SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________.
COMMISSION FILE NUMBER 0-14703
NBT BANCORP INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 16-1268674
(State of Incorporation) (I.R.S. Employer Identification No.)
52 SOUTH BROAD STREET NORWICH, NEW YORK 13815
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code: (607) 337-2265
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 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 October 31, 2000, there were 23,692,625 shares outstanding of the
Registrant's common stock, $0.01 par value.
There were no shares of the Registrant's preferred stock, par value $0.01,
outstanding at that date.
An index to exhibits follows the signature page of this FORM 10-Q.
<PAGE>
NBT BANCORP INC.
FORM 10-Q--Quarter Ended September 30, 2000
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 2000, December 31,
1999 (Audited), and September 30, 1999
Consolidated Statements of Income for the three month and nine
month periods ended September 30, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the nine month
periods ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows for the nine month periods
ended September 30, 2000 and 1999
Consolidated Statements of Comprehensive Income for the three month
and nine month periods ended September 30, 2000 and 1999
Notes to Unaudited Interim Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Information called for by Item 3 is contained in the Liquidity and
Interest Rate Sensitivity Management section of the Management
Discussion and Analysis.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on FORM 8-K
SIGNATURES
INDEX TO EXHIBITS
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<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARIES SEPTEMBER 30, December 31, September 30,
CONSOLIDATED BALANCE SHEETS 2000 1999 1999
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(in thousands, except share and per share data) (UNAUDITED) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 76,325 $ 79,629 $ 73,585
Securities available for sale, at fair value 590,895 606,727 628,962
Securities held to maturity (fair value-$104,742,
$109,147 and $110,473) 107,320 113,318 113,521
Loans 1,667,633 1,466,867 1,424,073
Less allowance for loan losses (22,682) (19,711) (19,101)
-------------------------------------------------------------------------------------------------------------------
Net loans 1,644,951 1,447,156 1,404,972
Premises and equipment, net 44,308 47,097 46,744
Other assets 95,265 86,280 85,246
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TOTAL ASSETS $2,559,064 $2,380,207 $2,353,030
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 284,600 $ 267,895 $ 264,537
Savings, NOW, and money market 632,809 605,334 599,221
Time 1,019,074 903,862 875,855
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Total deposits 1,936,483 1,777,091 1,739,613
Short-term borrowings 154,162 142,267 147,304
Long-term debt 236,418 251,970 253,774
Other liabilities 25,018 17,407 17,746
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Total liabilities 2,352,081 2,188,735 2,158,437
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Stockholders' equity:
Preferred stock, $0.01 par value at September 30, 2000,
no par, stated value $1.00 at December 31, 1999 and
September 30, 1999; shares authorized - 2,500,000 - - -
Common stock, $0.01 par value and 30,000,000 authorized
at September 30, 2000, no par, stated value $1.00 and 15,000,000
authorized at December 31, 1999 and September 30, 1999;
issued 24,213,882, 23,786,450, and 23,156,087 at September 30, 2000,
December 31, 1999 and September 30, 1999, respectively 242 23,786 23,156
Additional paid-in-capital 184,915 156,112 145,233
Retained earnings 48,030 44,949 54,167
Accumulated other comprehensive loss (14,921) (21,710) (15,182)
Common stock in treasury at cost, 521,257, 538,936,
and 590,489 shares at September 30, 2000, December 31, 1999
and September 30, 1999, respectively (11,283) (11,665) (12,781)
-------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 206,983 191,472 194,593
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,559,064 $2,380,207 $2,353,030
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to unaudited interim consolidated financial statements.
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<TABLE>
<CAPTION>
Three months ended Nine months ended
NBT BANCORP INC. AND SUBSIDIARIES September 30, September 30,
CONSOLIDATED STATEMENTS OF INCOME 2000 1999 2000 1999
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(in thousands, except per share data) (Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $36,472 $29,780 $103,059 $85,451
Securities - available for sale 10,137 10,608 31,006 29,615
Securities - held to maturity 1,524 1,555 4,657 4,597
Other 768 576 1,864 1,835
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Total interest and fee income 48,901 42,519 140,586 121,498
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Interest expense:
Deposits 19,038 14,097 52,830 41,480
Short-term borrowings 2,441 1,879 6,771 4,329
Long-term debt 3,352 3,478 10,133 9,384
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Total interest expense 24,831 19,454 69,734 55,193
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Net interest income 24,070 23,065 70,852 66,305
Provision for loan losses 1,619 1,325 5,418 3,860
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Net interest income after provision for loan losses 22,451 21,740 65,434 62,445
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Noninterest income:
Service charges on deposit accounts 2,208 2,048 6,365 5,786
Broker/dealer fees 1,009 - 1,573 -
Trust 784 835 2,455 2,505
Net securities gains 137 838 143 1,802
Other 1,485 1,491 4,325 4,640
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Total noninterest income 5,623 5,212 14,861 14,733
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Noninterest expense:
Salaries and employee benefits 9,034 7,756 25,605 22,409
Office supplies and postage 660 643 2,062 2,171
Occupancy 1,342 1,279 4,172 3,858
Equipment 1,374 1,329 4,217 3,900
Professional fees and outside services 1,455 872 3,536 2,697
Data processing and communications 1,167 1,225 3,638 3,546
Amortization of intangible assets 445 329 1,159 1,003
Merger and acquisition costs 2,687 250 6,583 269
Other operating 1,974 2,335 6,568 5,859
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Total noninterest expense 20,138 16,018 57,540 45,712
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Income before income taxes 7,936 10,934 22,755 31,466
Income taxes 2,781 3,915 8,251 11,029
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NET INCOME $ 5,155 $ 7,019 $14,504 $20,437
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Earnings per share:
Basic $ 0.22 $ 0.30 $ 0.62 $ 0.88
Diluted $ 0.22 $ 0.30 $ 0.62 $ 0.87
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</TABLE>
All per share data has been restated to give retroactive effect to stock
dividends and splits.
See notes to unaudited interim consolidated financial statements.
