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 March 31, 1996.
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)-337-6000
Indicate by check mark whether the Registrant (1) has filed all reports
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 April 30, 1996, there were 8,442,314 shares outstanding,
including 338,796 shares held in the treasury, of the Registrant's
common stock, No Par, Stated Value $1.00. There were no shares of the
Registrant's preferred stock, No Par, Stated Value $1.00, outstanding
at that date.
An index to exhibits follows the signature page of this FORM 10-Q.
NBT BANCORP INC.
FORM 10-Q--Quarter Ended March 31, 1996
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1996, December 31,
1995, and March 31, 1995
Consolidated Statements of Income for the three month periods
ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for the three month
periods ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements at March 31, 1996
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
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-
NBT BANCORP INC. and Subsidiary March 31, December 31, March 31,
CONSOLIDATED BALANCE SHEETS 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------
(dollars in thousands) (Unaudited) (See Notes) (Unaudited)
ASSETS
Cash and due from banks $ 54,114 $ 44,379 $ 62,048
Loans available for sale 5,040 6,089 6,599
Securities available for sale 379,425 393,536 102,728
Securities held to maturity (market
value-$39,762, $40,306 and $264,184) 39,762 40,311 268,974
Loans:
Commercial and agricultural 254,873 247,320 215,718
Real estate mortgage 120,545 120,972 128,481
Consumer 219,607 220,093 219,134
- --------------------------------------------------------------------------------------------------------------
Total loans 595,025 588,385 563,333
Less allowance for loan losses 9,173 9,120 9,038
- --------------------------------------------------------------------------------------------------------------
Net loans 585,852 579,265 554,295
Premises and equipment, net 16,603 16,467 15,458
Intangible assets, net 11,138 11,551 9,546
Other assets 17,567 14,668 16,752
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,109,501 $1,106,266 $1,036,400
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ 773,504 $ 741,805 $ 757,387
Non-interest bearing 139,207 131,227 121,634
- --------------------------------------------------------------------------------------------------------------
Total deposits 912,711 873,032 879,021
Short-term borrowings 84,540 115,945 43,179
Long-term debt 3,010 3,012 8,734
Other liabilities 6,615 6,233 5,036
- --------------------------------------------------------------------------------------------------------------
Total liabilities 1,006,876 998,222 935,970
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par, stated value $1.00;
shares authorized-2,500,000 at March 31, 1996
and December 31, 1995, 2,000,000 at
March 31, 1995 - - -
Common stock, no par, stated value $1.00;
shares authorized-12,500,000 at March 31,
1996 and December 31, 1995, 10,000,000 at
March 31, 1995; issued 8,442,314,
8,442,314 and 8,452,099 8,442 8,442 8,050
Capital surplus 75,465 75,464 69,218
Retained earnings 25,938 24,076 26,391
Unrealized gain (loss) on securities
available for sale, net of income tax
effect (1,864) 2,822 (2,428)
Common stock in treasury at cost, 326,001,
170,275, and 48,943 shares (5,356) (2,760) (801)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 102,625 108,044 100,430
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,109,501 $1,106,266 $1,036,400
- --------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
-3-
NBT BANCORP INC. and Subsidiary Three months ended March 31,
CONSOLIDATED STATEMENTS OF INCOME 1996 1995
- --------------------------------------------------------------------------------
(dollars in thousands, except per share amounts) (Unaudited)
Interest and fee income:
Loans $13,573 $12,210
Securities held to maturity-
taxable 244 3,544
Securities held to maturity-
tax exempt 346 390
Assets available for sale 5,834 1,789
Other 6 9
- --------------------------------------------------------------------------------
Total interest and fee income 20,003 17,942
- --------------------------------------------------------------------------------
Interest expense:
Deposits 7,950 6,611
Short-term borrowings 640 1,219
Long-term debt 80 151
- --------------------------------------------------------------------------------
Total interest expense 8,670 7,981
- --------------------------------------------------------------------------------
Net interest income 11,333 9,961
Provision for loan losses 600 330
- --------------------------------------------------------------------------------
Net interest income after provision
for loan losses 10,733 9,631
- --------------------------------------------------------------------------------
Noninterest income:
Trust income 654 662
Service charges on deposit accounts 775 731
Securities gains 792 -
Other income 363 374
- --------------------------------------------------------------------------------
Total noninterest income 2,584 1,767
- --------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 4,452 4,024
Net occupancy expense 674 603
Equipment expense 462 411
FDIC insurance 1 451
Amortization of intangible assets 395 315
Other operating expense 2,602 2,609
- --------------------------------------------------------------------------------
Total noninterest expense 8,586 8,413
- --------------------------------------------------------------------------------
Income before income taxes 4,731 2,985
Income taxes 1,820 1,078
- --------------------------------------------------------------------------------
Net income $ 2,911 $ 1,907
- --------------------------------------------------------------------------------
Net income per common share $ 0.35 $ 0.22
Cash dividends per common share $ 0.130 $ 0.114
Average common shares outstanding 8,271,337 8,454,114
- ---------------------------------------------------------------------------------
See notes to consolidated financial statements.
-4-
NBT BANCORP INC. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 1995
- -----------------------------------------------------------------------------------------------------
(dollars in thousands) (Unaudited)
Operating activities:
Net income $ 2,911 $ 1,907
Adjustments to reconcile net income to the
cash provided by operating activities:
Provision for loan losses 600 330
Depreciation and amortization 381 372
Amortization of premiums and accretion
of discounts on securities (15) (16)
Amortization intangible assets 395 315
Proceeds from sales of loans originated for sale 1,383 6,891
Loans originated for sale (2,109) (3,305)
Realized gains on sales of securities (792) -
Decrease in interest receivable 434 1,333
Increase (decrease) in interest payable (102) 161
Payments of restructuring liabilities - (923)
Other, net 1,265 36
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,351 7,101
- -----------------------------------------------------------------------------------------------------
Investing activities:
Securities available for sale:
Proceeds from maturities 12,592 13,745
Proceeds from sales 66,003 -
Purchases (72,391) (4,953)
Securities held to maturity:
Proceeds from maturities 4,083 13,704
Purchases (3,602) (10,121)
(Increase) decrease in loans (5,412) 11,067
Purchase of premises and equipment, net (517) (445)
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities 756 22,997
- -----------------------------------------------------------------------------------------------------
Financing activities:
Net increase in deposits 39,679 87,578
Net increase (decrease) in short-term borrowings
with original maturities of three months or less (31,405) (97,408)
Repayments of long-term debt (2) -
Common stock issued, including treasury shares reissued 815 2,403
Purchase of treasury stock (3,385) (3,070)
Cash dividends and payment for fractional shares (1,074) (963)
- -----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,628 (11,460)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 9,735 18,638
Cash and cash equivalents at beginning of year 44,379 43,410
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 54,114 $ 62,048
- -----------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 8,772 $ 7,820
Income taxes 37 65
Noncash investing activity:
Transfer of loans available for sale to loans 1,775 -
- -----------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
-5-
NBT BANCORP INC. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of NBT BANCORP INC. (the Registrant or NBT) and its
wholly-owned subsidiary, NBT Bank, National Association (Bank). All
intercompany transactions have been eliminated in consolidation.
Certain amounts previously reported in the financial statements have
been reclassified to conform with the current presentation.
