of December 31, 1994 that is in excess of
1994 Covered Compensation for each Year of Benefit
Service earned through December 31, 1994 (up to a
maximum of 35 years).
ii. The annual normal retirement benefit payable to the
Participant fro the Retirement Plan of Irving Bank
Corporation and Affiliated Companies, or any successor
plan, as a result of the Participant's employment with
National Bank of Hancock, Hayes National Bank, Fulton
County National Bank and Trust, and/or Bank of Lake
Placid through September 29, 1989.
7.02 Early Retirement Benefit. The early retirement benefit of a
Participant who becomes eligible for benefits under Article VI shall be
calculated as provided in Section 7.01, based on the Participant's service up to
his Early Retirement Date, and then reduced by one-quarter of one percent (.25%)
per month for each month by which the Participant's Early Retirement Date
precedes the Participant's Normal Retirement Date.
7.03 Late Retirement Benefit.
a. The late retirement benefit of a Participant who becomes eligible
for benefits under Article VI shall be determined as provided in Section 7.01,
based on the Participant's Compensation and service up to his Actual Retirement
Date.
b. The benefit provided under subsection (a) for a Participant who
earns Years of Benefit Service after the Participant's Normal Retirement Date
shall be redetermined annually in accordance with Section 7.07.
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c. Notwithstanding the preceding provisions, the accrual of a
Participant's benefit for a Plan Year shall be reduced (but not below zero) by
the Actuarial Equivalent of any distributions made from the Plan to the
Participant by the close of the Plan Year pursuant to Article IX of the Plan.
The reduction shall be determined in accordance with Section 7.07.
7.04 Disability Retirement Benefit. The disability retirement benefit
of a Participant who becomes eligible for benefits under Article VI shall be
determined as provided in Section 7.01, based on (a) the Participant's Final
Average Compensation and Covered Compensation as of the Disability Retirement
Date, and (b) the benefit formula in effect under the Plan on the date the
Participant ceased active employment. For purposes of determining an eligible
Participant's benefit under this Section 7.04, the Participant will be given
credit for a Year of Benefit Service for each year between the Participant's
Disability Retirement Date and Normal Retirement Date that the Participant
remains Totally and Permanently Disabled.
7.05 Preretirement Death Benefit.
a. Effective as of January 1, 1995, the survivor annuity described in
subsection (b) or (c), as applicable, shall be payable to the Beneficiary, if
the Participant dies before the Annuity Starting Date. If a Participant dies
prior to January 1, 1995 and prior to the Annuity Starting Date, only the
Preretirement Survivor Annuity shall be payable and shall be payable only to the
Surviving Spouse. If a Participant is unmarried at the time of death (prior to
the Annuity Starting Date and prior to January 1, 1995), no preretirement death
benefit shall be payable.
b. If the Participant dies after his Earliest Retirement Age, the
Beneficiary shall receive the same benefit that would be payable if the
Participant had retired with a Joint and Survivor Annuity on the day before his
death.
c. If the Participant dies on or before his Earliest Retirement Age,
the Beneficiary shall receive the same benefit that would be payable if the
Participant had:
i. Separated from service on the date of death (or actual
date of separation from service, if earlier);
ii. Survived to the Earliest Retirement Age, and retired on
that date with an immediate Joint and Survivor Annuity;
and
iii. Died on the day after the Earliest Retirement Age.
d. Payment of the preretirement death benefit described in subsections
(b) and (c) shall commence as soon as administratively feasible (but not later
than one year) after the date of the Participant's death; provided that, if the
Beneficiary is the Surviving Spouse, the Surviving Spouse may elect to defer the
commencement of payments to the first day of any month before December 31 of the
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calendar year in which the Participant would have attained age 70 1/2. If the
payment of benefits commences as of a date other than the Participant's Earliest
Retirement Age, the benefits paid shall be the Actuarial Equivalent of the
benefits that would have been paid at the Participant's Earliest Retirement Age.
e. Notwithstanding the preceding provisions, if the present value of
the preretirement death benefit described in subsections (b) and (c) does not
exceed $3,500 ($5,000, for distributions that commence on or after January 1,
1998), the full vested amount shall be paid to the designated Beneficiary in a
single lump sum. The payment shall be made as soon as administratively feasible
following the date on which the Plan Administrator is provided with proof of the
Participant's death.
7.06 Deferred Vested Retirement Benefit.
a. The deferred vested retirement benefit of a Participant who becomes
eligible for benefits under Article VI shall be the Participant's Accrued
Benefit up to his termination of employment, multiplied by the applicable
vesting percentage set forth in Article V.
b. The benefit provided by subsection (a) shall be payable at the
Participant's Normal Retirement Date or, if the Participant so elects, at an
Early Retirement Date if the Participant meets the pertinent requirements set
forth in Article VI.
7.07 Reemployment After Benefit Commencement. A Participant in receipt
of benefit payments under the Plan who returns to active service with the
Employer as an Employee, or, in the case of an active Participant employed after
his Required Beginning Date, who continues in active service as an Employee,
shall have his allowance recalculated as of the end of each Plan Year as
follows:
a. First, the Participant's benefit as of the end of the Plan
Year will be calculated without regard to the fact that the Participant is
receiving benefits.
b. The Participant's benefit in effect as of the Participant's
original Annuity Starting Date will then be subtracted from the benefit
determined pursuant to (a) above to determine the extent of any additional
accrual.
c. Any additional accrual determined pursuant to (b) above
shall then be reduced (but not below zero) by the Actuarial Equivalent value of
Plan benefit payments received by the Participant through the end of the Plan
Year.
d. Any additional accrual determined pursuant to (c) above
shall be converted to the form of payment selected by the Participant as of the
Participant's original Annuity Starting Date, using the ages of the Participant
and the Participant's Beneficiary (if applicable) at the time of recalculation
and conversion.
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e. Payment of the recalculated benefit, including any
increase, shall be effective as of the first day of the ensuing Plan Year.
7.08 July 1, 1995 Cost-of-Living Increase. Effective as of July 1,
1995, the benefit otherwise determined pursuant to Section 7.01 for each
Participant (a) whose employment with the Employer terminated for any reason
prior to January 1, 1990, (b) who, at the time employment terminated, had
already fulfilled all requirements for a normal, early, or disability retirement
benefit, and (c) who is receiving (or upon filing appropriate election forms
would be eligible to receive) monthly benefit payments from the Plan as of July
1, 1995, shall be increased by five percent. The foregoing increase shall be
applied prior to any adjustment for the date distributions commence and/or for
optional forms of payment.
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ARTICLE VIII
BENEFICIARIES
-------------
8.01 Designation of a Beneficiary.
a. Each Participant may designate one or more Beneficiaries (and
contingent Beneficiaries) by delivering a written designation to the Plan
Administrator on a form provided by the Plan Administrator, in compliance with
the provisions of Section 8.02.
b. A Participant may also make a new designation at any time (in
accordance with Section 8.02). Such a designation is effective only upon receipt
by the Plan Administrator, at which time it supersedes all prior designations.
c. Upon the death of a Participant, his Beneficiaries shall be entitled
to the benefits described in Articles VII and IX.
d. A designation of a Beneficiary shall be effective only if the
designated Beneficiary survives the Participant.
e. Upon the legal dissolution of the marriage of a Participant, any
designation of the Participant's former Spouse as a Beneficiary shall remain
valid, unless otherwise provided in a Qualified Domestic Relations Order, or
unless the Participant delivers a new designation to the Plan Administrator or
is remarried.
8.02 Spouses's Rights. The Spouse of a married Participant shall be the
Participant's Beneficiary, whether or not designated as such, unless one of the
following requirements in subsections (a) through (d) below is satisfied.
a. Spouse's Consent to the Beneficiary: The Participant designates a
different Beneficiary and the Spouse waives the right to be the Beneficiary in a
consent which meets the requirements of subsection (e). In this regard:
i. The Participant must designate a specific Beneficiary that
cannot be changed without a new spousal consent, unless
the Spouse executes a general consent, as provided in sub-
section (e)(ii) below.
ii. Notwithstanding subsection (i) above, the Participant may
at any time revoke the designation of a non-spouse Bene-
ficiary and restore the Spouse as the Beneficiary, without
spousal consent.
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b. Separation: The Participant designates a different Beneficiary and
is legally separated from his Spouse or has been abandoned, within the meaning
of local law, and provides the Plan Administrator with a court order regarding
the applicable circumstance. (However, such a Spouse must be considered the
Spouse to the extent provided in a Qualified Domestic Relations Order.)
c. Missing Spouse: The Participant designates a different Beneficiary
and establishes to the satisfaction of the Plan Administrator that the Spouse
cannot be located. The Plan Administrator shall adopt procedures to implement
this provision, which shall be applied uniformly to all Participants.
d. Unmarried Participant: The Participant is unmarried. This "deemed"
waiver of spousal rights for an unmarried Participant is null and void if the
Participant later marries.
e. Consent Requirement: The Spouse's consent to waive survivor benefits
in favor of another Beneficiary is valid only if the following requirements are
satisfied:
i. The Spouse's consent must be in writing and signed, must
acknowledge the effect of the election, and must be
witnessed by a notary public.
ii. The Spouse's consent must either acknowledge the specific
non-spouse Beneficiary or must expressly permit the
Participant to alter the Beneficiary designation without
further spousal consent. For Plan Years beginning
after October 22, 1986, a consent that permits further
designations must also acknowledge (A) that the Spouse
has the right to limit consent to a specific Beneficiary
and (B) that the Spouse is voluntarily elinquishing this
right.
iii. The consent required by this subsection may be given by
the legal guardian of a legally incompetent Spouse.
This applies even if the Participant is the legal
guardian.
iv. A consent is only valid for the Spouse who gives the
consent (or for whom the consent is given by a legal
guardian).
A valid consent, once given, can be revoked; provided the revocation occurs
before the Annuity Starting Date.
8.03 Absence of a Designated Beneficiary. If no effective Beneficiary
designation exists at the Participant's death, the Participant shall be deemed
to have designated the following Beneficiaries in the following order of
priority: (a) the Spouse; (b) children, including adopted children and
step-children, in equal shares; (c) parents, in equal shares, and (d) the
Participant's estate. This order of priority shall apply to individuals living
at the time of the Participant's death.
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8.04 Beneficiaries' Rights. Whenever the rights of a Participant
are stated or limited in the Plan, his Beneficiaries shall also be bound by the
Plan provisions.
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ARTICLE IX
DISTRIBUTION REQUIREMENTS
9.01 Form of Distribution.
a. Normal Forms: The normal form of benefit for a Participant who is
married on his Annuity Starting Date is a 50 percent Joint and Survivor Annuity
with the Spouse as Beneficiary, which is the Actuarial Equivalent of the benefit
that would be payable to the Participant if the Participant was not married on
his Annuity Starting Date. The normal form of benefit for a Participant who is
not married on his Annuity Starting Date is a straight life annuity, payable in
monthly installments, for the life of the Participant; provided, however, that
if the Participant shall die before having received 60 monthly payments, such
monthly payments shall be continued to his Beneficiary until the total number of
monthly payments to such Participant and Beneficiary equals 60. If the
Participant and Beneficiary die before having received a total of 60 monthly
payments, the Actuarial Equivalent value of the balance of such monthly payments
shall be paid in a single sum to the estate of the survivor of the Participant
and Beneficiary.
b. Optional Forms of Payment: Unless the mandatory cash-out provisions
of Section 6.06(a) apply, a Participant may elect to receive his Plan benefit in
one of the optional forms of payment described below, provided the Participant
and form of payment satisfy the other requirements of this Article IX.
i. A reduced retirement benefit payable during the
Participant's lifetime, with the provision that after his
death the same benefit shall be paid during the life of
such contingent annuitant Beneficiary) as the Participant
shall have nominated by written designation duly acknow-
ledged and filed with the Plan Administrator prior to the
time payment is to commence.
ii. A reduced retirement benefit payable during the Partic-
ipant's lifetime, with the provision that after his death
the same benefit shall be paid during the life of such
contingent annuitant (Beneficiary) as the Participant
shall have nominated by written designation duly acknow-
ledged and filed with the Plan Administrator prior to the
time payment is to commence. If both the Participant and
the contingent annuitant die before 60 monthly payments
have been made since the benefit commencement date, the
Actuarial Equivalent value of the balance of such 60
monthly payments shall be paid in a single sum to the
estate of the survivor of the Participant and contingent
annuitant. Participants who elect to commence receipt of
benefit payments on or after January 1, 1995 may elect
this optional form of payment with 120 monthly payments
guaranteed.
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iii. A reduced retirement benefit payable during the
Participant's life with the provision that after such
period a benefit of one-half of the benefit payable dur-
ing the Participant's life shall be continued during the
life of such contingent annuitant (Beneficiary) as the
Participant shall have nominated by written designation
duly acknowledged and filed with the Plan Administrator
prior to the time payment is to commence. If both the
Participant and the contingent annuitant die before 60
monthly payments have been made since the benefit com-
mencement date, the Actuarial Equivalent value of the
balance of such 60 monthly payments shall be paid in a
single sum to the estate of the survivor of the Partici-
pant and contingent annuitant. Participants who elect to
commence receipt of benefit payments on or after January
1, 1995 may elect this optional form of payment with 120
monthly payments guaranteed.
iv. Effective for benefit payments that commence on or after
January 1, 1995, a reduced retirement benefit payable
during the Participant's life, with no benefit payable
after his death; provided, however, that if the Partici-
pant shall die before having received 120 monthly pay-
ments, such monthly payments shall continue to be paid to
his Beneficiary until the total number of payments to the
Participant and the Beneficiary equals 120. If the Parti-
cipant and Beneficiary both die before having received a
tota of 120 monthly payments, the Actuarial Equivalent
value of the balance of unpaid monthly payments shall
be paid in a single sum to the estate of the survivor of
the Participant and Beneficiary.
v. An increased retirement benefit payable during the
Participant's life, with no other benefit payable after
his death.
c. Election and Consent Requirements
A Participant may effectively waive his normal form of benefit and
elect any of the other forms provided in subsection (b) only as follows:
i. The election must be made in writing and delivered to the
Plan Administrator during the 90-day period ending on the
Annuity Starting Date. Fo Plan Years beginning after
December 31, 1986, the election must specify the optional
form of benefit elected.
