SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________.
COMMISSION FILE NUMBER 0-14703
NBT BANCORP INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 16-1268674
(State of Incorporation) (I.R.S. Employer Identification No.)
52 SOUTH BROAD STREET, NORWICH, NEW YORK 13815
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (607) 337-2265
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15x(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of April 30, 2001, there were 23,821,529 shares outstanding of the
Registrant's common stock, $0.01 par value. There were no shares of the
Registrant's preferred stock, par value $0.01, outstanding at that date.
An index to exhibits follows the signature page of this FORM 10-Q.
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NBT BANCORP INC.
FORM 10-Q--Quarter Ended March 31, 2001
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2001, December 31, 2000
(Audited), and March 31, 2000
Consolidated Statements of Income for the three month periods ended
March 31, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the three month
periods ended March 31, 2001 and 2000
Consolidated Statements of Cash Flows for the three month periods
ended March 31, 2001 and 2000
Consolidated Statements of Comprehensive Income for the three month
periods ended March 31, 2001 and 2000
Notes to Unaudited Interim Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Information called for by Item 3 is contained in the Liquidity and
Interest Rate Sensitivity Management section of the Management
Discussion and Analysis.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on FORM 8-K
SIGNATURES
INDEX TO EXHIBITS
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NBT BANCORP INC. AND SUBSIDIARIES MARCH 31, December 31, March 31,
CONSOLIDATED BALANCE SHEETS 2001 2000 2000
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(in thousands) (UNAUDITED) (Unaudited)
ASSETS
Cash and due from banks $ 76,254 $ 96,429 $ 71,157
Short-term interest bearing accounts 5,677 14,233 2,882
Trading securities, at fair value 494 20,541 -
Securities available for sale, at fair value 572,480 576,372 602,467
Securities held to maturity (fair value - $93,555, $101,833
and $110,368) 93,562 102,413 114,518
Federal Reserve and Federal Home Loan Bank stock 18,421 27,647 27,654
Loans 1,725,072 1,726,482 1,540,725
Less allowance for loan losses 24,209 24,349 20,688
- -----------------------------------------------------------------------------------------------------------------------
Net loans 1,700,863 1,702,133 1,520,037
Premises and equipment, net 44,665 43,457 46,202
Intangible assets, net 27,106 27,739 8,763
Other assets 41,135 44,824 53,683
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,580,657 $2,655,788 $2,447,363
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 281,031 $ 302,137 $ 256,369
Savings, NOW, and money market 667,914 671,980 601,208
Time 1,022,330 1,066,121 965,994
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 1,971,275 2,040,238 1,823,571
Short-term borrowings 115,987 132,375 166,570
Long-term debt 242,935 234,872 240,157
Other liabilities 33,052 40,282 22,440
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 2,363,249 2,447,767 2,252,738
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Stockholders' equity:
Preferred stock, $0.01 par value; shares authorized-2,500,000 - - -
Common stock, $0.01 par value; shares authorized-30,000,000;
shares issued 24,237,323, 24,237,322, and 23,793,509 242 242 238
Additional paid-in-capital 183,572 185,041 180,162
Retained earnings 40,279 36,689 46,580
Accumulated other comprehensive (loss) income 2,198 (2,864) (21,044)
Common stock in treasury at cost 415,794, 513,523,
and 522,567 shares at March 31, 2001, December 31, 2000
and March 31, 2000, respectively (8,883) (11,087) (11,311)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 217,408 208,021 194,625
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,580,657 $2,655,788 $2,447,363
- -----------------------------------------------------------------------------------------------------------------------
See notes to unaudited interim consolidated financial statements.
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NBT BANCORP INC. AND SUBSIDIARIES Three months ended March 31,
CONSOLIDATED STATEMENTS OF INCOME 2001 2000
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(in thousands, except per share data) (Unaudited)
Interest, fee and dividend income:
Interest and fees on loans $37,276 $ 32,282
Securities available for sale 9,390 10,538
Securities held to maturity 1,378 1,581
Other 622 510
- -----------------------------------------------------------------------------------------------------------------------
Total interest, fee and dividend income 48,666 44,911
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Interest expense:
Deposits 19,528 16,066
Short-term borrowings 1,442 2,094
Long-term debt 3,229 3,450
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Total interest expense 24,199 21,610
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Net interest income 24,467 23,301
Provision for loan losses 951 1,454
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Net interest income after provision for loan losses 23,516 21,847
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Noninterest income:
Service charges on deposit accounts 2,321 1,948
Broker/dealer fees 1,022 11
Trust 908 860
Net securities transactions 503 -
Gain on sale of a branch building 1,367 -
Other 1,989 1,422
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Total noninterest income 8,110 4,241
- -----------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 9,067 8,425
Office supplies and postage 799 728
Occupancy 1,642 1,459
Equipment 1,310 1,391
Professional fees and outside services 809 856
Data processing and communications 2,034 1,362
Amortization of intangible assets 633 321
Merger, acquisition and reorganization costs - 1,215
Deposit overdraft write-offs 2,125 -
Other operating 1,813 1,959
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expense 20,232 17,716
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 11,394 8,372
Income taxes 3,756 3,092
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 7,638 $ 5,280
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Earnings per share:
Basic $ 0.32 $ 0.23
Diluted $ 0.32 $ 0.23
- -----------------------------------------------------------------------------------------------------------------------
See notes to unaudited interim consolidated financial statements.
