SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                    FILED PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                         DATE OF REPORT: August 1, 2000



                         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

                                       N/A
          (Former Name or Former Address, If changed since last Report)






Item 5.  Other Events

Filed as Exhibit  99.1 are  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations,  and  Supplemental  Consolidated  Financial
Statements of NBT Bancorp Inc.  restated to reflect the acquisition by merger of
Pioneer American Holding Company Corp. The merger was a pooling of interests for
accounting  and  financial  reporting  purposes.   The  consolidated   financial
statements of NBT Bancorp Inc. are restated for periods prior to the date of the
acquisition.

Item 7.  Financial Statements and Exhibits

(a)      Not applicable.

(b)      Not applicable

(c)      The following exhibits are included in this report:

         23.1    Consent of KPMG LLP

         27.1    Restated Financial Data Schedule at December 31, 1999

         27.2    Restated Financial Data Schedule at December 31, 1998

         27.3    Restated Financial Data Schedule at December 31, 1997

         99.1    NBT  Bancorp  Inc.  Management's  Discussion  and  Analysis  of
                 Financial Condition and Results of Operations, and Supplemental
                 Consolidated  Financial  Statements  and  other  Annual  Report
                 data.







                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                           NBT BANCORP, INC.

Date: July 31, 2000
                                           /s/ Michael J. Chewens
                                           ----------------------
                                           Michael J. Chewens, CPA
                                           Executive Vice President
                                           Chief Financial Officer and Treasurer



                                  EXHIBIT INDEX

   23.1      Consent of KPMG LLP

   27.1      Restated Financial Data Schedule at December 31, 1999

   27.2      Restated Financial Data Schedule at December 31, 1998

   27.3      Restated Financial Data Schedule at December 31, 1997

   99.1      NBT Bancorp Inc. Management's  Discussion and Analysis of Financial
             Condition  and  Results  of  Operations,   Consolidated   Financial
             Statements and other Annual Report data.





                                  EXHIBIT 23.1

                         CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
NBT Bancorp Inc.:

We consent to incorporation by reference in the registration  statements on Form
S-3 (File  Nos.  33-12247  and  333-40192)  and Form S-8 (File  Nos.,  33-77410,
333-67615 and  333-32842,  filed by NBT Bancorp Inc. under the Securities Act of
1933 of our audit  report  dated July 28,  2000,  relating  to the  supplemental
consolidated  balance sheets of NBT Bancorp Inc. and subsidiaries as of December
31,  1999 and 1998,  and the related  supplemental  consolidated  statements  of
income,  stockholders'  equity, cash flows and comprehensive  income for each of
the years in the three-year  period ended December 31, 1999 which report appears
in the current report on Form 8-K of NBT Bancorp Inc. dated August 1, 2000.

Syracuse, New York
July 31, 2000


/s/ KPMG LLP
 

9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NBT BANCORP INC'S FORM 8-K DATED JULY 31, 2000 EXHIBIT 99.1 FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FINANCIAL STATEMENTS 0000790359 NBT BANCORP INC. 1,000 U.S. DOLLARS 12-MOS DEC-31-1999 JAN-1-1999 DEC-31-1999 1 74,612 5,017 0 0 606,727 113,318 109,147 1,466,867 19,711 2,380,207 1,777,091 142,267 17,407 251,970 0 0 23,915 167,557 2,380,207 115,896 48,175 707 164,778 56,586 75,480 89,298 5,440 1,804 62,882 40,228 26,257 0 0 26,257 1.14 1.12 4.32 7,596 2,026 2,495 36,517 18,231 5,024 1,064 19,711 16,041 0 3,670
 

9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NBT BANCORP INC'S FORM 8-K DATED JULY 31, 2000 EXHIBIT 99.1 FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FINANCIAL STATEMENTS 0000790359 NBT BANCORP INC. 1,000 U.S. DOLLARS 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 1 65,839 7,783 14,140 0 523,254 180,663 181,741 1,277,241 18,231 2,169,855 1,664,307 99,872 17,670 183,968 0 0 23,188 180,850 2,169,855 108,492 49,099 1,011 158,602 58,898 74,736 83,866 6,149 1,567 61,547 34,044 26,895 0 0 26,895 1.16 1.14 4.3 7,673 2,755 4,402 34,636 16,450 5,404 1,036 18,231 14,621 0 3,610
 

9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NBT BANCORP INC'S FORM 8-K DATED JULY 31, 2000 99.1FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FINANCIAL STATEMENTS 0000790359 NBT BANCORP INC. 1,000 U.S. DOLLARS 12-MOS DEC-31-1997 JAN-1-1997 DEC-31-1997 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 99,789 46,622 927 147,338 56,966 68,892 78,446 4,820 34 54,460 33,094 22,188 0 0 22,188 1.00 .98 4.44 8,386 4,224 2,877 32,980 15,053 4,470 1,047 10,721 16,450 0 5,729

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

The  purpose of this  discussion  and  analysis  is to provide the reader with a
concise  description  of the  consolidated  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 Pioneer  American Bank, N.A.  (Pioneer
Bank) collectively referred to herein as the Company. This discussion will focus
on  results  of  operations,   financial   position,   capital  resources,   and
asset/liability management.

OVERVIEW

Net income of $26.3 million ($1.12 diluted earnings per share) for 1999 compares
to $26.9 million ($1.14 diluted earnings per share) for 1998. However, excluding
a $4.2 million net income tax benefit  recognized in 1998 in  connection  with a
corporate realignment,  net income increased 15.9 % in 1999 over the prior year.
Income  before taxes of $40.2 million  improved $6.2 million  (18.2%) over 1998.
Results for 1999 included merger related expenses of $0.8 million after taxes.

The  increase  in  pretax  income  for  1999  can  be  primarily  attributed  to
improvements in net interest income and noninterest  income. The increase in net
interest  income was primarily the result of continued  loan growth.  The higher
noninterest  income  was a result of  increased  fee income  from the  continued
expansion  of our ATM network,  increased  service  charges from demand  deposit
account  growth  and  increased  securities  gains on the  sales  of  securities
available  for  sale.  Additionally,  the  Company  was  able to  achieve  these
improvements without a significant increase in noninterest expense.

In December  1999,  the Bancorp  distributed a 5% stock  dividend,  the fortieth
consecutive  year a stock  dividend has been declared.  Throughout  this report,
amounts per common share and common shares  outstanding have been  retroactively
adjusted to reflect stock dividends and splits.

Certain  statements  in this  release and other  public  releases by the Company
contain  forward-looking  information,  as  defined  in the  Private  Securities
Litigation  Reform Act. These statements may be identified by the use of phrases
such as "anticipate,"  "believe,"  "expect,"  "forecasts,"  "projects," or other
similar terms.  Actual results may differ materially from these statements since
such statements  involve  significant known and unknown rules and uncertainties.
Factors  that  may  cause  actual  results  to  differ   materially  from  those
contemplated  by such  forward-looking  statements  include,  among others,  the
following possibilities: (1) an increase in competitive pressures in the banking
industry;  (2)  changes in the  interest  rate  environment;  (3) changes in the
regulatory  environment;  (4) general economic  environment  conditions,  either
nationally or regionally,  may be less  favorable  than expected,  resulting in,
among other things, a deterioration in credit quality; and (5) changes may incur
in business conditions and inflation.





MERGERS AND ACQUISITIONS

On February  17, 2000,  the  shareholders  of Bancorp and Lake Ariel  approved a
merger,  whereby  Lake  Ariel and its  subsidiaries  were  merged  with and into
Bancorp  with each  issued and  outstanding  share of Lake Ariel  exchanged  for
0.9961 shares of Bancorp common stock. The transaction  resulted in the issuance
of approximately  5.0 million shares of Bancorp common stock and was consummated
on February 17, 2000.  Concurrent with the  announcement of the merger with Lake
Ariel,  Bancorp  reduced its previously  announced  stock  repurchase  plan from
600,000 shares to 200,000 leaving 76,500 shares  remaining for repurchase  under
the reduced plan at December 31, 1999.

On June 20, 2000,  the  shareholders  of Bancorp and Pioneer  approved a merger,
whereby  Pioneer  Holding  Company and its subsidiary  were merged with and into
Bancorp  with each  issued  and  outstanding  share of Pioneer  Holding  Company
exchanged for 1.805 shares of Bancorp common stock. The transaction  resulted in
the issuance of  approximately  5.2 million shares of Bancorp common stock.  The
Pioneer Holding Company merger was consummated on July 1, 2000.

LA Bank and  Pioneer  Bank  are  commercial  banks  headquartered  in  northeast
Pennsylvania with approximately $570 million and $420 million,  respectively, in
assets at December  31,  1999,  and  twenty-two  and  eighteen  branch  offices,
respectively,  in five counties.  Pioneer Bank will ultimately be merged with LA
Bank to form the largest community bank headquartered in northeast Pennsylvania.

The Lake Ariel and  Pioneer  Holding  company  mergers  qualified  as a tax-free
exchanges and are being accounted for as poolings-of-interests.

On March 28, 2000, NBT Bancorp Inc. and M. Griffith, Inc. jointly announced that
a  definitive  agreement  had been signed for NBT Bancorp Inc. to acquire all of
the stock of M. Griffith, Inc., a Utica, New York based securities firm offering
investment,  financial advisory and asset-management services,  primarily in the
Mohawk Valley region.  M. Griffith,  Inc., a  full-service  broker/dealer  and a
Registered  Investment  Advisor,  will become 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 beyond traditional bank product offerings.

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  $2.2 billion at March 31, 2000 and twenty-two  branches in six
counties in central New York and the 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 bank  holding  company  with assets of $4.7  billion and
proforma  market  capitalization  of  approximately  $539  million.  The holding
company will adopt a new name before the merger  occurs.  The  combined  company
will have three direct operating  subsidiaries including two community banks and
a financial services company.




YEAR 2000

The  Company  has not  experienced  any  system  failure  or  miscalculation  of
financial data as a result of the Year 2000 issue.  The Company will continue to
monitor  all  systems  to  ensure  they  are  properly  functioning  as the year
progresses.

NET INTEREST INCOME

Net interest income is the difference between interest and fees earned on assets
and the interest paid on deposits and borrowings.  Net interest income is one of
the major determining factors in a financial institution's  performance as it is
the principal source of earnings.  Table 1 presents average consolidated balance
sheets and a net interest income analysis on a taxable equivalent basis for each
of the years in the three-year period ended December 31, 1999.

As reflected in Table 1, federal taxable equivalent (FTE) net interest income of
$92.2  million in 1999  increased  $6.1 million or 7.1%  compared to 1998.  This
increase can be primarily  attributed to an increase in average  earning assets,
which mitigated the impact of a decline in yield during 1999.

Average  earning  assets in 1999  increased  $154.1  million or 7.8% compared to
1998. Average loans increased $148.5 million or 12.2% during 1999, while average
investment  securities  increased  $10.4 million or 1.4%.  The benefits of these
increases  offset a 26 basis  point  decline  in the  yield on  earning  assets,
primarily  the result of a 40 basis  point  decline  in the yield on loans.  The
continuing  decline  in the  yield  earned  on loans  can be  attributed  to the
declining interest rate environment experienced during late 1998 and early 1999.
Average  interest  bearing  liabilities  during 1999  increased  $121.9  million
compared to 1998,  the result of an increase in interest  bearing  deposits  and
borrowings of $49.5 million and $72.4 million,  respectively. The effects of the
increase  in  interest  bearing  liabilities  was  offset  by a 26  basis  point
reduction in rate paid, resulting in a $0.7 million increase in interest expense
during 1999 compared to 1998. The reduced rates on interest bearing  liabilities
during  1999  can  also be  attributed  to the  previously  mentioned  declining
interest rate environment.

