SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 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 July 31, 2000, there were 23,691,749 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.
1
<PAGE>
NBT BANCORP INC.
FORM 10-Q -- Quarter Ended June 30, 2000
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2000, December 31, 1999
(Audited), and June 30, 1999
Consolidated Statements of Income for the three month and six month
periods ended June 30, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the six month
periods ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows for the six month periods
ended June 30, 2000 and 1999
Consolidated Statements of Comprehensive Income for the three month
and six month periods ended June 30, 2000 and 1999
Notes to 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
2
<PAGE>
<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARIES JUNE 30, December 31, June 30,
CONSOLIDATED BALANCE SHEETS 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data) (UNAUDITED) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 68,773 $ 64,431 $ 65,356
Securities available for sale, at fair value 489,572 500,423 492,339
Securities held to maturity (fair value-$68,011,
$73,648 and $69,407) 70,620 76,706 71,465
Loans 1,373,114 1,222,654 1,125,581
Less allowance for loan losses (18,796) (16,654) (15,711)
------------------------------------------------------------------------------------------------------------------------------------
Net loans 1,354,318 1,206,000 1,109,870
Premises and equipment, net 39,823 40,830 38,522
Other assets 78,215 73,042 66,112
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,101,321 $1,961,432 $1,843,664
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 222,264 $ 223,143 $ 202,585
Savings, NOW, and money market 520,774 487,746 478,773
------------------------------------------------------------------------------------------------------------------------------------
Time 852,935 766,729 660,003
Total deposits 1,595,973 1,477,618 1,341,361
Short-term borrowings 160,554 137,567 179,548
Long-term debt 160,983 172,575 149,132
Other liabilities 16,140 13,195 10,788
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,933,650 1,800,955 1,680,829
------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $0.01 par value at June 30, 2000, no par,
stated value $1.00 at December 31, 1999 and
June 30, 2000; shares authorized - 2,500,000 - - -
Common stock, $0.01 par value and 30,000,000 authorized
at June 30, 2000, no par, stated value $1.00 and 15,000,000
authorized at December 31, 1999 and June 30, 1999;
issued 19,044,424, 18,616,992, and
17,976,269 at June 30, 2000,
December 31, 1999 and June 30, 1999, respectively 190 18,617 17,976
Additional paid-in-capital 171,810 148,717 138,068
Retained earnings 24,139 23,060 29,441
Accumulated other comprehensive loss (17,167) (18,252) (8,853)
Common stock in treasury at cost, 522,133, 538,936,
and 635,642 shares at June 30, 2000, December 31, 1999
and June 30, 1999, respectively (11,301) (11,665) (13,797)
------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 167,671 160,477 162,835
------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,101,321 $1,961,432 $1,843,664
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
NBT BANCORP INC. AND SUBSIDIARIES June 30, June 30,
CONSOLIDATED STATEMENTS OF INCOME 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $29,309 $23,406 $56,498 $46,085
Securities - available for sale 8,686 8,174 17,558 15,799
Securities - held to maturity 976 902 1,969 1,742
Other 481 456 883 914
------------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 39,452 32,938 76,908 64,540
------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 15,001 11,021 28,447 22,027
Short-term borrowings 2,184 1,299 4,238 2,438
Long-term debt 2,240 2,070 4,586 3,809
------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 19,425 14,390 37,271 28,274
------------------------------------------------------------------------------------------------------------------------------------
Net interest income 20,027 18,548 39,637 36,266
Provision for loan losses 2,225 1,230 3,559 2,350
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 17,802 17,318 36,078 33,916
------------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Trust 811 835 1,671 1,670
Service charges on deposit accounts 1,721 1,557 3,341 2,965
Net securities gains 7 208 7 876
Other 1,623 1,100 2,758 2,465
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 4,162 3,700 7,777 7,976
------------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 6,874 5,976 13,955 11,946
Office supplies and postage 581 599 1,173 1,236
Occupancy 1,093 1,000 2,325 2,024
Equipment 1,204 1,057 2,341 2,004
Professional fees and outside services 839 737 1,595 1,434
Data processing and communications 1,202 1,038 2,334 2,010
Amortization of intangible assets 383 325 695 654
Merger and acquisition costs 2,561 - 3,683 -
Other operating 2,177 1,414 3,796 2,654
------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 16,914 12,146 31,897 23,962
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,050 8,872 11,958 17,930
Income taxes 1,963 3,152 4,630 6,434
------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,087 $ 5,720 $ 7,328 $11,496
------------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.17 $ 0.32 $ 0.40 $ 0.64
Diluted $ 0.17 $ 0.32 $ 0.40 $ 0.64
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All per share data has been restated to give retroactive effect to stock
dividends and splits.