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<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
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Accumulated
Additional Other
Common Paid-in- Retained Comprehensive Treasury
Stock Capital Earnings Income (Loss) Stock Total
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(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $23,188 $146,823 $43,253 $ 3,736 $(12,962) $204,038
Net income 20,437 20,437
Cash dividends - $0.486 per share (9,507) (9,507)
Payment in lieu of fractional shares (16) (16)
Purchase of 341,763 treasury shares (6,373) (6,373)
Issuance of 317,973 shares to
employee benefit and other
stock plans 96 12 4,824 4,932
Retirement of 128,263 treasury shares (128) (1,602) 1,730
Other comprehensive loss (18,918) (18,918)
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BALANCE AT SEPTEMBER 30, 1999 $23,156 $145,233 $54,167 $(15,182) $(12,781) $194,593
---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $23,786 $156,112 $44,949 $(21,710) $(11,665) $191,472
Net income 14,504 14,504
Cash dividends - $0.510 per share (11,400) (11,400)
Payment in lieu of fractional shares (23) (23)
Issuance of 24,122 shares to employee
benefit and other stock plans 6 (146) 382 242
Change of $1.00 stated value per
share to $0.01 value per share (23,554) 23,554
Issuance of 420,989 shares to
purchase M. Griffith, Inc. 4 4,792 4,796
Tax benefit from stock options 603 603
Other comprehensive income 6,789 6,789
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BALANCE AT SEPTEMBER 30, 2000 $ 242 $184,915 $48,030 $(14,921) $(11,283) $206,983
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</TABLE>
See notes to unaudited interim consolidated financial statements.
Note:
Dividend per share data represents historical dividends per share of NBT Bancorp
Inc. stand-alone and have been adjusted for stock dividends.
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<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARIES Nine Months Ended September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS 2000 1999
-------------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 14,504 $ 20,437
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 5,418 3,860
Depreciation of premises and equipment 3,727 3,575
Net accretion on securities (188) (766)
Amortization of intangible assets 1,159 1,003
Proceeds from sales of loans originated for sale 10,947 25,823
Origination and purchases of loans held for sale (8,169) (22,553)
Net gain on sales of loans (82) (336)
Net loss on disposal of premises and equipment 39 -
Net loss (gain) on sale of other real estate owned 99 (415)
Writedown of other real estate owned 235 157
Net realized gains on sales of securities (143) (1,802)
Increase in other assets (6,778) (672)
Increase in other liabilities 7,794 76
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Net cash provided by operating activities 28,562 28,387
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INVESTING ACTIVITIES:
Net cash provided by acquisitions 33,170 -
Securities available for sale:
Proceeds from maturities 30,911 79,071
Proceeds from sales 10,270 107,473
Purchases (12,148) (248,919)
Securities held to maturity:
Proceeds from maturities 25,416 28,223
Purchases (21,316) (32,342)
Net increase in loans (207,013) (154,517)
Purchase of premises and equipment, net (499) (5,652)
Proceeds from sales of other real estate owned 1,463 2,519
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Net cash used in investing activities (139,746) (224,144)
-------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 122,718 75,306
Net increase in short-term borrowings 11,895 47,432
Proceeds from issuance of long-term debt 5,000 75,000
Repayments of long-term debt (20,552) (5,194)
Proceeds from issuance of common stock to stock plan 242 4,932
Purchase of treasury stock - (6,373)
Cash dividends and payment for fractional shares (11,423) (9,523)
-------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 107,880 181,580
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Net decrease in cash and cash equivalents (3,304) (14,177)
Cash and cash equivalents at beginning of period 79,629 87,762
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 76,325 $ 73,585
-------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period
for:
Interest $ 60,970 $ 54,613
Income taxes 8,276 10,895
-------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to interim consolidated financial statements.
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<TABLE>
<CAPTION>
NBT BANCORP INC, AND SUBSIDIARIES Nine Months Ended September 30,
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: 2000 1999
--------------------------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
<S> <C> <C>
Loans transferred to other real estate owned $ 1,104 $ 1,761
Fair value of assets acquired 1,068 -
Fair value of liabilities assumed 37,094 -
COMMON STOCK ISSUED FOR ACQUISITIONS 4,796 -
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</TABLE>
See notes to interim consolidated financial statements.
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<TABLE>
<CAPTION>
Three months ended Nine months ended
NBT BANCORP INC. AND SUBSIDIARIES September 30, September 30,
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 5,155 $ 7,019 $14,504 $ 20,437
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Other comprehensive income, net of tax
Unrealized holding gains (losses) arising during
period [pre-tax amounts of $8,572,
$(6,097), $11,115 and $(28,696)] 5,345 (3,769) 6,874 (17,831)
Less: Reclassification adjustment for net gains
included in net income [pre-tax amounts of
$(137), $(838), $(143) and $(1,802)] (81) (497) (85) (1,087)
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Total other comprehensive income (loss) 5,264 (4,266) 6,789 (18,918)
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Comprehensive income $10,419 $ 2,753 $21,293 $ 1,519
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</TABLE>
See notes to unaudited interim consolidated financial statements.
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NBT BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements include the
accounts of NBT Bancorp Inc. (the Registrant) and its wholly-owned subsidiaries,
NBT Bank, N.A. (NBT), LA Bank, N.A. (LA), Pioneer American Bank, N.A. (Pioneer
American) and NBT Financial Services, Inc. All intercompany transactions have
been eliminated in consolidation. Amounts in the prior period financial
statements are reclassified whenever necessary to conform to current period
presentation.
The consolidated balance sheet at December 31, 1999 has been derived from
the audited supplemental consolidated balance sheet at that date, which appears
in the Current Report on Form 8-K filed on August 1, 2000. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to FORM 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Registrant's annual
report on FORM 10-K for the year ended December 31, 1999 and the supplemental
consolidated financial statements and notes thereto referred to above. The
September 30, 1999 unaudited interim consolidated financial statements have been
restated to give effect to the mergers with Lake Ariel Bancorp, Inc. and Pioneer
American Holding Company Corp., which closed on February 17, 2000 and July 1,
2000, respectively, and were accounted for as poolings-of-interest.
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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 periods presented in the consolidated income statements.