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ii. The election must be made after the Plan Administrator
provides the Participant with the notice described in
subsection (d) below.
iii. Unless an exception stated in Section 8.02 applies, the
Spouse of a married Participant must consent to any
election, except a different-percentage Joint and
Survivor Annuity with the Spouse as the Beneficiary.
The Spouse's consent must satisfy the requirements in
Section 8.02(e), and, for Plan Years beginning after
December 31, 1986 must also agree to the specific
optional form of benefits that the Participant elects.
Notwithstanding the preceding provisions, the Participant
may at any time prior to the commencement of benefits
revoke an election and restore the 50 percent Joint and
Survivor Annuity for the Spouse. The number of revoca-
tions shall not be limited; provided, however, that the
form of payment in effect on the Annuity Starting Date
may not be changed after the Annuity Starting Date.
d. Notice: No less than 30 and no more than 90 days prior to the
Annuity Starting Date, the Plan Administrator shall furnish each Participant
with a written notice that explains:
i. The terms and conditions of the 50 percent Joint and
Survivor Annuity;
ii. The Participant's right to make, and the effect of, an
election to waive the 50 percent Joint and Survivor
Annuity;
iii. The rights of the Participant's Spouse;
iv. The right to revoke a previous election and the effect of
the revocation; and
v. The relative values of the other forms of payment des-
cribed in subsection (b).
The Annuity Starting Date for a distribution in a form other than a Joint and
Survivor Annuity may be less than 30 days after receipt of the written
explanation described above provided: (A) the Participant has been provided with
information that clearly indicates that the Participant has at least 30 days to
consider whether to waive the Joint and Survivor Annuity and elect (with spousal
consent) to a form of distribution other than a Joint and Survivor Annuity; (B)
the Participant is permitted to revoke any affirmative distribution election at
least until the Annuity Starting Date or, if later, at any time prior to the
expiration of the 7-day period that begins the day after the explanation of the
Joint and Survivor Annuity is provided to the Participant; and (C) the Annuity
Starting Date is a date after the date that the written explanation was provided
to the Participant.
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<PAGE>
e. Amount: The amount payable under any optional form of benefit shall
be the Actuarial Equivalent of the benefit payable as a straight life annuity.
f. Annuity Contracts: Benefits to be paid in the form of any type of
annuity may be provided through a nontransferable annuity contract issued by a
reputable insurance company and purchased by the Trustee, or by direct payment
from the Trust, as determined by the Plan Administrator. The terms of any
annuity contract purchased and distributed by the Trustee to a Participant or
Beneficiary shall comply with the required distribution rules under this
Article, and Code Section 401(a)(9) and implementing Regulations.
9.02 Compliance with Code Section 401(a)(9).
a. Incorporation by Reference: Distributions shall be made in
compliance with Code Section 401(a)(9) and implementing Regulations, including
the minimum distribution incidental benefit requirement of proposed Regulation
1.401(a)(9)-2. These Code and regulatory provisions are hereby incorporated by
reference, and shall take precedence over any inconsistent provisions of the
plan. (However, the Section 401(a)(9) rules will not extend the period for
making a distribution, if other provisions of the Plan require an earlier
distribution.) These rules are summarized in this Section and Sections 9.03
through 9.05 below.
b. Life Expectancies: In applying Code Section 401(a)(9) and
implementing Regulations:
i. Life expectancies of Participants and Beneficiaries
shall be calculated using the expected return multiplies
in Tables V and VI of Regulation 1.72-9.
ii. The life expectancies of a Participant and his Spouse
shall not be redetermined pursuant to Code Section 401(a)
(9)(D).
9.03 Required Distribution to Participant. As stated in Article VI, a
Participant generally may elect to defer the receipt of benefits following
Retirement. Notwithstanding this general rule, the entire interest of a
Participant must be distributed, or begin to be distributed, no later than the
Participant's Required Beginning Date, as defined below.
a. Age 70-1/2 before January 1, 1988: For a Participant who attains age
70-1/2 before January 1, 1988, the Required Beginning Date shall be determined
as follows:
i. For a Participant who is not a Five Percent Owner, the
Required Beginning Date is April 1 of the calendar year
following the calendar year in which the later of Retire-
ment or attainment of age 70-1/2 occurs.
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ii. For a Participant who is a Five Percent Owner during any
year beginning after December 31, 1979, the Required
Beginning Date is April 1 following the later of: (A) the
calenda yea r in which the Participant attains age
70-1/2, or (B) the earlier of the calendar year with or
within which ends the Plan Year in which the Participant
becomes a Five Percent Owner, or the calendar year in
which the Participant retires.
b. Age 70-1/2 on or after January 1, 1988 and before January 1, 1996:
For a Participant who attains age 70-1/2 on or after January 1, 1988 and before
January 1, 1996, the Required Beginning Date is April 1 of the calendar year
following the calendar year in which the Participant attains age 70-1/2, with
the following exception. For a Participant who attains age 70-1/2 during 1988
and has not retired as of January 1, 1989, the Required Beginning Date is April
1, 1990.
c. Age 70-1/2 after December 31, 1995: For a Participant who attains
age 70-1/2 after December 31, 1995, the Required Beginning Date shall be
determined as follows:
i. For a Participant who is a Five Percent Owner, the
Required Beginning Date is April 1 of the calendar year
following the calendar year during which the Participant
attains age 70-1/2.
ii. For a Participant who is not a Five Percent Owner, the
Required Beginning Date is April 1 following the calen-
dar year in which the later of Retirement or attainment
of age 70-1/2 occurs; provided, however, that any such
Participant who attains age 70-1/2 after December 31,
1995 may elect by April 1 following the calendar year
during which the Participant attains age 70-1/2 (or by
December 31, 1997 in the case of a Participant who
attains age 70-1/2 in 1996) to commence receipt of the
Participant's Plan benefit as of April 1 following the
calendar year during which the Participant attains age
70-1/2.
For purposes of this Section, a Participant shall be treated as a Five Percent
Owner if he is a Five Percent Owner at any time during the Plan Year ending with
or within the calendar year in which he attains age 66-1/2 or any subsequent
Plan Year. Once distributions have begun to a Five Percent Owner, they must
continue even if the Participant ceases to be a Five Percent Owner in a
subsequent year.
d. Except with respect to a Five Percent Owner, a Participant's accrued
benefit is actuarially increased to take into account the period after age
70-1/2 in which the employee does not receive any benefits under the Plan
because the Participant remains in active employment. The actuarial increase
begins on April 1 following the calendar year in which the Participant attains
age 70-1/2 (January 1, 1997 in the case of a Participant who attained age 70-1/2
prior to 1996), and ends on the date on which benefits
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commence after retirement in an amount sufficient to satisfy Code Section
401(a)(9). The benefit payable as of such benefit commencement date shall equal
the sum of (i) the Actuarial Equivalent of the Participant's benefit that would
have been payable as of the date actuarial increases must commence, plus (ii)
the Actuarial Equivalent of any additional benefits accrued after the date
actuarial increases must commence.
The sum described above shall be reduced by the Actuarial Equivalent of any
distributions made with respect to the Participant's benefit after the date
actuarial increases must commence; provided, however, that, in no event will the
Participant's benefit at benefit commencement be less than the Participant's
benefit determined as of the date actuarial increases must commence.
The actuarial increase described in this Section is generally the same as, and
not in addition to, the actuarial increase required for that same period under
Code Section 411 to reflect the delay in payments after normal retirement,
except that the actuarial increase required under Code Section 401(a)(9)(C) must
be provided even during the period during which a Participant is in ERISA
Section 203(a)(3)(B) service.
For purposes of Code Section 411(b)(1)(H), the actuarial increase will be
treated as an adjustment attributable to the delay in distribution of benefits
after the attainment of normal retirement age. Accordingly, to the extent
permitted under Code Section 411(b)(1)(H), the actuarial increase required under
Code Section 401(a)(9)(C)(iii) may reduce the benefit accrual otherwise required
under Code Section 411(b)(1)(H)(i), except that the rules on the suspension of
benefits are not applicable.
9.04 Limits on Distribution Periods.
a. As of the first "distribution calendar year," distributions, if not
made in a single sum, may be made only over one of the following periods (or a
combination thereof):
i. The life of the Participant;
ii. The life of the Participant and a Beneficiary;
iii. A period certain not extending beyond the life expectancy
of the Participant; or
iv. A period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
Beneficiary.
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b. For distributions beginning before the Participant's death, the
first "distribution calendar year" is the calendar year immediately preceding
the calendar year which contains the Participant's Required Beginning Date.
c. For distributions beginning after the Participant's death, the first
"distribution calendar year" is the calendar year in which distributions are
required to begin pursuant to Section 9.05(b).
9.05 Required Distribution to Beneficiary. As provided in Article VII,
the designated Beneficiary generally may elect to defer the receipt of benefits
payable following the death of a Participant. However, this right is subject to
the following restrictions:
a. Distribution Beginning before Death: If the Participant dies after
he begins to receive benefits, any benefits that remain undistributed at his
death shall be distributed at least as rapidly as the method of distribution
being used at the time of his death.
b. Distribution Beginning after Death: If the Participant dies before
he begins to receive benefits, payment of the survivor benefit shall commence no
later than one year after the date of the Participant's death. As an exception
to this rule, if the designated Beneficiary is the Surviving Spouse, the later
of the calendar year in which the Participant dies, or the Surviving Spouse may
elect to have payments commence on or before December 31 of the later of the
calendar year in which the Participant died, or the calendar year in which the
Participant would have attained age 70-1/2.
9.06 Location of Participant or Beneficiary Unknown.
a. When a distribution is payable to a Participant or Beneficiary, the
Plan Administrator shall make all reasonable efforts to locate that person.
These efforts shall include (i) sending a registered letter, return receipt
requested, to the person's last known mailing address, and (ii) sending a
written request to any person shown in the Employer's records as a relative or
other person to contact, asking for information regarding the whereabouts of the
Participant or Beneficiary.
b. If the Plan Administrator is unable to locate the person within six
months from the date a certified letter was mailed to him, the Plan
Administrator shall direct the Trustee to maintain the Participant as an
inactive Participant. The Plan Administrator shall continue to maintain the
Participant in inactive status until (i) the person entitled to the benefit
makes an application for it, or (ii) the benefit reverts by escheat to the
State, whichever occurs first.
9.07 Facility of Payment. If the Plan Administrator finds that any
person to whom a benefit is payable from the Fund is unable to care for his
affairs because of illness or accident, any payment due may be paid to the
Spouse, a child, a parent, or a brother or sister, or to any person deemed by
the Plan Administrator to have incurred expense for the person, unless a prior
claim for the benefit has been made by a duly appointed guardian, committee or
other legal representative. Any such payments will be a complete discharge of
any liability under the Plan.
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9.08 Eligible Rollover Distributions.
a. Application of Section. This Section applies to distributions made
on or after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this Section,
a distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
b. Definitions.
i. Eligible Rollover Distribution: An eligible rollover
distribution is any distribution of all or any portion
of the balance to the credit of the distributee, except
that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annual-
ly) made for the life (or life expectancy) of the distri-
butee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated Bene-
ficiary, or for a specified period of ten years or more;
any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and the
portion of any distribution that is not includable in
gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer
securities).
ii Eligible Retirement Plan: An eligible retirement plan is
an individual retirement account described in Section
408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity
plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code,
that accepts the distributee's eligible rollover distri-
bution. However, in the case of an eligible rollover
distribution to the Surviving Spouse, an eligible retire-
ment plan is an individual retirement account or indiv-
idual retirement annuity.
iii. Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former
Employee's Surviving Spouse and the Employee's or former
Employee's Spouse or former Spouse who is the Alternate
Payee under a Qualified Domestic Relations Order, as
defined in Section 414(p) of the Code, are distributees
with regard to the interest of the Spouse or former
Spouse.
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iv. Direct Rollover: A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the
distributee.
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ARTICLE X
FINANCING
---------
10.01 Fund. The funding of the Plan and payment of benefits shall be
provided for through the medium of the Fund held by the Trustee under the
provisions of the Trust Agreement, which is deemed to form a part of the Plan.
All rights or benefits which may accrue to any person under the Plan shall be
subject to the Trust Agreement. The names of the current Trustees are available
from the Secretary of the Employer. The contributions of the Employer, together
with any income, gains, or profits, less distributions and losses, shall
constitute the Fund. The Employer shall determine the form and terms of any such
Trust Agreement, and may modify the Trust Agreement from time to time to
accomplish the purposes of the Plan, and may remove any Trustee.
10.02 Contributions to the Plan. The Employer intends to make, from
time to time, such contributions to the Fund as determined by the Plan
Administrator. Expenses of the Plan, unless paid by the Employer, shall be paid
out of the assets of the Fund. There are no Employee contributions to the Plan.