See notes to interim consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-in- Retained Comprehensive Treasury
Stock Capital Earnings Income (Loss) Stock Total
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $17,946 $137,997 $23,132 $ 3,062 $(12,962) $169,175
Net income 11,496 11,496
Cash dividends - $0.324 per share (5,171) (5,171)
Payment in lieu of fractional shares (16) (16)
Issuance of 30,561 shares to stock plan 30 294 324
Purchase of 179,500 treasury shares (3,943) (3,943)
Sale of 143,365 treasury shares to
employee benefit plans and other
stock plans (223) 3,108 2,885
Other comprehensive loss (11,915) (11,915)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $17,976 $138,068 $29,441 $ (8,853) $(13,797) $162,835
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $18,617 $148,717 $23,060 $(18,252) $(11,665) $160,477
Net income 7,328 7,328
Cash dividends - $0.340 per share (6,249) (6,249)
Issuance of 6,443 shares to stock plan 6 63 69
Sale of 4,937 treasury shares to
employee benefit plans and other
stock plans (32) 116 84
Change $1.00 stated value per share
to $0.01 par value per share (18,437) 18,437 -
Stock option exercise (167) 248 81
Issuance of 420,989 shares to
purchase M. Griffith, Inc. 4 4,792 4,796
Other comprehensive income 1,085 1,085
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 $ 190 $171,810 $24,139 $(17,167) $(11,301) $167,671
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
NBT BANCORP INC. AND SUBSIDIARIES Six Months Ended June 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS 2000 1999
----------------------------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,328 $ 11,496
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 3,559 2,350
Depreciation of premises and equipment 2,024 1,686
Net accretion on securities (1,036) (512)
Amortization of intangible assets 695 654
Proceeds from sale of loans held for sale 7,777 23,989
Origination and purchases of loans held for sale (6,292) (21,362)
Net loss (gain) on sales of loans 76 (330)
Net loss on disposal of premises and equipment 545 -
Net loss (gain) on sale of other real estate owned 225 (432)
Net realized loss (gain) on sales of securities (7) (876)
Net (increase) decrease in other assets (1,849) 1,512
Net increase (decrease) in other liabilities 2,945 (2,305)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,990 15,870
----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities 17,104 50,753
Proceeds from sales 10,127 100,233
Purchases (13,414) (160,996)
Securities held to maturity:
Proceeds from maturities 16,928 15,319
Purchases (10,824) (23,408)
Net increase in loans (154,223) (79,379)
Purchase of premises and equipment, net (1,562) (2,603)
Proceeds from sales of other real estate owned 481 1,692
----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (135,383) (98,389)
----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 118,355 (15,586)
Net increase in short-term borrowings 22,987 79,676
Proceeds from issuance of long-term debt 5,000 25,000
Repayments of long-term debt (16,592) (1,479)
Proceeds from issuance of common stock to stock plan 69 324
Exercise of stock options 81 -
Proceeds from issuance of treasury shares to
employee benefit plans and other stock plans - 2,885
Purchase of treasury stock - (3,943)
Sale of treasury stock 84 -
Cash dividends and payment for fractional shares (6,249) (5,187)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 123,735 81,690
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,342 (829)
Cash and cash equivalents at beginning of period 64,431 66,185
----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 68,773 $ 65,356
----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the
period for:
Interest $ 35,247 $ 29,019
Income taxes 4,615 7,158
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to interim consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
NBT BANCORP INC. AND SUBSIDIARIES June 30, June 30,
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 3,087 $ 5,720 $ 7,328 $ 11,496
------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax
Unrealized holding gains (losses) arising during
period [pre-tax amounts of $753,
$(15,535), $1,848 and $(18,946)] 452 (9,321) 1,089 (11,368)
Less: Reclassification adjustment for net gains included
in net income [pre-tax amounts of
$(7), $(208), $(7) and $(876)] (4) (130) (4) (547)
------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 448 (9,451) 1,085 (11,915)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 3,535 $(3,731) $ 8,413 $ (419)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to interim consolidated financial statements.
7
<PAGE>
NBT BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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) 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 March 31, 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 six month period ended June 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 June 30, 1999
interim consolidated financial statements have been restated to give effect to
the merger with Lake Ariel Bancorp, Inc., which closed on February 17, 2000 and
was accounted for as a pooling-of-interests.