<TABLE>
<CAPTION>
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Three months ended September 30, 2000 1999
----------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Basic EPS:
Weighted average common shares outstanding 23,692 23,076
Net income available to common shareholders $ 5,155 $ 7,019
----------------------------------------------------------------------------------------------------------
Basic EPS $ 0.22 $ 0.30
----------------------------------------------------------------------------------------------------------
Diluted EPS:
Weighted average common shares outstanding 23,692 23,076
Dilutive common stock options 17 300
----------------------------------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 23,709 23,376
Net income available to common shareholders $ 5,155 $ 7,019
----------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.22 $ 0.30
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
Nine months ended September 30, 2000 1999
----------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Basic EPS:
Weighted average common shares outstanding 23,476 23,104
Net income available to common shareholders $14,504 $20,437
----------------------------------------------------------------------------------------------------------
Basic EPS $ 0.62 $ 0.88
----------------------------------------------------------------------------------------------------------
Diluted EPS:
Weighted average common shares outstanding 23,476 23,104
Dilutive common stock options 71 323
----------------------------------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 23,547 23,427
Net income available to common shareholders $14,504 $20,437
----------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.62 $ 0.87
----------------------------------------------------------------------------------------------------------
</TABLE>
There were 944,690 stock options for the quarter ended September 30, 2000
and 219,672 stock options for the quarter ended September 30, 1999 that were not
considered in the calculation of diluted earnings per share since the stock
options' exercise price was greater than the average market price during these
periods. There were 791,174 stock options for the nine month period ended
September 30, 2000 and 217,572 stock options for the nine month period ended
September 30, 1999 that were not considered in the calculation of diluted
earnings per share since the stock options' exercise price was greater than the
average market price during these periods.
MERGERS AND ACQUISITIONS
On February 17, 2000, Lake Ariel Bancorp, Inc. (Lake Ariel), the parent company
of LA Bank, N.A., merged with and into NBT Bancorp Inc. with each issued and
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outstanding share of Lake Ariel exchanged for 0.9961 shares of NBT Bancorp
Inc. common stock. The transaction resulted in the issuance of 5.0 million
shares of NBT Bancorp Inc. common stock, bringing the Company's outstanding
shares to 18.1 million after the merger. The merger results in NBT Bancorp Inc.
being the surviving holding company for NBT Bank, N.A. and LA Bank, N.A., and
NBT Financial Services, Inc. The merger is being accounted for as a
pooling-of-interests and qualifies as a tax-free exchange for Lake Ariel
shareholders. LA Bank, N.A. is a commercial bank headquartered in northeast
Pennsylvania with twenty-two branch offices in five counties and approximately
$570 million in assets at December 31, 1999.
On July 1, 2000, Pioneer American Holding Company Corp., the parent company
of Pioneer American Bank, N.A., merged with and into NBT Bancorp Inc. The merger
is being accounted for as a pooling-of-interests and qualifies as a tax-free
exchange for Pioneer American shareholders. Shareholders of Pioneer American
received 1.805 shares of NBT Bancorp Inc., resulting in the issuance of 5.2
million shares of NBT Bancorp Inc. common stock bringing the Company's
outstanding shares to 23.7 million after the merger. The merger results in NBT
Bancorp Inc. being the surviving holding company for NBT Bank, N.A., LA Bank,
N.A., Pioneer American Bank, N.A., and NBT Financial Services, Inc. Pioneer
American Bank, N.A. is a full service commercial bank with total assets of
approximately $418 million at June 30, 2000 and seventeen branches in northeast
Pennsylvania. Pioneer American Bank, N.A. will ultimately be merged together
with LA Bank, N.A. to form the largest community bank headquartered in northeast
Pennsylvania.
On May 5, 2000, NBT Bancorp Inc. completed the purchase of M. Griffith,
Inc., a Utica, New York based securities firm offering investment advisor and
asset-management services, primarily in the Mohawk Valley region. In the
transaction, $3.3 million was recognized as goodwill. M. Griffith, Inc., a
full-service broker/dealer and a Registered Investment Advisor, is a
wholly-owned subsidiary of NBT Financial Services, Inc. NBT Financial Services,
Inc. was created in September of 1999 to concentrate on expanding NBT Bancorp
Inc.'s menu of financial services.
On June 2, 2000, NBT Bancorp Inc.'s subsidiary (LA Bank, N.A.) purchased
two branches from Mellon Bank, recognizing the $4.3 million deposit premium as
an intangible asset.
On April 20, 2000, NBT Bancorp Inc. and BSB Bancorp, Inc. announced the
signing of a definitive agreement to merge, whereby shareholders of BSB Bancorp,
Inc. would receive a fixed ratio of 2.0 shares of NBT Bancorp Inc. common stock
for each share of BSB Bancorp, Inc. common stock. The merger was expected to
close in the fourth quarter of 2000, subject to shareholder and regulatory
approval. However, on October 4, 2000, NBT terminated its definitive agreement
to merge with BSB Bancorp, Inc.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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. During
the second quarter of 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB No. 133". FASB No. 137 defers the effective date of FASB No. 133 by one
year from fiscal quarters of fiscal years beginning after June 15, 1999 to
fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138 "Accounting for Derivative Instruments and Hedging
Activities, and amendment to the FASB Statement No. 133". This statement amends
the accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and certain hedging activities. Based upon the preliminary
evaluations management has estimated that if NBT had adopted SFAS No. 133 on
September 30, 2000, the initial adoption would not have had a material effect on
NBT's financial statements. However, the effect of adoption on January 1, 2001
cannot be estimated with certainty at this time, as it is subject to unknown
variables at that date such as (1) actual derivatives and related hedge
positions, if any, (2) market values of derivatives and related hedged items, if
any, and (3) further ongoing interpretation of SFAS No. 133 by the FASB.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation". FASB Interpretation No.
44 clarifies the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" for certain issues. The adoption of
this Interpretation did not have a material effect on the Company's financial
position or results of operations.
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<PAGE>
NBT BANCORP INC. AND SUBSIDIARY
ITEM 2 -- 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
description of the financial condition and results of operations of NBT Bancorp
Inc. (Bancorp) and its wholly owned subsidiaries, NBT Bank, N.A. (NBT), LA Bank
N.A. (LA), Pioneer American Bank N.A. (Pioneer American) and NBT Financial
Services, Inc. collectively referred to herein as the Company. This discussion
will focus on Results of Operations, Financial Position, Capital Resources and
Asset/Liability Management. Reference should be made to the Company's interim
consolidated financial statements and footnotes thereto included in this FORM
10-Q. Reference should also be made to the Company's 1999 FORM 10-K and Current
Report on Form 8-K filed August 1, 2000, for an understanding of the following
discussion and analysis. Throughout this discussion and analysis, amounts per
common share and common shares outstanding have been adjusted retroactively for
stock dividends, splits and poolings of interest.
On October 23, 2000, NBT Bancorp Inc. announced the declaration of a
regular quarterly cash dividend of $0.17 per share. The cash dividend will be
paid on December 15, 2000 to stockholders of record as of December 1, 2000.