10.03 Funding Policy. The Plan Administrator shall establish a written
funding policy and method consistent with the objectives of the Plan and the
requirements of Title I of ERISA. The Plan Administrator shall review such
funding policy and method at least annually. In its actions, the Plan
Administrator shall endeavor to determine the Plan's short-term and long-term
objectives and financial needs, taking into account the need for liquidity to
pay benefits and the need for investment growth. All actions under this Section,
including the supporting reasons, shall be recorded in writing by the Plan
Administrator and communicated to the Trustee and Board of Directors.
10.04 Return of Employer Contributions. Contributions shall be returned
to the Employer by the Trustee, if the Plan Administrator certifies in writing
to the Trustee that one or more of the following circumstances exists:
a. If the Employer made a contribution by mistake of fact, the
contribution shall be returned to the Employer within one year after its payment
to the Trustee.
b. If the Employer made the contribution conditioned on the
qualification of the Plan under the Code, and if the Plan receives an adverse
determination with respect to its initial qualification, the contribution shall
be returned to the Employer within one year after such final determination as
described in Section 16.05(a), but only if the application for the determination
is made by the time prescribed by law for filing the Employer's tax return for
the taxable year in which the Plan was adopted, or such later date as the
Secretary of the Treasury may prescribe.
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c. To the extent that a deduction for a contribution under Section 404
of the Code is disallowed, the contribution shall be returned to the Employer
within one year after the disallowance (or within one year after the date a
court decision upholding the disallowance becomes final).
With respect to the return of contributions occasioned by the circumstances
listed in subsections (a) and/or (c) above, the amount which shall be returned
to the Employer is the excess of the amount contributed over the amount that
would have been contributed had there not occurred a mistake of fact or a
mistake in determining the deduction. Earnings attributable to the excess
contribution shall not be returned to the Employer, but losses attributable to
the contribution must reduce the amount to be returned.
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ARTICLE XI
ADMINISTRATION
--------------
11.01 Plan Administrator.
a. The Plan Administrator shall be the named fiduciary for the Plan and
shall be responsible for the management, operation and administration of the
Plan.
b. The Board of Directors shall have the authority to appoint an
individual or other entity, or a committee consisting of three members to be the
Plan Administrator, and to fill any vacancies which occur, in its sole
discretion. Any appointee is subject to removal by the Board of Directors at any
time, and may resign at his own volition upon 10 days prior written notice to
the Board of Directors. If at any time there is no appointed Plan Administrator
because vacancies have not been filled, the Board of Directors shall be deemed
the Plan Administrator. Names of all current appointees shall be available from
the Secretary of the Employer.
c. If the Plan Administrator is a committee, any act that this Plan
authorizes or requires the Plan Administrator to do may be done at a meeting of
the committee by a majority of the members then voting.
d. The Board of Directors will appoint a chairman and a secretary and
such other agents and representatives of the pension committee as it may deem
advisable (see Section 11.05). In its relationship with the Trustee and any
insurance company or companies on any matter or thing included in this Plan, one
member of the committee may be authorized by it to sign or execute any document
on its behalf. The Chairman of the Board of Directors will certify to the
Trustee and to such insurance company or companies the name and signature of the
member of the committee who is so authorized.
e. The Plan Administrator will serve without compensation for services
as such, but all the Plan Administrator's expenses shall be paid by the Employer
(see Section 11.11).
f. The Board of Directors, in its sole discretion, may also designate
the Trustee as the Plan Administrator. Any such designation shall be valid only
if the Trustee acknowledges responsibility for the management, operation and
administration of the Plan in writing. Thereafter, all references in the Plan
and Trust to the Plan Administrator shall mean the Trustee unless and until the
Board of Directors appoints a different Plan Administrator in accordance with
this Section.
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11.02 Fiduciary and Administrative Duties
a. The Plan Administrator shall have the following powers, duties, and
responsibilities, which it may retain or delegate among the below-mentioned
bodies:
i. Powers, duties, and responsibilities of administration which shall
be delegable to an administrator;
ii. Powers, duties, and responsibilities of custody and disbursement of
the assets of the Fund, which shall be delegable to the Trustee,
the administrator, or an insurance company, and
iii. Powers, duties, and responsibilities of investment which shall be
delegable to the Trustee, an investment advisor, or an insurance
company.
The Plan Administrator may appoint an administrator, an investment advisor, or
an insurance company, and review or redelegate the exercise of these powers,
duties and responsibilities at any time.
b. As provided in Section 10.03, the Plan Administrator will prescribe
a funding policy for the Plan.
11.03 General Powers and Discretion of Plan Administrator.
a. The Plan Administrator shall have all powers necessary to administer
the Plan in accordance with its terms, including the power to construe the Plan
and determine all questions that arise under it.
b. Notwithstanding any other provision in the Plan, and to the full
extent permitted by law, the Plan Administrator shall have exclusive authority
and discretion to interpret, construe and apply all of the terms of the Plan,
including any uncertain or disputed term or provision in the Plan. The Plan
Administrator's authority and discretion shall include, but not limited to, the
following:
i. Determining and deciding all questions of law and/or fact
that arise under the Plan;
ii. Determining whether any individual is eligible for any
benefits under this Plan; and
iii. Determining the amount of benefits, if any, an individual
is entitled to under this Plan.
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c. The Plan Administrator's exercise of discretionary authority to
interpret, construe and apply the terms of the Plan, and all its determinations,
interpretations and applications shall:
i. Be binding upon any individual claiming benefits under
this Plan, including, but not limited to, the Partici-
pant, the Participant's estate, any Beneficiary of the
Participant, and any Alternate Payees;
ii. Be given deference in all courts of law, to the greatest
extent allowed by applicable law; and
iii. Not be overturned or set aside by any court of law unless
found to be arbitrary and capricious, or made in bad
faith.
d. If the discretionary authority in subsection (c) is exercised with
respect to an individual who is a member of the pension committee, the authority
shall be exercised solely and exclusively by the other members. If the
individual is the only Plan Administrator at the time, the discretionary
authority shall be exercised by the Board of Directors, not including the
affected individual if he is also a member of the Board of Directors.
e. Any discretionary actions of the Plan Administrator or Board of
Directors shall be taken in a manner that does not discriminate in favor of
Highly Compensated Employees.
11.04 Administration of the Fund.
a. The Trustee shall be responsible for the management and investment
of the Fund in accordance with the provisions of the Trust agreement.
b. Directives of the Plan Administrator to the Trustee shall be
delivered in writing, and properly signed.
11.05 Delegation of Powers.
a. When the Plan Administrator appoints assistants or representatives,
it may delegate to them any powers and duties, both ministerial and
discretionary, as it deems expedient or appropriate (except as provided in
Section 11.06).
b. Any appointment under this Section or Section 11.06 shall be made
pursuant to a signed, written instrument.
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11.06 Appointment of Professional Assistants and Investment Managers.
a. The Plan Administrator may engage accountants, attorneys, physicians
and such other professional personnel as it deems necessary or advisable. The
Plan Administrator may also appoint one or more investment managers to manage
all or any of the assets of the Trust, including the power to acquire or dispose
of assets. However, the appointment of an investment manager must be approved by
the Board of Directors, and the investment manager must acknowledge in writing
that it is a fiduciary with respect to the Plan. An investment manager can only
be a party that is either (i) registered as an investment adviser under the
Investment Advisers Act of 1940, (ii) a bank, as defined in that Act, or (iii)
an insurance company qualified to manage, acquire and dispose of Plan assets
under the laws of more than one State.
b. The functions of persons engaged under this Section shall be limited
to the specific services and duties for which they are engaged. Such persons
shall have no other duties, obligations or responsibilities under the Plan or
Trust, and shall exercise no discretion regarding the management of the Plan.
Unless engaged specifically as an investment manager, such a person shall
exercise no authority or control respecting management or disposition of the
assets of the Trust.
c. The fees and costs of services under this Section are an
administrative expense of the Plan to be paid out of the Fund, except to the
extent paid by the Employer.
11.07 Records. All acts and determinations with respect to the Plan
shall be duly recorded. All such records and other documents that may be
necessary for the administration of the Plan shall be preserved in the custody
of the Plan Administrator (or its appointed assistants or representatives).
11.08 Notice of Rollover Treatment. When making a qualifying rollover
distribution within the meaning of Code Section 402(a), the Plan Administrator
shall provide to the recipient a written explanation of:
i. The circumstances under which such distribution will not
be subject to tax if transferred to an eligible retire-
ment plan (as defined in Code Section 402(a)) within 60
days after the date on which the recipient receives the
distribution; and
ii. If applicable, the income averaging provisions of Code
Section 402(e).
11.09 Responsibility of Fiduciaries. The Plan Administrator and any
assistant or representative, other than any Investment Manager, shall be free
from all liability for acts and conduct in the administration of the Plan and
Trust, except for acts of willful misconduct.
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However, the preceding sentence shall not relieve any fiduciary from any respon-
sibility, obligation or duty that the fiduciary may have pursuant to ERISA.
11.10 Indemnity by Employer. To the extent not insured against by an
applicable insurance policy, and to the extent permitted by law, the Employer
shall indemnify and hold harmless the Plan Administrator and its assistants and
representatives from any and all claims, demands, suits or proceedings in
connection with the Plan or Trust that may be brought against them, provided the
individual or entity being indemnified is/was an employee, or committee of
employees, of the Employer.
11.11 Payment of Fees and Expenses. To the extent consistent with
ERISA, the Plan Administrator and assistants and representatives, shall be
entitled to payment from the Fund for all reasonable costs, charges and expenses
incurred in the administration of the Plan and Trust. This includes, but is not
limited to, reasonable fees for accounting, legal and other services, to the
extent incurred in the performance of duties under the Plan and Trust, except to
the extent that the fees and costs are paid by the Employer. Notwithstanding any
other provision of the Plan or Trust, no person who is a "disqualified person,"
within the meaning of Code Section 4975(e)(2) and who receives full-time pay
from the Employer shall receive compensation from the Trust Fund, except for
reimbursement of expenses properly and actually incurred.
11.12 ERISA Reporting and Disclosure. The Plan Administrator shall be
responsible for the performance of all reporting and disclosure obligations
under ERISA.
11.13 Service of Legal Process. The Plan Administrator shall be the
designated agent of the Plan for service of legal process.
11.14 Claim for Benefits. Any claim for benefits by a Participant or
Beneficiary shall be made in writing to the Plan Administrator.
11.15 Denial of Claim.
a. If the Plan Administrator denies a claim in whole or in part, it
shall send the Participant or Beneficiary ("claimant") a written notice of the
denial.
b. The Plan Administrator shall send the denial notice within 90 days
after the date it receives a claim, unless it needs additional time to make its
decision. In that case, the Plan Administrator may authorize an extension of up
to an additional 90 days, if it notifies the claimant of the extension within
the initial 90-day period. The extension notice shall state the reasons for the
extension and the expected decision date.
c. The denial notice shall be written in a manner calculated to be
understood by the claimant and shall contain:
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i. The specific reason or reasons for the denial of the
claim;
ii. Specific reference to pertinent Plan provisions on which
the denial is based;
iii. A description of any additional material or information
necessary to perfect the claim, with an explanation of
why the material or information is necessary; and
iv. An explanation of the review procedures provided by
sections 11.16 and 11.17.
11.16 Request for Review of Denial.
a. Within 60 days after the claimant receives a denial notice, he may
file a request for review with the Plan Administrator. Any such request must be
made in writing.
b. A claimant who timely requests review shall have the right to review
pertinent documents, to submit additional information and written comments, and
to be represented.
11.17 Review Decision.
a. The Plan Administrator shall send the claimant a written decision on
any request for review that it receives.
b. The Plan Administrator shall send the review decision within 60 days
after the date it receives a request for review, unless an extension of time is
needed, due to special circumstances. In that case, the Plan Administrator may
authorize an extension of up to an additional 60 days, provided it notifies the
claimant of the extension within the initial 60-day period.
c. The review decision shall be written in a manner calculated to be
understood by the claimant and shall contain:
i. The specific reason or reasons for the decision; and
ii. Specific reference to the pertinent Plan provisions on
which the decision is based.
d. If the Plan Administrator does not send the claimant a review
decision within the applicable time period, the claim shall be deemed denied on
review.
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e. The review decision (including a deemed decision) shall be the final
decision of the Plan.
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ARTICLE XII
LIMITATIONS ON BENEFITS
-----------------------
12.01 General Rules.
a. Incorporation of Code Section 415: In addition to the specific
provisions of this Article, the terms of Code Section 415 and implementing
Regulations are hereby incorporated by reference and shall govern the
determination of the Maximum Retirement Benefits of all Participants.
b. Aggregation of Employers and Plans: As further set forth in this
Article and Code Section 415, the Maximum Retirement Benefit is an aggregate
limitation that applies to this Plan and any other plans, described below, that
are maintained by the Employer or an Affiliated Employer. Therefore, for
purposes of this Article, all qualified defined benefit plans, whether
terminated or not, ever maintained by the Employer shall be treated as one
defined benefit plan, and all qualified defined contribution plans, whether
terminated or not, ever maintained by the Employer shall be treated as one
defined contribution plan. Any required employee contributions to a defined
benefit plan shall be treated as annual additions to a defined contribution
plan. However, the annual additions for Limitation Years beginning before
January 1, 1987 shall not be recomputed to treat all employee contributions as
annual additions.