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>
------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2000 1999
------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Basic EPS:
Weighted average common shares outstanding 18,365 17,823
Net income available to common shareholders $ 3,087 $ 5,720
------------------------------------------------------------------------------------------------------------------------------
Basic EPS $ 0.17 $ 0.32
------------------------------------------------------------------------------------------------------------------------------
Diluted EPS:
Weighted average common shares outstanding 18,365 17,823
Dilutive common stock options 16 250
------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 18,381 18,073
Net income available to common shareholders $ 3,087 $ 5,720
------------------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.17 $ 0.32
------------------------------------------------------------------------------------------------------------------------------
8
<PAGE>
------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2000 1999
------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Basic EPS:
Weighted average common shares outstanding 18,196 17,839
Net income available to common shareholders $ 7,328 $11,496
------------------------------------------------------------------------------------------------------------------------------
Basic EPS $ 0.40 $ 0.64
------------------------------------------------------------------------------------------------------------------------------
Diluted EPS:
Weighted average common shares outstanding 18,196 17,839
Dilutive common stock options 61 260
------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 18,257 18,099
Net income available to common shareholders $ 7,328 $11,496
------------------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.40 $ 0.64
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were 896,692 stock options for the quarter ended June 30, 2000 and
230,053 stock options for the quarter ended June 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 743,175 stock options for the six month period ended June
30, 2000 and 20,553 stock options for the six month period ended June 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, the stockholders of NBT Bancorp Inc. and Lake Ariel
Bancorp, Inc. (Lake Ariel) approved a merger whereby Lake Ariel was merged with
and into NBT Bancorp Inc. with each issued and outstanding share of Lake Ariel
exchanged for 0.9961 shares of NBT Bancorp Inc. common stock. The transaction
resulted in the issuance of 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., a former subsidiary of Lake Ariel. 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 June 23, 2000, the Board of Directors of Pioneer American Holding
Company Corp., the parent company of Pioneer American Bank, N.A., gave final
approval to their merger with and into NBT Bancorp Inc. This follows the
approval of the agreement and plan of merger by the stockholders of both
companies at separate meetings held on June 20, 2000. The merger became
effective on July 1, 2000 and 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.
9
<PAGE>
The following table presents unaudited pro forma data combining the results of
operations of NBT Bancorp Inc. and Pioneer American Holding Company Corp. as if
the merger had been consummated on June 30, 2000. This data reflects adjustments
to conform the accounting methods of Pioneer American Holding Company Corp. with
those of NBT Bancorp Inc.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Six month period ended June 30, 2000 1999
----------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Net interest income $46,869 $43,387
Net income 9,349 13,418
Diluted earnings per share 0.40 0.57
----------------------------------------------------------------------------------------
</TABLE>
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. 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 April 20, 2000, NBT Bancorp Inc. and BSB Bancorp, Inc., the parent
company of BSB Bank and Trust Company, announced the signing of a definitive
agreement to merge. The merger is subject to the approval of each company's
shareholders and of banking regulators. The merger is expected to close in the
fourth quarter of 2000 and is intended to be accounted for as a
pooling-of-interests and qualify as a tax-free exchange for BSB Bancorp, Inc.
shareholders. Shareholders of BSB Bancorp, Inc. will receive a fixed ratio of
2.0 shares of NBT Bancorp Inc. common stock for each share exchanged.
BSB Bank and Trust Company is a full service commercial bank with total
assets of approximately $2.3 billion at June 30, 2000 and twenty-two branches in
six counties in central New York and New York's Southern Tier. As a result of
the merger, NBT Bank, N.A. and BSB Bank and Trust Company will be combined to
create one of the largest independent community banks in upstate New York. This
strategic alliance will create a financial services holding company with pro
forma assets of approximately $4.8 billion and three direct operating
subsidiaries including two community banks and a financial services company. The
holding company will adopt a new name before the merger occurs.
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. At the present time, the Company has
not fully analyzed the effect or timing of the adoption of SFAS No. 133 or SFAS
No. 138 on the Company's consolidated financial statements.
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.
10
<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) 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 March 31, 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 and splits.
On July 24, 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
September 15, 2000 to stockholders of record as of September 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
11
<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 $3.1 million ($0.17 per diluted share) was recognized in the
second quarter of 2000, compared to second quarter 1999 net income of $5.7
million ($0.32 per diluted share). The second quarter results include $1.9
million in after-tax merger and acquisition expenses. Also contributing to the
decline in net income for the second quarter of 2000 were gains of $0.3 million
on the sale of other real estate owned and $0.2 million on the sales of
securities during the second quarter of 1999.
Net income of $7.3 million ($0.40 per diluted share) was recognized for the
six month period ended June 30, 2000, compared to net income of $11.5 million
($0.40 per diluted share) for the first six months of 1999. The six month period
ended June 30, 2000 include $3.0 million in after-tax merger and acquisition
expenses. Also contributing to the decline in net income for the six month
period ended June 30, 2000 were gains of $0.5 million on the sale of other real
estate owned and $0.9 million on the sales of securities during the first six
months of 1999.