In comparing  1998 to 1997,  FTE net interest  income  increased $5.4 million or
6.7% from  $80.7  million in 1997 to $86.1  million  in 1998.  Yields on earning
assets  declined  by  12  basis  points  while  the  cost  of  interest  bearing
liabilities  was  relatively  stable  between  1997 and 1998.  In 1998,  average
earning assets increased $166.8 million or 9.2% compared to 1997, resulting in a
$11.3  million  increase in interest  income.  Average  loans  increased  $118.9
million or 10.8% during 1998,  while  average  investment  securities  increased
$45.6  million  or 6.5%.  During  1998,  average  interest  bearing  liabilities
increased  $119.4 million,  primarily a result of increases in time deposits and
other borrowings.

An important performance  measurement of net interest income is the net interest
margin.  Net  interest  margin,  net FTE  interest  income  divided  by  average
interest-earning  assets,  is a measure of an  entity's  ability to utilize  its
earning assets in relation to the interest cost of funding.  Taxable equivalency
adjusts  income by increasing tax exempt income to a level that is comparable to
taxable  income  before  taxes are applied.  The net interest  margin was stable
between 1998 and 1999. Net interest  margin was 4.32% for 1999 compared to 4.34%
during 1998. The stability of the net interest margin is primarily a result of a
stable  interest rate spread,  as the reduction in the cost of interest  bearing
liabilities was consistent with the decline in yield on earning assets.





TABLE 1

AVERAGE BALANCES AND NET INTEREST INCOME

The following table includes the condensed  consolidated average balance sheets,
an analysis of interest  income/expense  and average  yield/rate  for each major
category  of  earning  assets  and  interest  bearing  liabilities  on a taxable
equivalent basis.  Interest income for tax-exempt  securities and loans has been
adjusted to a  taxable-equivalent  basis using the statutory  Federal income tax
rate of 35%.



                                                              1999                        1998                          1997
                                                AVERAGE                YIELD/   AVERAGE          YIELD/     AVERAGE          YIELD/
(dollars in thousands)                          BALANCE     INTEREST   RATES    BALANCE INTEREST RATES      BALANCE INTEREST  RATES
                                                                                                  

ASSET
Interest bearing deposits                          $355           18    5.07%     $ 308       14  4.55%  $      287      14  4.88%
Federal funds sold and securities
  purchased under agreements to resell            8,200          393    4.79     13,993      728  5.20       14,290     778   5.44
Other short-term investments                      6,073          296    4.87      5,156      269  5.22        2,536     135   5.32
Securities  (2)                                 756,170       50,426    6.67    745,739   51,058  6.85      700,119  48,544   6.93
Loans (1)                                     1,366,298      116,588    8.53  1,217,833  108,767  8.93    1,098,967 100,086   9.11
                                             ----------      -------         ---------- --------         ---------- -------
Total earning assets                          2,137,096      167,721    7.85  1,983,029  160,836  8.11    1,816,199 149,557   8.23
                                                             -------                    --------                    -------
Other assets                                    131,026                         128,826                     115,118
                                             ----------                      ----------                  ----------
TOTAL ASSETS                                 $2,268,122                      $2,111,855                  $1,931,317
                                             ----------                      ----------                  ----------