The determination of the allowance for loan losses is a material
estimate that is particularly susceptible to significant change in the
near term. In connection with the determination of the allowance for
loan losses management obtains independent appraisals for significant
properties.
Net income per common share is computed based on the weighted average
number of common shares and common share equivalents outstanding during
each period after giving retroactive effect to stock dividends. Cash
dividends per common share are computed based on declared rates
adjusted retroactively for stock dividends.
The balance sheet at December 31, 1995 has been derived from audited
financial statements at that date. 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 month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996. 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, 1995.
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
The Registrant adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights" on January 1, 1996 on a prospective basis. SFAS 122 requires
the recognition as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired, and also requires
capitalized mortgage servicing rights to be assessed for impairment
based on the fair value of those rights. The adoption of SFAS 122 did
not have a material impact on the Registrant's financial condition or
results of operations.
On January 1, 1996 the Registrant adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which establishes a fair value based method
of determining compensation cost for grants of stock options under
stock-based compensation plans. SFAS No. 123 permits entities to
expense an estimated fair value of employee stock options or to
continue to measure compensation cost for these plans using the
intrinsic value contained in Accounting Principals Board Opinion No.
25 (APB 25). Under APB 25 compensation cost is the excess, if any, of
the quoted market price of the stock at the date of grant over the
amount employees must pay to acquire it. The Registrant has elected to
continue accounting for these plans under the intrinsic value method
of accounting for stock-based compensation plans. Additionally, the
Registrant will present pro forma footnote disclosures of net income
and net income per share, as if a fair value based method had been
applied, upon the presentation of a complete set of financial
statements, which would generally be prepared as of the end of its
fiscal year, as required by SFAS No. 123.
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, various commitments and contingent
liabilities arise, including commitments to extend credit and standby
letters of credit. Also, off balance sheet financial instruments such
-6-
as interest rate swaps, forward contracts, futures, options on
financial futures, and interest rate caps, collars and floors bear
risk-based on financial market conditions. The following table
summarizes the Registrant's exposure to these off balance sheet
commitments and contingent liabilities as of March 31, 1996, in
thousands of dollars:
Contractual or
Notional Value
at March 31, 1996
Financial instruments with off balance
sheet credit risk:
Commitments to extend credit $94,853,000
Standby letters of credit 1,934,000
Financial instruments with off balance
sheet market risk None
-7-
NBT BANCORP INC. AND SUBSIDIARY
Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this discussion is to focus on material information
about the Registrant's financial condition and results of operations.
Reference should be made to the Registrant's consolidated financial
statements and footnotes thereto included in this FORM 10-Q as well as
to the Registrant's 1995 FORM 10-K for an understanding of the
following discussion and analysis. The Registrant has a long history
of distributing stock dividends; in December, 1995 a 5% stock dividend
was distributed for the thirty-sixth consecutive year. Throughout this
discussion and analysis, amounts per common share have been adjusted
retroactively for stock dividends and splits for purposes of
comparability.
HIGHLIGHTS OF THE REGISTRANT'S 1996 PERFORMANCE
Net income of $2.9 million ($0.35 per share) was realized in the first
quarter of 1996, representing a 53% increase from first quarter 1995
net income of $1.9 million ($0.22 per share). One of the major
contributing factors for the increase in net income was increased net
interest income, as higher earnings on assets exceeded liability cost
increases in the rising interest rate environment during the first
quarter of 1996. Additionally, reducing interest income during the
first quarter of 1995 was a $0.5 million nonrecurring charge to write-
off accrued interest income receivable on nonaccrual or previously
charged-off loans. Increased security gains of $0.8 million during the
first quarter of 1996 also contributed to the improved profitability.
There were no such gains during the first quarter of 1995. Offsetting
these favorable increases in income were an increased provision for loan
losses, as net charge-offs increased in 1996, and increased noninterest
expenses, caused in part by the branch acquisition in December, 1995.
The table PERFORMANCE MEASUREMENTS depicts several measurements of
performance on an annualized basis. Return on average assets and equity
measures how effectively an entity utilizes its total resources and
capital, respectively. Both the return on average assets and the return
on average equity ratios increased for the quarter compared to the same
period a year previous and compared to the prior quarters of 1995.
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
interest cost of funding. Taxable equivalency adjusts income by
increasing tax exempt income to a level that is comparable to taxable
income before taxes are applied. The positive trend in net interest
margin is critical to the improved profitability of the Registrant.
PERFORMANCE MEASUREMENTS
First Second Third Fourth Twelve First
Quarter Quarter Quarter Quarter Months Quarter
1995 1995 1995 1995 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
Return on average assets 0.76% 0.87% 1.00% 0.95% 0.90% 1.09%
Return on average common equity 7.83% 8.79% 10.28% 9.74% 9.18% 10.94%
Net interest margin 4.30% 4.49% 4.54% 4.40% 4.43% 4.66%
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION
The table AVERAGE BALANCES 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.
-8-
AVERAGE BALANCES
Three months
March 31,
(dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
Securities available for sale $ 363,106 $ 105,078
Securities held to maturity 40,515 272,587
- ------------------------------------------------------------------------------
Total securities 403,621 377,665
Loans available for sale 5,807 7,950
Loans 590,742 568,241
Deposits 902,975 822,754
Short-term borrowings 49,332 86,076
Long-term debt 3,011 8,734
Stockholders' equity 107,078 98,790
Assets 1,069,900 1,021,798
Earning assets 997,053 960,231
Interest bearing liabilities $ 824,184 $ 799,258
- ------------------------------------------------------------------------------
Loans: Average loans for the first quarter of 1996 increased $23
million, or 4%, from the comparable period of the previous year. The
increase in the portfolio volume occurred in commercial loans. Real
estate loans decreased as the volume of mortgage refinancing and new
mortgage loan origination has diminished in response to interest rate
increases. Commercial, consumer and real estate loans comprised 43%,
37%, and 20% of the average portfolio for the three months ended March
31, 1996. Comparable measures for a year previous were 38%, 39%, and
23%.
Allowance and provision for loan losses: The allowance for loan losses
is a valuation allowance offset against total loans which has been
established to provide for the estimated possible losses related to the
collection of the Bank's loan portfolio. The allowance is maintained
at a level considered adequate to provide for loan loss exposure based
on management's estimate of potential future losses considering an
evaluation of portfolio risk, prevailing and anticipated economic
factors, and past loss experience. Management determines the provision
and allowance for loan losses based on a number of factors including
a comprehensive in-house loan review program conducted throughout the
year. The loan portfolio is continually evaluated in order to identify
potential problem loans, credit concentration, and other risk factors
such as current and projected economic conditions locally and
nationally. The levels of risk for which allowances are established are
based on estimates of losses on larger specifically identified loans,
and on loan categories analyzed in total where, based on past
experience, risk factors can be assessed. General economic trends can
greatly affect loan losses and there are no assurances that further
changes to the allowance for loan losses may not be significant in
relation to the amount provided during a particular period. Management
does, however, consider the allowance for loan losses to be adequate
for the reporting periods based on evaluation and analysis of the loan
portfolio.