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 six month
periods ended June 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 SIX
Quarter QUARTER MONTHS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000
Return on average assets 0.86% 0.60% 0.73%
Return on average equity 10.59% 7.60% 9.16%
Net interest margin 4.32% 4.25% 4.28%
-----------------------------------------------------------------------------------------
1999
Return on average assets 1.35% 1.27% 1.31%
Return on average equity 13.84% 13.64% 13.74%
Net interest margin 4.52% 4.52% 4.52%
-----------------------------------------------------------------------------------------
</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 $1.6 million
for the second quarter of 2000 compared to the same period of 1999. This
increase was primarily a result of the $269.3 million increase in average
earning assets, primarily the result of continued loan growth.
Total FTE interest income increased $6.7 million compared to second quarter
1999, a result of the previously mentioned increase in average earning assets as
well as a 30 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 29
basis point increase 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 six months of 2000. During the same
time period, total interest expense increased $5.0 million, primarily the result
of a $240.5 million increase in average interest bearing liabilities between
12
<PAGE>
reporting periods. Also contributing to the increased interest expense was a 64
basis point increase in the cost of interest bearing liabilities, also the
result of the rising interest rate environment during late 1999 and the first
six months of 2000. Driving this increase in the cost of funds was a 78 basis
point increase in the cost of time deposits and a 130 basis point increase in
the cost of short-term borrowings. This increase in the cost of funds resulted
in a 35 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 $3.8 million
for the first six months of 2000 compared to the same period of 1999. This
increase was primarily a result of the $263.7 million increase in average
earning assets, primarily the result of continued loan growth.
Total FTE interest income for the six months ended June 30, 2000 increased
$12.8 million compared to same period of 1999, also a result of the increase in
average earning assets as well as a 22 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 18 basis point increase in the yield on the loan
portfolio. During the same time period, total interest expense increased $9.0
million, primarily the result of a $234.8 million increase in average interest
bearing liabilities between reporting periods. Also contributing to the
increased interest expense was a 51 basis point increase in the cost of interest
bearing liabilities, the result of the rising interest rate environment during
late 1999 and the first six months of 2000. Driving this increase in the cost of
funds was a 57 basis point increase in the cost of time deposits and a 108 basis
point increase in the cost of short-term borrowings. This increase in the cost
of funds resulted in a 28 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 4.25% for the second
quarter of 2000, down from 4.52% during the same period in 1999. The net
interest margin decreased to 4.28% for first six months of 2000, down from 4.52%
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%.
13
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
COMPARATIVE ANALYSIS OF FEDERAL TAXABLE EQUIVALENT NET INTEREST INCOME
----------------------------------------------------------------------------------------------------
Three months ended June 30,
ANNUALIZED
YIELD/RATE AMOUNTS VARIANCE
----------------------------------------------------------------------------------------------------
2000 1999 (dollars in thousands) 2000 1999 TOTAL VOLUME RATE
---- ---- ---- ---- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
6.50% 6.72% Interest bearing deposits $ 19 $ 6 $ 13 $ 13 $ 0
6.22% 4.65% Federal funds sold 102 138 (36) (147) 111
6.70% 6.42% Other 361 313 48 34 14
6.82% 6.67% Securities available for sale 8,852 8,285 567 383 184
6.83% 7.15% Securities held to maturity 1,314 1,192 122 260 (138)
8.90% 8.61% LOANS 29,513 23,556 5,957 5,175 782
-------------------------------------------------------------------------------------
8.23% 7.93% Total interest income 40,161 33,490 6,671 5,718 953
3.37% 2.88% Money Market Deposit Accounts 918 767 151 21 130
1.44% 1.26% NOW accounts 614 500 114 43 71
2.90% 2.90% Savings accounts 1,555 1,493 62 62 0
5.60% 4.82% Time deposits 11,914 8,261 3,653 2,207 1,446
5.99% 4.69% Short-term borrowings 2,184 1,299 885 466 419
5.59% 5.53% LONG-TERM BORROWINGS 2,240 2,070 170 149 21
-------------------------------------------------------------------------------------
4.70% 4.06% TOTAL INTEREST EXPENSE 19,425 14,390 5,035 2,948 2,087
------------------------------------------------------------------------------------
Net interest income $20,736 $19,100 $1,636 $2,770 $ (1,134)
=====================================================================================
3.52% 3.87% Interest rate spread
===== ===== ====================
4.25% 4.52% Net interest margin
===== ===== ===================
FTE adjustment $ 709 $ 552
============== ======= =======
<PAGE>