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NBT BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-in- Retained Comprehensive Treasury
Stock Capital Earning (Loss)/Income Stock Total
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data)
BALANCE AT DECEMBER 31, 1999 $23,786 $156,112 $44,949 $(21,710) $(11,665) $191,472
Net income 5,280 5,280
Cash dividends - $0.17 per share (3,649) (3,649)
Issuance of 11,405 shares to
employee benefits plans and
other stock plans, including
tax benefit 7 495 354 856
Change $1.00 stated value per
share to $0.01 par value per
share (23,555) 23,555 -
Other comprehensive income 666 666
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2000 $ 238 $180,162 $46,580 $(21,044) $(11,311) $194,625
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $ 242 $185,041 $36,689 $(2,864) $(11,087) $208,021
Net income 7,638 7,638
Cash dividends - $0.170 per share (4,048) (4,048)
Purchase of 20,100 treasury shares (303) (303)
Issuance of 117,829 shares to
employee benefit plans and other
stock plans, including tax benefit (1,469) 2,507 1,038
Other comprehensive income 5,062 5,062
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2001 $ 242 $183,572 $40,279 $ 2,198 $ (8,883) $217,408
- -----------------------------------------------------------------------------------------------------------------------
See notes to interim consolidated financial statements.
Note:
Dividend per share data represents historical dividends per share of NBT Bancorp
Inc. stand-alone.
-5-
NBT BANCORP INC. AND SUBSIDIARY Three Months Ended March 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
Operating activities:
Net income $ 7,638 $ 5,280
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 951 1,454
Depreciation of premises and equipment 1,081 1,244
Net accretion on securities (481) (490)
Amortization of intangible assets 633 321
Proceeds from sale of loans held for sale 1,033 1,943
Origination and purchases of loans held for sale (2,232) (1,073)
Net (gains) losses on sales of loans (20) 419
Net (gain) losses on sale of other real estate owned (14) 92
Net security transactions (503) -
Proceeds from sale of trading securities 20,467 -
Gain on sale of branch building (1,367) -
Net (increase) decrease in other assets 11,011 (2,378)
Net (decrease) increase in other liabilities (7,229) 2,452
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 30,968 9,264
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities 32,698 8,433
Proceeds from sales 1,070 200
Purchases (20,805) (3,041)
Securities held to maturity:
Proceeds from maturities 12,504 7,738
Purchases (3,653) (8,942)
Net decrease (increase) in loans 1,289 (75,582)
Purchase of premises and equipment, net (2,289) (317)
Proceeds from sales of other real estate owned 88 428
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 20,902 (71,083)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (68,963) 46,532
Net increase (decrease) in short-term borrowings (16,388) 27,878
Proceeds from issuance of long-term debt 20,000 5,000
Repayments of long-term debt (11,937) (20,388)
Proceeds from issuance of shares to employee benefit
plans and other stock plans 1,038 856
Purchase of treasury stock (303) -
Cash dividends and payment for fractional shares (4,048) (3,649)
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (80,601) 56,229
- -----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (28,731) (5,590)
Cash and cash equivalents at beginning of period 110,662 79,629
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 81,931 $ 74,039
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 25,891 $ 21,065
Income taxes 137 770
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See notes to interim consolidated financial statements.
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NBT BANCORP INC. AND SUBSIDIARY Three Months Ended March 31,
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 2001 2000
- --------------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
Net Income $ 7,638 $ 5,280
- --------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax
Unrealized holding gains arising during
period [pre-tax amounts of $8,742 and $1,139] 5,209 666
Less: Reclassification adjustment for net gains included
in net income [pre-tax amounts of $(245) and $-] (147) -
- --------------------------------------------------------------------------------------------------------------
Total other comprehensive income 5,062 666
- --------------------------------------------------------------------------------------------------------------
Comprehensive income $12,700 $ 5,946
- --------------------------------------------------------------------------------------------------------------
See notes to interim consolidated financial statements.