The table entitled ALLOWANCE FOR LOAN LOSSES portrays activity for the
periods presented. The allowance is increased by provisions for losses
charged to operations and is reduced by net charge-offs, the amount of
loans written off as uncollectible less recoveries of loans previously
written off. Charge-offs are made when the collectiblity 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 have increased from the prior year's
comparable periods and the full year 1995 measure both as a dollar
amount and as a percentage of average loan balances, primarily due to
commercial loan charge-offs caused by the sustained period of sluggish
economic conditions continuing to be experienced in northern and
central New York State. The provision for loan losses increased by $0.3
million, 82%, for the first quarter of 1996 from the comparable period
a year ago.
Nonperforming is a term used to describe assets on which revenue
recognition has been discontinued or is restricted. As depicted in the
table, NONPERFORMING ASSETS AND RISK ELEMENTS, nonperforming loans have
-9-
increased due to the previously mentioned economic conditions occurring
in the Bank's market area. The allowance for loan losses has been
allocated based on identified problem credits or categorical trends and
includes a specifically allocated amount of $.4 million related to
impaired loans. After allocation, the unallocated portion at March 31,
1996, was approximately $2 million. The unallocated portion is
available for further unforeseen or unexpected losses or unidentified
problem credits. Management will continue to target and maintain a
minimum allowance equal to the allocated requirement plus an
unallocated portion, as appropriate.
ALLOWANCE FOR LOAN LOSSES
Three months ended
March 31,
(dollars in thousands) 1996 1995
- ---------------------------------------------------------------------------------------------
Balance, beginning of period $ 9,120 $ 9,026
Recoveries 162 206
Charge-offs (709) (524)
- ---------------------------------------------------------------------------------------------
Net charge-offs (547) (318)
Provision for loan losses 600 330
- ---------------------------------------------------------------------------------------------
Balance, end of period $ 9,173 $ 9,038
- ---------------------------------------------------------------------------------------------
COMPOSITION OF NET CHARGE-OFFS
- ---------------------------------------------------------------------------------------------
Commercial and agricultural $ (253) 46% $ (111) 35%
Real estate mortgage (12) 2% (3) 1%
Consumer (282) 52% (204) 64%
- ---------------------------------------------------------------------------------------------
Net (charge-offs) recoveries $ (547) 100% $ (318) 100%
- ---------------------------------------------------------------------------------------------
Annualized net charge-offs
to average loans 0.37% 0.23%
- ---------------------------------------------------------------------------------------------
Annualized net charge-offs to average loans for the year ended
December 31, 1995 0.25%
- ---------------------------------------------------------------------------------------------
Asset Quality: NBT has maintained its focus on sound credit quality in
the loan portfolio, reflecting conservative lending practices and
policies. The measurement of asset quality is the responsibility of the
Registrant's loan review function which also determines the adequacy
of the allowance for loan losses. Loan review utilizes a loan rating
system to rate substantially all of its loans based on risks which
include internal loan classifications, historical analysis of prior
period charge-offs, and evaluation of expected losses on internally
classified credits. Loan ratings are continually reviewed to determine
their propriety. Reporting separately from the loan review function,
the banking and credit function is responsible for lending credit
policy, systems and procedures, collections, recovery and workout
policies and systems.
Classified and special mention loans, excluding those on non-accrual
status, totalled $27.6 million, $27.6 million, and $26.8 million, 4.7%,
4.7%, and 4.8% of outstanding loans, at March 31, 1996, December 31,
1995 and March 31, 1995, respectively. A significant portion of the
outstanding balances are secured with various forms of collateral. In
this regard, management has determined that there are no material
adverse trends or material potential losses not already considered in
the allowance calculation, nor indications of trends or events that
would have a material effect on the Registrant's operations, capital
or liquidity. The Registrant does not have any material loans
classified as doubtful or loss and the loan portfolio does not contain
any highly leveraged or foreign loans. A substantial portion of the
Registrant's loans are secured by real estate located in central and
northern New York State. Accordingly, the ultimate collectibility of
a substantial portion of the Registrant's portfolio is susceptible to
changes in real estate market conditions in those areas.
The Bank's classification of a loan as a nonaccruing loan is based in
part on bank regulatory guidelines. Accrual of interest is discontinued
if the loan is placed on nonaccrual status. Nonaccrual classification
does not mean that the loan principal will not be collected; rather,
-10-
that timely collection of interest is doubtful. When, in the opinion
of management the collection of principal appears unlikely, the loan
balance is charged-off in total or in part. Loans are transferred to
a nonaccrual basis generally when principal or interest payments become
ninety days delinquent, unless the loan is well secured and in the
process of collection or when management concludes circumstances
indicate that borrowers may be unable to meet contractual principal or
interest payments. When a loan is transferred to a non-accrual status,
any unpaid accrued interest is reversed and charged against income.
Interest income on non-accruing loans is recognized on a cash basis,
only when cash payments are received which are not applied to
principal.
Management, considering current information and events regarding the
borrower's ability to repay the obligation, considers a loan to be
impaired when it is probable that the Bank will be unable to collect
all amounts due according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future
cash flows discounted at the loans effective interest rate or, as a
practical expedient, at the loans observable market price or the fair
value of collateral if the loan is collateral dependant. Impairment
losses are included in the allowance for loan losses through a charge
to the provision for loan losses.
Payments received on nonaccrual and impaired loans are first applied
to principal. Depending on management's assessment of the ultimate
collectibility of the loan, interest income may be recognized on a cash
basis. Nonaccrual loans are restored to an accrual status when
management determines that the financial condition of the borrower has
improved significantly to the extent that there has been a sustained
period of repayment performance so that the loan is brought current and
the collectibility of both interest and principal appears assured.
As depicted in the table, NONPERFORMING ASSETS AND RISK ELEMENTS, the
increase in nonperforming assets (NPA) was attributable to increases
in both commercial and agricultural loans as well as real estate
mortgages, whose collateral value supports continuation as assets. The
Registrant did not hold any restructured loans, loans whose repayment
criteria was renegotiated to less than the original agreement terms
because of the borrower's financial difficulties, which were not in
compliance with the modified terms at March 31, 1996, December 31,
1995, and March 31, 1995. Loans 90 days past due and not included in
nonperforming loans have decreased in all categories.