LIABILITIES AND
 STOCKHOLDERS' EQUITY
Money market deposit accounts                  $109,108        3,228    2.96    101,473    2,958  2.92      103,391   3,013   2.91
NOW accounts                                    219,078        4,031    1.84    200,262    4,080  2.04      185,874   3,784   2.04
Savings deposits                                283,332        7,314    2.58    254,813    7,226  2.84      248,922   7,104   2.85
Time deposits                                   832,292       42,013    5.05    837,786   44,634  5.33      813,099  43,065    5.3
                                             ----------      -------         ---------- --------         ---------- -------
  Total interest bearing deposits             1,443,810       56,586    3.92  1,394,334   58,898  4.22    1,351,286  56,966   4.22
Short-term borrowings                           121,424        5,976    4.92    116,866    6,145  5.26      121,521   6,703   5.52
Other borrowings/LTD                            232,366       12,918    5.56    164,479    9,693  5.89       83,450   5,223   6.26
                                             ----------      -------         ---------- --------         ---------- -------
  Total interest bearing liabilities          1,797,600       75,480    4.20  1,675,679   74,736  4.46    1,556,257  68,892   4.43
                                                             -------                    --------                    -------
Demand deposits                                 256,338                         225,171                     193,938
Other liabilities                                15,125                          12,467                      13,537
Stockholders' equity                            199,059                         198,538                     167,585
                                             ----------                      ----------                  ----------
Total liabilities and stockholders' equity   $2,268,122                      $2,111,855                  $1,931,317
                                             ----------                      ----------                  ----------
  Net interest income                                       $ 92,241                     $86,100                    $80,665
                                                            ========                     =======                    =======
  Net interest margin                                                   4.32%                     4.34%                       4.44%
Taxable equivalent adjustment                               $  2,943                      $2,234                     $2,219
                                                            ========                     =======                    =======
(1) For purposes of these computations, nonaccrual loans are included in the average loan balances outstanding. (2) Securities are shown at average amortized cost. TABLE 2 ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME - -------------------------------------------------------------------------------- The following table presents changes in interest income and interest expense attributable to changes in volume (change in average balance multiplied by prior year rate) and changes in rate (change in rate multiplied by prior year volume). The net change attributable to the combined impact of volume and rate has been allocated to each type of asset and liability in proportion to the absolute dollar amounts of change.
Increase (Decrease) Increase (Decrease) 1999 over 1998 1998 over 1997 (in thousands) Volume Rate Total Volume Rate Total ------ ---- ----- ------ ---- ----- Interest bearing deposits $ 2 $ 2 $ 4 $ 1 $ (1) $ 0 Federal funds sold and securities purchased under agreements to resell (281) (54) (335) (16) (34) (50) Other short-term investments 46 (19) 27 137 (3) 134 Securities 713 (1,345) (632) 3,087 (573) 2,514 Loans 12,844 (5,023) 7,821 10,685 (2,004) 8,681 -------- -------- -------- -------- -------- -------- Total Interest Income 13,324 (6,439) 6,885 13,894 (2,615) 11,279 Money market deposit accounts 228 42 270 (64) 9 (55) NOW accounts 368 (417) (49) 296 0 296 Savings deposits 777 (689) 88 150 (28) 122 Certificates of deposit (291) (2,330) (2,621) 1,322 247 1,569 Short-term borrowings 235 (404) (169) (250) (308) (558) Other borrowings/LTD 3,795 (570) 3,225 4,796 (326) 4,470 -------- -------- -------- -------- -------- -------- Total interest expense 5,112 (4,368) 744 6,250 (406) 5,844 -------- -------- -------- -------- -------- -------- Change in FTE net interest income $ 8,212 $ (2,071) $ 6,141 $ 7,644 $ (2,209) $ 5,435 ======== ======== ======== ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------------------------
PROVISION AND ALLOWANCE FOR LOAN LOSSES - -------------------------------------------------------------------------------- The provision for loan losses is based upon management's judgement as to the adequacy of the allowance to absorb losses inherent in the current loan portfolio. In assessing the adequacy of the allowance for loan losses, consideration is given to historical loan loss experience, value and adequacy of collateral, level of nonperforming loans, loan concentrations, the growth and composition of the portfolio, and the results of a comprehensive independent loan review program conducted throughout the year. Consideration is given to the results of examinations and evaluations of the overall portfolio by senior credit personnel, internal and external auditors, and regulatory examiners. The provision for loan losses decreased to $5.4 million in 1999 from $6.1 million in 1998, the result of lower charge-offs and improved asset quality. Accompanying tables reflect the five year history of net charge-offs and the allocation of the allowance by loan category. Net charge-offs, both as dollar amounts and as percentages of average loans outstanding, decreased between 1999 and 1998. Although the provision decreased, the allowance increased to $19.7 million at December 31, 1999 from $18.2 million at the previous year-end. At December 31, 1999, the allowance for loan losses to loans outstanding was 1.34%, down from 1.43% at December 31, 1998. Management considers the allowance to be adequate at December 31, 1999. TABLE 3 ALLOWANCE FOR LOAN LOSSES
(dollars in thousands) 1999 1998 1997 1996 1995 -------------------------------------------------------------------- Balance at January 1 $18,231 16,450 15,053 13,519 13,221 Loans charged off: Commercial and agricultural 2,427 2,528 1,524 1,635 1,360 Real estate mortgages 392 512 341 598 529 Consumer 2,205 2,364 2,605 1,638 1,512 -------------------------------------------------------------------- Total loans charged off 5,024 5,404 4,470 3,871 3,401 -------------------------------------------------------------------- Recoveries: Commercial and agricultural 292 273 253 326 234 Real estate mortgages 72 47 18 20 16 Consumer 700 716 776 734 666 -------------------------------------------------------------------- Total recoveries 1,064 1,036 1,047 1,080 916 -------------------------------------------------------------------- Net loans charged off 3,960 4,368 3,423 2,791 2,485 Provision for loan losses 5,440 6,149 4,820 4,325 2,783 -------------------------------------------------------------------- Balance at December 31 $ 19,711 18,231 16,450 15,053 13,519 ==================================================================== Allowance for loan losses to loans outstanding at end of year 1.34% 1.43% 1.42% 1.45% 1.44% Allowance for loan losses to nonaccrual loans 259% 238% 196% 181% 156% Nonaccrual loans to total loans 0.52% 0.60% 0.72% 0.80% 0.93% Nonperforming assets to total assets 0.38% 0.49% 0.52% 0.73% 0.79% Net charge-offs to average loans outstanding 0.29% 0.36% 0.31% 0.36% 0.34% --------------------------------------------------------------------
TABLE 4 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Category Category Category Category Category (dollars in thousands) Percent Percent Percent Percent Percent Allowance of Loans Allowance of Loans Allowance of Loans Allowance of Loans Allowance of Loans - ------------------------------------------------------------------------------------------------------------------------------------ Commercial and agricultural $ 9,091 46.3% $ 8,589 43.7% $ 6,755 41.5% $ 5,581 39.8% $ 5,111 38.5% Real estate mortgages 2,050 27.6% 1,219 30.2% 843 30.0% 1,053 30.2% 923 31.0% Consumer 4,900 26.1% 4,813 26.1% 3,123 28.5% 3,007 30.0% 2,643 30.5% Unallocated 3,670 -- 3,610 -- 5,729 -- 5,412 -- 4,842 -- Total $19,711 100.0% $18,231 100.0% $16,450 100.0% $15,053 100.0% $13,519 100.0% - ------------------------------------------------------------------------------------------------------------------------------------
No portion of the allowance for loan losses is restricted to any loan or group of loans, and the entire allowance is available to absorb realized losses. The amount and timing of realized losses and future allowance allocations may vary from current estimates. - -------------------------------------------------------------------------------- NONINTEREST INCOME Noninterest income consists primarily of trust and custodian fees, service charges on deposit accounts, gains and losses on the sales of investment securities, and fees and service charges for other banking services. Total noninterest income for 1999 of $19.3 million increased $1.4 million or 7.7% compared to 1998. Excluding securities gains and losses, noninterest income increased $1.1 million or 7.0% in 1999 compared to 1998. Excluding security gains and losses, total noninterest income for 1998 increased $2.4 million over 1997. Trust income rose during 1999 as managed assets have continued to increase. At December 31, 1999, the Trust Department managed $891 million in assets (market value), up from $865 million at year-end 1998, resulting in a $0.2 million increase in trust income. Service charges on deposit accounts increased $1.2 million in 1999 compared to 1998. This improvement can be attributed to an increase in service fee and overdraft income resulting from growth in demand deposits. In addition, ATM fee income increased $0.4 million in 1999 compared to 1998. This can be attributed to an increase in the use of customer debit cards and the installation of additional machines throughout our market areas. The Company had 85 ATM machines in use at December 31, 1999, up from 72 at year-end 1998. NONINTEREST EXPENSE AND OPERATING EFFICIENCY Salaries and employee benefits increased $1.2 million, or 4.2%, between 1999 and 1998, primarily the result of increased salaries and performance based incentives. Salaries and employee benefits increased $2.1 million between 1998 and 1997, due to additional staffing needs in both new and existing branch and administrative offices at LA, increases in salaries and performance based incentives and increases in health care insurance and other benefits. Occupancy expense increased $0.2 million from 1998 to 1999 and $0.4 million from 1997 to 1998. This is attributed to growth in the number of LA branch offices throughout 1998, with a full year's effect of occupancy expense reflected in 1999. Equipment expense during 1999 increased $0.8 million compared to 1998. This increase can be attributed to computer maintenance and depreciation resulting from replacement of computers for Year 2000 compliance, as well as the installation of additional computers throughout the branch network along with the addition of a new branch office at Pioneer Bank during the fourth quarter of 1998. Equipment expense increased $1.1 million between 1998 and 1997. This increase can be attributed primarily to growth in the number of LA branch offices and a rise in computer depreciation expense related to the automation of the branch network computer system at NBT completed in the fourth quarter of 1997. Other operating expense for 1999 experienced a $1.1 million decline compared to 1998. In addition to a decline in recurring other operating expenses during 1999, the Company recognized a nonrecurring gain of $0.3 million on the sale of other real estate owned. An important operating efficiency measure that the Company closely monitors is the efficiency ratio. This ratio is computed as total noninterest expense (excluding merger and acquisition expenses, gains and losses on the sales of OREO and other nonrecurring expenses) divided by net interest income plus noninterest income (excluding net security gains and losses and nonrecurring income). The efficiency ratio improved to 56.06% in 1999 from 59.63% for 1998. This improvement was a result of the increases in net interest and noninterest income between the reporting periods, without any significant increase in noninterest expense. It is anticipated that the Company will incur approximately $27.7 million of merger and integration expenses in the future in connection with the Lake Ariel, Pioneer Holding Company and BSB Bancorp, Inc. mergers. Income Tax Expense The effective income tax rate was 34.7% in 1999, 21.0% in 1998, and 33.0% in 1997. The increased income tax expense in 1999 and decreased incomes tax expense in 1998 resulted from a tax benefit recognized during 1998 associated with a corporate realignment. Additional information on income taxes is provided in the notes to the supplemental consolidated financial statements. SECURITIES The securities portfolio constituted 35.4% and 37.6% of average earning assets during 1999 and 1998, respectively. The decrease reflects a continuing shift in asset mix to higher yielding loans. Approximately $485 million, or 67% of the total securities portfolio, is invested in U.S. Agency Mortgage-Backed pools and U.S. Agency issued Collateralized Mortgage Obligations (CMOs). Due to the nature of the mortgage collateral behind these issues, the average lives of these holdings will tend to lengthen when interest rates rise and shorten when interest rates fall. To help mitigate this risk, management primarily focuses on instruments that have some degree of extension and call protection, particularly in the fixed rate holdings. In addition, management regularly reviews the performance of all mortgage-backed holdings as well as the portfolio as a whole. This includes the projections of principal cash flows under a current rate environment as well as given a parallel move in the yield curve up or down 200 basis points. TABLE 5 SECURITIES PORTFOLIO As of December 31, 1999 1998 1997 ----------------------------------------------------------------------------------------------- AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR (in thousands) COST VALUE COST VALUE COST VALUE Securities Available for Sale: U.S. Treasury $ 10,400 $ 8,535 $ 10,406 $ 10,481 $ 4,393 $ 4,405 Federal Agency and mortgage-backed securities 534,042 507,758 473,727 479,266 559,078 563,597 State & Municipal, collateralized mortgage obligations and other securities 97,122 90,434 32,876 33,507 17,516 18,112 ----------------------------------------------------------------------------------------------- Total securities available for sale $ 641,564 $ 606,727 $ 517,009 $ 523,254 $ 580,987 $ 586,114 =============================================================================================== Securities Held to Maturity: Federal Agency & MBS 51,578 48,568 122,921 122,871 58,975 59,320 State & Municipal 61,730 60,569 55,799 56,914 60,341 61,237 Other securities 10 10 1,943 1,956 1,518 1,518 ----------------------------------------------------------------------------------------------- Total securities held to maturity $ 113,318 $109,147 $ 180,663 $ 181,741 $ 120,834 $ 122,075 ===============================================================================================