FORWARD-LOOKING STATEMENTS
This document and other documents filed by the Company with the Securities and
Exchange Commission (SEC) contain forward-looking statements. In addition, the
Company's senior management may make forward-looking statements orally to
analysts, investors, the media, and others. Forward-looking statements might
include one or more of the following: (a) projections of revenues, income,
earnings per share, capital expenditures, dividends, capital structure or other
financial items; (b) descriptions of plans or objectives of management for
future operations, products or services, including pending merger and
acquisition transactions; (c) forecasts of future economic performance; and (d)
descriptions of assumptions underlying or relating to any of the foregoing.
Forward-looking statements can be identified by the fact that they do not
relate strictly to historical or current facts. They often include words such as
"anticipate," "believe," "expect," "forecast," "project," "intend," "plan,"
"estimate," or words of similar meaning, or future or conditional verbs such as
"will," "would," "should," "could" or "may."
These forward-looking statements involve risks and uncertainties and are
based on the beliefs and assumptions of the management of the Company and on the
information available to management at the time that these statements were made.
There are a number of factors, many of which are beyond the Company's control,
that could cause actual conditions, events or results to differ significantly
from those described in the forward-looking statements. Factors that may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) competitive pressures among depository and other financial institutions may
increase significantly; (2) revenues may be lower than expected; (3) changes in
the interest rate environment may reduce interest margins; (4) general economic
conditions, either nationally or regionally, may be less favorable than
expected, resulting in, among other things, a deterioration in credit quality
and/or a reduced demand for credit; (5) legislative or regulatory changes,
including changes in accounting standards, may adversely affect the businesses
in which the Company is engaged; (6) costs or difficulties related to the
integration of the businesses of the Company and its merger partners may be
greater than expected; (7) expected cost savings associated with recent or
pending mergers and acquisitions may not be fully realized or realized within
the expected time frames; (8) deposit attrition, customer loss, or revenue loss
following pending mergers and acquisition may be greater than expected; (9)
competitors may have greater financial resources and develop products that
enable such competitors to compete more successfully than the Company; and (10)
adverse changes may occur in the securities markets or with respect to
inflation.
Forward-looking statements speak only as of the date they are made. The
Company does not undertake to update forward-looking statements to reflect
subsequent circumstances or events.
YEAR 2000
Concerns over the arrival of the Year 2000 ("Y2K") and its impact on the
embedded computer technologies used by financial institutions, among others, led
bank regulatory authorities to require substantial advance testing and
preparations by all banking organizations, including the Company. As of the date
of this filing, the Company has experienced no material problems in connection
with the arrival of Y2K, either in connection with the services and products it
-12-
<PAGE>
provides to its customers or in connection with the services and products it
receives from third party vendors or suppliers. However, while no such
occurrence has developed, Y2K issues may arise that may not become immediately
apparent. Therefore, the Company will continue to monitor and work to remedy any
issues that arise. Although the Company expects that its business will not be
materially impacted, such future events cannot be known with certainty.
OVERVIEW
Net income of $5.2 million ($0.22 per diluted share) was recognized in the third
quarter of 2000, compared to third quarter 1999 net income of $7.0 million
($0.30 per diluted share). The third quarter of 2000 results include $2.2
million in after-tax merger and acquisition expenses. Also contributing to the
decline in net income was a decrease in pre-tax securities gains between
reporting periods from $0.8 million in the third quarter of 1999 to $0.1 million
during the same period of 2000.
Net income of $14.5 million ($0.62 per diluted share) was recognized for
the nine month period ended September 30, 2000, compared to net income of $20.4
million ($0.87 per diluted share) for the first nine months of 1999. The nine
month period ended September 30, 2000 include $5.4 million in after-tax merger
and acquisition expenses. Also contributing to the decline in net income for the
nine month period ended September 30, 2000 was $1.8 million in net gains on the
sales of securities during the first nine months of 1999 versus $0.1 million
during the same period of 2000.
Table 1 depicts several measurements of performance on an annualized
basis. Returns on average assets and equity measure how effectively an entity
utilizes its total resources and capital, respectively. Both the return on
average assets and the return on average equity ratios declined for the three
and nine month periods ended September 30, 2000 compared to the same periods a
year previous. The decline in these ratios can be attributed to the reduction in
net income for both periods as described above.
Net interest margin, net federal taxable equivalent (FTE) interest income
divided by average interest-earning assets, is a measure of an entity's ability
to utilize its earning assets in relation to the cost of funding. Interest
income for tax-exempt securities and loans is adjusted to a taxable equivalent
basis using the statutory Federal income tax rate of 35%.
<TABLE>
<CAPTION>
TABLE 1
PERFORMANCE MEASUREMENTS
---------------------------------------------------------------------------------------
First Second THIRD NINE
Quarter Quarter QUARTER MONTHS
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Return on average assets 0.88% 0.66% 0.81% 0.78%
Return on average equity 10.95% 8.42% 10.14% 9.83%
Net interest margin 4.24% 4.15% 4.11% 4.17%
---------------------------------------------------------------------------------------
1999
Return on average assets 1.25% 1.21% 1.20% 1.22%
Return on average equity 13.16% 13.32% 14.25% 13.57%
Net interest margin 4.38% 4.34% 4.31% 4.34%
---------------------------------------------------------------------------------------
</TABLE>
NET INTEREST INCOME
Net interest income is the difference between interest income on earning assets,
primarily loans and securities, and interest expense on interest-bearing
liabilities, primarily deposits and borrowings. Net interest income is affected
by the interest rate spread, the difference between the yield on earning assets
and cost of interest-bearing liabilities, as well as the volumes of such assets
and liabilities. Net interest income is one of the major determining factors in
a financial institution's performance as it is the principal source of earnings.
Net federal taxable equivalent (FTE) interest income increased $1.0 million
for the third quarter of 2000 compared to the same period of 1999. This increase
was primarily a result of the $214.5 million increase in average earning assets,
primarily the result of continued loan growth.
Total FTE interest income for the quarter ended September 30, 2000
increased $6.4 million compared to third quarter 1999, a result of the
previously mentioned increase in average earning assets as well as a 38 basis
point increase in the yield earned on those earning assets. The increase in the
yield on earning assets can be primarily attributed to a 38 basis point increase
-13-
<PAGE>
in the yield on the loan portfolio. The increase in the yield earned on earning
assets can be attributed to the rising interest rate environment during late
1999 and the first half of 2000. During the same time period, total interest
expense increased $5.4 million, primarily the result of a $184.6 million
increase in average interest bearing liabilities between reporting periods. Also
contributing to the increased interest expense was a 68 basis point increase in
the cost of interest bearing liabilities, also the result of the rising interest
rate environment during late 1999 and early 2000. Driving this increase in the
cost of funds was a 95 basis point increase in the cost of time deposits and a
125 basis point increase in the cost of short-term borrowings. This increase in
the cost of funds resulted in a 30 basis point decline in the interest rate
spread, as the Company's liabilities repriced faster than the earning assets
during the rising rate environment.