Six months ended June 30,
ANNUALIZED
YIELD/RATE AMOUNTS VARIANCE
----------------------------------------------------------------------------------------------------
2000 1999 (dollars in thousands) 2000 1999 TOTAL VOLUME RATE
---- ---- ---- ---- ----- ------ ----
<C> <C> <C> <C> <C> <C> <C> <C>
6.11% 5.02% Interest bearing deposits $ 25 $ 10 $ 15 $ 13 $ 2
5.99% 4.65% Federal funds sold 144 269 (125) (246) 121
6.66% 6.59% Other 715 635 80 74 6
6.85% 6.68% Securities available for sale 17,895 16,019 1,876 1,450 426
6.82% 6.88% Securities held to maturity 2,648 2,285 363 383 (20)
8.83% 8.65% LOANS 56,900 46,347 10,553 9,540 1,013
-------------------------------------------------------------------------------------
8.17% 7.95% Total interest income 78,327 65,565 12,762 11,214 1,548
3.30% 2.87% Money Market Deposit Accounts 1,821 1,560 261 18 243
1.41% 1.37% NOW accounts 1,176 1,081 95 59 36
2.93% 2.95% Savings accounts 3,116 2,971 145 157 (12)
5.44% 4.87% Time deposits 22,334 16,415 5,919 3,836 2,083
5.78% 4.70% Short-term borrowings 4,238 2,438 1,800 1,149 651
5.60% 5.54% LONG-TERM BORROWINGS 4,586 3,809 777 736 41
-------------------------------------------------------------------------------------
4.60% 4.09% TOTAL INTEREST EXPENSE 37,271 28,274 8,997 5,955 3,042
-------------------------------------------------------------------------------------
Net interest income $41,056 $37,291 $3,765 $5,259 $ (1,494)
=====================================================================================
3.58% 3.86% Interest rate spread
===== ===== ====================
4.28% 4.52% Net interest margin
===== ===== ===================
FTE adjustment $ 1,419 $ 1,025
============== ======= =======
</TABLE>
14
<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 June 30, 2000 is 1.37%, compared to 1.40% at June 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. The allowance is increased by provisions for losses charged to
operations and is reduced by net charge-offs. Charge-offs are made when the
collectability of loan principal within a reasonable time is unlikely. Any
recoveries of previously charged-off loans are credited directly to the
allowance for loan losses. Net charge-offs for the quarter ended June 30, 2000
declined $0.2 million, or 13.8% compared to the same period of 1999. Annualized
net charge-offs to average loans declined to 0.29% for the second quarter of
2000, down from 0.41% for the comparable period of 1999. Net charge-offs for six
month period ended June 30, 2000 declined $0.5 million, or 27.7% compared to the
same period of 1999. Annualized net charge-offs to average loans declined to
0.22% for the first six months of 2000, compared to 0.37% for the comparable
period of 1999. The provision for loan losses of $2.2 million for the quarter
ended June 30, 2000 increased over the comparable period of 1999 provision of
$1.2 million. The provision for loan losses of $3.6 million for the six month
period ended June 30, 2000 increased over the comparable period of 1999
provision of $2.4 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 Six months ended
June 30, June 30,
(dollars in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $17,543 $ 15,608 $16,654 $15,322
Recoveries 237 218 485 439
Charge-offs (1,209) (1,345) (1,902) (2,400)
--------------------------------------------------------------------------------------------------------------
Net charge-offs (972) (1,127) (1,417) (1,961)
Provision for loan losses 2,225 1,230 3,559 2,350
--------------------------------------------------------------------------------------------------------------
Balance, end of period $18,796 $15,711 $18,796 $15,711
--------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET CHARGE-OFFS
--------------------------------------------------------------------------------------------------------------
Commercial and agricultural $ (502) 52% $ (672) 59% $ (600) 42% $(1,048) 54%
Real estate mortgage (135) 14% (98) 9% (221) 16% (126) 6%
Consumer (335) 34% (357) 32% (596) 42% (787) 40%
--------------------------------------------------------------------------------------------------------------
Net charge-offs $ (972) 100% $ (1,127) 100% $(1,417) 100% $(1,961) 100%
--------------------------------------------------------------------------------------------------------------
Annualized net charge-offs
to average loans 0.29% 0.41% 0.22% 0.37%
--------------------------------------------------------------------------------------------------------------
Net charge-offs to average loans for the year ended
December 31, 1999 0.33%
--------------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST INCOME
Noninterest income for the second quarter of 2000, excluding security gains,
increased $0.7 million or 19.0% when compared to second quarter of 1999. Service
charges on deposit accounts increased $0.2 million in the second quarter of 2000
compared to the same period of 1999. This improvement can be attributed to an
increase in service fee and overdraft income resulting from growth in demand
deposit accounts. Other income increased $0.5 million in the second quarter of
15
<PAGE>
2000 compared to the same period of 1999. The increase in other income can be
attributed to additional revenue generated from the previously mentioned
addition of M. Griffith, Inc. in May of 2000.