LOANS The following Table 6 sets forth the loan portfolio by major categories as of December 31 for the years indicated. TABLE 6 COMPOSITION OF LOAN PORTFOLIO December 31, 1999 1998 1997 1996 1995 (in thousands) Real estate mortgages $ 381,961 371,133 335,991 299,590 271,143 Commercial real estate mortgages 347,191 305,564 269,523 227,322 191,513 Real estate construction and Development 23,188 14,983 10,911 13,669 18,606 Commercial and agricultural 331,535 252,508 211,486 184,664 169,230 Consumer 268,703 237,234 247,573 253,185 241,759 Home equity 114,289 95,819 82,064 57,716 43,989 --------------------------------------------------------------------------------- Total loans $ 1,466,867 1,277,241 1,157,548 1,036,146 936,240 =================================================================================
The loan portfolio is the largest component of earning assets and accounts for the greatest portion of total interest income. At December 31, 1999, total loans were $1,466.9 million, a 14.8% increase from December 31, 1998. In general, loans are internally generated and lending activity is confined to principally nine counties in New York State and five counties in northeastern Pennsylvania. The Company does not generally engage in highly leveraged transactions or foreign lending activities. There were no concentration of loans exceeding 10% of total loans other than the concentration with borrowers in New York State and Pennsylvania, discussed in note 6 to the supplemental consolidated financial statements, and those categories reflected in Table 6. Real estate mortgages consist primarily of loans secured by first or second deeds of trust on primary residencies. Loans in the commercial and agricultural category, as well as commercial real estate mortgages, consist primarily of short-term and/or floating rate commercial loans made to small to medium-sized companies. Agricultural loans totaled $51.5 million at December 31, 1999, and there are no other substantial loan concentrations to any one industry or to any one borrower. Consumer loans consist primarily of installment credit to individuals secured by automobiles and other personal property. Management believes consumer loan underwriting guidelines to be conservative. The guidelines are based primarily on satisfactory credit history, down payment, and sufficient income to service monthly payments. NONPERFORMING ASSETS AND PAST DUE LOANS Nonperforming assets and past due loans are reflected in Table 8 below as of December 31, for the years indicated. TABLE 7 NONPERFORMING ASSETS AND RISK ELEMENTS ---------------------------------------------------------------------------- DECEMBER 31, 1999 1998 1997 1996 1995 ---------------------------------------------------------------------------- (dollars in thousands) Non accrual loans: Commercial and agricultural $6,141 6,167 $6,452 $6,845 $6,106 Real estate mortgages $618 $744 692 $251 $332 Consumer $837 $762 1,242 $1,243 $2,243 --------------------------------------------------------------------------- Total nonaccrual loans $7,596 7,673 $8,386 $8,339 8,681 --------------------------------------------------------------------------- Other real estate owned $1,438 $2,971 2,098 2,083 2,052 --------------------------------------------------------------------------- Total nonperforming assets $9,034 10,644 10,484 10,422 10,733 --------------------------------------------------------------------------- Loans 90 days or more past due and still accruing: Commercial and agricultural $1,201 1,365 2,202 418 559 Real estate mortgages $641 $761 244 344 448 Consumer $184 $629 1,778 1882 2041 --------------------------------------------------------------------------- Total $2,026 $2,755 4,224 2,644 3,048 --------------------------------------------------------------------------- Restructured loans 2,495 4,402 2,877 643 837 --------------------------------------------------------------------------- Total assets containing risk elements $13,555 $17,801 $17,585 $13,709 $14,618 --------------------------------------------------------------------------- Total nonperforming assets to loans 0.62% 0.83% 0.91% 1.00% 1.15% Total assets containing risk element to loans .92% 1.39% 1.52% 1.32% 1.56% Total nonperforming assets to assets 0.38% 0.49% 0.52% 0.58% 0.64% Total assets containing risk elements to assets 0.57% .82% .87% .78% .87% ---------------------------------------------------------------------------
Total nonperforming assets decreased $1.6 million or 15.1% at year-end 1999 compared to 1998, the result of the sales of other real estate owned during 1999. Total assets containing risk elements decreased $3.6 million or 20.7% during the same period, the result of the sale of other real estate owned and a reduction in loans ninety days or more past due. The effect of nonaccrual and impaired loans on interest income is presented in the following Table 8. TABLE 8 NONACCRUAL AND IMPAIRED LOANS INTEREST INCOME DECEMBER 31, 1999 1998 1997 1996 1995 (in thousands) Income that would have been accrued at original contract rates $802 $921 $771 $1,377 $1,063 Amount recognized as income 249 193 181 600 356 ------------------------------------------------------------ Interest income not accrued $553 $728 $590 $777 $707 ============================================================
DEPOSITS Deposits are the largest component of the Company's liabilities and account for the greatest portion of interest expense. At December 31, 1999, total deposits were $1,777.1 million, an increase of 6.8% from December 31, 1998. Average deposits during 1999 of $1,700.1 million were 5.0% higher than the 1998 average. The increase can be attributed to growth in the demand and savings categories of $31.1 million and $28.5 million, respectively, partially offset by a $5.5 million decline in average time deposits. The preceding Table 1 presents average deposits with accompanying average rates paid. TABLE 9 MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE December 31, 1999 1998 ---- ---- (in thousands) Within three months $260,976 $246,193 After three but within six months 51,587 63,151 After six but within twelve months 46,126 34,097 After twelve months 24,668 23,162 --------------------------------- Total $383,357 $366,603 ================================= BORROWED FUNDS Short-term borrowings include federal funds purchased, securities sold under agreement to repurchase, and FHLB advances with original maturities of one day up to one year. Long-term debt consists primarily of fixed rate FHLB advances with an original maturity greater than one year. At December 31, 1999, total borrowings of $394.2 million were up 38.9% compared to the previous year-end total of $283.8 million. Average borrowings during 1999 of $353.8 million represent a $72.4 million increase over 1998. For additional information on borrowed funds see notes to the supplemental consolidated financial statements. CAPITAL Capital adequacy is an important indicator of financial stability and performance. The principal source of capital to the Company is earnings retention. The Company remains well capitalized as the capital ratios in the notes to the supplemental consolidated financial statements indicate. Capital measurements are significantly in excess of both regulatory minimum guidelines and meet the requirements to be considered well capitalized. 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 policies must also provide the flexibility to implement appropriate strategies and tactical actions. Requirements change as loans grow, deposits and securities mature, and payments on borrowings are made. Interest rate sensitivity management seeks to avoid widely fluctuating net interest margins and to ensure consistent net interest income through periods of changing economic conditions. Given the above, liquidity to the Company is defined as the ability to raise cash quickly at a reasonable cost without principal loss. The primary liquidity measurement the Company utilizes is called the Basic Surplus which captures the adequacy of its access to reliable sources of cash relative to the stability of its funding mix of average liabilities. This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources which can be accessed when necessary. Accordingly, the Company has established borrowing facilities with other banks (federal funds), the Federal Home Loan Bank of New York and Pennsylvania (short and long-term borrowings which are denoted as advances), and repurchase agreements with investment companies. This Basic Surplus approach enables the Company to adequately manage liquidity from both tactical and contingency perspectives. By tempering the need for cash flow liquidity with reliable borrowing facilities, the Company is able to operate with a more fully invested and, therefore, higher interest income generating, securities portfolio. The makeup and term structure of the securities portfolio is, in part, impacted by the overall interest rate sensitivity of the balance sheet. Investment decisions and deposit pricing strategies are impacted by the liquidity position. At December 31, 1999, the Company considered its Basic Surplus adequate to meet liquidity needs. Interest rate risk is determined by the relative sensitivities of earning asset yields and interest bearing liability costs to changes in interest rates. Overnight federal funds on which rates change daily and loans which are tied to the prime rate differ considerably from long-term investment securities and fixed rate loans. Similarly, time deposits over $100,000 and money market deposit accounts are much more interest sensitive than NOW and savings accounts. The method by which banks evaluate interest rate risk is to look at the interest sensitivity gap, the difference between interest sensitive assets and interest sensitive liabilities repricing during the same period, measured at a specific point in time. A funding matrix is utilized as a primary tool in managing interest rate risk. The matrix arrays repricing opportunities along a time line for both assets and liabilities. The asset/liabilities Management Committee monitors the Company's gap position and implements appropriate strategies to minimize potential interest rate risk. 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 the 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. TABLE 10 PERFORMANCE RATIOS December 31, 1999 1998 1997 Return on Assets 1.16% 1.27% 1.15% Return on Equity 13.19% 13.55% 13.24% Average Equity to Average Assets 8.78% 9.40% 8.68% Cash dividend per share payout 58.57% 51.49% 42.96% MANAGEMENT'S STATEMENT OF RESPONSIBILITY Responsibility for the integrity, objectivity, consistency, and fair presentation of the financial information presented in this document rests with NBT Bancorp Inc. management. The accompanying supplemental consolidated financial statements and related information have been prepared in conformity with generally accepted accounting principles consistently applied and include, where required, amounts based on informed judgments and management's best estimates. Management maintains a system of internal controls and accounting policies and procedures to provide reasonable assurance of the accountability and safeguarding of Company assets and of the accuracy of financial information. These procedures include management evaluations of asset quality and the impact of economic events, organizational arrangements that provide an appropriate segregation of responsibilities and a program of internal audits and independent loan reviews to evaluate independently the adequacy and application of financial and operating controls and compliance with Company policies and procedures. The Board of Directors has appointed an Audit Committee composed entirely of directors who are not employees of the Company. The Audit Committee is responsible for recommending to the Board the independent auditors to be retained for the coming year, subject to stockholder ratification. The Audit Committee meets periodically, both jointly and privately, with the independent auditors, with our internal auditors, as well as with representatives of management, to review accounting, auditing, internal control structure and financial reporting matters. The Committee reports to the Board on its activities and findings. Daryl R. Forsythe President and Chief Executive Officer Michael J. Chewens Executive Vice President Chief Financial Officer and Treasu INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders NBT Bancorp Inc.: We have audited the accompanying supplemental consolidated balance sheets of NBT Bancorp Inc. and subsidiaries as of December 31, 1999 and 1998, and the related supplemental consolidated statements of income, changes in stockholders' equity, cash flows and comprehensive income for each of the years in the three-year period ended December 31, 1999. These supplemental consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The supplemental consolidated financial statements give retroactive effect to the merger of NBT Bancorp Inc. and Pioneer American Holding Company Corp. on July 1, 2000, which has been accounted for as a pooling-of-interests as described in Note 2 to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling-of-interests method in financial statements that do not include the date of consummation. These financial statements do not extend through the date of consummation. However, they will become the historical consolidated financial statements of NBT Bancorp Inc. and subsidiaries after financial statements covering the date of consummation of the business combination are issued. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of NBT Bancorp Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles applicable after financial statements are issued for a period which includes the date of consummation of the business combination. Syracuse, New York July 28, 2000 /s/ KPMG LLP NBT BANCORP INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEET (in thousands, except share and per share data) ASSETS 1999 1998 ------------------------- ------------------------- Cash and cash equivalents $ 79,629 87,762 Securities available for sale, at fair value 606,727 523,254 Securities held to maturity (fair value - $109,147 and $181,741) 113,318 180,663 Loans 1,466,867 1,277,241 Less allowance for loan losses 19,711 18,231 ------------------------- ------------------------- Net loans 1,447,156 1,259,010 Premises and equipment, net 47,097 44,672 Other assets 86,280 74,494 ------------------------- ------------------------- Total assets $ 2,380,207 2,169,855 ========================= ========================= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand (noninterest bearing) $ 267,895 249,487 Savings, NOW, and money market 605,334 589,607 Time 903,862 825,213 ------------------------- ------------------------- Total deposits 1,777,091 1,664,307 Short-term borrowings 142,267 99,872 Long-term debt 251,970 183,968 Other liabilities 17,407 17,670 ------------------------- ------------------------- Total liabilities 2,188,735 1,965,817 ------------------------- ------------------------- Stockholders' equity: Preferred stock, no par, stated value $1.00; shares authorized - 2,500,000 -- -- Common stock, no par, stated value $1.00; shares authorized - 30,000,000; shares issued 23,915,329 and 23,188,135 23,915 23,188 Additional paid-in-capital 155,983 146,823 Retained earnings 44,949 43,253 Accumulated other comprehensive (loss) income (21,710) 3,736 Common stock in treasury at cost, 538,936 and 599,507 shares (11,665) (12,962) ------------------------- ------------------------- Total stockholders' equity 191,472 204,038 ------------------------- ------------------------- Total liabilities and stockholders' equity $ 2,380,207 2,169,855 ========================= ========================= See accompanying notes to supplemental consolidated financial statements.