Net federal taxable equivalent (FTE) interest income increased $5.0 million
for the first nine months of 2000 compared to the same period of 1999. This
increase was primarily a result of the $246.4 million increase in average
earning assets, primarily the result of continued loan growth.
Total FTE interest income for the nine months ended September 30, 2000
increased $19.5 million compared to same period of 1999, also a result of the
increase in average earning assets as well as a 28 basis point increase in the
yield earned on those earning assets. The increase in the yield on earning
assets can be primarily attributed to an 24 basis point increase in the yield on
the loan portfolio. During the same time period, total interest expense
increased $14.5 million, primarily the result of a $215.3 million increase in
average interest bearing liabilities between reporting periods. Also
contributing to the increased interest expense was a 52 basis point increase in
the cost of interest bearing liabilities, the result of the rising interest rate
environment during late 1999 and the first half of 2000. Driving this increase
in the cost of funds was a 66 basis point increase in the cost of time deposits
and a 112 basis point increase in the cost of short-term borrowings. This
increase in the cost of funds resulted in a 24 basis point decline in the
interest rate spread, as the Company's liabilities repriced faster than the
earning assets during the rising rate environment.
Another important performance measurement of net interest income is the net
interest margin. The net interest margin decreased to 4.11% for the third
quarter of 2000, down from 4.31% during the same period in 1999. The net
interest margin decreased to 4.17% for first nine months of 2000, down from
4.34% for the comparable period in 1999. The decrease in the net interest margin
during 2000 as compared to 1999 can be attributed to the previously mentioned
decrease in the interest rate spread as the interest bearing liabilities
repriced faster than the earning assets during the recent rising interest rate
environment.
Table 2 represents an analysis of net interest income on a federal
taxable equivalent basis. Interest income for tax-exempt securities and loans
has been adjusted to a taxable-equivalent basis using the Federal income tax
rate of 35%.
-14-
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
COMPARATIVE ANALYSIS OF FEDERAL TAXABLE EQUIVALENT NET INTEREST INCOME
-------------------------------------------------------------------------------------------------------------
Three months ended September 30,
Annualized
Yield/Rate Amounts Variance
-------------------------------------------------------------------------------------------------------------
2000 1999 (dollars in thousands) 2000 1999 TOTAL VOLUME RATE
---- ---- ---- ---- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
6.02% 3.28% Interest bearing deposits $ 29 $ 4 $ 25 $ 20 $ 5
6.44% 5.16% Federal funds sold 140 121 19 (7) 26
8.53% 6.64% Other 598 448 150 20 130
6.68% 6.64% Securities available for sale 10,395 10,864 (469) (540) 71
6.90% 6.80% Securities held to maturity 1,907 1,918 (11) (68) 57
8.88% 8.50% LOANS 36,692 29,982 6,710 5,346 1,364
------------------------------------------------------------------------------------
8.21% 7.83% Total interest income 49,761 43,337 6,424 4,771 1,653
3.74% 3.03% Money Market Deposit Accounts 1,324 1,000 324 79 245
1.84% 1.56% NOW accounts 974 758 216 71 145
2.78% 2.71% Savings accounts 1,946 1,877 69 21 48
5.86% 4.91% Time deposits 14,793 10,462 4,331 2,143 2,188
6.23% 4.98% Short-term borrowings 2,442 1,879 563 80 483
5.62% 5.54% LONG-TERM DEBT 3,352 3,478 (126) (178) 52
------------------------------------------------------------------------------------
4.87% 4.19% TOTAL INTEREST EXPENSE 24,831 19,454 5,377 2,216 3,161
------------------------------------------------------------------------------------
Net interest income $24,930 $23,883 $1,047 $ 2,555 $ (1,508)
=====================================================================================
3.34% 3.64% Interest rate spread
===== ===== ====================
4.11% 4.31% Net interest margin
===== ===== ===================
FTE adjustment $ 860 $ 818
============== ======= =======
<PAGE>
<CAPTION>
Nine Months Ended September 30,
Annualized
Yield/Rate Amounts Variance
-------------------------------------------------------------------------------------------------------------
2000 1999 (dollars in thousands) 2000 1999 TOTAL VOLUME RATE
---- ---- ---- ---- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
5.67% 3.56% Interest bearing deposits $ 54 $ 15 $ 39 $ 26 $ 13
6.20% 4.77% Federal funds sold 293 541 (248) (510) 262
7.29% 6.58% Other 1,517 1,278 239 94 145
6.76% 6.58% Securities available for sale 31,797 30,249 1,548 726 822
6.83% 7.04% Securities held to maturity 5,818 5,623 195 358 (163)
8.79% 8.55% LOANS 103,708 85,950 17,758 15,239 2,519
-------------------------------------------------------------------------------------
8.13% 7.85% Total interest income 143,187 123,656 19,531 15,933 3,598
3.43% 2.94% Money Market Deposit Accounts 3,466 2,871 595 96 499
1.79% 1.70% NOW accounts 2,747 2,480 267 180 87
2.77% 2.74% Savings accounts 5,646 5,459 187 (391) 578
5.58% 4.92% Time deposits 40,971 30,670 10,301 5,863 4,438
5.94% 4.82% Short-term borrowings 6,771 4,329 2,442 1,305 1,137
5.61% 5.57% LONG-TERM DEBT 10,133 9,384 749 674 75
-------------------------------------------------------------------------------------
4.69% 4.17% TOTAL INTEREST EXPENSE 69,734 55,193 14,541 7,727 6,814
-------------------------------------------------------------------------------------
Net interest income $73,453 $68,463 $4,990 $ 8,206 $ (3,216)
======================================================================================
3.44% 3.68% Interest rate spread
===== ===== ====================
4.17% 4.34% Net interest margin
===== ===== ===================
FTE adjustment $ 2,601 $ 2,158
============== ======= =======
</TABLE>
-15-
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation allowance established to provide
for the inherent risk of loss in the Company's loan portfolio. The allowance is
maintained at a level considered adequate to provide for loan loss exposure
based on management's estimate of probable losses in the portfolio considering
an evaluation of risk, economic factors, and past loss experience. Management
determines the provision and allowance for loan losses based on a number of
factors including a comprehensive independent loan review program conducted
throughout the year. The loan portfolio is continually evaluated in order to
identify problem loans, credit concentration, and other risk factors such as
economic conditions and trends. The allowance for loan losses to outstanding
loans at September 30, 2000 is 1.36%, compared to 1.34% at September 30, 1999.