12.02 Code Section 415 Limitations. For Limitation Years beginning
after December 31, 1986, the Annual Benefit payable to a Participant shall not
exceed the Maximum Retirement Benefit for any Limitation Year. If the benefit a
Participant would otherwise accrue would produce an Annual Benefit in excess of
the Maximum Retirement Benefit, the rate of accrual will be reduced so that the
Annual Benefit will equal the Maximum Retirement Benefit.
a. Annual Benefit means a retirement benefit under the Plan that is
payable annually in the form of a straight life annuity.
i. The Annual Benefit does not include any benefits
attributable to employee contributions.
ii. A benefit payable in a form other than a straight life
annuity must be adjusted to an Actuarially Equivalent
straight life annuity before applying the limitations of
this Article. For Limitation Years beginning before
January 1, 1995, such Actuarially Equivalent straight
life annuity is equal to the greater of the annuity bene-
fit computed using the interest rate specified in the
Plan for adjusting benefits in the same form or 5 per-
cent. For Limitation Years beginning after December 31,
1994, the Actuarially Equivalent straight life annuity
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is equal to the greater of the annuity benefit computed
using the interest rate and mortality table (or other
tabular factor) specified in the Plan for adjusting bene-
fits in the same form, and the annuity benefit computed
using a 5 percent interest rate assumption and the Appli-
cable Mortality Table (defined in Section 2.03(c) of
the Plan). In determining the Actuarially Equivalent
straight life annuity for a benefit form other than a
nondecreasing annuity payable for a period of not less
than the life of the Participant (or, in the case of a
Pre-Retirement Survivor Annuity, the life of the surviv-
ing spouse), the Applicable Interest Rate (defined in
Section 2.09 of the Plan) will be substituted for "a 5
percent interest rate assumption" in the preceding
sentence.
b. Maximum Retirement Benefit means the lesser of:
i. The Defined Benefit Dollar Limitation; or
ii. The Participant's highest average compensation. For
purposes of the preceding sentence, "highest average
compensation" means the average Limitation Year Compen-
sation for the three consecutive Limitation Years that
produces the highest average for the Participant. The
actual number of Limitation Year shall be used for
Participants who have been employed for less than three
consecutive Limitation Years. In the case of a Partici-
pant who has separated from service, the Participant's
highest average compensation will be automatically
adjusted by multiplying such compensation by the cost of
living adjustment factor prescribed by the Secretary of
the Treasury under Code Section 415(d) in such manner
as the Secretary shall prescribe. The adjusted compensa-
tion amount will apply to Limitation Years ending
within the calendar year of the date of the adjustment.
c. Actuarial Increase of Defined Benefit Dollar Limitation: In the case
of a benefit that begins after the Participant attains his Social Security
Retirement Age, the Defined Benefit Dollar Limitation, as reduced under
subsection (e) if necessary, shall be actuarially increased, using (in
Limitation Years beginning before January 1, 1995) an interest rate that is the
lesser of five percent or the interest rate specified in the first paragraph of
Section 2.03. For Limitation Years beginning after December 31, 1994, the
equivalent annual benefit beginning after Social Security Retirement age shall
be determined as the lesser of the equivalent annual benefit computed using the
interest rate and mortality table (or other tabular factor) specified in the
Plan for purposes of determining actuarial equivalence for delayed retirement
benefits, and the equivalent annual benefit computed using a 5 percent interest
rate assumption and the Applicable Mortality Table as defined in Section 2.03(c)
of the Plan.
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d. Actuarial Decrease of Defined Benefit Dollar Limitation:
i. If the Annual Benefit of the Participant commences before
the Participant's Social Security Retirement Age, but
on or after age 62, the Defined Benefit Dollar Limitation
as reduced under subsection (e) if necessary, shall be
determined as follows:
A. If a Participant's Social Security Retirement
Age is 65, the dollar limitation for benefits
commencing on or after age 62 is determined by re-
ducing the Defined Benefit Dollar Limitation by
5/9 of one percent for each month by which benefits
commence before the month in which the Participant
attains age 65.
B. If a Participant's Social Security Retirement Age
is greater than 65, the dollar limitation for bene-
fits commencing on or after age 62 is determined by
reducing the Defined Benefit Dollar Limitation by
5/9 of one percent for each of the first 36 months
and 5/12 of one percent for each of the additional
months (up to 24 months) by which benefits
commence before the month of the Participant's
Social Security Retirement Age.
ii. If the Annual Benefit of a Participant commences prior to
age 62, the Defined Benefit Dollar Limitation shall be
the actuarial equivalent of the Defined Benefit Dollar
Limitation for age 62, as determined above, reduced for
each month by which benefits commence before the month in
which the Participant attains age 62. To determine act-
arial equivalence in Limitation Years that begin before
January 1, 1995, the interest rate assumption shall be
the greater of the rate specified in the first paragraph
of Section 2.03 or five percent. For Limitation Years
that begin after December 31, 1994, the annual benefit
beginning prior to age 62 shall be determined as the
lesser of the equivalent annual benefit computed using
the interest rate and mortality table (or other tabular
factor) equivalence for early retirement benefits, and
the equivalent annual benefit computed using a five per-
cent interest rate and the Applicable Mortality Table
as defined in Section 2.03(c) of the Plan. Any decrease
in the adjusted Defined Benefit Dollar Limitation deter-
mined in accordance with this subsection (ii) shall not
reflect any mortality decrement to the extent that bene-
fits will not be forfeited upon the death of the
Participant.
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e. Reduction of Maximum Retirement Benefit:
i. If a Participant has less than ten Years of Participation,
the Defined Benefit Dollar Limitation shall be multiplied
by a fraction, the numerator of which is the number of
Years of Participation (or part thereof), and the
denominator of which is ten. To the extent provided in
Regulations or othe guidance issued by the Internal
Revenue Service, he preceding sentence shall be applied
separately with respect to each change in the benefit
structure of the Plan.
ii. If the Participant has less than ten Years of Service, the
compensation limitation in subsection (b)(ii) shall be
multiplied by a fraction, the numerator of which is the
Participant's number of Years of Service (or part there-
of), and the denominator of which is ten.
iii. The adjustments of this subsection (e) shall be applied
in the denominator of the Defined Benefit Fraction based
upon Years of Service. For purposes of computing the De-
fined Benefit Fraction only, Years of Service shall
include future Years of Service (or part thereof) commen-
cing before the Participant's Normal Retirement Age.
Such future years shall include the year that contains
the date the Participant reaches Normal Retirement Age,
only if it can reasonably be anticipated that the
Participant will receive a Year of Service for such
year, or the year in which the Participant terminates
employment, if earlier.
12.03 Deemed Satisfaction of Maximum Retirement Benefit Limitation.
i. The Maximum Retirement Benefit limitation shall be deemed
satisfied if the aggregate Annual Benefits payable to a
Participant under this Plan and all other defined Benefit
plans of the Employer do not exceed $10,000.
ii. This deeming provision shall apply to a Participant if he
has not at any time participated in a defined contribu-
tion plan maintained by the Employer (or in a welfare
benefit pla n under Code Section 419(e) or an individual
medical account under Code Section 415(l)(2)). For pur-
poses of this subsection, a defined benefit plan that
provides for employee contributions, which are treated
as annual additions, does not constitute the maintenance
of a separate defined contribution plan maintained by the
Employer.
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12.04 Maximum Retirement Benefit for Multiple Plans.
a. Multiple Defined Benefit Plans: If a Participant has ever been
covered under more than one defined benefit plan maintained by the Employer, the
sum of the Participant's Annual Benefits from all such plans shall not exceed
the Maximum Retirement Benefit. The Employer shall reduce and, if necessary,
freeze the accrual of benefits under this Plan to the extent necessary to meet
this limitation.
b. Defined Benefit Plan and Defined Contribution Plan: For Limitation
Years beginning before January 1, 2000, if a Participant is or has been covered
by a defined contribution plan maintained by the Employer (including a welfare
benefit fund, as defined in Code Section 419(e) or an individual medical account
as defined in Code Section 415(l)(2)), the sum of the Participant's Defined
Benefit Fraction and Defined Contribution Fraction, as defined below, shall not
exceed 1.0 in any Limitation Year.
i. Defined Benefit Fraction: The numerator of the Defined
Benefit Fraction is the sum of the Participant's "pro-
jected annual benefits" under all defined benefit plans
of the Employer (whether or not terminated). The denom-
inator is the lesser of 1.25 times the dollar limitation
determined for the Limitation Year under Sections 415(b)
and (d) of the Code and in accordance with Section
12.02(e) above, or 1.4 times the Participant's "highest
average compensation," including any adjustments under
Section 415(b) of the Code. In determining the Defined
Benefit Fraction:
A. "Projected annual benefit" means the annual retire-
ment benefit (adjusted to an actuarially equivalent
straight life annuity, if such benefit is expressed
in a form other than a straight life annuity, or
qualified joint and survivor annuity) to which the
Participant would be entitled under the terms of
the Plan, assuming that: (1) The Participant will
continue employment until Normal Retirement Age
under the Plan (or current age, if later), and (2)
The Participant's Compensation for the current
Limitation Year and all other relevant factors
used to determine benefits under the Plan will
remain constant for all future Limitation Years.
B. "Highest average compensation" is defined in
Section 12.02(b)(ii).
C. Notwithstanding the preceding provisions, if a
Participant was a Participant as of the first day
of the first Limitation Year beginning after
December 31, 1986 in a defined benefit plan main-
tained by the Employer which was in existence on
May 6, 1986, the denominator of the fraction will
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not be less than 125 percent of the sum of the
annual benefits under such plan, which the Partici-
pant had accrued as of the close of the last Limi-
tation Year beginning before January 1, 1987, dis-
regarding any changes in the terms and conditions
of the Plan after May 5, 1986. The preceding sen-
tence applies only if any such defined benefit
plans, individually and in the aggregate, satis-
fied the requirements of Code Section 415 for all
Limitation Years beginning before January 1, 1987.
ii. Defined Contribution Fraction: The numerator of the
Defined Contribution Fraction is the sum of the
annual additions to the Participant's accounts under
all defined contribution plans (whether o not termi-
nated) maintained by the Employer for the current and all
prior Limitation Years. The denominator is the sum of
the "maximum aggregate amounts" for the current and all
prior Limitation Years of Service with the Employer
regardless of whether a defined contribution plan was
maintained by the Employer. In determining the Defined
Contribution Fraction:
A. "Maximum aggregate amount" means the lesser of (1)
125 percent of the defined contribution dollar
limitation, determined in accordance with Code
Sections 415(c) and (d), or (2) 35 percent of the
Participant's Limitation Year Compensation for such
year.
B. If the Participant was a Participant as of the first
day of the first Limitation Year beginning after
December 31, 1986, in one or more defined contri-
bution plans of the Employer, which were in exis-
tence on May 6, 1986, the numerator of the fraction
will be adjusted if the sum of this fraction and
the Defined Benefit Fraction would otherwise exceed
1.0 under the terms of this Plan. Under the adjust-
ment, an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0 times
(2) the denominator of this fraction will be
permanently subtracted from the numerator of the
fraction. The adjustment is calculated using the
fractions as they would be computed as of the
end of the last Limitation Year beginning before
January 1, 1987, and disregarding any changes in
the terms and conditions of the plan made after
May 5, 1986, but using the code Section 415 limita-
tion applicable to the first Limitation Year begin-
ning on or after January 1, 1987.
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iii. Adjustment: If the sum of the Defined Benefit Fraction
and the Defined Contribution Fraction exceeds 1.0 in
any Limitation Year for a Participant, the Plan
Administrator shall adjust the numerator of the Defined
Benefit Fraction, so that the sum of the fractions for
the Participant does not exceed 1.0 in any Limitation
Year.
iv. Super Top-Heavy Rules: In applying the above rules, if
the Plan i s a Super Top-Heavy Plan, the denominators
of both the Defined Benefit Fraction and the Defined Con-
tribution Fraction shall be adjusted as provided in
Article XV.
12.05 Exceptions to the Maximum Retirement Benefit Limitation.
a. The Maximum Retirement Benefit of a Participant, who was a
Participant in one or more defined benefit plans of the Employer on July 1,
1982, shall not be less than the Participant's Accrued Benefit as of the end of
the last Plan Year beginning prior to January 1, 1983.
b. The Maximum Retirement Benefit for a Participant, who was a
Participant in one or more defined benefit plans of the Employer as of the first
day of the first Limitation Year beginning after December 31, 1986, shall not be
less than the Participant's "Current Accrued Benefit," as defined in subsection
(c) below. The preceding sentence applies only if such defined benefit plans met
the requirements of Section 415 of the Code, for all Limitation Years beginning
before January 1, 1987.
c. "Current Accrued Benefit" means a Participant's Accrued Benefit,
determined as if the Participant had separated from service as of the close of
the last Limitation Year beginning before January 1, 1987, when expressed as an
Annual Benefit. In determining the amount of a Participant's Current Accrued
Benefit, changes in the Plan and cost-of-living adjustments that occur after May
5, 1986 shall be disregarded.
d. In the case of a Participant who was a Participant in one or more
defined benefit plans of the Employer as of January 1, 1995, the application of
the limitations of this Article shall not cause the Maximum Retirement Benefit
for the Participant under all such defined benefit plans to be less than the
individual's accrued benefit under the terms of the plan as of September 1,
1997, taking into account the limitations of Code Section 415, as in effect on
December 7, 1994, but disregarding any Plan amendments increasing benefits after
September 1, 1997 and any cost of living adjustments that become effective after
September 1, 1997. For purposes of this Section, a Participant's accrued benefit
as of September 1, 1997 is not increased after that date, but if the limitations
of Code Section 415, as in effect on December 7, 1994, are less than the
limitations that were applied to determine the Participant's accrued benefit as
of September 1, 1997, then the Participant's accrued benefit as of that date
will be reduced in accordance with such reduced limitation. If, at any date
after September 1, 1997, the Participant's total Plan benefit, before
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the application of Code Section 415, is less than the Participant's accrued
benefit as of September 1, 1997, the benefit as of that date will be reduced to
the Participant's total Plan benefit. Determinations under Code Section
415(b)(2)(E) that are made before January 1, 1995 shall be made with respect to
a Participant's benefit as of September 1, 1997 on the basis of Code Section
415(b)(2)(E) as in effect on December 7, 1994, and the provisions of the Plan as
in effect on that date, but only to the extent such provisions of the Plan meet
the requirements of Code Section 415(b)(2)(E) as so in effect.