-11-
NONPERFORMING ASSETS AND RISK ELEMENTS
March 31, December 31, March 31,
(in thousands) 1996 1995 1995
- ------------------------------------------------------------------------------------------------------
Impaired commercial and
agricultural loans $1,696 $1,367 $1,637
- ------------------------------------------------------------------------------------------------------
Other non-accrual loans:
Real estate mortgage $3,238 87% $2,910 84% $2,528 88%
Consumer 497 13% 540 16% 330 12%
- ------------------------------------------------------------------------------------------------------
Total non-accrual loans 3,735 100% 3,450 100% 2,858 100%
- ------------------------------------------------------------------------------------------------------
Other real estate owned 1,989 2,000 1,189
- ------------------------------------------------------------------------------------------------------
Total nonperforming assets 7,420 6,817 5,684
- ------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Real estate mortgage 707 76% 910 68% 539 64%
Commercial and agricultural 34 4% 126 10% 66 8%
Consumer 188 20% 296 22% 234 28%
- ------------------------------------------------------------------------------------------------------
Total $ 929 100% $1,332 100% $ 839 100%
- ------------------------------------------------------------------------------------------------------
Restructured loans, in compliance with modified terms:
Commercial and agricultural - 142 -
- ------------------------------------------------------------------------------------------------------
Total assets containing
risk elements $8,349 $8,291 $6,523
- ------------------------------------------------------------------------------------------------------
Nonperforming loans to total loans 0.91% 0.82% 0.80%
Nonperforming assets to total assets 0.67% 0.62% 0.55%
Allowance for loan losses to
nonperforming loans 169% 189% 201%
Allowance as a percentage of
period end loans 1.54% 1.55% 1.60%
- ------------------------------------------------------------------------------------------------------
Charge-offs flowing through the allowance for loan losses depicted in
the table CHANGES IN NONACCRUAL AND IMPAIRED LOANS represent gross
charge-offs taken against nonaccrual loans; excluded are charge-offs
taken against accruing loans and interest reversals. When real estate
collateralizing a loan is foreclosed, the difference between the fair
value of the collateral property, reflected as additions in the table
CHANGES IN OREO, and the book value of the loan, if any, is charged-off
through the allowance for loan losses. Any subsequent write-downs due to
a decline in the fair value of the OREO property after foreclosure is
reflected in noninterest expense.
CHANGES IN NONACCRUAL AND IMPAIRED LOANS
Three months ended
March 31,
----------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------
Balance at beginning of period $4,817 $4,639
Loans placed on nonaccrual 2,038 731
Charge-offs (448) (189)
Payments (859) (303)
Transfers to OREO (117) (383)
Loans returned to accrual - -
- --------------------------------------------------------------------------
Balance at end of period $5,431 $4,495
- --------------------------------------------------------------------------
-12-
CHANGES IN OREO
Three months ended
March 31,
----------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------
Balance at beginning of period $2,000 $ 840
Additions 117 383
Sales (47) (13)
Write-downs (81) (21)
- --------------------------------------------------------------------------
Balance at end of period $1,989 $1,189
- --------------------------------------------------------------------------
Securities: The total average balance of securities available for sale
and held to maturity for the three month period ending March 31, 1996
increased $26 million, or 7%, from the comparable period a year ago.
This increase occurred as the lack of high loan demand required the
liquidity of the Bank to be invested in the security portfolios. The
Registrant holds no trading securities, securities bought for the
purpose of sale in the near term. The Registrant classifies securities
as available for sale or held to maturity at the time of purchase.
Classification is determined by potential responses to changes in
interest rates, prepayment risk, and liquidity needs for an indefinite
period of time, and the intent, supported by the ability, to hold the
security to its maturity. Generally accepted accounting principles
limit the reclassification of securities after the initial
determination, particularly from a held to maturity classification to
available for sale.
Concurrent with the adoption, on December 1, 1995, of the FASB
publication "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities" (Guide), the
Registrant was permitted to reassess the appropriateness of the
classifications of all securities held at that time and implement
reclassification without calling into question the intent of the
Registrant to hold other debt securities to maturity in the future. The
Registrant transferred U.S. Treasury, Federal Agency, and Mortgage-
backed securities with amortized costs totalling $217.2 million, having
fair values totalling $220.7 million, from the held to maturity
portfolio to the available for sale portfolio. As required by the
Guide, financial statements prior to adoption were not restated.
At March 31, 1996, the amortized cost of securities available for sale,
$382 million, exceeded their fair value by $3 million of market
depreciation while at December 31, 1995, their fair value of $394
million exceeded amortized cost by $5 million of market appreciation.
This depreciation in fair value has been caused predominately by recent
increases in interest rates which tends to have an opposite effect on
the fair value of securities. At March 31, 1995, the amortized cost of
securities available for sale, $110 million, exceeded their fair value
by $4 million of market depreciation. Throughout 1996 and 1995, most
financial institutions experienced similar patterns of variations in
the fair value of securities due to general changes in interest rates.
Tax-exempt securities averaged $28 million, or 7% of the securities
portfolio, for the three month period ended March 31, 1996 and $36
million, or 9% of the securities portfolio, for the comparable period
of 1995. Obligations of the State of New York and its political
subdivisions constitute 100% of the Bank's tax exempt securities
portfolio. The portfolio did not include any direct obligations of the
State of New York as the entire tax exempt securities portfolio was
comprised of non-rated investments in the local communities within the
twenty county market area served by the Bank's Municipal Banking
Department. It remains the Registrant's practice to invest, subject to
availability, in qualified and designated local municipal issues which
receive favorable federal income tax treatment. The Registrant highly
values its business relationships with a variety of municipalities
within its local service area and meeting their funding needs through
investment in their security issues is a meaningful way to develop such
business relationships.
Deposits: Average total deposits for the quarter ended March 31, 1996,
increased $80 million, or 10%, from the comparable period in 1995. The
acquisition of three branches in December 1995 and their deposit base
of $43 million is a major cause of this increase. Average municipal and
-13-
negotiated term certificates of deposit increased $25 million, or 22%
for the first three months of 1996 compared to the similar period of
1995. Municipal deposits tend to flow into the Bank as taxes are
collected and flow out as the municipalities make payments over time.
These deposits can be utilized to augment short-term borrowings when
interest rates and security pledging requirements render this temporary
substitution beneficial.
Throughout 1995 trends in the deposit portfolio shifting were
experienced as increases occurred in the demand and certificate of
deposit components of the portfolio while NOW, MMDA, and savings
account balances decreased as funds in these lower yielding products
were moved to higher yielding certificates as rates rose. This trend
has stabilized in the first quarter of 1996. For the three months ending
March 31, 1996, approximately 46% of the portfolio consisted of time
deposits, 17% savings deposits, 12% money market demand deposits, 10%
interest bearing NOW checking deposits, and 15% non-interest bearing
demand deposits. Comparable 1995 portfolio percentages were 42%, 19%,
15%, 10%, and 14%.
Borrowed funds: Short-term borrowings include federal funds purchased,
securities sold under agreements to repurchase, and other short-term
borrowings, which consist primarily of FHLB advances with an original
maturity of one year or less. Total borrowed funds, including long-term
debt, decreased throughout 1995 and at March 31, 1996, have again
decreased from their December 31, 1995 level. The decrease has occurred
as deposits increased during those periods and have been utilized to
supplant borrowed funds.
Borrowed funds averaged $52 million for the three month period ending
March 31, 1996, down $45 million, or 45%, from the comparable period
of 1995 due to the additional funding provided by increased deposits
in 1995 and 1996. Borrowed funds averaged $68 million for the three
month period ending December 31, 1995, this measurement is indicative
of the continued downward trend in the use of this source of funding
during 1996.
-14-
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
Liquidity management requires the ability to raise cash quickly at a
reasonable cost without principal loss to meet the cash flow
requirements of depositors desiring to withdraw funds or borrowers
requiring funds to meet their credit needs. The Asset-Liability
Management Committee of the Registrant is responsible for liquidity
management. This committee of the Registrant's senior staff has
developed liquidity guidelines which cover all assets and liabilities,
as well as off balance sheet items that are potential sources or uses
of liquidity. The Registrant's funding needs are evaluated continually,
measuring the adequacy of reliable sources of cash relative to the
stability of deposits and borrowing capacity. The liquidity position
is managed by maintaining adequate levels of liquid assets. The
committee monitors the Registrant's liquidity position utilizing an
internally developed measurement, the basic surplus ratio, defined to
be net access to cash and secured borrowings. At March 31 and December
31, 1995 and March 31, 1996 this ratio was 11%, 17%, and 13%,
respectively, exceeding the committee's minimum guideline of 5-7%.