Management considers the allowance for loan losses to be adequate based on
evaluation and analysis of the loan portfolio.
Table 3 reflects changes to the allowance for loan losses for the periods
presented. Net charge-offs for the quarter ended September 30, 2000 increased
$31 thousand, or 3.4% compared to the same period of 1999. Annualized net
charge-offs to average loans declined to 0.23% for the third quarter of 2000,
down from 0.26% for the comparable period of 1999. Net charge-offs for nine
month period ended September 30, 2000 declined $543 thousand, or 18.16% compared
to the same period of 1999. Annualized net charge-offs to average loans declined
to 0.21% for the first nine months of 2000, compared to 0.30% for the comparable
period of 1999. The provision for loan losses of $1.6 million for the quarter
ended September 30, 2000 increased over the comparable period of 1999 provision
of $1.3 million. The provision for loan losses of $5.4 million for the nine
month period ended September 30, 2000 increased over the comparable period of
1999 provision of $3.9 million. The provision for loan losses was increased as a
result of continued significant loan growth, the changing mix of the Company's
loan portfolio and increased nonperforming loans, offset in part by a decline in
net charge-offs.
<TABLE>
<CAPTION>
TABLE 3
ALLOWANCE FOR LOAN LOSSES
-----------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $22,005 $18,687 $19,711 $18,231
Recoveries 418 312 918 773
Charge-offs (1,360) (1,223) (3,365) (3,763)
-----------------------------------------------------------------------------------------------------------
Net charge-offs (942) (911) (2,447) (2,990)
Provision for loan losses 1,619 1,325 5,418 3,860
-----------------------------------------------------------------------------------------------------------
Balance, end of period $22,682 $19,101 $22,682 $19,101
-----------------------------------------------------------------------------------------------------------
<CAPTION>
COMPOSITION OF NET CHARGE-OFFS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $ (363) 39% $ (565) 62% $ (982) 40% $(1,623) 54%
Real estate mortgage (160) 17% (54) 6% (432) 18% (241) 8%
Consumer (419) 44% (292) 32% (1,033) 42% (1,126) 38%
-----------------------------------------------------------------------------------------------------------
Net charge-offs $ (942) 100% $ (911) 100% $(2,447) 100% $(2,990) 100%
-----------------------------------------------------------------------------------------------------------
Annualized net charge-offs
to average loans 0.23% 0.26% 0.21% 0.30%
-----------------------------------------------------------------------------------------------------------
Net charge-offs to average loans for the year ended
December 31, 1999 0.29%
-----------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST INCOME
Noninterest income for the third quarter of 2000, excluding security gains,
increased $1.1 million or 25.4% when compared to third quarter of 1999. Service
charges on deposit accounts increased $0.2 million in the third quarter of 2000
compared to the same period of 1999. This improvement can be primarily
attributed to an increase in service fee and overdraft income resulting from
growth in demand deposit accounts. Broker/dealer fees increased $1.0 million in
the third quarter of 2000 compared to the same period of 1999. The increase in
other income can be attributed to revenue generated from the previously
mentioned addition of M. Griffith, Inc. in May of 2000.
-16-
<PAGE>
For the nine month period ended September 30, 2000, excluding security
gains, noninterest income increased $1.8 million or 13.8% compared to the same
period during 1999. Service charges on deposit accounts increased $0.6 million
during this period. This improvement can be attributed to an increase in service
fee and overdraft income resulting from growth in demand deposit accounts.
Broker/dealer fees increased $1.6 million for the nine month period ended
September 30, 2000 compared to the same period of 1999. This increase is
primarily attributed to the addition of M. Griffith, Inc.
NONINTEREST EXPENSE AND OPERATING EFFICIENCY
Total noninterest expense for the quarter ended September 30, 2000 increased
$4.1 million compared to the same time period of 1999. Noninterest expense for
the nine month period ended September 30, 2000 increased $11.8 million compared
to the same time period of 1999. Contributing to the increase in noninterest
expense for the quarter and nine month period ended September 30, 2000 is $2.7
million and $6.6 million, respectively in pre-tax merger and acquisition related
expenses associated with the previously mentioned mergers and terminated merger.
It is anticipated that the Company will incur approximately $8.2 million in
additional merger and acquisition expenses related to the Lake Ariel and Pioneer
American mergers during 2000. In connection with the terminated merger with BSB
Bancorp, Inc., certain arrangements made prior to the merger termination are
currently being reviewed and could result in additional costs to NBT.
Salaries and employee benefits for the quarter and nine month period ended
September 30, 2000 increased $1.3 million and $3.2 million, respectively
compared to the same periods of 1999. Contributing to the increase in salaries
and employee benefits during 2000 was the addition of M. Griffith, Inc. in May
of 2000.
Occupancy expense for the nine month period ended September 30, 2000
experienced a $0.3 million increase compared to the same period in 1999.
Contributing to this increase in occupancy expense was a rise in security
expense resulting from a third party contract to enhance the maintenance of the
Company's security equipment.
Equipment expense for the nine month period ended September 30, 2000
experienced a $0.3 million increase compared to the same period in 1999,
primarily attributable to increased equipment depreciation and maintenance.
Professional fees and outside service expense for the three and nine month
periods ended September 30, 2000 increased $0.6 million and $0.8 million,
respectively compared to the same periods in 1999. These costs relate primarily
to the implementation of various strategic planning initiatives.
Other operating expense for the nine month period ended September 30, 2000
increased $0.7 million compared to the same periods of 1999. Included in other
operating expense were net gains on the sale of other real estate owned of $0.1
million for the nine month period ended September 30, 2000 compared to $0.5
million for the same period of 1999.
One important operating efficiency measure that the Company closely
monitors is the efficiency ratio. The efficiency ratio is computed as total
noninterest expense (excluding nonrecurring charges) divided by FTE net interest
income plus noninterest income (excluding net security gains and losses, OREO
gains and losses, and nonrecurring income). The efficiency ratio increased to
57.80% for the quarter ended September 30, 2000 from 55.70% in the same period
of 1999. The efficiency ratio increased to 57.65% for the nine month period
ended September 30, 2000 from 56.40% in the same period of 1999. The increase in
the efficiency ratio during 2000 can be attributed to the increase in
noninterest expense between reporting periods.