12.06 Increases in the Maximum Retirement Benefit. Notwithstanding the
foregoing of this Article XII, and to the extent permitted by Code Section 415,
the Maximum Retirement Benefit shall be increased each Plan Year beginning July
1, 1995 to reflect cost-of-living adjustments in the limits imposed by Code
Section 415. In no event, however, shall the benefit payable to or on behalf of
a Participant exceed the benefit which is otherwise payable under the Plan.
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ARTICLE XIII
QUALIFIED DOMESTIC RELATIONS ORDERS
-----------------------------------
13.01 General. Notwithstanding the restriction against alienation and
assignment stated in Article XVI, the Plan Administrator shall comply with the
terms of any Qualified Domestic Relations Order.
13.02 Required Provisions. A Domestic Relations Order is a Qualified
Domestic Relations Order only if it clearly specifies:
a. The name and the last known mailing address (if any) of the Partici-
pant an the name and mailing address of each Alternate Payee covered by the
order;
b. The amount or percentage of the Participant's benefits that the Plan
shall pay to each Alternate Payee, or the manner in which the amount or
percentage is to be determined;
c. The number of payments or period to which the order applies; and
d. Each plan to which the order applies.
Notwithstanding the preceding provisions, a Domestic Relations Order that does
not provide the specified address information can be a Qualified Domestic
Relations Order, if the Plan Administrator has the necessary information from
other sources.
13.03 Prohibited Provisions. A Domestic Relations Order is a Qualified
Domestic Relations Order only if it:
a. Does not require the Plan to provide any type or form of benefit, or
any option, not otherwise provided under the Plan, except as stated in Section
13.04 below;
b. Does not require the Plan to provide increased benefits determined
on the basis of actuarial value; and
c. Does not require the payment of benefits to an Alternate Payee that
are required to be paid to another Alternate Payee under an order previously
determined to be a Qualified Domestic Relations Order.
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13.04 Exception for Certain Payments Made after Earliest Retirement Ag
a. A Domestic Relations Order shall not be treated as failing to meet
the requirements of Section 13.03(a), solely because the order requires payment
to an Alternate Payee:
i. In the case of any payment before a Participant has
separated from service, on or after the date on which the
Participant attains (or would have attained) the
"earliest retirement age" as defined in subsection (b)
below;
ii. As if the Participant had retired on the date on which
payment is to begin under the order; and
iii. In any form in which benefits may be paid under the Plan
to the Participant.
b. For purposes of this Section, the term "earliest retirement age"
means the earlier of:
i. The date on which the Participant is entitled to a dis-
tribution under the Plan; or
ii. The later of:
A. The date the Participant attains age 50; or
B. The earliest date on which he Participant could
receive Plan benefits if he had separated from
service with the Employer.
13.05 Plan Procedures with Respect to Domestic Relations Orders.
a. The Plan Administrator shall apply the procedures in this Article,
and may adopt additional appropriate procedures, to determine the qualified
status of Domestic Relations Orders it receives and to administer distributions
under Qualified Domestic Relations Orders.
b. The Plan Administrator shall promptly notify the Participant and
each Alternate Payee of the receipt of the Domestic Relations Order, and provide
them with copies of the procedures the Plan will use in determining the
qualified status of the order. If addresses are not specified in the order, the
Plan Administrator shall send notices to the last known addresses of these
parties. The Participant and any Alternate Payee may designate a representative
to receive copies of future communications from the Plan Administrator regarding
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the order, by submitting a written request to the Plan Administrator.
c. Within a reasonable period after receiving a Domestic Relations
Order, the Plan Administrator shall determine whether it is a Qualified Domestic
Relations Order and shall notify the Participant, each Alternate Payee and any
designated representatives of the determination.
d. During the period in which the issue of qualified status is being
determined by the Plan Administrator, by a court of competent jurisdiction, or
otherwise, the Plan Administrator shall separately account for the amounts which
would have been payable to the Alternate Payee during the period if the order
had been determined to be a Qualified Domestic Relations Order. The separate
accounting is for recordkeeping and a segregation of Fund assets is not
required. The separately accounted amounts shall be treated in the following
manner:
i. If the Domestic Relations Order (or a modification of it)
is determined to be a Qualified Domestic Relations Order
within 18 months of the date on which the first payment
would be required to be made under the order, the Plan
Administrator shall pay the amounts (including any
interest) to the person or persons entitled to the pay-
ment.
ii. If the Domestic Relations Order is determined not to be a
Qualified Domestic Relations Order or the issue is not
resolved, within the 18-month period specified above,
the Plan Administrator shall pay the amounts (including
any interest) to the person or persons who would have
been entitled to the amounts if there had been no order.
In applying this provision, the Plan Administrator may
delay payments for the full 18-month period, even if
an earlier determination of non-qualified status is made,
if the Plan Administrator has notice that the parties are
attempting to remedy the order's deficiencies.
iii. Any determination of qualified status that is made after
the close of the 18-month period shall be applied pro-
spectively only.
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ARTICLE XIV
AMENDMENT, MERGER AND TERMINATION
---------------------------------
14.01 Amendment.
a. The Board of Directors of NBT Bancorp, Inc. may amend the Plan at
any time, and from time to time, pursuant to written resolutions and written
amendments. However, no amendment shall have the effect of reducing the Accrued
Benefit of any Participant, except to the extent permitted under Section
412(c)(8) of the Code.
b. For purposes of this Section, a Plan amendment that has the effect
of (i) eliminating or reducing an early retirement benefit or a retirement-type
subsidy, or (ii) eliminating an optional form of benefit, with respect to
benefits attributable to service before the amendment, shall be treated as
reducing Accrued Benefits.
c. In the case of a retirement-type subsidy, subsection (b) shall apply
only with respect to a Participant who satisfies (either before or after the
amendment) the preamendment conditions for the subsidy. In general, a
retirement-type subsidy is a subsidy that continues after retirement, but does
not include qualified disability benefits, a medical benefit, a Social Security
supplement, or a death benefit (including life insurance).
d. No amendment to the Plan shall have the effect of decreasing a
Participant's vested interest determined without regard to such amendment as of
the later of the date such amendment is adopted, or becomes effective.
14.02 Termination of Plan and Trust.
a. The Employer contemplates that the Plan shall be permanent and that
the Employer shall be able to make contributions to the Plan. Nevertheless, in
recognition of the fact that future conditions and circumstances cannot now be
entirely foreseen, the Board of Directors of NBT Bancorp, Inc. reserves the
right to terminate either the Plan, or both the Plan and the Trust, at any time,
pursuant to written resolutions and written amendments.
b. If the Board of Directors of NBT Bancorp, Inc. makes a determination
to terminate the Plan and Trust, they shall be terminated as of the date
specified in certified copies of resolutions delivered to the Plan Administrator
and the Trustee.
14.03 Benefits upon Termination and Partial Termination. In the event
of a termination or partial termination of the Plan, any affected Participant's
Accrued Benefit shall be nonforfeitable as of the date of such event to the
extent funded. On termination of the Plan, the Trustee will liquidate the assets
held in the Fund. After payment of all expenses of liquidation, the Plan
Administrator shall allocate the remainder of the Fund assets among Participants
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and Beneficiaries entitled to benefits, and cause them to be distributed by the
Trustee, in accordanc with Section 4044 and other applicable provisions of
ERISA. Any residual assets of the Plan remaining after the above allocation
and distribution shall revert to the Employer, provided that all liabilities
of the Plan have been satisfied.
14.04 Restriction of Benefits to Certain Highly Compensated Employees.
a. In General: In the event of Plan termination, the benefit of any
Highly Compensated Employee shall be limited to a benefit that is
nondiscriminatory under Code Section 401(a)(4).
b. Before January 1, 1992: For Plan Years beginning before January 1,
1992, Employer contributions to the Plan shall be restricted, pursuant to
subsection (c) below, if:
(i) The contributions may be used to benefit any of the 25
Highly Compensated Employees with the greatest Limita-
tion Year Compensation, whose anticipated Annual Benefit
exceeds $1,500, and
(ii) Within 10 years of its establishment, (A) the Plan is
terminated or (B) the benefits of any Highly Compensated
Employee, described in (i) above, become payable.
c. Restriction: As required by subsection (b) above, Employer
contributions shall not exceed the greater of (i) $20,000 or (ii) 20 percent of
the first $50,000 of the Highly Compensated Employee's Compensation times (A)
the number of years from the date the Plan was established until, (B) the date
the Plan is terminated or the date the benefits become payable under subsection
(b)(ii)(B) above, whichever is applicable.
d. After December 31, 1991: Except as provided in (i) and (ii) below,
for Plan Years beginning on or after January 1, 1992, the annual payments to a
Participant who is one of the 25 Highly Compensated Employees with the greatest
Limitation Year Compensation are restricted to an amount equal to the payments
that would be made on behalf of the Participant under a single life annuity that
is the Actuarial Equivalent of the sum of the Participant's Accrued Benefit and
other Plan benefits, within the meaning of Regulation 1.401(a)(4)-5(b)(3).
However, benefits need not be restricted if:
(i) After payment of all benefits to the group of Highly
Compensated Employees described in subsection (b) above,
the value of the Plan assets equals or exceeds 110 per-
cent of the value of current liabilities, as defined in
Code Section 412(l)(7); or
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(ii) The value of the benefits for said group of Highly
Compensated Employees is less than one percent of
the value of current liabilities.
For purposes of this Section, "benefit" includes loans in excess of the amount
set forth in Code Section 72(p)(2)(A), any periodic income, any withdrawal
values payable to a living Employee, and any death benefits not provided for by
insurance on the Employee's life.
e. Notwithstanding the restrictions in subsection (b), an Employee's
benefit may be distributed in full upon his depositing with an acceptable
depository, property having a fair market value equal to 125 percent of the
amount which would be repayable had the Plan terminated on the date of the
distribution. If the fair market value of the property held by the depository
falls below 110 percent of the amount which would be repayable if the Plan were
then to terminate, additional property necessary to bring the value of the
property held by the depository up to 125 percent of such amount shall be
deposited.
14.05 Merger, Consolidation or Transfer of Assets. Neither the Plan nor
the Trust may be merged with any other plan or trust unless each Participant
would receive a benefit immediately after the merger that is equal to or greater
than the benefit he would have been entitled to receive immediately before the
merger, if the Plan had then terminated. The preceding sentence shall also apply
to a consolidation or transfer of assets.
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ARTICLE XV
TOP-HEAVY REQUIREMENTS
----------------------
15.01 General Rules.
a. Notwithstanding any other Plan provisions to the contrary, the
Top-Heavy Rules of this Article shall become effective for any Plan Year
beginning after December 31, 1983 in which the Plan is a Top-Heavy Plan. The
provisions of Section 416 of the Code and implementing Regulations are hereby
incorporated by reference and control the application of this Article.
b. As stated in Article II in defining "Compensation," not more than
$200,000 of Compensation (adjusted by the Adjustment Factor) is taken into
account under the Plan for a Participant, for any Plan Year beginning after
December 31, 1988. This $200,000 limitation, without any adjustment, shall also
apply for any earlier Plan Year in which the Plan is Top-Heavy.
c. As further set forth in this Article (and the Code and Regulations),
the Top-Heavy Rules mean that:
i. Whether the Plan is Top-Heavy, or Super Top-Heavy shall
be determined by finding the Top-Heavy Ratio in accor-
dance with Section 15.02.
ii. If the Plan is Top-Heavy or Super Top-Heavy for a Plan
Year, the Minimum Vesting Schedule in Section 15.03 shall
become applicable and Non-Key Employees must accrue a
Minimum Required Benefit as provided in Section 15.04.
iii. If the Plan is Super Top-Heavy for a Plan Year, the
provisions of Section 15.05 shall apply in determining
the Maximum Retirement Benefit under Article XII if the
Employer also maintains a defined contribution plan.
d. Notwithstanding the preceding provisions or any other provisions of
the Plan, the requirements in Sections 15.03 and 15.04 shall not apply to
Employees covered by a collective bargaining agreement.