For the six month period ended June 30, 2000, excluding security gains,
noninterest income increased $0.7 million or 9.4% compared to the same period
during 1999. Service charges on deposit accounts increased $0.4 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. Other
income increased $0.3 million for the six month period ended June 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 June 30, 2000 increased $4.8
million compared to the same time period of 1999. Noninterest expense for the
six month period ended June 30, 2000 increased $7.9 million compared to the same
time period of 1999. Contributing to the increase in noninterest expense for the
quarter and six month period ended June 30, 2000 is $2.6 million and $3.7
million, respectively in pre-tax merger and acquisition related expenses
associated with the previously mentioned mergers. It is anticipated that the
Company will incur approximately $9.3 million in additional merger and
acquisition expenses related to the Lake Ariel and Pioneer American mergers
during 2000. In addition, during 2000 and 2001 the Company anticipates incurring
approximately $16.5 million of pre-tax merger and acquisition expenses related
to the BSB Bancorp, Inc. merger.
Salaries and employee benefits for the quarter and six month period ended
June 30, 2000 increased $0.9 million and $2.0 million, respectively compared to
the same periods of 1999. This increase is primarily the result of increased
salaries and employee benefits. 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 six month period ended June 30, 2000 experienced
a $0.3 million increase compared to the same period in 1999. This increase can
be attributed to an increase in security expense from a third party contract to
enhance the maintenance of the Company's security equipment. Also contributing
to the increase in occupancy expense was an increase in rental expense
associated with the addition of branch and ATM locations through out our market
areas.
Equipment expense for the six month period ended June 30, 2000 experienced
a $0.3 million increase compared to the same period in 1999, primarily
attributable to increased equipment depreciation and maintenance.
Other operating expense for the quarter and six month period ended June 30,
2000 increased $0.8 million and $1.1 million, respectively compared to the same
periods of 1999. Included in the quarter and six month period ended June 30,
1999 other operating expense were gains on the sale of other real estate owned
of $0.3 million and $ 0.5 million, respectively.
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
57.29% for the quarter ended June 30, 2000 from 55.01% in the same period of
1999. The efficiency ratio increased to 57.27% for the six month period ended
June 30, 2000 from 55.08% 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 $2.0 million for the quarter ended June 30, 2000 compared
with $3.2 million for the same period of 1999. For the first six months of 2000,
income tax expense amounted to $4.6 million compared with $6.4 million in the
first half of 1999. The decrease in income taxes during the quarter and six
month period ended June 30, 2000 as compared to the same periods of 1999 can be
attributed to the decreased income before income taxes between reporting
periods. The effective tax rate was 38.9% for the quarter ended June 30, 2000
and 35.5% for the same period of 1999. The effective tax rate was 38.7% for the
six month period ended June 30, 2000 and 35.9% for the same period of 1999. The
increase in the effective tax rate during 2000 can be primarily attributed to
non-deductible merger and acquisition costs.
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.
16
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
AVERAGE BALANCES
----------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------------------------------
(dollars in thousands) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 51,267 $ 45,554 $ 50,396 $ 44,602
Securities available for
sale, at fair value 491,590 497,749 493,918 485,416
Securities held to maturity 77,359 66,843 78,042 66,989
Loans 1,334,330 1,096,848 1,296,087 1,081,013
Deposits 1,571,774 1,357,587 1,532,510 1,345,857
Short-term borrowings 146,677 112,164 147,399 105,060
Long-term debt 161,265 149,393 164,634 138,165
Stockholders' equity 163,457 168,222 160,952 168,744
Assets 2,062,004 1,802,465 2,022,834 1,772,127
Earning assets 1,963,127 1,693,839 1,926,835 1,663,158
Interest bearing liabilities $1,661,161 $1,420,692 $1,630,543 $1,395,788
----------------------------------------------------------------------------------------------------
</TABLE>
SECURITIES
Average total securities were $4.4 million greater for the quarter ended June
30, 2000 than for the same period of 1999. Average total securities were $19.6
million greater for the six month period ended June 30, 2000 than for the same
period of 1999. During the quarter ended June 30, 2000, the securities portfolio
represented 30.5% of average earning assets compared to 33.4% for the same
period of 1999. Total securities at June 30, 2000 were $16.9 million less than
securities at December 31, 1999. The reduction in securities during the first
six months is a result of the Company using the paydowns from its
mortgage-backed securities to fund loan growth. At June 30, 2000, the securities
portfolio was comprised of 87% available for sale and 13% held to maturity
securities.
LOANS
Average loan volume for the quarter ended June 30, 2000 increased $237.5
million, or 21.7% over second quarter 1999. Average loan volume for the six
month period ended June 30, 2000 increased $215.1 million, or 19.9% over the
same period of 1999. Total loans at June 30, 2000 were $150.5 million greater
than loans at December 31, 1999. This growth has been present in all loan
categories, with increases in the commercial, consumer and mortgage portfolios
of $107.0 million, $26.3 million and $17.2 million, respectively since December
31, 1999. 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 and other real estate owned
(OREO). Total nonperforming assets were $8.0 million at June 30, 2000 compared
to $6.8 million at June 30, 1999. An increase of $1.9 million in nonaccrual
commercial and agricultural loans was partially offset by a decrease in other
real estate owned of $0.4 million. A significant portion of the increase in
nonaccrual commercial loans can be attributed to two customers. The changes in
nonperforming assets are presented in Table 5 below.