Additional liquidity is available through the Bank's access to borrowed
funds. The Bank has unused lines of credit available for short-term
financing of $48 million, $300 million for repurchase agreements, and
the capacity for additional FHLB advances of $96 million, at March 31,
1996.
Interest rate risk is determined by the relative sensitivities of
earning asset yields and interest bearing liability rates to changes
in interest rates. The Registrant utilizes a funding matrix to identify
repricing opportunities, the ability to adjust loan and deposit product
rates as well as cash flow from maturities and repayments, along a time
line for both assets and liabilities. The funding matrix indicates that
the Registrant is asset sensitive and, in management's opinion, is
positioned to benefit over time from a rising interest rate
environment; however, the nature and timing of the benefit will be
initially impacted by the extent to which core deposit rates are
increased as rates rise. Based on an analysis performed as of March 31,
1996, given the scenario of a 100 basis point increase or decline in
interest rates occurring over an extended time horizon, the Registrant
estimated that there would be less than a 2% impact on net interest
income relative to a flat rate environment over the next twelve month
period.
CAPITAL RESOURCES AND DIVIDENDS
Stockholders' equity of $103 million represents 9.2% of total assets
at March 31, 1996, compared with $100 million, or 9.7%, a year
previous, and $108 million, or 9.8%, at December 31, 1995. The
decreased dollar amounts and percentage relationships since December
31, 1995 are due to the depreciation in fair value reflected in the
mark to market effect of the securities available for sale portfolio
and additional shares held in the treasury, partially offset by
earnings retention. Similar to the effects experienced by many other
financial institutions, the decline in the fair value of the Bank's
securities available for sale portfolio in 1996, whose unrealized loss
is reflected net of taxes in stockholders' equity, has impacted the
equity balances and ratios. The unrealized loss would only be
recognized in income if securities available for sale were, in fact,
actually sold. It is highly unlikely that the Registrant would require
such a sale to meet its liquidity needs. During 1995 the aforementioned
unrealized net gain or loss reflected in equity improved from an
unrealized net loss at the beginning of the year to a net gain at the
end of the year. This change took place in response to market
fluctuations primarily caused by changes in interest rates.
Both book and tangible book value, stockholders' equity (less
intangible assets) divided by the number of common shares outstanding,
depicted in the table below have been affected by the aforementioned
1995 improvement and 1996 decline in the fair value of the securities
available for sale portfolio. Tangible book value changes in the
declining market value time frame are mitigated by the offsetting
decrease in intangible assets through amortization.
On a per share basis, cash dividends declared were increased in
December 1995 as the Registrant declared a 5% stock dividend in
November 1995 followed by a 13% increase in the cash dividend to $0.13
per share. Cash dividend per share amounts and total cash dividends
paid as a percentage of net income are set forth in the following
tables. The Board of Directors considers the Registrant's earnings
position and earnings potential when making dividend decisions.
-15-
The Registrant's wholly owned subsidiary pays cash dividends to the
Registrant which are used to fund dividend payments to its
stockholders. Certain restrictions exist regarding the ability of the
Bank to transfer funds to the Registrant in the form of cash dividends.
The approval of the Comptroller of the Currency is required for the
Bank to pay dividends in excess of its earnings retained in the current
year plus retained net profits for the preceding two years or when the
Bank fails to meet certain minimum regulatory capital standards. At
March 31, 1996, the Bank has the ability to pay $8.0 million to the
Registrant without obtaining prior regulatory approval. Under the State
of Delaware Business Corporation Law, the Registrant may declare and
pay dividends either out of accumulated net retained earnings or
capital surplus.
Capital is an important factor in ensuring the safety of depositors'
accounts. The Registrant remains well capitalized with capital ratios
that are significantly in excess of regulatory guidelines. During 1995,
the Registrant's wholly owned banking subsidiary 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.
The Tier 1 Risk-Based Capital Ratio and Total Risk-Based Capital Ratio
presented in the table CAPITAL MEASUREMENTS measure the amount of
capital in relation to the degree of risk perceived in assets and off
balance sheet exposure. This concept recognizes that certain higher
risk assets require more capital to support them than lower risk
assets. Both ratios were well in excess of the minimum Regulatory
guidelines of 4% and 8%, respectively. Both capital and the degree of
risk used to weight assets and off balance sheet items are defined by
bank holding company regulatory agencies. As defined, capital may
exclude most intangible assets as well as a portion of the allowance
for loan losses in excess of delineated percentages of loan balances.
Unrealized gains and losses on securities classified as available for
sale, net of the tax effect, for financial reporting purposes are
excluded from capital for the computation of capital adequacy ratios.
There are limitations for the amount of the allowance for loan losses
that can be considered for capital ratios and for the amount of
deferred tax assets that can be used to meet capital requirements. For
all periods presented, the Registrant was permitted to include all of
its deferred tax assets in its capital ratio computations. Risk factors
used to weight assets and off balance sheet credit equivalent items
range from 0% for cash, amounts due from the Federal Reserve and
securities issued by the U.S. Treasury to 100% for certain types of
loans and securities. Regulations promulgated by bank and bank holding
company regulatory agencies are intended primarily for the protection
of the Bank's depositors and customers rather than the holders of the
Registrant's securities.
The Tier 1 Leverage Ratio compares capital, as defined for regulatory
purposes, to quarterly average assets without regard to risk weights
and certain intangible assets. This ratio measures the utilization of
capital to support the balance sheet and is well in excess of the
minimum Regulatory guideline of 4%.
CAPITAL MEASUREMENTS
First Second Third Fourth First
Quarter Quarter Quarter Quarter Quarter
1995 1995 1995 1995 1996
- --------------------------------------------------------------------------------------------------------------------
Tier 1 leverage ratio 9.19% 9.21% 9.17% 8.80% 8.83%
Tier 1 capital ratio 16.13% 16.03% 15.71% 15.21% 14.73%
Total risk-based capital ratio 17.39% 17.28% 16.97% 16.46% 15.98%
Cash dividends as a percentage
of net income 50.50% 43.57% 35.91% 42.85% 36.90%
Per common share:
Book value $11.95 $12.23 $12.42 $13.06 $12.64
Tangible book value $10.82 $11.12 $11.34 $11.66 $11.27
- --------------------------------------------------------------------------------------------------------------------
-16-
The common shares of NBT BANCORP INC. are traded in the NASDAQ National
Market System under the symbol NBTB. High, low, and closing stock
prices, and cash dividends declared by quarter, restated to give
retroactive effect to stock dividends, are depicted in the table
following. At March 31, 1996 the total market capitalization of NBT's
common stock was approximately $138 million, compared with $128 million
a year ago and $143 million at December 31, 1995. The change in market
capitalization is due to an increase in the number of shares
outstanding as a result of the December 1995 stock dividend, partially
offset by an increased number of shares held as treasury stock, and
changes in the market price.