NBT BANCORP INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME 1999 1998 1997 ------------------ ----------------- ----------------- Interest and dividend income: Interest and fees on loans $ 115,896 108,492 99,789 Securities - taxable 43,697 45,205 42,842 Securities - tax exempt 4,478 3,894 3,780 Other 707 1,011 927 ------------------ ----------------- ----------------- Total interest and dividend income 164,778 158,602 147,338 ------------------ ----------------- ----------------- Interest expense: Deposits 56,586 58,898 56,966 Short-term borrowings 5,976 6,145 6,703 Other borrowings 12,918 9,693 5,223 ------------------ ----------------- ----------------- Total interest expense 75,480 74,736 68,892 ------------------ ----------------- ----------------- Net interest income 89,298 83,866 78,446 Provision for loan losses 5,440 6,149 4,820 ------------------ ----------------- ----------------- Net interest income after provision for loan losses 83,858 77,717 73,626 ------------------ ----------------- ----------------- Noninterest income: Trust 3,305 3,115 2,675 Service charges on deposit accounts 7,938 6,729 6,339 Net securities gains 1,804 1,567 34 Other 6,205 6,463 4,880 ------------------ ----------------- ----------------- Total noninterest income 19,252 17,874 13,928 ------------------ ----------------- ----------------- Noninterest expense: Salaries and employee benefits 30,504 29,286 27,151 Occupancy 5,379 5,159 4,780 Equipment 5,220 4,372 3,317 Data processing and communications 4,528 4,279 3,422 Professional fees and outside services 4,330 4,402 3,385 Office supplies and postage 2,970 3,029 2,757 Amortization of intangible assets 1,317 1,314 1,544 Other operating 8,634 9,706 8,104 ------------------ ----------------- ----------------- Total noninterest expense 62,882 61,547 54,460 ------------------ ----------------- ----------------- Income before income tax expense 40,228 34,044 33,094 Income tax expense 13,971 7,149 10,906 ------------------ ----------------- ----------------- Net income $ 26,257 26,895 22,188 ================== ================= ================= Earnings per share: Basic $ 1.14 1.16 1.00 ================== ================= ================= Diluted $ 1.12 1.14 0.98 ================== ================= ================= See accompanying notes to supplemental consolidated financial statements.
All per share data has been restated to give retroactive effect to stock dividends and splits. NBT BANCORP INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED ADDITIONAL OTHER COMPRE- COMMON COMMON PAID-IN- RETAINED HENSIVE STOCK IN STOCK CAPITAL EARNINGS (LOSS)/INCOME TREASURY TOTAL Balance at December 31, 1996 $ 17,583 99,887 50,161 (1,948) (7,984) 157,699 Net income 22,188 22,188 Stock dividends 600 13,030 (13,630) -- Cash dividends - $0.421 per share (8,968) (8,968) Payment in lieu of fractional shares for stock (33) (33) Issuance of shares to employee benefit plans and other stock plans 272 3,111 3,383 Purchase of 131,900 treasury shares (2,568) (2,568) Sale of 197,478 treasury shares to employee benefit plans and other stock plans 570 3,349 3,919 Issuance of shares of common stock through secondary offering 802 11,077 11,879 Other comprehensive income 5,057 5,057 -------------------------------------------------------------------------------- Balance at December 31, 1997 19,257 127,675 49,718 3,109 (7,203) 192,556 Net income 26,895 26,895 Stock dividends and splits 3,814 17,670 (21,484) -- Cash dividends - $0.587 per share (11,848) (11,848) Payment in lieu of fractional shares for stock (16) (16) Purchase of 355,708 treasury shares (9,127) (9,127) Sale of 169,364 treasury shares to employee benefit plans and other stock plans 724 3,368 4,092 Issuance of shares to employee benefit plans and other stock plans 117 754 871 Costs on sale of common stock through secondary offering (12) (12) Other comprehensive income 627 627 -------------------------------------------------------------------------------- Balance at December 31, 1998 23,188 146,823 43,253 3,736 (12,962) 204,038 Net income 26,257 26,257 Stock dividends 621 10,994 (11,615) -- Cash dividends - $0.656 per share (12,930) (12,930) Payment in lieu of fractional shares for stock (16) (16) Purchase of 388,711 treasury shares (6,948) (6,948) Sale of 321,019 treasury shares to employee benefit plans and other stock plans (830) 6,489 5,659 Issuance of shares to employee benefit plans and other stock plans 153 705 858 Other comprehensive loss (25,446) (25,446) Retirement of treasury shares of pooled Company (47) (1,709) 1,756 -- ---------- ----------- ---------- ----------- ----------- --------- Balance at December 31, 1999 $ 23,915 155,983 44,949 (21,710) (11,665) 191,472 ========== =========== ========== =========== =========== =========
See accompanying notes to supplemental consolidated financial statements. Note: Cash dividends per share represent the cash historical dividends per share of NBT Bancorp Inc. NBT BANCORP INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
1999 1998 1997 ----------------- ----------------- ----------------- Operating activities: Net income $ 26,257 26,895 22,188 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 5,440 6,149 4,820 Depreciation of premises and equipment 4,815 4,151 3,244 Net accretion on securities (1,211) (1,330) (192) Amortization of intangible assets 1,317 1,314 1,544 Deferred income tax benefit (380) (1,015) (499) Proceeds from sale of loans held for sale 41,899 46,462 36,743 Originations and purchases of loans held for sale (40,471) (47,494) (35,542) Net gains on sales of loans (342) (1,013) (462) Net gains on sales of securities (1,804) (1,567) (34) Net (gain) loss on sales of other real estate (291) 145 (102) Writedowns on other real estate owned 220 25 213 Loss (gain) on sales of premises and equipment 66 (23) (5) Net decrease (increase) in other assets 2,727 (4,151) 1,553 Net decrease in other liabilities (866) (1,185) (4,300) ----------------- ----------------- ----------------- Net cash provided by operating activities 37,376 27,363 29,169 ----------------- ----------------- ----------------- Investing activities: Securities available for sale: Proceeds from maturities and principal paydowns 92,771 116,948 99,327 Proceeds from sales and calls 110,073 184,669 230,802 Purchases Securities held to maturity: (253,113) (234,275) (385,392) Proceeds from maturities, calls, and principal paydowns 35,535 71,250 34,599 Purchases (39,461) (133,053) (95,306) Net increase in loans (196,595) (121,898) (127,337) Purchase of FHLB stock (744) (6,415) (5,772) Purchases of premises and equipment, net (7,335) (11,027) (9,725) Proceeds from sales of premises and equipment 29 66 35 Proceeds from sales of other real estate owned 3,527 2,747 2,965 ----------------- ----------------- ----------------- Net cash used in investing activities (255,313) (130,988) (255,804) ----------------- ----------------- ----------------- Financing activities: Net increase in deposits 112,784 76,031 122,815 Net increase (decrease) in short-term borrowings 42,395 (37,205) 48,533 Proceeds from issuance of long-term debt 75,000 120,658 69,969 Repayments of long-term debt (6,998) (21,542) (25,610) Proceeds from sale of treasury shares to employee benefit plans and other stock plans 5,659 4,092 3,919 Purchase of treasury stock (6,948) (9,127) (2,568) Net proceeds from issuance of common stock Cash dividends and payment for fractional shares (12,946) (11,864) (9,001) ----------------- ----------------- ----------------- Net cash provided by financing activities 209,804 121,914 223,319 ----------------- ----------------- ----------------- Net (decrease) increase in cash and cash equivalents (8,133) 18,289 (3,316) Cash and cash equivalents at beginning of year 87,762 69,473 72,789 ----------------- ----------------- ----------------- Cash and cash equivalents at end of year $ 79,629 87,762 69,473 ================= ================= ================= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 73,641 74,968 67,622 Income taxes 14,486 9,381 8,549 ================= ================= ================= Noncash investing activities: Transfer of held to maturity securities to securities available for sale $ 71,137 - - Transfer of loans to other real estate owned $ 1,923 3,790 2,315 ================= ================= =================
See accompanying notes to supplemental consolidated financial statements. NBT BANCORP INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
1999 1998 1997 ----------------- ------------------ ------------------ Net income $ 26,257 26,895 22,188 ----------------- ------------------ ------------------ Other comprehensive (loss) income, net of tax: Unrealized net holding (losses) gains arising during the year (pre-tax amounts of ($39,278); $2,174 and $8,225) (24,359) 1,571 5,077 Less: Reclassification adjustment for net (gains) losses included in net income (pre-tax amounts of $1,804; $1,567; $34) (1,087) (944) (20) ----------------- ------------------ ------------------ Total other comprehensive (loss) income (25,446) 627 5,057 ----------------- ------------------ ------------------ Comprehensive income $ 811 27,522 27,245 ================= ================== ==================
See accompanying notes to supplemental consolidated financial statements NBT BANCORP INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NBT Bancorp Inc. ("Bancorp") and its subsidiaries, NBT Bank, N.A. (NBT Bank), LA Bank, N.A. (LA Bank), and Pioneer American Bank, N.A. (Pioneer Bank) follow generally accepted accounting principles ("GAAP") and reporting practices applicable to the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The following is a description of significant policies and practices: MERGERS On July 1, 2000, Pioneer American Holding Company Corp. (Pioneer Holding Company) and its wholly-owned subsidiary were merged with and into Bancorp. On February 17, 2000, Lake Ariel Bancorp, Inc. (Lake Ariel) and its wholly-owned subsidiaries were merged with and into Bancorp. The mergers were accounted for as pooling-of-interests and, accordingly, these supplemental consolidated financial statements have been restated to present the combined consolidated financial condition and results of operations of all companies as if the mergers had been in effect for all years presented. Further details pertaining to the mergers are described below. CONSOLIDATION The consolidated financial statements include the accounts of Bancorp and its wholly-owned subsidiaries, collectively referred to herein as the Company. All significant intercompany transactions have been eliminated in consolidation. amounts previously reported in the consolidated financial statements are reclassified when ever necessary to conform with the current year's presentation. In the "Parent Company Financial Information," the investment in subsidiary bank is carried under the equity method of accounting. BUSINESS The Company provides loan and deposit services to its customers throughout upstate New York and northeastern Pennsylvania. The Company is subject to competition from other financial institutions. The Company is also subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory agencies. SEGMENT REPORTING The Company's operations are solely in the financial services industry and include the provision of traditional banking services. The Company operates solely in the geographical region of upstate New York and northeastern Pennsylvania. Management makes operating decisions and assesses performance based on an ongoing review of its traditional banking operations, which constitute the Company's only reportable segment. TRUST Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Company. Trust income is recognized on the accrual method based on contractual rates applied to the balances of trust accounts. CASH EQUIVALENTS The Company considers amounts due from correspondent banks, cash items in process of collection and institutional money market mutual funds to be cash equivalents. SECURITIES The Company classifies its debt securities at date of purchase as either available for sale or held to maturity. The Company does not hold any securities considered to be trading. Held to maturity securities are those that the Company has the ability and intent to hold until maturity. All other securities not included as held to maturity are classified as available for sale. Available for sale securities are recorded at fair value. Held to maturity securities are recorded at amortized cost. Unrealized holding gains and losses, net of the related tax effect, on available for sale securities are excluded from earnings and are reported in stockholders' equity as accumulated other comprehensive income or loss, net of income taxes. Transfers of securities between categories are recorded at fair value at the date of transfer. A decline in the fair value of any available for sale or held to maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the interest method. Dividends and interest income are recognized when earned. Realized gains and losses on securities sold are derived using the specific identification method for determining the cost of securities sold. LOANS Loans are recorded at their current unpaid principal balance, net of unearned income. Interest income on loans is primarily accrued based on the principal amount outstanding. Loans are placed on nonaccrual status when timely collection of principal and interest in accordance with contractual terms is doubtful. Loans are transferred to a nonaccrual basis generally when principal or interest payments become ninety days delinquent, unless the loan is well secured and in the process of collection, or sooner when management concludes circumstances indicate that borrowers may be unable to meet contractual principal or interest payments. Accrual of interest is discontinued if the loan is placed on nonaccrual status. When a loan is transferred to a nonaccrual status, any unpaid accrued interest is reversed and charged against income. When in the opinion of management the collection of principal appears unlikely, the loan balance is charged-off in total or in part. If ultimate repayment of a non-accrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment of principal is not expected or management judges it to be prudent, any payment received on a non-accrual loan is applied to principal until ultimate repayment becomes expected. Nonaccrual loans are returned to accrual status when management determines that the financial condition of the borrower has improved significantly to the extent that there has been a sustained period of repayment performance and the collectibility of both principal and interest appears assured. Management, considering current information and events regarding the borrowers' ability to repay the obligations, considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of collateral if the loan is collateral dependent. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is the amount which, in the opinion of management, is necessary to absorb probable losses inherent in the loan portfolio. The allowance is determined by reference to the market area the Company serves, local economic conditions, the growth and composition of the loan portfolio with respect to the mix between the various types of loans and their related risk characteristics, a review of the value of collateral supporting the loans, and comprehensive reviews of the loan portfolio by the Independent Loan Review staff and management. As a result of the test of adequacy, required additions to the allowance for loan losses are made periodically by charges to the provision for loan losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize loan losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions or changes in the values of properties securing loans in the process of foreclosure. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgements about information available to them at the time of their examination which may not be currently available to management. PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation. Depreciation of premises and equipment is determined using the straight line method over the estimated useful lives of the respective assets. Expenditures for maintenance, repairs, and minor replacements are charged to expense as incurred. OTHER REAL ESTATE OWNED Other real estate owned ("OREO") consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the lower of fair value of the asset acquired less estimated costs to sell or "cost" (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan losses and any subsequent valuation write-downs are charged to other expense. Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of OREO are included in income when title has passed and the sale has met the minimum down payment requirements prescribed by GAAP. INTANGIBLE ASSETS Intangible assets consist of core deposit intangibles and goodwill. The core deposit intangibles are the excess of the purchase price over the fair value of the tangible net assets acquired in bank acquisitions accounted for using the purchase method of accounting and allocated to deposits. The core deposit intangibles are being amortized on a straight-line basis in amounts sufficient to write-off those intangibles over their estimated useful lives. On a periodic basis, management assesses the recoverability of the core deposit intangibles. Such assessments encompass a projection of future earnings from the deposit base as compared to the original expectations, based upon a discounted cash flow analysis. If an assessment of the core deposit intangibles indicates that they are impaired, a charge to income for the most recent period is recorded for the amount of the impairment. Goodwill is the excess of cost over the fair value of tangible net assets acquired in bank acquisitions accounted for using the purchase method of accounting and not allocated to any specific asset or liability category. Goodwill is being amortized on a straight-line basis over periods up to 25 years from the acquisition date. The corporation also reviews goodwill on periodic basis for events or changes in circumstances that may indicate that the carrying amount of goodwill may not be recoverable. TREASURY STOCK Treasury stock acquisitions are recorded at cost. Subsequent sales of treasury stock are recorded on an average cost basis. Gains on the sale of treasury stock are credited to additional paid-in-capital. Losses on the sale of treasury stock are charged to additional paid-in-capital to the extent of previous gains, otherwise charged to retained earnings. INCOME TAXES Income taxes are accounted for under the asset and liability method. The Company files a consolidated tax return on the accrual basis. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. (2) MERGER AND ACQUISITION ACTIVITY On February 17, 2000, the shareholders of Bancorp and Lake Ariel approved a merger, whereby Lake Ariel and its subsidiaries were merged with and into Bancorp with each issued and outstanding share of Lake Ariel exchanged for 0.9961 shares of Bancorp common stock. The transaction resulted in the issuance of approximately 5.0 million shares of Bancorp common stock and was consummated on February 17, 2000. Concurrent with the announcement of the merger with Lake Ariel, Bancorp reduced its previously announced stock repurchase plan from 600,000 shares to 200,000 leaving 76,500 shares remaining for repurchase under the reduced plan at December 31, 1999. On June 20, 2000, the shareholders of Bancorp and Pioneer Holding Company approved a merger, whereby Pioneer Holding Company and its subsidiary were merged with and into Bancorp with each issued and outstanding share of Pioneer Holding Company exchanged for 1.805 shares of Bancorp common stock. The transaction resulted in the issuance of approximately 5.2 million shares of Bancorp common stock. The Pioneer Holding Company merger was consummated on July 1, 2000. LA Bank and Pioneer Bank are commercial banks headquartered in northeast Pennsylvania with approximately $570 million and $420 million, respectively, in assets at December 31, 1999, and twenty-two and eighteen branch offices, respectively, in five counties. Pioneer Bank will ultimately be merged with LA Bank to form the largest community bank headquartered in northeast Pennsylvania. The Lake Ariel and Pioneer Holding Company mergers qualified as tax-free exchanges and are being accounted for as poolings-of-interests. The following table presents net interest income, net income, and earnings per share reported by Lake Ariel, Pioneer Holding Company, Bancorp without Lake Ariel or Pioneer Holding Company (NBT) and Bancorp on a combined basis.
DECEMBER 31, ---------------------------------------------------------------- 1999 1998 1997 -------------------- --------------------- ----------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net interest income: NBT $ 60,582 57,403 53,659 Lake Ariel 14,225 12,480 11,125 Pioneer Holding Company 14,491 13,983 13,662 -------------------- --------------------- ----------------- Combined $ 89,298 83,866 78,446 ==================== ===================== ================= Net income: NBT $ 18,370 19,102 14,749 Lake Ariel 3,805 3,771 3,431 Pioneer Holding Company 4,082 4,022 4,008 -------------------- --------------------- ----------------- Combined $ 26,257 26,895 22,188 ==================== ===================== ================= Basic earnings per share: NBT $ 1.41 1.45 1.12 Lake Ariel 0.79 0.79 0.88 Pioneer Holding Company 1.41 1.39 1.41 Combined 1.14 1.16 1.00 Diluted earnings per share: NBT 1.40 1.42 1.11 Lake Ariel 0.77 0.77 0.84 Pioneer Holding Company 1.39 1.36 1.36 Combined 1.12 1.14 0.98
On March 28, 2000, NBT Bancorp Inc. and M. Griffith, Inc. jointly announced that a definitive agreement had been signed for NBT Bancorp Inc. to acquire all of the stock of M. Griffith, Inc., a Utica, New York based securities firm offering investment, financial advisory and asset-management services, primarily in the Mohawk Valley region. M. Griffith, Inc., a full-service broker/dealer and a Registered Investment Advisor, will become 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 $2.2 billion at March 31, 2000 and twenty-two branches in six counties in central New York and the 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 bank holding company with assets of $4.7 billion and proforma market capitalization of approximately $539 million. The holding company will adopt a new name before the merger occurs. The combined company will have three direct operating subsidiaries including two community banks and a financial services company. (3) EARNINGS PER SHARE Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. All share and per share data has been adjusted retroactively for stock dividends and splits. The following is a reconciliation of basic and diluted earnings per share for the years presented in the consolidated statements of income:
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- 1999 1998 1997 -------------------- --------------------- ------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Basic EPS: Weighted average common shares outstanding 23,089 23,199 22,239 Net income available to common shareholders $ 26,257 26,895 22,188 -------------------- --------------------- ----------------- Basic EPS $ 1.14 1.16 1.00 ==================== ===================== ================= Diluted EPS: Weighted average common shares outstanding 23,089 23,199 22,239 Dilutive common stock options 293 492 459 -------------------- --------------------- ----------------- Weighted average common shares and potential common stock 23,382 23,691 22,698 ==================== ===================== ================= Net income available to common stockholder $ 26,257 26,895 22,188 ==================== ===================== ================= Diluted EPS $ 1.12 1.14 0.98 ==================== ===================== =================
(4) FEDERAL RESERVE BOARD REQUIREMENT The Company is required to maintain a reserve balance with the Federal Reserve Bank. The required average total reserve for the 14 day maintenance period ending December 29, 1999, was $24.4 million. (5) SECURITIES The amortized cost, estimated fair value and unrealized gains and losses of securities available for sale are as follows:
AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------------- ----------------- ----------------- --------------- (IN THOUSANDS) December 31, 1999: U.S. Treasury $ 10,400 -- 1,865 8,535 Federal Agency 125,959 -- 9,693 116,266 State & municipal 41,623 20 3,141 38,502 Mortgage-backed 408,083 9 16,600 391,492 Collateralized mortgage obligations 45,392 10 3,568 41,834 Other securities 10,107 362 371 10,098 ----------------- ----------------- ----------------- --------------- Total $ 641,564 401 35,238 606,727 ================= ================= ================= =============== December 31, 1998: U.S. Treasury $ 10,406 75 -- 10,481 Federal agency 139,108 1,173 163 140,118 State & municipal 23,610 590 64 24,136 Mortgage-backed 334,619 4,919 390 339,148 Collateralized mortgage obligations 6,908 -- 186 6,722 Other securities 2,358 303 12 2,649 ----------------- ----------------- ----------------- --------------- Total $ 517,009 7,060 815 523,254 ================= ================= ================= ===============
Gross realized gains and gross realized losses on the sale of securities available for sale were $1.64 million and $0.02 million, respectively, in 1999. Gross realized gains and gross realized losses on the sale of securities available for sale were $1.61 million and $0.04 million, respectively, in 1998. Gross realized gains and gross realized losses on the sale of securities available for sale were $1.08 million and $0.74 million, respectively, in 1997. During 1999, Lake Ariel adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In connection with its adoption of SFAS No. 133, Lake Ariel transferred approximately $71.1 million of securities from its held to maturity portfolio to its available for sale portfolio. These securities were subsequently sold during 1999 at a realized gain of $0.18 million. At December 31, 1999 and 1998, securities available for sale with amortized costs totaling $479.3 million and $390.9 million, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. The amortized cost, estimated fair value, and unrealized gains and losses of securities held to maturity are as follows:
AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------------- ----------------- ----------------- --------------- (IN THOUSANDS) December 31, 1999: Mortgage-backed $ 51,578 -- 3,010 48,568 State & municipal 61,730 170 1,331 60,569 Other securities 10 -- -- 10 ----------------- ----------------- ----------------- --------------- Total $ 113,318 170 4,341 109,147 ================= ================= ================= =============== December 31, 1998: Mortgage-backed $ 122,921 323 373 122,871 CMO's 1,933 13 -- 1,946 State & municipal 55,799 1,119 4 56,914 Other securities 10 -- -- 10 ----------------- ----------------- ----------------- --------------- Total $ 180,663 1,455 377 181,741 ================= ================= ================= ===============
At December 31, 1999 and 1998, substantially all of the mortgage-backed securities held by the Company were issued or backed by Federal agencies. Remaining maturities of debt securities at December 31, 1999:
WITHIN AFTER ONE YEAR AFTER FIVE YEARS ONE YEAR BUT WITHIN FIVE YEARS BUT WITHIN TEN YEARS AFTER TEN YEARS TOTAL PORTFOLIO ------------------- ---------------------- ----------------------- ----------------- ----------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD -------- -------- -------- -------- -------- -------- -------- -------- --------- ------- (IN THOUSANDS) Securities available for sale: U.S. Treasury $ - - % $ - - % $ - - % $ 10,400 5.23% $ 10,400 5.23% Federal agency and collateralized mortgage obligations 2,000 5.10 28,085 5.61 41,465 6.56 99,801 7.03 171,351 6.66 State & municipal - - 4,543 7.68 13,163 7.88 23,917 6.90 41,623 7.29 Mortgage- backed 11,955 6.85 51,394 6.92 85,456 6.86 259,278 6.92 408,083 6.91 -------- -------- -------- -------- -------- -------- -------- ------- --------- ------- Amortized cost $ 13,955 6.60% $ 84,022 6.53% $140,084 6.86% $393,396 6.86% $631,457 6.81% ======== ======== ======== ======== ======== ======== ======== ======= ========= ======= Fair value $ 13,387 $ 81,077 $134,108 $368,048 $596,620 ======== ======== ======== ======== ========= Securities held to maturity: Mortgage- backed $ 1,368 6.08% $ 5,471 6.08% $ 6,838 6.08% $ 37,901 6.76% $ 51,578 6.08% State & municipal 24,461 6.07 8,422 7.73 10,388 7.71 18,459 7.28 61,730 6.94 -------- -------- -------- -------- -------- -------- -------- ------- --------- ------- Amortized cost $ 25,829 6.07% $ 13,893 7.08% $ 17,226 6.49% $ 56,360 6.93% $113,308 6.46% ======== ======== ======== ======== ======== ======== ======== ======= ========= ======= Fair value $ 25,715 13,444 16,694 53,284 109,137 ======== ======== ======== ======== =========
In the above tables, the maturity distribution and weighted average taxable equivalent yield of securities at December 31, 1999, yield on amortized cost have been calculated based on effective yields weighted for the scheduled maturity of each security using the marginal federal tax rate of 35%. Maturities of mortgage-backed and collateralized mortgage obligations securities are stated based on their estimated average life. Actual maturities may differ from contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations with or without call or prepayment penalties. (6) LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of loans by category is as follows:
DECEMBER 31, -------------------------------------- 1999 1998 ----------------- --------------- (IN THOUSANDS) Real estate mortgages $ 381,961 371,133 Commercial real estate mortgages 347,191 305,564 Real estate construction and development 23,188 14,983 Commercial and agricultural 331,535 252,508 Consumer 268,703 237,234 Home equity 114,289 95,819 ----------------- ---------------- Total loans $ 1,466,867 1,277,241 ================= ================
The Company's concentrations of credit risk are reflected in the balance sheet. The concentrations of credit risk with standby letters of credit, committed lines of credit and commitments to originate new loans generally follow the loan classifications. Approximately 33% and 26% of the Company's loans are secured by real estate located in central and northern New York and northeastern Pennsylvania, respectively. Accordingly, the ultimate collectibility of a substantial portion of the Company's portfolio is susceptible to changes in market conditions of those areas. Management is not aware of any material concentrations of credit to any industry or individual borrowers. FHLB advances are collateralized by a blanket lien on the Company's residential real estate mortgages. Changes in the allowance for loan losses for the three years ended December 31, 1999, are summarized as follows:
1999 1998 1997 -------------------- --------------------- ------------------ (IN THOUSANDS) Balance at January 1, $ 18,231 16,450 15,053 Provision 5,440 6,149 4,820 Recoveries 1,064 1,036 1,047 Loans charged off (5,024) (5,404) (4,470) -------------------- --------------------- ------------------ Balance at December 31, $ 19,711 18,231 16,450 ==================== ===================== ==================
The effect of nonaccrual loans on interest income for the years ended December 31, 1999, 1998, and 1997 was not material. The Company is not committed to advance additional funds to these borrowers. Nonaccrual loans were $7.6 million and $7.7 million at December 31, 1999 and 1998, respectively. Restructured loans were $2.5 million and $4.4 million at December 31, 1999 and 1998, respectively. At December 31, 1999, the recorded investment in impaired loans was $6.3 million. Included in this amount is $1.7 million of impaired loans for which the specifically allocated allowance for loan loss is $0.7 million. In addition, included in impaired loans is $4.6 million of impaired loans that, as a result of the adequacy of collateral values and cash flow analysis do not have a specific allocation. At December 31, 1998, the recorded investment in impaired loans was $6.0 million, of which $2.8 million had a specific allowance allocation of $0.8 million and $3.2 million for which there was no specific allocation. The average recorded investment in impaired loans was $5.8 million, $7.9 million and $5.4 million in 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997 the Company recognized $0.2 million, $0.2 million and $0.1 million, respectively, of interest income on impaired loans on the cash basis. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Company has made loans at prevailing rates and terms to directors, officers, and other related parties. Such loans, in management's opinion, did not present more than the normal risk of collectibility or incorporate other unfavorable features. The aggregate amount of loans outstanding to qualifying related parties and changes during the years are summarized as follows:
1999 1998 ----------------- ---------------- (IN THOUSANDS) Balance at January 1, $ 7,351 6,648 New loans 6,950 4,430 Repayments (1,654) (3,727) ----------------- ----------------- Balance at December 31, $ 12,647 7,351 ================= ==================
(7) PREMISES AND EQUIPMENT, NET A summary of premises and equipment follows:
DECEMBER 31, ------------------------------------- 1999 1998 ----------------- ---------------- (IN THOUSANDS) Buildings and improvements $ 46,655 44,293 Equipment 40,135 36,841 Construction in progress 1,399 306 ----------------- ---------------- 88,189 81,440 Accumulated depreciation 41,092 36,768 ----------------- ---------------- Total premises and equipment $ 47,097 44,672 ================= ================
Rental expense included in occupancy expense amounted to $1.3 million in 1999, $1.3 million in 1998, and $1.0 million in 1997. The future minimum rental commitments as of December 31, 1999, for noncancellable operating leases were as follows: 2000, $1.3 million; 2001, $1.2 million; 2002, $1.0 million; 2003, $0.5 million; and 2004 and beyond $1.2 million. (8) DEPOSITS The following table sets forth the maturity distribution of time certificates of deposit at December 31, 1999:
(IN THOUSANDS) Within one year $ 739,199 After one but within two years 109,993 After two but within three years 30,482 After three but within four years 14,088 After four but within five years 9,994 After five years 106 ------------ Total $ 903,862 ============
Time deposits of $100,000 or more aggregated $383.4 million and $366.6 million at year end 1999 and 1998, respectively. (9) SHORT-TERM BORROWINGS Short-term borrowings consist of federal funds purchased and securities sold under repurchase agreements, which generally represent overnight borrowing transactions, and other short-term borrowings, primarily Federal Home Loan Bank (FHLB) advances, with original maturities of one year or less. The Company has unused lines of credit available for short-term financing of $326 million at December 31, 1999. Securities collateralizing repurchase agreements are held in safekeeping by a non-affiliated financial institutions and are under the Company's control. Information related to short-term borrowings is summarized as follows:
1999 1998 1997 -------------------- --------------------- ------------------- (DOLLARS IN THOUSANDS) FEDERAL FUNDS PURCHASED: Balance at year-end $ 58,130 28,000 27,350 Average during the year 45,628 36,773 31,504 Maximum month end balance 88,140 72,300 60,450 Weighted average rate during the year 5.23% 5.57% 5.68% Weighted average rate at December 31 5.46% 4.55% 6.20% SECURITIES SOLD UNDER REPURCHASE AGREEMENTS: Balance at year-end $ 39,187 41,671 59,921 Average during the year 38,267 35,185 51,686 Maximum month end balance 52,736 45,368 95,803 Weighted average rate during the year 4.09% 4.04% 5.04% Weighted average rate at December 31 4.43% 3.66% 5.03% OTHER SHORT-TERM BORROWINGS: Balance at year-end $ 44,950 30,201 49,806 Average during the year 37,591 44,908 38,331 Maximum month end balance 74,950 50,165 49,806 Weighted average rate during the year 5.40% 5.96% 6.02% Weighted average rate at December 31 5.45% 5.62% 5.82%
(10) LONG-TERM DEBT Long-term debt consists of obligations having an original maturity at issuance of more than one year. A summary as of December 31, 1999 is as follows:
MATURITY DATE INTEREST RATE AMOUNT ------------- ------------- ------ (DOLLARS IN THOUSANDS) FHLB advance 2000 6.45-prime $ 9,225 FHLB advance 2001 6.45-6.49 11,616 FHLB advance 2002 5.99-6.44 30,117 FHLB advance 2003 5.74-5.86 50,000 FHLB advance 2005 4.40-6.41 40,000 FHLB advance 2008 5.06-7.20 35,157 Note payable 2008 6.50-6.70 855 FHLB advance 2009 4.97-5.50 75,000 ------ Total $251,970 ========
FHLB advances are collateralized by the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket lien on its residential real estate mortgage loans. (11) INCOME TAXES Total income taxes were allocated as follows:
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ 1999 1998 1997 -------------------- --------------------- ------------------- (IN THOUSANDS) Income tax expense on operations $ 13,971 7,149 10,906 Stockholders' equity, capital surplus, for stock option exercised (296) (117) (329) Stockholders' equity, for accumulated comprehensive (loss) income (15,636) 490 3,290 -------------------- --------------------- -------------------- Total tax expense (benefit) $ (1,961) 7,522 13,867 ==================== ===================== ====================
The significant components of income tax expense attributable to operations are:
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 -------------------- --------------------- -------------------- (IN THOUSANDS) Current: Federal $ 11,760 6,819 9,966 State 2,591 1,345 1,439 -------------------- --------------------- -------------------- 14,351 8,164 11,405 Deferred: Federal (521) (786) (394) State 141 (229) (105) -------------------- --------------------- -------------------- (380) (1,015) (499) -------------------- --------------------- -------------------- Total income tax expense $ 13,971 7,149 10,906 ==================== ===================== ====================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
DECEMBER 31, --------------------------------------- 1999 1998 ----------------- ---------------- (IN THOUSANDS) Deferred tax assets: Allowance for loan losses $ 6,849 6,396 Net unrealized loss on securities available for sale 13,128 -- Deferred compensation 1,040 923 Postretirement benefit obligation 1,068 993 Other 861 946 ----------------- ---------------- Total gross deferred tax assets 22,946 9,258 ----------------- ---------------- Deferred tax liabilities: Prepaid pension obligation 389 396 Premises and equipment, primarily due to accelerated depreciation 1,290 1,274 Net unrealized gain on securities available for sale -- 2,508 Securities discount accretion 480 470 Equipment leasing 567 399 Other 18 25 ----------------- ---------------- Total gross deferred tax liabilities 2,744 5,072 ----------------- ---------------- Net deferred tax assets $ 20,202 4,186 ================= ================
Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the available carryback period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Based on available evidence, gross deferred tax assets will ultimately be realized and a valuation allowance was not deemed necessary at December 31, 1999 and 1998. The following is a reconciliation of the provision for income taxes to the amount computed by applying the applicable Federal statutory rate of 35% to income before taxes:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 -------------------- --------------------- -------------------- (IN THOUSANDS) Federal income tax at statutory rate $ 14,080 11,915 11,583 Tax exempt income (1,816) (1,546) (1,538) Non-deductible expenses 443 354 220 State taxes, net of federal tax benefit 1,776 725 867 Federal income tax benefit from corporate realignment -- (4,186) -- Other, net (512) (113) (226) -------------------- --------------------- -------------------- Income taxes $ 13,971 7,149 10,906 ==================== ===================== ====================
(12) COMMITMENTS AND CONTINGENT LIABILITIES The Company is a party to certain financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit standards in making commitments and conditional obligations as it does for on balance sheet instruments. At December 31, 1999 off balance sheet commitments to extend credit for primarily variable rate loans amounted to $214.3 million. The amount of standby letters of credit at December 31, 1999, amounted to $.9 million. At December 31, 1998, off balance sheet commitments to extend credit for primarily variable rate loans amounted to $196.5 million. The amount of standby letters of credit at December 31, 1998, amounted to $4.4 million. At December 31, 1999 and 1998, the Company held no off balance sheet derivative financial instruments such as interest rate swaps, forward contracts, futures, options on financial futures, or interest rate floors, and was not subject to the market risk associated with such derivative financial instruments. In the normal course of business there are various outstanding legal proceedings. In the opinion of management, the aggregate amount involved in such proceedings is not material to the consolidated financial condition or results of operation of the Company. (13) STOCKHOLDERS' EQUITY The Company currently is authorized to issue 2.5 million shares of preferred stock, no par value, $1.00 stated value. The Board of Directors is authorized to fix the particular designations, preferences, rights, qualifications, and restrictions for each series of preferred stock issued. In November 1994, the Company adopted a Stockholder Rights Plan (Plan) designed to ensure that any potential acquiror of the Company negotiate with the Board of Directors and that all Company stockholders are treated equitably in the event of a takeover attempt. At that time, the Company paid a dividend of one Preferred Share Purchase Right (Right) for each outstanding share of common stock of the Company. Similar rights are attached to each share of the Company's common stock issued after November 15, 1994, subject to adjustment. Under the Plan, the Rights will not be exercisable until a person or group acquires beneficial ownership of 20 percent or more of the Company's outstanding common stock, begins a tender or exchange offer for 25 percent or more of the Company's outstanding common stock, or an adverse person, as declared by the Board of Directors, acquires 10 percent or more of the Company's outstanding common stock. Additionally, until the occurrence of such an event, the Rights are not severable from the Company's common stock and, therefore, the Rights will be transferred upon the transfer of shares of the Company's common stock. Upon the occurrence of such events, each Right entitles the holder to purchase one one-hundredth of a share of Series R Preferred Stock, no par value, and $1.00 stated value per share of the Company at a price of $100. The Plan also provides that upon the occurrence of certain specified events, the holders of Rights will be entitled to acquire additional equity interests, in the Company or in the acquiring entity, such interests having a market value of two times the Right's exercise price of $100. The Rights, which expire November 14, 2004, are redeemable in whole, but not in part, at the Company's option prior to the time they are exercisable, for a price of $0.01 per Right. The Company has a Dividend Reinvestment Plan for stockholders. There were 772,869 shares of common stock reserved for future issuance under the plan at December 31, 1999 (the number of shares available has been adjusted for stock dividends and splits). Certain restrictions exist regarding the ability of the subsidiary banks to transfer funds to the Company in the form of cash dividends. The approval of the Comptroller of the Currency is required to pay dividends in excess of a subsidiary bank's earnings retained in the current year plus retained net profits for the preceding two years (as defined in the regulations) or when a Bank fails to meet certain minimum regulatory capital standards. At December 31, 1999, the subsidiary banks have the ability to pay $29.7 million in dividends to Bancorp without obtaining prior regulatory approval. Under the State of Delaware Business Corporation Law, the Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus. (14) REGULATORY CAPITAL REQUIREMENTS Bancorp and the subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the subsidiary banks must meet specific capital guidelines that involve quantitative measures of the banks' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the subsidiary banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 Capital to risk-weighted assets, and of Tier 1 capital to average assets. As of December 31, 1999, the Company and the subsidiary banks meet all capital adequacy requirements to which they were subject. Under their prompt corrective action regulations, regulatory authorities are required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution's financial statements. The regulations establish a framework for the classification of banks into five categories: well capitalized, adequately capitalized, under capitalized, significantly under capitalized, and critically under capitalized. As of December 31, 1999 and 1998, the most recent notification from the respective banks' regulators categorized the subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the banks must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 capital to average asset ratios as set forth in the table. There are no conditions or events since that notification that management believes have changes the subsidiary banks' categories. The Company and the subsidiary banks' actual capital amounts and ratios are presented as follows:
REGULATORY RATIO REQUIREMENTS ------------------------------ FOR ACTUAL MINIMUM CLASSIFICATION --------------------- CAPITAL AS WELL (DOLLARS IN THOUSANDS) AMOUNT RATIO ADEQUACY CAPITALIZED ------ ----- -------- ----------- As of December 31, 1999: Total capital (to risk weighted assets): Company combined $ 220,967 14.95% 8.00% NBT Bank 132,427 14.59% 8.00% 10.00% LA Bank 40,896 13.03% 8.00% 10.00% Pioneer Bank 37,279 15.76% 8.00% 10.00% Tier I Capital (to risk weighted assets): Company combined 203,722 13.78% 4.00% NBT Bank 121,047 13.33% 4.00% 6.00% LA Bank 38,215 12.17% 4.00% 6.00% Pioneer Bank 34,321 14.51% 4.00% 6.00% Tier I Capital (to average assets): Company combined 203,722 8.63% 3.00% NBT Bank 121,047 8.84% 3.00% 5.00% LA Bank 38,215 6.85% 3.00% 5.00% Pioneer Bank 34,321 8.07% 4.00% 5.00% As of December 31, 1998: Total capital (to risk weighted assets): Company combined $ 204,810 15.87% 8.00% NBT Bank 124,646 15.36% 8.00% 10.00% LA Bank 37,855 14.96% 8.00% 10.00% Pioneer Bank 36,359 16.22% 8.00% 10.00% Tier I Capital (to risk weighted assets): Company combined 189,531 14.68% 4.00% NBT Bank 114,469 14.11% 4.00% 6.00% LA Bank 35,587 14.07% 4.00% 6.00% Pioneer Bank 33,555 14.97% 4.00% 6.00% Tier I Capital (to average assets): Company combined 189,531 8.81% 3.00% NBT Bank 114,469 8.96% 3.00% 5.00% LA Bank 35,587 7.72% 3.00% 5.00% Pioneer Bank 33,555 8.25% 4.00% 5.00%
(15) EMPLOYEE BENEFIT PLANS POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Benefits are accrued over the employees' active service period. The Company provides certain health care benefits for retired employees. Lake Ariel and Pioneer Holding Company did not provide health care benefits for retired employees. Lake Ariel and Pioneer Holding Company employees begin to participate in this plan and to accrue benefits under this plan as of February 17, 2000 and July 1, 2000, respectively. As such, Lake Ariel and Pioneer Holding Company employees are not included in this plan as of December 31, 1999. The health care plan is contributory for participating retirees and also requires them to absorb deductibles and coinsurance with contributions adjusted annually to reflect cost sharing provisions and benefit limitations. employees become eligible for these benefits if they reach normal retirement age while working for the Company or its subsidiaries. The Company funds the cost of postretirement health care as benefits are paid. The Company elected to recognize the transition obligation on a delayed basis over twenty years. The net postretirement health benefits expense and funded status are as follows:
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 -------------------- --------------------- -------------------- (IN THOUSANDS) Components of net periodic benefit cost: Service cost $ 235 205 182 Interest cost 278 261 255 Amortization of transition obligation 85 85 85 Amortization of gains and losses 24 25 28 -------------------- --------------------- -------------------- Net periodic postretirement benefit cost $ 622 576 550 ==================== ===================== ==================== Change in benefit obligation: Benefit obligation at beginning of the year 4,350 4,158 Service cost 235 205 Interest cost 278 261 Plan participants' contribution 106 95 Actuarial gain (932) (172) Benefits paid (222) (197) -------------------- --------------------- Benefit obligation at end of year $ 3,815 4,350 ==================== ===================== Components of accrued benefit cost: Funded status $ (3,815) (4,350) Unrecognized transition obligation 1,103 1,188 Unrecognized actuarial net loss 152 1,108 -------------------- --------------------- Accrued benefit cost $ (2,560) (2,054) ==================== ===================== Weighted average discount rate 7.75% 6.75% ==================== =====================
The Company used a health care trend rate in calculating it postretirement benefit obligation of 7.0% to 8.0% for 1999, grading down uniformly to 5.5% for 2005 and thereafter. Assumed health care cost trend rates have a significant effect on amounts reported for the health care plans. A one-percentage point change in the health care trend rates would have the following effects:
1-PERCENTAGE 1-PERCENTAGE POINT POINT INCREASE DECREASE ----------------- ------------------- (IN THOUSANDS) Effect on total of service and interest cost components $ 140 (109) ================= =================== Effect on postretirement benefit obligation $ 843 (681) ================= ===================
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLANS The Company maintains 401(k) and employee stock ownership plans (ESOP). The Company contributes an amount based on employees'contributions out of their annual salary. In addition, the Company may also make discretionary ESOP contributions based on the Company's profitability. Participation in the plans is contingent upon certain age and service requirements. NBT Bank recorded expenses associated with the plan of $1.1 million in 1999 and $1.0 million in 1998 and $0.7 million in 1997. Additionally, Lake Ariel maintained a profit-sharing plan and a 401(k) savings plan. Contributions to these plans were $0.2 million in 1999, $0.3 million in 1998 and $0.3 million in 1997. Pioneer Bank maintained an ESOP and a savings and investment plan. Contributions to this plan were $0.1 million in 1999, $0.1 million in 1998 and $0.2 million in 1997. PENSION PLAN The Company has a qualified, noncontributory pension plan covering substantially all employees of NBT Bancorp Inc. As of December 31, 1999, Lake Ariel and Pioneer employees are not included in this plan. Lake Ariel and Pioneer Holding Company did not provide pension benefits and, accordingly, their respective employees are not included in this plan at December 31, 1999. Lake Ariel and Pioneer Holding Company employees began to participate in this plan and to accrue benefits under this Plan as of February 17, 2000 and July 1, 2000, respectively. Benefits paid from the plan are based on age, years of service, compensation prior to retirement, social security benefits, and are determined in accordance with defined formulas. The Company's policy is to fund the pension plan in accordance with ERISA standards. The net periodic pension expense and the funded status of the plan are as follows:
YEARS ENDED DECEMBER 31, 1999 1998 1997 --------------- ----------------- ---------------- (IN THOUSANDS) Components of net periodic benefit cost: Service cost $ 892 701 508 Interest cost 1,457 1,354 1,181 Expected return on plan assets (1,935) (1,705) (1,406) Amortization of initial unrecognized asset (109) (109) (109) Amortization of prior service cost 257 257 257 Amortization of unrecognized net gain -- -- (36) --------------- ----------------- ---------------- Net periodic pension cost $ 562 498 395 =============== ================= ================ Change in benefit obligation: Benefit obligation at beginning of year (21,434) (19,490) (15,910) Service cost (892) (701) (508) Interest cost (1,457) (1,354) (1,181) Actuarial gain (loss) 2,402 (1,119) (3,098) Benefits paid 1,236 1,230 1,207 --------------- ----------------- ---------------- Benefit obligation at end of year $ (20,145) (21,434) (19,490) =============== ================= ================ Change in plan assets: Fair value of plan assets at beginning of year 21,931 19,432 15,589 Actual return on plan assets 745 3,671 3,266 Employer contributions 550 58 1,784 Benefits paid (1,236) (1,230) (1,207) --------------- ----------------- ---------------- Fair value of plan assets at end of year $ 21,990 21,931 19,432 =============== ================= ================ Plan assets in excess (less than) of projected benefit obligation 1,845 497 (58) Unrecognized portion of net asset at transition (1,085) (1,194) (1,304) Unrecognized net actuarial loss (3,459) (2,247) (1,399) Unrecognized prior service cost 3,677 3,934 4,191 --------------- ----------------- ---------------- Prepaid benefit cost $ 978 990 1,430 =============== ================= ================ Weighted average assumptions as of December 31, Discount rate 7.75% 6.75% 7.00% Expected long-term return on plan assets 9.00% 9.00% 9.00% Rate of compensation increase 4.00% 4.00% 4.00% =============== ================= ================
STOCK OPTION PLANS The Company has two stock option plans (Plans). Under the terms of the Plans, options are granted to key employees to purchase shares of the Company's common stock at a price equal to the fair market value of the common stock on the date of the grant. Options granted terminate eight or ten years from the date of the grant. The per share weighted-average fair value of stock options granted during 1999, 1998 and 1997 was $5.47, $6.70 and $5.14, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1999 - expected dividend yield of 3.72%, expected volatility of 29.05%, risk-free interest rates between 4.63% and 6.16%, and expected life 7 years; 1998 - expected dividend yield of 2.75%, expected volatility of 21.86%, risk-free interest rates of 5.49% and 5.62%, and expected life 7 years; 1997 - expected dividend yield of 2.60%, expected volatility of 22.56%, risk-free interest rates of 6.52% and 6.58%, and an expected life of 7 years. The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its Plans and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 -------------------- --------------------- ------------------- Net income: As reported $ 26,257 26,895 22,188 Pro forma 25,519 26,367 21,843 Basic earnings per share: As reported 1.14 1.16 1.00 Pro forma 1.11 1.14 0.98 Diluted earnings per share: As reported 1.12 1.14 0.98 Pro forma 1.09 1.11 0.96
Pro forma net income reflects only options granted after January 1, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of 4 years (40% in the first year and 20% each in the second, third, and fourth years) and compensation of cost for options granted prior to January 1, 1995 is not considered. Because the Company's employee stock options have characteristics significantly different from those of traded options for which the Black-Scholes model was developed, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models, in management's opinion, do not necessarily provide a reliable single measure of the fair value of its employee stock options. The following is a summary of changes in options outstanding:
WEIGHTED AVERAGE OF EXERCISE PRICE NUMBER OF OF OPTIONS OPTIONS UNDER PLAN ----------------- ------------------- Balance at December 31, 1996 1,241,147 $7.81 ----------------- ------------------- Granted 175,033 11.67 Exercised (375,686) 8.50 Lapsed (30,759) 10.34 ----------------- ------------------- Balance at December 31, 1997 1,009,735 $8.14 ----------------- ------------------- Granted 191,255 18.06 Exercised (101,189) 5.56 Lapsed (3,336) 11.37 ----------------- ------------------- Balance at December 31, 1998 1,096,465 $8.74 ----------------- ------------------- Granted 238,817 20.47 Exercised (167,310) 7.24 Lapsed (17,735) 16.23 ----------------- ------------------- Balance at December 31, 1999 1,150,237 $14.21 ================= ===================
The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- ----------------------------------- WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED RANGE OF CONTRACTUAL AVERAGE AVERAGE EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE ------------------- ------------------ --------------- --------------- --------------- --------------- $4.43-$5.00 30,911 2.68 $ 4.79 30,911 $ 4.79 $5.01-$10.50 544,363 5.42 8.04 516,066 7.92 $10.51-$16.00 164,484 7.81 11.69 102,151 11.72 $16.01-$21.50 410,479 8.64 19.37 81,534 17.91 ------------------- ------------------ --------------- --------------- --------------- --------------- $4.43-$21.50 1,150,237 6.71 $14.21 730,662 $ 9.44 =================== ================== =============== =============== =============== ===============
(16) PARENT COMPANY FINANCIAL INFORMATION CONDENSED BALANCE SHEETS
DECEMBER 31, -------------------------------------- ASSETS 1999 1998 ----------------- --------------- (IN THOUSANDS) Cash and cash equivalents $ 1,880 2,469 Securities available for sale 7,724 3,572 Investment in subsidiary banks 181,043 197,659 Other assets 1,472 1,014 ----------------- ---------------- Total assets $ 192,119 204,714 ================= ================ LIABILITIES AND STOCKHOLDERS' EQUITY Total liabilities 647 676 ----------------- ---------------- Stockholders' equity 191,472 204,038 ----------------- ---------------- Total liabilities and stockholders' equity $ 192,119 204,714 ================= ================
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- 1999 1998 1997 -------------------- --------------------- ----------------- (IN THOUSANDS) Dividends from subsidiary banks $ 18,515 15,953 9,438 Interest and other dividend income 353 345 322 Net gain on sale of securities available for sale 1,036 16 - -------------------- --------------------- ----------------- Operating expense 1,009 395 349 -------------------- --------------------- ----------------- Income before income tax expense and equity in undistributed income of subsidiary banks 18,895 15,919 9,411 Income tax expense 223 61 26 Equity in undistributed income of subsidiary banks 7,585 11,037 12,803 -------------------- --------------------- ----------------- Net income $ 26,257 26,895 22,188 ==================== ===================== ====================
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- 1999 1998 1997 -------------------- --------------------- ------------------ (IN THOUSANDS) Operating activities: Net income $ 26,257 26,895 22,188 Adjustments to reconcile net income to net cash provided by operating activities: Net gains on sale of securities available for sale (1,036) (16) - Undistributed net income of subsidiary banks (7,585) (11,037) (12,803) Other, net (1,432) (548) (12,680) -------------------- --------------------- ------------------ Net cash provided by (used in) operating activities 16,204 15,294 (3,295) -------------------- --------------------- ------------------ Investing activities: Securities available for sale: Proceeds 2,301 3,416 - Purchases (5,717) (2,965) (3,384) -------------------- --------------------- ------------------ Net cash(used in) provided by Investing activities (3,416) 451 (3,384) -------------------- --------------------- ------------------ Financing activities: Sale and issuance of treasury shares to employee benefit plans and other stock plans 6,517 4,963 19,181 Purchase of treasury shares (6,948) (9,127) (2,568) Cash dividends and payment for fractional shares (12,946) (11,864) (9,001) -------------------- --------------------- ------------------ Net cash (used in) provided by financing activities (13,377) (16,028) 7,612 -------------------- --------------------- ------------------ Net (decrease) increase in cash and cash equivalents (589) (283) 933 Cash and cash equivalents at beginning of year 2,469 2,752 1,819 -------------------- --------------------- ------------------ Cash and cash equivalents at end of year $ 1,880 2,469 2,752 ==================== ===================== ==================
(17) FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments. SHORT TERM INSTRUMENTS For short-term instruments, such as cash and cash equivalents, accrued interest receivable, accrued interest payable and short term borrowings, carrying value approximates fair value. SECURITIES Fair values for securities are based on quoted market prices or dealer quotes, where available. Where quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. LOANS For variable rate loans that reprice frequently and have no significant credit risk, fair values are based on carrying values. The fair values for fixed rate loans are estimated through discounted cash flow analysis using interest rates currently being offered for loans with similar terms and credit quality. The fair value of loans held for sale on an aggregate basis, are based on quoted market prices. Nonperforming loans are valued based upon recent loss history for similar loans. DEPOSITS The fair values disclosed for savings, money market, and noninterest bearing accounts are, by definition, equal to their carrying values at the reporting date. The fair value of fixed maturity time deposits is estimated using a discounted cash flow analysis that applies interest rates currently offered to a schedule of aggregated expected monthly maturities on time deposits. OTHER BORROWINGS The fair value of other borrowings has been estimated using discounted cash flow analysis that applies interest rates currently offered for notes with similar terms. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT The fair value of commitments to extend credit and standby letters of credit are estimated using fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparts. Carrying amounts, which are comprised of the unamortized fee income, are not significant. Estimated fair values of financial instruments at December 31 are as follows:
1999 1998 -------------------------------------- --------------------------------------- CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR AMOUNT VALUE AMOUNT VALUE ----------------- ----------------- ----------------- --------------- (IN THOUSANDS) FINANCIAL ASSETS Cash and cash equivalents $ 79,629 79,629 87,762 87,762 Securities available for sale 606,727 606,727 523,254 523,254 Securities held to maturity 113,318 109,147 180,663 181,741 Loans 1,466,867 1,461,915 1,277,241 1,320,837 Less allowance for loan losses 19,711 -- 18,231 -- ----------------- ----------------- ----------------- --------------- Net loans 1,447,156 1,461,915 1,259,010 1,320,837 Accrued interest receivable 13,422 13,422 13,392 13,392 FINANCIAL LIABILITIES Deposits: Interest bearing: Savings, NOW and money market $ 605,334 605,334 589,607 589,607 Time deposits 903,862 903,862 825,213 826,110 Noninterest bearing 267,895 267,895 249,487 249,487 Short-term borrowings 142,267 142,267 99,872 99,872 Long-term debt 251,970 246,354 183,968 185,137 Accrued interest payable 9,925 9,925 8,086 8,086
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Company has a substantial trust and investment management operation that contributes net fee income annually. The trust and investment management operation is not considered a financial instrument, and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities include the benefits resulting from the low-cost funding of deposit liabilities as compared to the cost of borrowing funds in the market, and premises and equipment and software. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimate of fair value.