At June 30, 2000, the recorded investment in impaired loans was $6.0
million. Included in this amount is $2.9 million of impaired loans for which the
specifically allocated allowance for loan loss is $0.8 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 $4.7 million, of which $0.9 million had a specific allowance
allocation of $0.5 million and $3.8 million for which there was no specific
reserve. At June 30, 1999, the recorded investment in impaired loans was $4.1
million, of which $1.7 million had a specific allowance allocation of $0.6
million and $2.4 million of which there was no specific reserve. The Company
classifies all commercial and small business nonaccrual loans as impaired loans.
17
<PAGE>
<TABLE>
<CAPTION>
TABLE 5
NONPERFORMING ASSETS AND RISK ELEMENTS
----------------------------------------------------------------------------------------------------------------
JUNE 30, June 30,
(dollars in thousands) 2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and agricultural $6,025 85% $4,096 74%
Real estate mortgage 349 5% 632 11%
Consumer 730 10% 805 15%
----------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 7,104 100% 5,533 100%
----------------------------------------------------------------------------------------------------------------
Other real estate owned 941 1,308
----------------------------------------------------------------------------------------------------------------
Total nonperforming assets 8,045 6,841
----------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 255 32% 187 24%
Real estate mortgage 389 49% 425 54%
Consumer 146 19% 169 22%
----------------------------------------------------------------------------------------------------------------
Total 790 100% 781 100%
----------------------------------------------------------------------------------------------------------------
Total assets containing risk elements $8,835 $7,622
----------------------------------------------------------------------------------------------------------------
Total nonperforming loans to loans 0.52% 0.49%
Total loans containing risk elements to loans 0.57% 0.56%
Total nonperforming assets to assets 0.38% 0.37%
Total assets containing risk elements to assets 0.42% 0.41%
----------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
Customer deposits represent the greatest source of funding assets. Average total
deposits for the quarter ended June 30, 2000 were $1.6 billion compared to $1.4
billion for the quarter ended June 30, 1999. Average total deposits for the six
month period ended June 30, 2000 were $1.5 billion compared to $1.3 billion for
the same period of 1999. This growth has been present in all deposit categories.
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 short-term borrowings for the quarter ended June 30, 2000 were
$146.7 million compared to $112.2 million for the same period of 1999. Average
short-term borrowings for the six month period ended June 30, 2000 were $147.4
million compared to $105.1 million for the same period of 1999. Average
long-term debt for the quarter ended June 30, 2000 was $161.3 million compared
to $149.4 million for the same period of 1999. Average long-term debt for the
six month period ended June 30, 2000 was $164.6 million compared to $138.2
million for the same period of 1999. The increase in borrowed funds between
reporting periods can be attributed to the need for funding the strong loan
growth.
CAPITAL AND DIVIDENDS
Stockholders' equity of $167.7 million represents 8.0% of total assets at June
30, 2000, compared with $160.5 million, or 8.2% at December 31, 1999 and $162.8
million, or 8.8% a year previous.
In December of 1999, the Company distributed a 5% stock dividend, the
fortieth consecutive year a stock dividend has been declared. 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.
Capital is an important factor in ensuring the safety of depositors'
accounts. For both 1999 and 1998, the Company earned the highest possible
national safety and soundness rating from two national bank rating services,
Bauer Financial Services and Veribanc, Inc. Their ratings are based on capital
levels, loan portfolio quality and security portfolio strength.
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.
18
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
CAPITAL MEASUREMENTS
----------------------------------------------------------------------------------
First SECOND
2000 Quarter QUARTER
----------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 leverage ratio 8.61% 8.22%
Tier 1 capital ratio 12.93% 12.28%
Total risk-based capital ratio 14.08% 13.46%
Cash dividends as a percentage of net income 72.53% 85.28%
Per common share:
Book value $ 8.98 $ 9.05
Tangible book value $ 8.53 $ 8.21
----------------------------------------------------------------------------------
1999
Tier 1 leverage ratio 9.24% 9.06%
Tier 1 capital ratio 14.73% 14.28%
Total risk-based capital ratio 15.90% 15.44%
Cash dividends as a percentage of net income 44.94% 44.98%
Per common share:
Book value $ 9.45 $ 9.07
Tangible book value $ 8.92 $ 8.56
----------------------------------------------------------------------------------
</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 1.18 at
June 30, 2000 and 2.15 a year ago. The per share market price was 13 times
annualized earnings at June 30, 2000 and 15 times annualized earnings at June
30, 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
------------------------------------------------------------------------------------------
</TABLE>
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
19
<PAGE>
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 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 June 30, 2000 balance sheet position.