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
Cash
Dividends
Quarter Ending High Low Close Declared
- ---------------------------------------------------------------------------------
1995
- ---------------------------------------------------------------------------------
March 31 $16.19 $15.24 $15.24 $0.114
June 30 15.71 15.00 15.48 0.114
September 30 15.95 15.00 15.71 0.115
December 31 18.00 15.24 17.50 0.130
- ---------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------
March 31 $17.50 $16.00 $17.00 $0.130
- ---------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin: The most significant
impact on the Registrant's net income between periods is derived from
the interaction of changes in the volume of and rates earned on
interest earning assets and paid on interest bearing liabilities. The
volume of earning securities and loans, compared to the volume of
interest bearing deposits and borrowings, combined with interest rate
spread, produces the changes in the net interest income between
periods. Interest rate spread is the difference between FTE yield on
average earning assets and cost on average interest bearing
liabilities. The table, COMPARATIVE ANALYSIS OF FEDERAL TAXABLE
EQUIVALENT NET INTEREST INCOME, presents the relative contribution of
changes in average interest rates and average volume of interest
earning assets and interest bearing liabilities on FTE net interest
income between periods. Changes in interest income and expense arising
from the combination of rate and volume variances, which cannot be
segregated, are allocated proportionally to rate and volume based on
their relative absolute magnitudes.
FTE total interest income and net interest income increased for the
first quarter of 1996 compared to the same period of 1995 due to a
combination of favorable rate and volume variances. These favorable
variances were predominately driven by increased loan and securities
volume and yield. The volume of average earning assets increased from
$960 million for the first quarter of 1995 to $997 million for the same
period of 1996. Reducing the increased yield for the first quarter of
1995 was a non-recurring write-off of $0.5 million of accrued interest
receivable on loans previously charged-off or on nonaccrual status.
Total interest expense increased for the first quarter of 1996 compared
to the same period of 1995 due to a combination of unfavorable rate
variances and an increased volume of interest bearing liabilities.
These variances were predominately driven by increased certificate of
deposit volume and cost. While lower costing interest bearing deposit
products, savings and MMDA accounts, experienced a decrease in average
volume, certificates of deposit volume increased as customers moved
funds into this more costly deposit product. The average volume of
interest bearing liabilities increased to $824 million for the first
quarter of 1996, compared to $799 million during the same period a year
ago. The increase in interest bearing liabilities and the related cost
was offset in part as average balances in non-interest bearing demand
deposit accounts increased by $13 million to $131 million for the first
quarter of 1996 compared to $112 million during the same period a year
-17-
ago. The increase in these interest cost free funds helped mitigate the
increase in the overall cost of funds.
The improvement in FTE net interest income for the first quarter of
1996 can be attributed to increased rates for interest earning assets
as interest rates in general increased. The magnitude of rate increase
was greater for interest earning assets than for interest bearing
liabilities and interest rate spread improved.
Net interest margin has improved from 1995 to 1996 as portrayed
in the table below and in the table of PERFORMANCE MEASUREMENTS
however, the effects of soft loan demand and competitive pricing
continue to be reflected in the compressed net interest margin. A
strong net interest margin is critical to the ability to cover
noninterest expenses and produce an acceptable level of net income. Net
interest margin for the first quarter of 1995 was 4.50% excluding the
effect of the previously mentioned accrued interest receivable write-
off which occurred in that first quarter.
COMPARATIVE ANALYSIS OF FEDERAL TAXABLE EQUIVALENT NET INTEREST INCOME
Three months ended March 31,
Annualized
Yield/Rate Amounts Variance
--------------------------------
1996 1995 (dollars in thousands) 1996 1995 Total Volume Rate
---- ---- ---- ---- ----- ------ ----
4.86% 4.31% Interest bearing deposits $ 5 $ 5 $ - $ (1) $ 1
7.31% 5.71% Federal funds sold 1 5 (4) (5) 1
5.05% 5.92% Other short-term investments 9 22 (13) (10) (3)
6.39% 5.97% Securities available for sale 5,703 1,612 4,091 3,953 138
8.45% 8.01% Loans available for sale 122 157 (35) (45) 10
Securities held to maturity
7.92% 6.06% Taxable 244 3,543 (3,299) (4,157) 858
7.61% 6.83% Tax exempt 532 600 (68) (136) 68
9.27% 8.73% Loans 13,604 12,220 1,384 500 884
------------------------------------------------------------------------------------------------
8.16% 7.67% Total interest income 20,220 18,164 2,056 99 1,957
2.94% 2.72% Money Market Deposit Accounts 820 803 17 (54) 71
2.05% 1.62% NOW accounts 449 330 119 22 97
3.02% 2.96% Savings accounts 1,169 1,167 2 (35) 37
5.33% 5.12% Certificates of deposit 5,512 4,311 1,201 979 222
5.22% 5.74% Other borrowed funds 640 1,219 (579) (484) (95)
10.69% 7.01% Long-term debt 80 151 (71) (128) 57
------------------------------------------------------------------------------------------------
4.23% 4.05% Total interest expense 8,670 7,981 689 300 389
------------------------------------------------------------------------------------------------
Net interest income $11,550 $10,183 $ 1,367 $ (201) $1,568
------------------------------------------------------------------------------------------------
3.93% 3.62% Interest rate spread
----- ----- --------------------
4.66% 4.30% Net interest margin
----- ----- -------------------
FTE adjustment $ 217 $ 222
-------------- ------ ------
Noninterest Income: The table entitled NONINTEREST INCOME presents
quarterly and period to date amounts of noninterest income. First
quarter 1996 noninterest income rose from the comparable period of 1995
predominately due to security gains. The Registrant sold U.S. Treasury
securities carried in its available for sale portfolio having amortized
costs totalling $66 million realizing gains totalling $0.8 million during
the first quarter of 1996.
-18-
NONINTEREST INCOME
First Second Third Fourth Twelve First
Quarter Quarter Quarter Quarter Months Quarter
(dollars in thousands) 1995 1995 1995 1995 1995 1996
- -------------------------------------------------------------------------------------------------------------------
Trust income $ 662 $ 643 $ 558 $ 576 $2,439 $ 654
Service charges on
deposit accounts 731 747 757 760 2,995 775
Securities gains - 11 82 52 145 792
Other income 374 353 389 407 1,523 363
- -------------------------------------------------------------------------------------------------------------------
Total noninterest
income $1,767 $1,754 $1,786 $1,795 $7,102 $2,584
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE AND PRODUCTIVITY MEASUREMENTS
First Second Third Fourth Twelve First
Quarter Quarter Quarter Quarter Months Quarter
(dollars in thousands) 1995 1995 1995 1995 1995 1996
- -----------------------------------------------------------------------------------------------------------------------
Salaries and wages $2,966 $3,047 $3,358 $3,057 $12,428 $3,208
Employee benefits 1,058 903 890 1,030 3,881 1,244
Net occupancy expense 603 586 562 610 2,361 674
Equipment expense 411 424 457 402 1,694 462
FDIC insurance 451 452 (43) 81 941 1
Legal, audit, and
outside services 941 908 921 868 3,638 983
Loan collection and
other loan related
expenses 345 352 290 484 1,471 343
Amortization of
intangible assets 315 314 313 329 1,271 395
Other operating
expense 1,323 1,249 1,367 1,400 5,339 1,276
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest
expense $8,413 $8,235 $8,115 $8,261 $33,024 $8,586
- -----------------------------------------------------------------------------------------------------------------------
Efficiency ratio 70.40% 65.79% 62.80% 65.02% 65.92% 64.34%
Expense ratio 2.64% 2.54% 2.43% 2.45% 2.51% 2.55%
Average full-time
equivalent employees 535 542 551 539 542 534
Average assets per
average full-time
equivalent employee
(millions) $ 1.9 $ 1.9 $ 1.9 $ 2.0 $ 1.9 $ 2.0
- -----------------------------------------------------------------------------------------------------------------------
Noninterest expense: The table entitled NONINTEREST EXPENSE AND
PRODUCTIVITY MEASUREMENTS presents components of noninterest expense
for the periods indicated. Noninterest expense for the first quarter
of 1996 has increased slightly from the comparable period a year
previous. The increase was spread throughout the components of
noninterest expense and is the result of several factors.