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<PAGE>
15.02 Determination of Top-Heaviness.
a. Top-Heavy Plan: The Plan shall be considered a Top-Heavy Plan for a
Plan Year if the Top-Heavy Ratio exceeds 60 percent, applying the principles in
subsection (c).
b. Super Top-Heavy Plan: The Plan shall be considered a Super Top-Heavy
Plan for a Plan Year if the Top-Heavy Ratio exceeds 90 percent, applying the
principles in subsection (c).
c. Top-Heavy Ratio: The Top-Heavy Ratio shall be determined in
accordance with the following principles.
i. Determination Date: The Top-Heavy Ratio is determined as
of the Determination Date, which is the last day of the
preceding Plan Year (except for the first Plan Year). For
example, if the Top-Heavy Ratio exceeds 60 percent on the
last day of the 1989 Plan Year, the Plan is Top-Heavy for
the 1990 Plan Year.
ii. Valuation Date: Benefits shall be valued as of the most
recent valuation date during the twelve-month period end-
ing on the Determination Date.
iii. Prior Distributions: The present value of an Accrued
Benefit includes any distribution with respect to the
Participant during the five-year period ending on the
Determination Date. This includes distributions to Bene-
ficiaries and distributions before the 1984 Plan Year
when the Top-Heavy Rules became effective.
iv. Key Employee Status: As defined in Article II, an Employee
is considered a Key Employee if he is a Key Employee at
any time during the Plan Year containing the Determina-
tion Date or the four preceding Plan Years. If a Key
Employee ceases to be a Key Employee but continues to be
employed, he will be treated as a Non-Key Employee
after the last year in which he must be considered a
Key Employee under the preceding sentence. As of that
date, his Accrued Benefits will be disregarded in compu-
ting the numerator and denominator of the Top-Heavy Ratio
v. Required Aggregation of Plans: If the Plan is part of a
Required Aggregation Group, the Top-Heavy Ratio must
be determined by considering all plans in the group. A
Required Aggregation Group consists of all qualified
plans of the Employer and any Affiliated Employer in
which at least one Key Employee participates or partic-
ipated at anytime during the determination period
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(regardless of whether the plan has terminated), and any
other plans that enable a plan with a Key Employee to
satisfy the nondiscrimination rules of Section 401(a)
(4) or Section 410 of the Code.
A. Except as may otherwise be allowed under the permis-
sive aggregation rule of subsection (vi) below,
each plan in the group shall be considered Top-
Heavy if the Top-Heavy Ratio for the group exceeds
60 percent. Conversely, if the Top-Heavy Ratio is
60 percent or less, no plan in the Required
Aggregation Group shall be considered Top-Heavy.
B. If the Employer (or an Affiliated Employer) main-
tains one or more defined benefit plans and the
Employer (or an Affiliated Employer) maintains or
has maintained one or more defined contribution
plans (including any simplified employee pension
plan) which during the five-year period ending
on the Determination Date(s) has or has had any
account balances, the Top-Heavy Ratio for any
Required or Permissive Aggregation Group as approp-
riate is a fraction, the numerator of which is the
sum of the present value of accrued benefits under
the aggregated defined benefit plan or plans for all
Key Employees, determined as above, and the sum
of account balances under the aggregated defined
contribution plan or plans for all Key Employees
as of the Determination Date(s), and the denominator
of which is the sum of the present value of accrued
benefits under the defined benefit plan or plans
for all Participants, determined as above, and the
account balances under the aggregated defined
contribution plan or plans for all Participants as
of the Determination Date(s), all determined in
accordance with Code Section 416 and the Regu-
lations thereunder. The account balances under a
defined contribution plan in both the numerator and
denominator of the Top-Heavy Ratio are increased
for any distribution of an account balance made in
the five-year period ending on the Determination
Date. Actuarial assumptions must be identical for
all defined benefit plans tested for Top-Heavy
purposes.
C. For Top-Heavy purposes, the accrued benefit of a
Participant other than a Key employee shall be
determined under (I) the method, if any, that
uniformly applies for accrual purposes under all
defined benefit plans maintained by the Employer
(or an Affiliated Employer), or (II) if there is no
such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted
under the fractional rule of Code Section 411(b)(1)
(C).
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vi. Permissive Aggregation Group: The Employer may, but is not
required to, determine the Top-Heavy Ratio on the basis
of a Permissive Aggregation Group.
A. A Permissive Aggregation Group consists of all plans
in a Required Aggregation Group, plus other plans
that satisfy the nondiscrimination requirements of
Code Sections 401(a) (4) and 410, when considered
with the Required Aggregation Group.
B. If the Top-Heavy Ratio for the Permissive Aggregation
Group is 60 percent or less, no plan in the group is
Top-Heavy. If the Top-Heavy Ratio is greater than
60 percent, the Top-Heavy Rules apply to those plans
that are part of the Required Aggregation Group,
but not to the other plans which were permissively
aggregated.
vii. Transfer Amounts: Rollover amounts and any plan-to-plan
transfer amounts held under any other plan, shall be
taken into account in determining the Top-Heavy Ratio
only if required by the following rules:
A. If a transfer is initiated by the Employee and made
between plans maintained by different employers, the
transferring plan continues to count the transferred
amount under the rules for counting distributions.
The receiving plan does not count the amount if
accepted after December 31, 1983, but does count
the amount if accepted prior to January 1, 1984.
B. If the transfer is not initiated by the Employee or
if it is made to a plan maintained by the same
employer, the transferring plan shall no longer
count the amount transferred and the receiving plan
shall count the amount transferred.
C. For purposes of this subsection, Affiliated
Employers shall be treated as the same employer.
15.03 Vesting in Employer Contributions under a Top-Heavy Plan.
a. Except as provided in Section 15.01(d), for any Plan Year that the
Plan must be considered Top-Heavy, a Participant's vested interest in his
Accrued Benefit derived from Employer contributions shall be determined in
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accordance with the following Minimum Vesting Schedule rather than the vesting
schedule in Article V. As an exception, the Participant shall remain under his
previous vesting schedule to the extent provided in Article V.
b. The Minimum Vesting Schedule is:
Years of Service Vested Percentage
--------------------------------------------------------
Less than 3 years 0%
3 years or more 100%
c. Once applicable for a Plan Year, the Minimum Vesting Schedule
applies to benefits accrued before and after the Plan became Top-Heavy
(including benefits that accrued before the 1984 Plan Year when the Top-Heavy
Rules became effective).
Notwithstanding the preceding sentence:
i. Accrued Benefits of a Participant who does not have an
Hour of Service after the Plan becomes Top-Heavy shall
not be subject to the Minimum Vesting Schedule; and
ii. Accrued Benefits which were forfeited before the Plan
became Top-Heavy do not vest.
d. The vesting schedule in Article V shall again become applicable for
benefits that accrue during Plan Years after the Plan ceases to be Top-Heavy.
However, if this change in vesting schedule occurs:
i. The vested percentage of a Participant in benefits that
accrued before the Plan ceased to be Top-Heavy shall not
be reduced; and
ii. Participants described in Section 5.04 shall be given the
option to remain under the Minimum Vesting Schedule,
even for Plan Years after the Plan is no longer Top-
Heavy, in accordance with the procedures described in
that Article.
15.04 Minimum Required Benefit.
a. In General: Except as provided in Section 15.01(d), if the Plan
becomes Top-Heavy, the Accrued Benefit derived from Employer contributions
of a Non-Key Employee must at least equal the Minimum Required Benefit described
in this Section.
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For a Top-Heavy Plan Year, the requirement applies to each Non-Key
Employee with 1000 or more Hours of Service in the Accrual Computation Period,
even though the Non-Key Employee would not otherwise have received an accrual,
or would have received a lesser accrual because (i) his Compensation is less
than a specified level, or (ii) he is not employed on the last day of the Plan
Year.
b. Minimum Required Benefit Formula: The Minimum Required Benefit is a
benefit, provided solely by Employer contributions (and not integrated with
Social Security benefits) which, when expressed as a life annuity commencing at
Normal Retirement Age, equals the lesser of:
i. Two percent of the Participant's Top-Heavy Average Com-
pensation multiplied by the Participant's Top-Heavy Years
of Service; or
ii. 20 percent of the Participant's Top-Heavy Average Compen-
sation.
c. Definitions: In applying the formula in subsection (b):
i. Top-Heavy Years of Service means Years of Service, but
disregarding any Vesting Year of Service completed in
a Plan Year beginning before 1984, or any Vesting Year
of Service if the Plan was not Top-Heavy for any Plan
Year ending during that Vesting Year of Service.
ii. Top-Heavy Average Compensation means Limitation Year Com-
pensation, averaged over the period of five consecutive
calendar years (or fewer if the total years which can be
considered under this subsection is less than five)
which produces the highest average. To determine this
period, the following are excluded:
A. Years for which the Non-Key Employee did not earn a
Vesting Year of Service;
B. Years ending within a Plan Year beginning before
January 1, 1984;
C. Years excluded from Top-Heavy Years of Service; and
D. Years beginning after the close of the last Plan
Year in which the Plan was Top-Heavy.
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d. Employer-Derived Benefits: All accruals of benefits derived from
Employer contributions, whether or not attributable to Plan Years for which the
Plan is Top-Heavy shall be considered in determining whether a Non-Key Employee
has an Accrued Benefit which equals the Minimum Required Benefit.
e. Non-Key Employee in Defined Contribution Plan: If a Non-Key Employee
participates in this Plan and a defined contribution plan included in a Required
Aggregation Group that is Top-Heavy, the Minimum Required Benefit shall be
provide under this Plan. For any Plan Year when the Plan is Top-Heavy, but not
Super Top-Heavy, the Minimum Required Benefit for such Non-Key Employee shall be
determined by substituting three percent for two percent, and 30 percent for 20
percent, in the formula in subsection (b) above.
15.05 Maximum Annual Benefit under a Super Top-Heavy Plan.
a. If the Plan is Super Top-Heavy for any Plan Year, then for purposes
of the Code Section 415 limitation, described in Article XII, the dollar
limitations in the denominators of the Defined Benefit Plan Fraction and the
Defined Contribution Fraction shall each be multiplied by 1.0, not 1.25.
b. If the reduction to 1.0 under subsection (a) would cause a
Participant to exceed the combined limit on contributions and benefits under
Code Section 415, the application of subsection (a) shall be suspended as to
such Participant until such time as he no longer exceeds the combined
limitation, as modified by subsection (a). During such a suspension period, the
Participant will not accrue any benefits under this or any other defined benefit
plan of the Employer and or receive contributions (or forfeitures) under any
defined contribution plan of the Employer or an Affiliated Employer.
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ARTICLE XVI
MISCELLANEOUS PROVISIONS
------------------------
16.01 No Alienation or Assignment. The right of any Participant or
Beneficiary to any benefit or payment under the Plan or Trust shall not be
subject to voluntary or involuntary transfer, alienation or assignment. Further,
to the fullest extent permitted by law, the right shall not be subject to
attachment, execution, garnishment, sequestration or other legal or equitable
process. In the event a Participant or Beneficiary attempts to assign, transfer
or dispose of a right under the Plan, or if any attempt is made to subject the
right to such process, the assignment, transfer or disposition shall be null and
void.
16.02 Adoption of Plan by Another Employer. Any other employer, whether
an Affiliated Employer or not, may, with the approval of the Board of Directors
of NBT Bancorp, Inc., adopt this Plan pursuant to appropriate written
resolutions of its board of directors. The adopting employer shall also execute
such documents with the Trustee as may be necessary to make the other employer a
party to the Trust. As part of its adopting resolutions, the other employer
shall delegate authority to amend and terminate the Plan to the Board of
Directors of NBT Bancorp, Inc. The National Bank and Trust Company, by its
adoption and execution of this document, is deemed to have made the foregoing
delegation.
16.03 Status of Employment Relations. The adoption and maintenance of
the Plan and Trust shall not be deemed to constitute a contract between the
Employer and its Employees or to be consideration for, or an inducement or
condition of, the employment of any person. Nothing contained in the Plan shall
be deemed (a) to give to any Employee the right to be retained in the employ of
the Employer, (b) to affect the right of the Employer to discipline or discharge
any Employee at any time, (c) to give the Employer the right to require any
Employee to remain in its employ, or (d) to affect any Employee's right to
terminate his employment at any time.
16.04 Benefits Payable by Trust. All Benefits payable under the Plan
shall be paid or provided for solely from the Trust. The Employer assumes no
liability or responsibility for the payments.
16.05 Failure of Qualification.
a. The establishment of the Plan and Trust by the Employer is
contingent upon obtaining the initial approval of the Internal Revenue Service.
Notwithstanding any other provision of the Plan, in the event that the Internal
Revenue Service fails to approve the Plan, the Trustee shall liquidate the Trust
by paying all expenses and returning all remaining assets to the Employer as
soon as administratively feasible. In no event shall this process be completed
later than one year after the date of the final denial of qualification of the
Plan, including the final resolution of any appeals before the Internal Revenue
Service or the courts. The Trust shall terminate upon completion of these "wind
up" procedures.
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b. Contributions shall be returned to the Employer pursuant to Section
10.04(b).
16.06 Increases in Social Security Benefits. Increases in Social
Security benefits or the taxable wage base subsequent to a Participant's
termination of employment or Retirement shall not cause a reduction in benefits
under the Plan.
16.07 Headings Not Part of This Plan. Headings of Articles and Sections
are inserted only for convenience of reference, and shall not be considered in
construing the Plan.
16.08 Gender and Number. Unless the context clearly requires a
different meaning, the use of the masculine pronoun includes the feminine
gender, and the singular number includes the plural (and vice versa).
16.09 Applicable Law. The Plan and Trust shall be construed, regulated,
interpreted and administered under and in accordance with the laws of the State
of New York, unless preempted by federal law.
NBT Bancorp, Inc. and NBT Bank, N.A. have caused this Plan to be
signed by duly authorized officers on this
13th day of November 1998.