TABLE 8
INTEREST RATE SENSITIVITY ANALYSIS
----------------------------------------------------------------
Change in interest rates Percent change in
(in basis points) net interest income
----------------------------------------------------------------
+200 (4.15%)
+100 (2.20%)
-100 1.77%
-200 2.43%
----------------------------------------------------------------
20
<PAGE>
--------------------------------------------------------------------------------
PART II. OTHER INFORMATION
Item 1 -- 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 2 -- Changes in Securities
Following are listed changes in the Company's Common Stock outstanding during
the quarter ended June 30, 2000 as well as certain actions which have been taken
which may affect the number of shares of Common Stock (shares) outstanding in
the future. There was no Preferred Stock outstanding during the quarter ended
June 30, 2000.
On June 23, 2000, the Board of Directors of Pioneer American Holding
Company Corp., the parent company of Pioneer American Bank, N.A., gave final
approval to their merger with and into NBT Bancorp Inc. This follows the
approval of the agreement and plan of merger by the stockholders of both
companies at separate meetings held on June 20, 2000. The merger became
effective on July 1, 2000 and 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.
On May 5, 2000, NBT Bancorp Inc. completed the purchase of M. Griffith,
Inc., a Utica, New York based securities firm. As a result, 420,989 shares of
NBT Bancorp Inc. common stock were issued to complete the purchase.
At the Annual Meeting of Stockholders held on May 16, 2000, the
stockholders of NBT Bancorp Inc. approved the Board of Directors adoption of the
NBT Employee Stock Purchase Plan. The NBT Employee Stock Purchase Plan was
created for the benefit of its employees and reserved 500,000 shares of NBT
Bancorp Inc. common stock for issuance under the plan.
Item 3 -- Defaults Upon Senior Securities
This item is omitted because there were no defaults upon the Company's senior
securities during the quarter ended June 30, 2000.
Item 4 -- Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 16, 2000.
Stockholders approved the following proposals:
a. A proposal to fix the number of directors at twelve was approved. Andrew S.
Kowalczyk, Jr., Dan B. Marshman, John G. Martines and John C. Mitchell were
elected as directors with terms of office to expire at the 2003 Annual Meeting
of Stockholders. Bruce D. Howe was elected as director with a term of office to
expire at the 2002 Annual Meeting of Stockholders. William C. Gumble was elected
as director with a term of office to expire at the 2001 Annual Meeting of
Stockholders.
Andrew S. Kowalczyk, Jr. was elected, with 14,605,272 votes FOR, and
244,449 votes WITHHELD.
Dan B. Marshman was elected, with 14,595,600 votes FOR, and 254,118 votes
WITHHELD.
John G. Martines was elected, with 14,588,023 votes FOR, and 261,696 votes
WITHHELD.
John C. Mitchell was elected, with 14,610,020 votes FOR, and 239,699 votes
WITHHELD.
Bruce D. Howe was elected, with 14,592,815 votes FOR, and 256,902 votes
WITHHELD.
William C. Gumble was elected, with 14,590,706 votes FOR, and 259,012 votes
WITHHELD.
21
<PAGE>
b. Proposal to ratify the Board of Directors action in selection of KPMG LLP as
Independent Public Accountants for the Company for 2000.
The proposal was approved, with 14,669,825 votes FOR, 162,645 votes
AGAINST, and 186,813 votes ABSTAINING.
c. Proposal to ratify the Board of Directors adoption of the NBT Employee Stock
Purchase Plan.
The proposal was approved, with 13,805,732 votes FOR, 940,787 votes
AGAINST, and 272,757 votes ABSTAINING.
After approval of the three previously mentioned proposals, the Annual Meeting
was adjourned. On June 20, 2000 the Annual Meeting of Stockholders was
reconvened. Stockholders approved the following proposal:
d. To approve the Agreement and Plan of Merger, dated as of December 7, 1999,
and amended as of March 7, 2000, by and between NBT Bancorp Inc. and Pioneer
American Holding Company Corp.
The proposal was approved, with 12,706,907 votes FOR, 1,017,498 votes
AGAINST, and 387,789 votes ABSTAINING.
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 June 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 April 28, 2000
22
<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 August, 2000.
NBT BANCORP INC.
By: /S/ MICHAEL J. CHEWENS
-------------------------
Michael J. Chewens, CPA
Executive Vice President
Chief Financial Officer and Treasurer
<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 Amendment No. 1 to Agreement and Plan of Merger dated as of
May 17, 2000 by and between NBT Bancorp Inc. and BSB
Bancorp, Inc. Herein
27.1 Financial Data Schedule for the six months ended June 30, 2000 Herein
27.2 Financial Data Schedule for the six months ended June 30, 1999 Herein
</TABLE>
24
<PAGE>