Salary, wages and benefits expense are the second largest expense after
interest expense. Salary expense for the quarter ended March 31, 1996
is approximately $0.2 million above the 1995 level. This increase is
in part due to the timing of a substantial number of performance
appraisal based merit increases occurring effective the first of the
calendar year. Benefits expense for the first quarter of 1996 has
increased predominately due to actuarially based increases in
retirement expense.
-19-
During 1995 the FDIC Bank Insurance Fund (BIF) attained congressionally
mandated reserve goals, established during the deposit crisis that
began in the prior decade. In the third quarter of 1995, the Bank
received a refund of premiums it had paid in excess of the lower rates
that became effective June 1995, resulting in the FDIC benefit shown
in the table. During both the third and fourth quarters of 1995 the
premium rates for well capitalized banks were lowered from $0.23 to
$0.04 per $100 of insured deposits. The Bank is well capitalized and
benefitted from the overall lower rates as well as the spread in the
lower premium rates between well, adequately and under capitalized
institutions. Total premiums vary based upon deposit levels and
composition. The FDIC further dropped its premium for well capitalized
banks to the legal minimum of $2,000 per annum for the first six months
of 1996, further benefiting the Bank as reflected in the reduced
expense. The FDIC determines its premium assessment basis and rate
semi-annually based on the BIF reserve. The assessment for the last six
months of 1996 has not yet been determined.
Intangible amortization increased for the first quarter of 1996 as
intangible assets related to the acquisition of three branches in
December 1995 was recognized. The amortization of intangible asset
components lapses gradually over time.
The efficiency ratio is computed as total noninterest expense
(excluding nonrecurring charges) divided by FTE net interest income
plus noninterest income (excluding net securities gains and losses and
nonrecurring income). The efficiency ratio indicates the cost of income
production. A decrease, such as that occurring in the first quarter of
1996, indicates improvement as expense changes are less than
proportional to income changes. The expense ratio is computed as total
noninterest expense (excluding nonrecurring charges) less noninterest
income (excluding net securities gains and losses and nonrecurring
income) divided by average assets. The expense ratio indicates the cost
of supporting the asset base; a decrease indicates improvement as
expense changes are less than proportional to the asset base. Average
assets per average full-time equivalent employee measures the staffing
level to support the asset base; an increased ratio indicates
improvement reflecting increased assets managed by each employee. These
measures all reflect improved performance from the first quarter of
1995 as compared to the comparable of 1996. Since these measures are
annualized it is valid to compare the first quarter of 1996 to the full
year 1995 measurements; all measures reflect improvement in 1996 except
the expense ratio where the asset base and noninterest income have not
maintained a growth rate consistent with that of noninterest expense.
The Registrant continues its expense control efforts and has initiated
a reengineering project in 1996 to continue to improve its performance
for its shareholders and its service to the Bank's customers.
Provision for Income Taxes: The provision for income taxes has
increased for the first quarter of 1996 compared to the comparable
period of 1995 as income subject to taxes has increased. The effective
tax rate for the first quarter of 1996 was 38% compared to 36% for the
comparable period of 1995; increased taxable income was the primary
reason for the increase in the effective tax rate.
-20-
- ------------------------------------------------------------------------------------------------------------------------
SELECTED FIVE YEAR DATA 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
Net income $9,329 $6,508 $8,505 $8,043 $7,179
Return on average assets 0.90% 0.64% 0.93% 0.94% 0.85%
Return on average equity 9.18% 6.53% 8.79% 8.89% 8.45%
Net interest margin 4.43% 4.81% 5.26% 5.52% 5.64%
Efficiency ratio 65.92% 70.22% 71.05% 69.48% 68.52%
Expense ratio 2.51% 2.96% 3.21% 3.19% 3.23%
Tier 1 leverage ratio 8.80% 9.05% 9.24% 9.01% 7.92%
Tier 1 capital ratio 15.21% 16.09% 15.40% 15.30% 14.12%
Total risk-based capital ratio 16.46% 17.35% 16.66% 16.61% 14.12%
Cash dividends as a percentage
of net income 42.47% 55.22% 38.82% 36.94% 38.58%
Per Common Share:
Net income $ 1.11 $ 0.76 $ 1.00 $ 0.97 $ 0.88
Cash dividends declared $ 0.473 $ 0.427 $ 0.394 $ 0.358 $ 0.339
Book value $13.06 $11.68 $11.98 $11.26 $10.65
Tangible book value $11.66 $10.51 $10.43 $ 9.18 $ 8.03
Stock dividends distributed 5.00% 5.00% 5.00% 5.00% 5.00%
Market price:
High $18.00 $16.78 $16.78 $13.16 $11.75
Low $15.00 $13.61 $11.45 $ 9.05 $ 9.01
End of year $17.50 $15.71 $16.55 $12.53 $ 9.46
Price/earnings multiple 15.77x 12.72x 10.79x 12.89x 16.55x
Price/book value multiple 1.34x 1.34x 1.38x 1.11x 0.89x
Total assets 1,106,266 1,044,557 953,907 868,616 838,884
Total stockholders' equity 108,044 98,307 101,108 94,012 87,826
Average common shares
outstanding (thousands) 8,381 8,513 8,474 8,316 8,195
- ------------------------------------------------------------------------------------------------------------------------
-21-
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
There have been no material legal proceedings initiated or settled
during the quarter ended March 31, 1996. The Registrant and its
principal subsidiary, NBT Bank, National Association (collectively
NBT), initiated a suit in the Supreme Court of the State of New York,
Chenango County, on October 28, 1988, against Fleet/Norstar Financial
Group, Inc., Fleet/Norstar New York, Inc., and Norstar Bank of Upstate
N.Y. (collectively NORSTAR) for tortious interference with NBT's
contract rights and prospective business relationship with Central
National Bank, Canajoharie, New York. NBT sought damages from NORSTAR
for lost profits and special and punitive damages. On March 26, 1996
the New York Court of Appeals affirmed the lower Courts' orders
dismissing the Registrant's claims.
Item 2 -- Changes in Securities
Following are listed changes in the Registrant's Common Stock
outstanding during the quarter ended March 31, 1996 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 March 31, 1996.