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NBT BANCORP INC. and Subsidiary
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements include the
accounts of NBT Bancorp Inc. (the Registrant) and its wholly-owned subsidiaries,
NBT Bank, N.A. (NBT) and NBT Financial Services, Inc. All intercompany
transactions have been eliminated in consolidation. Amounts in the prior period
financial statements are reclassified whenever necessary to conform to current
period presentation.
The consolidated balance sheet at December 31, 2000 has been derived from
audited consolidated financial statements at that date. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to FORM 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant's annual report on
FORM 10-K for the year ended December 31, 2000 and notes thereto referred to
above. The March 31, 2000 unaudited interim consolidated financial statements
have been restated to give effect to the merger with Pioneer American Holding
Company Corp., which closed on July 1, 2000 and was accounted for as a
pooling-of-interest.
EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. All share and per
share data has been adjusted retroactively for stock dividends and splits.
The following is a reconciliation of basic and diluted earnings per share
for the periods presented in the consolidated statements of income.
--------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2001 2000
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(in thousands, except per share data)
Basic EPS:
Weighted average common shares outstanding 23,651 23,198
Net income available to common shareholders $ 7,638 $ 5,280
--------------------------------------------------------------------------------------------------------------
Basic EPS $ 0.32 $ 0.23
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Diluted EPS:
Weighted average common shares outstanding 23,651 23,198
Dilutive potential common stock 217 148
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Weighted average common shares and common
share equivalents 23,868 23,346
Net income available to common shareholders $ 7,638 $ 5,280
--------------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.32 $ 0.23
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-8-
There were 410,385 stock options for the quarter ended March 31, 2001 and
765,158 stock options for the quarter ended March 31, 2000 that were not
considered in the calculation of diluted earnings per share since the stock
options' exercise price was greater than the average market price during these
periods.
MERGERS AND ACQUISITIONS
On February 17, 2000, the Company consummated a merger, whereby Lake Ariel
Bancorp, Inc. (Lake Ariel) and its subsidiaries were merged with and into the
Company with each issued and outstanding share of Lake Ariel exchanged for
0.9961 of a share of NBT common stock. The transaction resulted in the issuance
of approximately 5.0 million shares of NBT common stock. Lake Ariel's commercial
banking subsidiary was LA Bank, N.A.
On July 1, 2000, the Company consummated a merger, whereby Pioneer American
Holding Company Corp. (Pioneer Holding Company) and its subsidiary were merged
with and into the Company with each issued and outstanding share of Pioneer
Holding Company exchanged for 1.805 shares of NBT common stock. The transaction
resulted in the issuance of approximately 5.2 million shares of NBT common
stock. Pioneer Holding Company's commercial banking subsidiary was Pioneer
American Bank, N.A.
The Lake Ariel and Pioneer Holding Company mergers qualified as tax-free
exchanges and were accounted for as poolings-of-interests. accordingly, these
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 periods presented.
LA Bank, N.A. and Pioneer American Bank, N.A. were 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. Immediately following
the mergers described above, NBT was the surviving holding company for NBT Bank,
N.A., LA Bank, N.A., Pioneer American Bank, N.A. and NBT Financial Services,
Inc. LA Bank, N.A. effected a name change on November 10, 2000 to Pennstar Bank,
N.A. and on December 9, 2000, Pioneer American Bank, N.A. merged into Pennstar
Bank, N.A. During the first quarter of 2001, the national bank charter of
Pennstar Bank, N.A. was merged into that of NBT Bank, N.A.
On May 5, 2000, the Company consummated the acquisition of M. Griffith, Inc., a
New Hartford, New York based securities firm offering investment, financial
advisory and asset-management services, primarily in the Mohawk Valley region.
At that time, M. Griffith, Inc., a full-service broker-dealer and a Registered
Investment Advisor, became a wholly-owned subsidiary of NBT Financial Services,
Inc. The acquisition was accounted for using the purchase method. As such, both
the assets acquired and liabilities assumed have been recorded on the
consolidated balance sheet of the Company at estimated fair value as of the date
of acquisition. M. Griffith, Inc.'s results of operations are included in the
Company's consolidated statement of income from the date of acquisition forward.
To complete the transaction, the Company issued approximately 421,000 shares of
its common stock, valued at $4.8 million. Goodwill, representing the cost over
net assets acquired, was $3.4 million and is being amortized over fifteen years
on a straight-line basis.
On June 2, 2000, one of NBT's subsidiaries, LA Bank, N.A., purchased two
branches from Mellon Bank. Deposits from the Mellon Bank branches were
approximately $36.7 million, including accrued interest payable. In addition,
the Company received approximately $32.2 million in cash as consideration for
net liabilities assumed. The acquisition was accounted for using the purchase
method. As such, both the assets acquired and liabilities assumed have been
recorded on the consolidated balance sheet of the Company at estimated fair
value as of the date of the acquisition. Goodwill, representing the excess of
cost over net assets acquired, was $4.3 million and is being amortized over 15
years on the straight-line basis. The branches' results of operations are
included in the Company's consolidated statement of income from the date of
acquisition forward.