INCOME TAXES
Income tax expense was $2.8 million for the quarter ended September 30, 2000
compared with $3.9 million for the same period of 1999. For the first nine
months of 2000, income tax expense amounted to $8.3 million compared with $11.0
million in 1999. The decrease in income taxes during the quarter and nine month
period ended September 30, 2000 as compared to the same periods of 1999 can be
primarily attributed to the decreased income before income taxes between
reporting periods. The effective tax rate was 35.0% for the quarter ended
September 30, 2000 and 35.8% for the same period of 1999. The effective tax rate
was 36.3% for the nine month period ended September 30, 2000 and 35.1% for the
same period of 1999.
-17-
<PAGE>
BALANCE SHEET
The following table highlights the changes in the balance sheet. Since period
end balances can be distorted by one day fluctuations, the discussion and
analysis concentrates on average balances when appropriate to give a better
indication of balance sheet trends.
<TABLE>
<CAPTION>
TABLE 4
AVERAGE BALANCES
-------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 77,225 $ 71,734 $ 72,139 $ 74,755
Securities available for
sale, at fair value 590,107 628,519 595,887 608,658
Securities held to maturity 110,006 111,926 113,840 106,851
Loans 1,643,462 1,398,952 1,575,799 1,344,374
Deposits 1,916,324 1,707,852 1,859,796 1,671,891
Short-term borrowings 155,863 149,646 152,210 120,090
Long-term debt 237,399 248,984 241,226 225,370
Stockholders' equity 202,287 195,392 197,057 201,364
Assets 2,538,817 2,320,438 2,473,584 2,237,266
Earning assets 2,410,854 2,196,432 2,353,684 2,107,284
Interest bearing liabilities $2,027,162 $1,842,590 $1,985,830 $1,770,522
-------------------------------------------------------------------------------------------------
</TABLE>
SECURITIES
Average total securities were $40.3 million less for the quarter ended September
30, 2000 than for the same period of 1999. Average total securities were $5.8
million less for the nine month period ended September 30, 2000 than for the
same period of 1999. During the quarter ended September 30, 2000, the securities
portfolio represented 29.0% of average earning assets compared to 33.7% for the
same period of 1999. Total securities at September 30, 2000 were $21.8 million
less than securities at December 31, 1999. The reduction in securities during
2000 is a result of the Company using the paydowns from its mortgage-backed
securities to fund loan growth. At September 30, 2000, the securities portfolio
was comprised of 85% available for sale and 15% held to maturity securities.
LOANS
Average loan volume for the quarter ended September 30, 2000 increased $244.5
million, or 17.5% over third quarter 1999. Average loan volume for the nine
month period ended September 30, 2000 increased $231.4 million, or 17.2% over
the same period of 1999. Total loans at September 30, 2000 were $200.8 million
greater than loans at December 31, 1999, primarily attributed to commercial
loans. The Company has continued to experience an increase in the demand for
commercial loans, primarily in the business and real estate categories. The
Company does not engage in highly leveraged transactions or foreign lending
activities.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets consist of nonaccrual loans, loans 90 days or more past due
and still accruing, troubled debt restructurings (TDR's), and other real estate
owned (OREO). Total nonperforming assets were $13.0 million at September 30,
2000 compared to $11.2 million at September 30, 1999. An increase of $4.4
million in nonaccrual commercial and agricultural loans was partially offset by
a decrease in nonaccrual real estate mortgages and other real estate owned of
$1.6 million and $1.7 million, respectively. The changes in nonperforming assets
are presented in Table 5 below.
At September 30, 2000, the recorded investment in impaired loans was $7.8
million. Included in this amount is $4.4 million of impaired loans for which the
specifically allocated allowance for loan loss is $1.3 million. In addition,
included in impaired loans is $3.1 million of impaired loans that, as a result
of the adequacy of collateral values or anticipated cash flows do not have a
specific reserve. At December 31, 1999, the recorded investment in impaired
loans was $6.3 million, of which $1.7 million had a specific allowance
allocation of $0.7 million and $4.6 million for which there was no specific
reserve. At September 30, 1999, the recorded investment in impaired loans was
$4.9 million, of which $2.1 million had a specific allowance allocation of $1.0
-18-
<PAGE>
million and $2.8 million of which there was no specific reserve. The Company
classifies all commercial and small business nonaccrual loans as impaired loans.
<TABLE>
<CAPTION>
TABLE 5
NONPERFORMING ASSETS
-----------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
(in thousands) 2000 1999 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $ 7,810 84.37% $ 6,141 80.85% $3,370 56.72%
Real estate mortgage 491 5.30% 618 8.13% 2,047 34.46%
Consumer 956 10.33% 837 11.02% 524 8.82%
-----------------------------------------------------------------------------------------------------------
Total nonaccrual loans 9,257 100% 7,596 100% 5,941 100%
-----------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 314 14.12% 1,201 59.28% 55 3.06%
Real estate mortgage 1,595 71.72% 641 31.64% 1,158 64.33%
Consumer 315 14.16% 184 9.08% 587 32.61%
-----------------------------------------------------------------------------------------------------------
Total 2,224 100% 2,026 100% 1,800 100%
-----------------------------------------------------------------------------------------------------------
Troubled debt restructured loans 747 1,014 1,017
Total nonperforming loans 12,228 10,636 8,758
Other real estate owned 745 1,438 2,471
Total nonperforming assets $12,973 $12,074 $11,229
-----------------------------------------------------------------------------------------------------------
Nonperforming loans to loans 0.73% 0.73% 0.61%
Nonperforming assets to assets 0.51% 0.51% 0.48%
Allowance to nonperforming loans 185.49% 185.32% 218.10%
-----------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
Customer deposits represent the greatest source of funding assets. Average total
deposits for the quarter ended September 30, 2000 increased $208.5 million
compared to same period of 1999. This deposit growth was experienced in all
categories, with increases in demand, savings and time of $18.5 million, $30.5
million and $159.5 million, respectively. Average total deposits for the nine
month period ended September 30, 2000 increased $187.9 million compared to the
same period of 1999. This growth has also been present in all deposit
categories, with increases in demand, savings and time of $20.6 million, $19.8
million and $147.5 million, respectively. As previously mentioned, the increase
in demand deposits has led to an increase in service charge fee income.