The Registrant has Stock Option Plans covering key employees. In
January 1996 non-qualified stock options were granted for 96,500 shares
of common stock at an option price of $16.46 per share. These options
vest over a four year period with the first vesting date one year from
the date of grant. Outstanding at March 31, 1996 are non-qualified
stock options covering 277,606 shares at exercise prices ranging
between $9.46 and $16.46 with expiration dates between January 10,
1997, and January 23, 2006. There are 593,944 shares of authorized
common stock designated for possible issuance under the Plans,
including the aforementioned shares. The number of shares designated
for the Plans, the number of shares under existing options and the
option price per share may be adjusted upon certain changes in
capitalization, such as stock dividends, stock splits and other
occurrences as enumerated in the Plans. (FORMs S-8, Registration
Statement Nos. 33-18976 and 33-77410, filed with the Commission on
December 9, 1987 and April 6, 1994, respectively).
The Registrant has granted its former Chairman stock options in connection
with the discharge of severance obligations of the Registrant and the
Bank under an employment agreement. The option covers 129,988 and 27,232
shares with exercise prices of $15.42 and $16.10, respectively, and bears
an expiration date of January 31, 1997. The number of shares under option
and the option price per share may be adjusted upon certain changes in
capitalization, such as stock dividends, stock splits and other
occurrences. The shares which would be issued, upon payment of the exercise
price, from authorized, but unissued common stock, or shares held in
the treasury. This stock option does not serve to reduce the number of
options available under the previously mentioned Stock Option Plans.
(FORM S-8, Registration Statement No. 333-02925, filed with the Commission
on April 29, 1996).
The Registrant has a Dividend Reinvestment Plan. There are 134,003
additional shares of authorized but unissued common stock designated for
possible issuance under the Plan. (FORM S-3, Registration Statement
No. 33-12247, filed with the Commission on February 26, 1987).
The Registrant's Board of Directors has authorized the purchase on the
open market by the Registrant of additional shares of treasury stock.
These treasury shares are to be used for a variety of corporate
purposes, primarily to meet the needs of the Registrant's Employee
Stock Ownership Plan, Automatic Dividend Reinvestment and Stock
Purchase Plan, Stock Option Plans and Bank Trust Department directed
IRA and HR-10 accounts. Purchases and sales during 1996 totalled
204,148 and 4,821, respectively, with 326,001 shares in treasury at
March 31, 1996. Purchases were made at the prevailing market price in
effect at the dates of the transactions. Subsequent sales to both the
Registrant's Employee Stock Ownership Plan and Dividend Reinvestment
-22-
and Stock Purchase Plan, if any, were made at the five day average of
the highest and lowest quoted selling price of the Registrant's common
stock on the National Market System of NASDAQ. Sales under the
Registrant's Stock Option Plans were made at the option price. The
price per common share ranged between $16.25 and $17.03; any difference
between cost and sales price was recorded in capital surplus.
As approved at the April 22, 1995 annual meeting the Registrant is
authorized to issue 2.5 million shares of preferred stock, no par
value, $1.00 stated value. The Board of Directors is authorized to fix
the particular designations, preferences, rights, qualifications, and
restrictions for each series of preferred stock issued. The Registrant
has a Stockholder Rights Plan (Plan) designed to ensure that any
potential acquiror of the Registrant negotiate with the Board of
Directors and that all Registrant stockholders are treated equitably
in the event of a takeover attempt. When the Plan was adopted, the
Registrant paid a dividend of one Preferred Share Purchase Right
(Right) for each outstanding share of common stock of the Registrant.
Similar Rights are attached to each share of the Registrant's common
stock issued after November 15, 1994, the date of adoption subject to
adjustment. Under the Plan, the Rights will not be exercisable until
a person or group acquires beneficial ownership of 20 percent or more
of the Registrant's outstanding common stock, begins a tender or
exchange offer for 25 percent or more of the Registrant's outstanding
common stock, or an adverse person, as declared by the Board of
Directors, acquires 10 percent or more of the Registrant's outstanding
common stock. Additionally, until the occurrence of such an event, the
Rights are not severable from the Registrant's common stock and
therefore, the Rights will be transferred upon the transfer of shares
of the Registrant's common stock. Upon the occurrence of such events,
each Right entitles the holder to purchase one one-hundredth of a share
of Series R Preferred Stock, no par value, and $1.00 stated value per
share of the Company at a price of $100.
The Plan also provides that upon the occurrence of certain specified
events, the holders of Rights will be entitled to acquire additional
equity interests in the Company or in the acquiring entity, such
interests having a market value of two times the Right's exercise price
of $100. The Rights, which expire November 14, 2004, are redeemable in
whole, but not in part, at the Company's option prior to the time they
are exercisable, for a price of $0.01 per Right.
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 March 31, 1996.
Item 4 -- Submission of Matters to a Vote of Security Holders
The Registrant's Annual Meeting of Stockholders was held on April 20,
1996. Two directors were elected and one proposal was voted upon by the
stockholders, as described below. A copy of the Notice of Annual
Stockholders' Meeting and Proxy Statement is incorporated by Reference
to this FORM 10-Q as Exhibit No. 99.1. A complete description of each
proposal is included in the Proxy Statement.
a. Peter B. Gregory and Paul O. Stillman were elected as
directors at the Annual Meeting with terms of office to
expire at the 1999 Annual Meeting of Stockholders. There
are four other directors whose terms of office continued
after the Annual Meeting. The terms of Andrew S. Kowalczyk,
Jr. and John C. Mitchell will expire at the 1997 Annual
Meeting. The terms of Daryl R. Forsythe and Everett A.
Gilmour will expire at the 1998 Annual Meeting. The
directors were elected with the following results:
-23-
FOR WITHHELD
Peter B. Gregory 6,469,504 89,504
Paul O. Stillman 6,473,774 85,232
b. Proposal to Ratify the Board of Directors Action in
Selection of KPMG Peat Marwick as Auditor for the
Registrant.
The proposal was approved, with 6,635,226 votes FOR, 21,857
votes AGAINST, and 28,120 votes ABSTAINING.
Item 5 -- Other Information
Not Applicable
Item 6 -- Exhibits and Reports on FORM 8-K
An index to exhibits follows the signature page of this FORM 10-Q.
No reports on FORM 8-K were filed by the Registrant during the quarter
ended March 31, 1996.
-24-
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 13th
day of May, 1996.
NBT BANCORP INC.
/s/ JOE C. MINOR
By: ----------------------------------------
Joe C. Minor
Vice President
Chief Financial Officer and Treasurer
-25-
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.
FORM 10-Q
Exhibit Exhibit
Number Cross-Reference
- ------ ---------------
27. Financial Data Schedule Herein
99.1 NBT BANCORP INC. Notice of Annual Stockholders Meeting *
and Proxy dated March 18, 1996.
Filed on March 18, 1996 pursuant to Section 14 of the
Exchange Act, File No. 0-14703.
-26-
EXHIBIT 27
Financial Data Schedule
9
3-MOS
DEC-31-1996
MAR-31-1996
54,114
409
0
0
379,425
39,762
39,762
595,025
9,173
1,109,501
912,711
84,540
6,615
3,010
0
0
8,442
94,183
1,109,501
13,695
6,293
15
20,003
7,950
8,670
11,333
600
792
8,586
4,731
2,911
0
0
2,911
0.35
0.35
4.66
5,431
929
0
27,567
9,120
709
162
9,173
6,958
0
2,215