- --------------- ----------------------------------------
NBT BANCORP, INC.
By: /S/ John D Roberts
Title: Vice President and Secretary
NBT BANK, N.A.
By: /S/ Jane E Neal
Title: Senior Vice President
0383167.01 10/26/98
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EXHIBIT 10.4
NBT BANCORP INC. 1999 Executive Incentive Compensation Plan.
<PAGE>
January 26, 1999
NBT BANCORP INC.
Norwich, New York
1999 EXECUTIVE INCENTIVE COMPENSATION PLAN
<PAGE>
NBT BANCORP INC.
Norwich, New York
1999 EXECUTIVE INCENTIVE COMPENSATION PLAN
------------------------------------------
Table of Contents
Page
----
Introduction.................................................................1-2
Incentive Plan
- --------------
Section I - Definitions........................................................3
Section II - Participation.....................................................4
Section III - Activating the Plan..............................................4
Section IV - Calculation of Awards.............................................4
Section V - President's Special Recommendations................................4
Section VI - Distribution of Awards............................................5
Section VII - Plan Administration..............................................6
Section VIII - Amendment, Modification, Suspension or Termination..............6
Section IX - Effective Date....................................................6
Section X - Employer Relations with Participants...............................6
Section XI - Governing Law.....................................................6
Incentive Plan Participants...........................................Appendix A
Distribution of Awards................................................Appendix B
<PAGE>
NBT BANCORP INC.
Norwich, New York
Introduction
------------
It is important to examine the benefits which accrue to the organization through
the operation of the Executive Incentive Compensation Plan. The Plan impacts
directly on senior and middle management - those critical to the organization's
success - and its purpose can be summarized as follows:
* Provides Motivation: The opportunity for incentive awards provides
executives with the impetus to "stretch" for challenging, yet attain-
able, goals.
* Provides Retention: by enhancing the organization's competitive com-
pensation posture.
* Provides Management Team Building: by making the incentive a ward
dependent on the attainment of organization goals, a "team orien-
tation" is fostered among the participant group.
* Provides Individual Motivation: by making a portion of the incentive
award dependent on the attainment of individual goals, a participant
is encouraged to make significant personal contribution to the
corporate effort.
* Provides Competitive Compensation Strategy: The implementation of
incentive arrangements is competitive with current practice in the
banking industry.
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<PAGE>
Highlights of the 1999 Executive Incentive Compensation Plan included in the
following pages are as follows:
1. The Plan is competitive compared with similar sized banking organi-
zations and the banking industry in general.
2. The Compensation Committee of the Board of Directors controls all
aspects of the Plan.
3. Management employees are eligible for participation.
4. The financial criteria necessary for Plan operation consist of Return
on Average Assets (25% Weight) and Return of Equity (50% Weight) and
Profit Improvement (25% Weight).
5. Incentive distributions will be made during the first quarter of the
year following the Plan Year.
6. Incentive awards will be based on attainment of corporate goals.
Total incentive Awards contain both Corporate and Individual compon-
ents; the corporate component awarded by virtue of corporate perform-
ance related to corporate goals and the individual component awarded
by virtue of individual performance related to individual goals.
Component percentages are shown in Appendix B.
7. Incentive distributions will be based on the matrix in Appendix B.
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<PAGE>
NBT BANCORP INC.
Norwich, New York
The Board of Director of NBT Bancorp Inc. has established this 1999 Executive
Incentive Compensation Plan. The purpose of the Plan is to meet and exceed
financial goals and to promote a superior level of performance relative to the
bank's competition in its market area. Through payment of incentive compensation
beyond base salaries, the Plan provides reward for meeting and exceeding the
bank's financial goals.
SECTION I - DEFINITIONS
Various terms used in the Plan are defined as follows:
Base Salary: the base salary at the end of the Plan year, excluding any
bonuses, contributions to employee benefit programs, or other compe-
sation not designated as salary.
Board of Directors: The Board of Directors of NBT Bancorp Inc.
President & CEO: President and CEO of NBT Bancorp Inc.
Corporate Goals: Those pre-set objectives and goals which are required to
activate distribution of awards under the Plan.
Individual Goals: Key objectives mutually agreed upon between participants
and superior, and approved by the CEO.
Compensation Committee: The Compensation Committee of the Board of
Directors of the Bank.
Plan Participant: An eligible employee of the bank designated by the
President & CEO and approved by the Compensation Committee for
participation for the Plan Year.
Plan Year: The 1999 calendar year.
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<PAGE>
SECTION II - ELIGIBILITY TO PARTICIPATE
To be eligible for an award under the Plan, a Plan participant must be an
officer in the full-time service of the bank at the start and close of the
calendar year and at the time of the award unless the CEO by special exception
recommends to the Compensation Committee a special arrangement for a newly hired
executive who may be designated by the CEO and approved by the Compensation
Committee as eligible for an award as determined in the employment agreement. A
Plan participant must be in the same or equivalent position, at year end as they
were when named a participant or have been promoted during the course of the
year, to be eligible for an award. If a Plan participant voluntarily leaves the
employ of the bank prior to the payment of the award, he/she is not eligible to
receive an award. However, if the active full-time service of a participant in
the Plan is terminated by death, disability, retirement, or if the participant
is on an approved leave of absence, the President should recommend an award to
such a participant based on the proportion of the Plan year that he/she was in
active service with the bank.
SECTION III - ACTIVATING THE PLAN
The operation of the Plan is predicated on attaining and exceeding management
performance goals. The goals will consist of return on average assets, return on
shareholders' equity, and profit improvement. The Corporation must achieve a
minimum net income set forth in Appendix B to trigger an award pursuant to the
terms of this plan.
SECTION IV - CALCULATION OF AWARDS
The Compensation Committee designates the incentive formula as shown in Appendix
B. The actual rate of distribution is based upon Company performance. The
Compensation Committee will make final decisions with respect to all incentive
awards and will have final approval over all incentive awards. The individual
participant data regarding maximum award and formulas used in calculation has
been customized and appears as Appendix A.
SECTION V - PRESIDENT'S SPECIAL RECOMMENDATIONS
The President & CEO will recommend to the Compensation Committee the amounts to
be awarded to individual participants in the incentive Plan. The President & CEO
may recommend a change beyond the formula to a bonus award (increase or
decrease) to an individual participant by a specified percentage based on
assessment of special individual performance beyond the individual goals. The
Compensation Committee may amend the President & CEO's bonus award. The amount
of the adjustment is from 0%-20% of the actual award. No award will be granted
to an officer whose performance is unacceptable.
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<PAGE>
SECTION VI - DISTRIBUTION OF AWARDS
Unless a participant elects the deferred option outlined in the following
paragraph, distribution of awards will be made during the first quarter of the
year following the Plan year. Distribution of the bonus award must be approved
by the Compensation Committee.
A participant may elect by written notice to the Committee at any time during
the month of December of the Plan Year preceding the year to which the award
relates to have all or a portion of his award deferred (Deferred Award). Any
such election shall be irrevocable except unforeseeable financial emergency.
Any portion of participant's award that is deferred shall bear interest
commencing on the Award Date based on the lowest balance in the participant's
account during the month, as if invested at an annual rate equal to the highest
annual rate offered at NBT on any customer deposit account in effect on the last
day of the preceding calendar year. Interest shall be computed monthly, and
credited to the participant's account as of the last day of each calendar month.
The Deferred Award shall be paid in five (5) annual installments upon the
participant's ceasing to be actively employed by the Company for any reason.
Payment shall begin on the 31st day of January following the year in which the
participant ceases to be actively employed with the Company. However, a
participant with the consent of the Committee, prior to termination of
employment, may elect in writing to have the aggregate amount in his or her
Deferred Award Account paid to him or her in a lump sum on a designated date.
Nothing contained in this Plan and no action taken pursuant to the provisions of
this Plan shall create or be constructed to create a trust of any kind, or a
fiduciary relationship between NBT and the participant, his or her designated
beneficiary or any other person, nor shall the participant or any designated
beneficiary have any preferred claim on, any title to, or any beneficial
interest in, the assets of NBT or the payments deferred hereunder prior to the
time such payments are actually paid to the participant pursuant to the terms
herein. To the extent that the participant, his or her designated beneficiary or
any person acquires a right to receive payments from NBT under this Plan, such
right shall be no greater than the right of any unsecured general creditor of
NBT.
The intent of this Section of the Plan is to create a voluntary, non-qualified,
unfunded, deferred executive incentive compensation Plan which will defer the
deduction of such incentive compensation for tax purposes by NBT and which will
correspondingly defer the recognition of such compensation by the participant
until such compensation is actually paid. It is therefore intended, and this
Plan shall be construed and where necessary modified, so that the participants
shall not be deemed to have constructively received such deferred compensation.
In the event of death, any approved award earned under the provisions of this
plan will become payable to the beneficiary designated under this Plan; or if no
such designation, to the designated beneficiary of the participant as recorded
under the bank's group life insurance program; or in the absence of a valid
designation, to the participant's estate.
-5-
<PAGE>
SECTION VII - PLAN ADMINISTRATION
The Compensation Committee shall, with respect to the Plan have full power and
authority to construe, interpret and manage, control and administer this Plan,
and to pass and decide upon cases in conformity with the objectives of the Plan
under such rules as the Board of Directors of the bank may establish.
Any decision made or action taken by the Bank, the Board of Directors, or the
Compensation Committee arising out of, or in connection with, the
administration, interpretation, and effect of the Plan shall be at their
absolute discretion and will be conclusive and binding on all parties. No member
of the Board of Directors, Compensation Committee, or employee of the bank shall
be liable for any act or action hereunder, whether of omission or commission, by
a Plan participant or employee or by any agent to whom duties in connection with
the administration of the Plan have been delegated in accordance with the
provision of the Plan.
SECTION VIII - AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION
The bank reserves the right, by and through its Board of Directors to amend,
modify, suspend, reinstate or terminate all or part of the Plan at any time. The
Compensation Committee will give prompt written notice to each participant of
any amendment, suspension or termination or any material modification of the
Plan. In the event of a merger or acquisition, the Plan and related financial
formulas will be reviewed and, if necessary, revised to take into account the
financial status of any merged institution.
SECTION IX - EFFECTIVE DATE OF THE PLAN
The effective date of the Plan shall be January 1, 1999.
SECTION X - EMPLOYER RELATION WITH PARTICIPANTS
Neither establishment nor the maintenance of the Plan shall be construed as
conferring any legal rights upon any participant or any person for a
continuation of employment, nor shall it interfere with the right of an employer
to discharge any participant or otherwise deal with him/her without regard to
the existence of the Plan.
SECTION XI - GOVERNING LAW
Except to the extent pre-empted under federal law, the provisions of the Plan
shall be construed, administered and enforced in accordance with the domestic
internal law of the State of New York. In the event of relevant changes in the
Internal Revenue Code, related rulings and regulations, changes imposed by other
regulatory agencies affecting the continued appropriateness of the Plan and
awards made thereunder, the Board may, at its sole discretion, accelerate or
change the manner of payments of any unpaid awards or amend the provisions of
the Plan.
-6-
<PAGE>
DEFERRED COMPENSATION PLAN
--------------------------
FOR OFFICERS OF NBT BANCORP & SUBSIDIARIES
------------------------------------------
ELECTION AGREEMENT
------------------
I, _____________________________, hereby elect |_| to |_| not to participate in
the Deferred Compensation Plan for Officers of NBT with respect to Executive
Incentive Compensation (EICP) awards which I may receive for the calendar year
of __________. I hereby elect to defer the payment of _________ (________%) of
the EICP award which I would otherwise be entitled to receive.
|_| Please defer payment of the percentage of my EICP
award specified above until the earlier of the
following dates:
|_| Until ___________________(Specify date which may not
be later than the date on which I will retire).
|_| Until the date of my death.
|_| Begin annual payments of deferred balance on
__________________ in the amount of 1/5th the balance
each year until the balance has been paid in full (5
year payout).
|_| Because terms of the plan have changed since my
election to defer EICP awards, please discontinue my
deferral election and:
|_| Roll my eferred account proceeds into the following
account at the institution indicated:
-----------------------------------------------------
-----------------------------------------------------
|_| Please pay me out in cash, the balance of my account,
at this time.
|_| I hereby designate the following person or persons as
beneficiary hereunder in the event of my death:
Primary Beneficiary _________________________________________
Secondary Beneficiary _______________________________________
I hereby revoke any prior election that may be inconsistent
with the above.
I acknowledge that I have reviewed the plan and understand that my participation
will be subject to the terms and conditions contained in the plan. Words and
phrases used in this Election Agreement shall have the meanings assigned by the
plan.
Dated this ________ day of _________, 199_.
__________________________________________
<PAGE>
EXHIBIT 10.16
Restricted Stock Agreement between NBT BANCORP INC. and (Director).
<PAGE>
RESTRICTED STOCK AGREEMENT
--------------------------
BETWEEN
-------
NBT BANCORP INC. AND DIRECTOR
-----------------------------
AGREEMENT made as of January 1, 1999 by and between NBT Bancorp Inc.
("Company") and ("Participant"):
WHEREAS, the Participant is a Director of the Company and, as such,
receives an annual retainer fee in addition to fees for meeting attendance. The
Company and Participant agree that the Participant is entitled to receive the
retainer fee in Company Stock subject to the conditions specified below.
THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed as follows:
1. Award of Shares.
Under the terms of this Agreement, the Company has awarded the Participant a
Restricted stock award on January 1, 1998 ("Award Date"), covering 125 shares of
NBT Bancorp Inc. Common Stock, with a fair market value equal to $3,016.25
(annual director's retainer), subject to the terms, conditions and restrictions
set forth in this agreement.
2. Award Restrictions.
The shares covered by restricted stock award shall vest in accordance with the
schedule set forth below:
Full Years Elapsed from Award Date Percent Vested
---------------------------------- --------------
1 33%
2 66%
3 100%
Upon the vesting of any part of the restricted stock award by virtue of the
lapse of the restriction period set forth above or under Section 4 of this
Agreement, the Company shall cause a stock certificate covering the requisite
number of shares in the name of the Participant or beneficiary(ies) to be
distributed within 30 days after vesting. Upon receipt of such stock
certificate(s), the Participant or beneficiary(ies) are free to hold or dispose
of such certificate at will.
-1-
<PAGE>
During the restriction period, the shares covered by the restricted stock award
not already vested are not transferable by the Participant by means of sale,
assignment, exchange, pledge, or otherwise. However, the restriction period will
lapse upon a change of ownership control within the meaning of Internal Revenue
Code ss.368(c) of Company or NBT Bancorp Inc. The lapse of the restriction
period will cause the restricted stock award to be fully vested.
3. Stock Certificates.
The stock certificate(s) evidencing the restricted stock award shall be
registered in the name of the Participant as of the Award Date. Physical
possession or custody of such stock certificate(s) shall be retained by the
Company until such time as the shares are vested (i.e. the restriction period
lapses). The Company reserves the right to place a legend on the stock
certificate(s) restricting the transferability of such certificate(s).
During the restriction period, except as otherwise provided in Section 2 of this
Agreement, the Participant shall be entitled to all rights of a stockholder of
the Company, including the right to vote the shares and receive cash dividends.
Stock dividends declared by the Company will be characterized as restricted
stock, and distributed with the principle restricted stock.
4. Term of Directorship.
If the Participant terminates board membership with the Company due to death,
disability, retirement, or failure to be re-elected or re-appointed, the
restricted stock award, to the extent not already vested, shall vest in full as
of the date of such termination. Voluntary resignation or removal for cause will
result in forfeiture of the non-vested grants. The Participant may designate a
beneficiary(ies) to receive the stock certificate representing that portion of
the restricted stock award automatically vested upon death. The participant has
the right to change such beneficiary designation at will.
5. Duty to Notify.
It is the Participant's duty to notify the Company in the event an Internal
Revenue Code ss.83(b) election is made in the year of the award.
6. Withholding Taxes.
The Company shall have the right to retain and withhold from any payment under
the restricted stock awarded the amount of taxes required by any government to
be withheld or otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require a Participant receiving shares of Common
Stock under a restricted stock award to reimburse the Company for any such taxes
required to be withheld by the Company and withhold any distribution in whole or
in part until the Company is so reimbursed. In lieu thereof, the Company shall
-2-
<PAGE>
have the right to withhold from any other cash amounts due or to become due from
the Company to the Participant an amount equal to such taxes required to be
withheld by the Company to reimburse the Company for any such taxes or retain
and withhold a number of shares having a market value not less than the amount
of such taxes and cancel (in whole or in part) any such shares so withheld in
order to reimburse the Company for any such taxes.
7. Impact on Other Benefits.
The value of the restricted stock award (either on the Award Date or at the time
the shares are vested) shall not be includable as compensation or earnings for
purposes of any other benefit plan offered by the Company.
8. Administration.
The Compensation Committee shall have full authority and discretion to decide
all matters relating to the administration and interpretation of this Agreement.
The Compensation Committee shall have full power and authority to pass and
decide upon cases in conformity with the objectives of this Agreement under such
rules as the Board of Directors of the Company may establish.
Any decision made or action taken by the Company, the Board of Directors, or the
Compensation Committee arising out of, or in connection with, the
administration, interpretation, and effect of this Agreement shall be at their
absolute discretion and will be conclusive and binding on all parties. No member
of the Board of Directors, Compensation Committee, or employee of the Company
shall be liable for any act or action hereunder, whether of omission or
commission, by the Participant or by any agent to whom duties in connection with
the administration of this Agreement have been delegated in accordance with the
provision of this Agreement.
9. Company Relation with Participants.
Nothing in this Agreement shall confer on the Participant any right to continue
as a director of the Company.
10. Force and Effect.
The various provisions of this Agreement are severable in their entirety. Any
determination of invalidity or unenforceability of any one provision shall have
no effect on the continuing force and effect of the remaining provisions.
11. Governing Laws.
Except to the extent pre-empted under federal law, the provisions of this
Agreement shall be construed, administered and enforced in accordance with the
domestic internal law of the State of New York.
-3-
<PAGE>
12. Entire Agreement.
This Agreement contains the entire understanding of the parties and shall not be
modified or amended except in writing and duly signed by the parties. No waiver
by either party of any default under this Agreement shall be deemed a waiver of
any later default.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
_____ day of ________, ________
NBT BANCORP INC.
By_______________________________
President
And
by_______________________________
CFO and Treasurer
-------------------------------
Signature of Participant
-------------------------------
Name of Participant
(please print)
-4-
<PAGE>
EXHIBIT 10.17
Restricted Stock Agreement between NBT BANK, N.A. and (Director).
<PAGE>
RESTRICTED STOCK AGREEMENT
--------------------------
BETWEEN
-------
NBT BANK, N.A. AND DIRECTOR
---------------------------
AGREEMENT made as of January 1, 1999 by and between NBT Bank, N.A.
("Company") and Director (Participant"):
WHEREAS, the Participant is a Director of the Company and, as such,
receives an annual retainer fee in addition to fees for meeting attendance. The
Company and Participant agree that the Participant is entitled to receive the
retainer fee in Company Stock subject to the conditions specified below.
THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed as follows:
1. Award of Shares.
Under the terms of this Agreement, the Company has awarded the Participant a
Restricted stock award on January 1, 1999 ("Award Date"), covering 125 shares of
NBT Bancorp Inc. Common Stock, with a fair market value equal to $3,016.25
(annual director's retainer), subject to the terms, conditions and restrictions
set forth in this agreement.
2. Award Restrictions.
The shares covered by restricted stock award shall vest in accordance with the
schedule set forth below:
Full Years Elapsed from Award Date Percent Vested
---------------------------------- --------------
1 33%
2 66%
3 100%
Upon the vesting of any part of the restricted stock award by virtue of the
lapse of the restriction period set forth above or under Section 4 of this
Agreement, the Company shall cause a stock certificate covering the requisite
number of shares in the name of the Participant or beneficiary(ies) to be
distributed within 30 days after vesting. Upon receipt of such stock
certificate(s), the Participant or beneficiary(ies) are free to hold or dispose
of such certificate at will.
-1-
<PAGE>
During the restriction period, the shares covered by the restricted stock award
not already vested are not transferable by the Participant by means of sale,
assignment, exchange, pledge, or otherwise. However, the restriction period will
lapse upon a change of ownership control within the meaning of Internal Revenue
Code ss.368(c) of Company or NBT Bancorp Inc. The lapse of the restriction
period will cause the restricted stock award to be fully vested.
3. Stock Certificates.
The stock certificate(s) evidencing the restricted stock award shall be
registered in the name of the Participant as of the Award Date. Physical
possession or custody of such stock certificate(s) shall be retained by the
Company until such time as the shares are vested (i.e. the restriction period
lapses). The Company reserves the right to place a legend on the stock
certificate(s) restricting the transferability of such certificate(s).
During the restriction period, except as otherwise provided in Section 2 of this
Agreement, the Participant shall be entitled to all rights of a stockholder of
the Company, including the right to vote the shares and receive cash dividends.
Stock dividends declared by the Company will be characterized as restricted
stock, and distributed with the principle restricted stock.
4. Term of Directorship.
If the Participant terminates board membership with the Company due to death,
disability, retirement, or failure to be re-elected or re-appointed, the
restricted stock award, to the extent not already vested, shall vest in full as
of the date of such termination. Voluntary resignation or removal for cause will
result in forfeiture of the non-vested grants. The Participant may designate a
beneficiary(ies) to receive the stock certificate representing that portion of
the restricted stock award automatically vested upon death. The participant has
the right to change such beneficiary designation at will.
5. Duty to Notify.
It is the Participant's duty to notify the Company in the event an Internal
Revenue Code ss.83(b) election is made in the year of the award.
6. Withholding Taxes.
The Company shall have the right to retain and withhold from any payment under
the restricted stock awarded the amount of taxes required by any government to
be withheld or otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require a Participant receiving shares of Common
Stock under a restricted stock award to reimburse the Company for any such taxes
required to be withheld by the Company and withhold any distribution in whole or
in part until the Company is so reimbursed. In lieu thereof, the Company shall
-2-
<PAGE>
have the right to withhold from any other cash amounts due or to become due from
the Company to the Participant an amount equal to such taxes required to be
withheld by the Company to reimburse the Company for any such taxes or retain
and ithhold a number of shares having a market value not less than the amount
of such taxes and cancel (in whole or in part) any such shares so withheld in
order to reimburse the Company for any such taxes.
7. Impact on Other Benefits.
The value of the restricted stock award (either on the Award Date or at the time
the shares are vested) shall not be includable as compensation or earnings for
purposes of any other benefit plan offered by the Company.
8. Administration.
The Compensation Committee shall have full authority and discretion to decide
all matters relating to the administration and interpretation of this Agreement.
The Compensation Committee shall have full power and authority to pass and
decide upon cases in conformity with the objectives of this Agreement under such
rules as the Board of Directors of the Company may establish.
Any decision made or action taken by the Company, the Board of Directors, or the
Compensation Committee arising out of, or in connection with, the
administration, interpretation, and effect of this Agreement shall be at their
absolute discretion and will be conclusive and binding on all parties. No member
of the Board of Directors, Compensation Committee, or employee of the Company
shall be liable for any act or action hereunder, whether of omission or
commission, by the Participant or by any agent to whom duties in connection with
the administration of this Agreement have been delegated in accordance with the
provision of this Agreement.
9. Company Relation with Participants.
Nothing in this Agreement shall confer on the Participant any right to continue
as a director of the Company.
10. Force and Effect.
The various provisions of this Agreement are severable in their entirety. Any
determination of invalidity or unenforceability of any one provision shall have
no effect on the continuing force and effect of the remaining provisions.
11. Governing Laws.
Except to the extent pre-empted under federal law, the provisions of this
Agreement shall be construed, administered and enforced in accordance with the
domestic internal law of the State of New York.
-3-
<PAGE>
12. Entire Agreement.
This Agreement contains the entire understanding of the parties and shall not be
modified or amended except in writing and duly signed by the parties. No waiver
by either party of any default under this Agreement shall be deemed a waiver of
any later default.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
_____ day of ________, ________
NBT BANK, N.A.
By_______________________________
President
And
by_______________________________
CFO and Treasurer
-------------------------------
Signature of Participant
-------------------------------
Name of Participant
(please print)
-4-
<PAGE>
EXHIBIT 21
List of Subsidiaries of the Registrant
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
NBT BANCORP INC. has one subsidiary, which is wholly owned:
NBT Bank, National Association
52 South Broad Street
Norwich, New York 13815
Telephone: (607) 337-6000
E.I.N. 15-0395735
<PAGE>
EXHIBIT 23
Consent of KPMG LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
The Board of Directors
NBT Bancorp Inc.:
We consent to incorporation by reference in the registration statements on Form
S-3 (File No. 33-12247) and Form S-8 (File Nos. 33-18976, 33-77410, 333-02925
and 333-67615) of NBT Bancorp Inc. of our report dated January 22, 1999,
relating to the consolidated balance sheets of NBT Bancorp Inc. and subsidiary
as of December 31, 1998 and 1997, 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, 1998.
/s/ KPMG LLP
KPMG LLP
Syracuse, New York
March 16, 1999
<PAGE>
EXHIBIT 27
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NBT BANCORP
INC'S FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 39,719
<INT-BEARING-DEPOSITS> 7,462
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 355,758
<INVESTMENTS-CARRYING> 35,095
<INVESTMENTS-MARKET> 35,095
<LOANS> 821,505
<ALLOWANCE> 12,962
<TOTAL-ASSETS> 1,290,009
<DEPOSITS> 1,044,205
<SHORT-TERM> 96,589
<LIABILITIES-OTHER> 8,412
<LONG-TERM> 10,171
0
0
<COMMON> 13,016
<OTHER-SE> 117,616
<TOTAL-LIABILITIES-AND-EQUITY> 1,290,009
<INTEREST-LOAN> 70,947
<INTEREST-INVEST> 29,828
<INTEREST-OTHER> 305
<INTEREST-TOTAL> 101,080
<INTEREST-DEPOSIT> 37,201
<INTEREST-EXPENSE> 43,677
<INTEREST-INCOME-NET> 57,403
<LOAN-LOSSES> 4,599
<SECURITIES-GAINS> 624
<EXPENSE-OTHER> 39,128
<INCOME-PRETAX> 23,655
<INCOME-PRE-EXTRAORDINARY> 19,102
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,102
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.49
<YIELD-ACTUAL> 4.76
<LOANS-NON> 3,593
<LOANS-PAST> 1,158
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 33,336
<ALLOWANCE-OPEN> 11,582
<CHARGE-OFFS> 4,152
<RECOVERIES> 933
<ALLOWANCE-CLOSE> 12,962
<ALLOWANCE-DOMESTIC> 11,438
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,524
</TABLE>