BORROWED FUNDS
The Company's borrowed funds consist of short-term borrowings and long-term
debt. Average borrowings for the quarter ended September 30, 2000 were $393.3
million compared to $398.6 million for the same period of 1999. Average
borrowings for the nine month period ended September 30, 2000 were $393.4
million compared to $345.5 million for the same period of 1999. The increase in
borrowed funds for the nine month period ended September 30, 2000 can be
attributed to the need for funding the strong loan growth.
CAPITAL AND DIVIDENDS
Stockholders' equity of $207.0 million represents 8.1% of total assets at
September 30, 2000, compared with $191.5 million, or 8.0% at December 31, 1999
and $194.6 million, or 8.3% a year previous.
In September of 2000, the Company distributed a $0.17 per share cash
dividend. 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. The cash dividends as a percentage of
net income were 78.6% and 46.5% for the nine month periods ending September 30,
2000 and September 30, 1999, respectively.
As the capital ratios in Table 6 indicate, the Company remains well
capitalized. Capital measurements are significantly in excess of regulatory
minimum guidelines and meet the requirements to be considered well capitalized
for all periods presented. Tier 1 leverage, Tier 1 capital and Risk-based
capital ratios have regulatory minimum guidelines of 3%, 4% and 8% respectively,
with requirements to be considered well capitalized of 5%, 6% and 10%,
respectively.
-19-
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
CAPITAL MEASUREMENTS
-----------------------------------------------------------------------------------------
First Second THIRD
Quarter Quarter QUARTER
-----------------------------------------------------------------------------------------
2000
<S> <C> <C> <C>
Tier 1 leverage ratio 8.59% 8.20% 8.11%
Tier 1 capital ratio 13.24% 12.61% 12.54%
Total risk-based capital ratio 14.40% 13.80% 13.75%
Per common share:
Book value $ 8.36 $ 8.47 $ 8.74
Tangible book value $ 7.99 $ 7.79 $ 8.08
-----------------------------------------------------------------------------------------
1999
Tier 1 leverage ratio 9.03% 8.85% 8.64%
Tier 1 capital ratio 14.68% 14.32% 13.95%
Total risk-based capital ratio 15.87% 15.49% 15.11%
Per common share:
Book value $ 8.81 $ 8.45 $ 8.42
Tangible book value $ 8.38 $ 8.03 $ 8.01
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying Table 7 presents the high, low and closing sales price for the
common stock as reported on the NASDAQ Stock Market, and cash dividends declared
per share of common stock. The Company's price to book value ratio was 1.37 at
September 30, 2000 and 1.96 a year ago. The per share market price was 14 times
annualized earnings at September 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 7
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
--------------------------------------------------------------------------------------
Cash
Dividends
Quarter Ending High Low Close Declared
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
March 31 $23.33 $19.89 $19.89 $0.162
June 30 21.19 19.05 19.52 0.162
September 30 20.90 16.43 16.49 0.162
December 31 17.98 14.63 15.50 0.170
--------------------------------------------------------------------------------------
2000
MARCH 31 $16.50 $11.38 $14.50 $0.170
JUNE 30 14.50 9.38 10.69 0.170
SEPTEMBER 30 12.50 9.75 12.00 0.170
--------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
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.
The Company's primary measure of liquidity is called the basic surplus,
which compares the adequacy of cash sources to the amounts of volatile funding
sources. 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. Accordingly, the Company has established borrowing
agreements with other banks (Federal Funds), the Federal Home Loan Bank (short
and long-term borrowings which are denoted as advances), and repurchase
agreements with investment companies. The Asset/Liability Management Committee
has determined that liquidity is adequate to meet the cash flow requirements of
the Company.
Interest rate risk is determined by the relative sensitivities of earning
asset yields and interest bearing liability costs to changes in interest rates.
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. Through analysis of the interest sensitivity gap, the Company
attempts to position its assets and liabilities to maximize net interest income
in several different interest rate scenarios.
While the static gap evaluation of interest rate sensitivity is useful, it
is not indicative of the impact of fluctuating interest rates on net interest
income. Once the Company determines the extent of gap sensitivity, the next step
is to quantify the potential impact of the interest sensitivity on net interest
income. The Company measures interest rate risk based on the potential change in
net interest income under various rate environments. The Company utilizes an
interest rate risk model that simulates net interest income under various
interest rate environments. The model groups assets and liabilities into
components with similar interest rate repricing characteristics and applies
certain assumptions to these products. These assumptions include, but are not
limited to prepayment estimates under different rate environments, potential
call options of the investment portfolio and forecasted volumes of the various
balance sheet items.
The Company believes there have been no material changes in the interest
rate risk position since December 31, 1999. Other types of market risk, such as
foreign exchange rate risk and commodity price risk, do not arise in the normal
course of the Company's business activities.
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<PAGE>
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
This item is omitted, as there have been no material legal proceedings initiated
or settled during the quarter ended September 30, 2000.
Item 2 -- Changes in Securities
Not Applicable
Item 3 -- Defaults Upon Senior Securities
This item is omitted because there were no defaults upon the Registrant's senior
securities during the quarter ended September 30, 2000.
Item 4 -- Submission of Matters to a Vote of Security Holders
This item is omitted as there is no disclosure required for the quarter ended
September 30, 2000.
Item 5 -- Other Information
Not Applicable
Item 6 -- Exhibits and Reports on FORM 8-K
(a) An index to exhibits follows the signature page of this FORM 10-Q.
(b) During the quarter ended September 30, 2000, the Company filed the following
Current Reports on Form 8-K:
Current report on Form 8K filed with the Securities and Exchange
Commission on July 14, 2000
Current report on Form 8K/A filed with the Securities and Exchange
Commission on July 25, 2000
Current report on Form 8K filed with the Securities and Exchange
Commission on August 1, 2000
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on FORM 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized, this 14th day of November, 2000.
NBT BANCORP INC.
By: /S/ DARYL R. FORSYTHE
----------------------
Daryl R. Forsythe
President and
Chief Executive Officer
<PAGE>
INDEX TO EXHIBITS
The following documents are attached as Exhibits to this FORM 10-Q 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-Q
Exhibit Exhibit
NUMBER CROSS-REFERENCE
------ ---------------
<S> <C> <C>
10.1 Form of Employment Agreement between NBT Bancorp Inc. and
Michael J. Chewens made as of June 1, 2000 Herein
10.2 Supplemental Retirement Agreement between NBT Bancorp Inc., NBT
Bank, National Association and Michael J. Chewens made as of June 1, 2000 Herein
27.1 Financial Data Schedule for the nine months ended September 30, 2000 Herein
</TABLE>
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<PAGE>