On November 10, 2000, Pennstar Bank, N.A. purchased six branches from Sovereign
Bank. deposits from Sovereign Bank branches were approximately $96.8 million,
including accrued interest payable. Pennstar Bank, N.A. also purchased
commercial loans associated with the branches with a net book balance of $42.4
-9-
million. In addition, the Company received $40.9 million in cash consideration
for net liabilities assumed. The acquisition was accounted for using the
purchase method. As such, both the assets acquired and liabilities assumed have
been recorded on the consolidated balance sheet of the Company at estimated fair
value as of the date of the acquisition. Goodwill, representing the excess of
cost over net assets acquired, was $12.7 million and is being amortized over 15
years on a straight-line basis. The branches' results of operations are included
in the Company's consolidated statement of income from the date of acquisition
forward.
On January 2, 2001, the Company announced the signing of a definitive agreement
to acquire First National Bancorp, Inc. (FNB) and its wholly owned subsidiary,
The First National Bank of Northern New York (FNB Bank). FNB Bank is expected to
be merged into NBT Bank, N.A. In the acquisition, shareholders of FNB will
receive five shares of NBT common stock for each share of FNB common stock. NBT
is expected to issue approximately 1.0 million shares of common stock, with a
total value of approximately $15 million, based on the closing price of NBT
stock on January 2, 2001. The acquisition is structured to be tax-free to
shareholders of FNB and will be accounted for using the purchase method of
accounting. The merger received the approval of FNB shareholders at a meeting
held on April 6, 2001. Approval of the merger of the First National Bank of
Northern New York into NBT Bank was received from the Office of the Comptroller
of the Currency earlier the same week. The merger is expected to close in late
May with the conversion of the FNB branches to the NBT Bank system slated to
take place during the summer months. At December 31, 2000, FNB had consolidated
assets of $114.2 million, deposits of $102.8 million and equity of $10.0
million. FNB Bank operates six full-service banking locations in New York
State's North Country. NBT also announced a plan to repurchase in the market
approximately 1 million shares of its common stock specifically for issuance in
the transaction.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective January 1, 2001. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Changes in the fair value of the derivative financial instruments
are reported in either net income or as a component of comprehensive income.
Consequently, there may be increased volatility in net income, comprehensive
income, and stockholders' equity on an ongoing basis as a result of accounting
for derivatives in accordance with SFAS No. 133.
Special hedge accounting treatment is permitted only if specific criteria are
met, including a requirement that the hedging relationship be highly effective
both at inception and on an ongoing basis. Accounting for hedges varies based on
the type of hedge - fair value or cash flow. Results of effective hedges are
recognized in current earnings for fair value hedges and in other comprehensive
income for cash flow hedges. Ineffective portions of hedges are recognized
immediately in earnings and are not deferred.
The adoption of SFAS No. 133 by The Company on January 1, 2001 did not have a
material effect on the Company's consolidated financial position or results of
operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", a replacement
of SFAS No. 125. SFAS 140 addresses implementation issues that were identified
in applying SFAS No. 125. This statement revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS No. 125
provisions without reconsideration. SFAS 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. SFAS No. 140 is effective for recognition and reclassification
of collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. This statement is to
be applied prospectively with certain exceptions. Other than those exceptions,
earlier or retroactively application is not permitted. The adoption of SFAS No.
140 did not have a material effect on the Company's consolidated financial
statements.
-10-
NBT BANCORP INC. and Subsidiary
Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to provide the reader with a
concise description of the financial condition and results of operations of NBT
Bancorp Inc. (Bancorp) and its wholly owned subsidiaries, NBT Bank, N.A. (NBT)
and NBT Financial Services, Inc. collectively referred to herein as the Company.
This discussion will focus on Results of Operations, Financial Position, Capital
Resources and Asset/Liability Management. Reference should be made to the
Company's consolidated financial statements and footnotes thereto included in
this FORM 10-Q as well as to the Company's 2000 FORM 10-K for an understanding
of the following discussion and analysis.
On April 23, 2001, NBT Bancorp Inc. announced the declaration of a regular
quarterly cash dividend of $0.17 per share. The cash dividend will be paid on
June 15, 2001 to stockholders of record as of June 1, 2001.
FORWARD LOOKING STATEMENTS
Certain statements in this filing and future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, contain forward-looking statements,
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. There are a number of factors,
many of which are beyond the Company's control that could cause actual results
to differ materially from those contemplated by the forward looking statements.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) competitive pressures among depository and other
financial institutions may increase significantly; (2) revenues may be lower
than expected; (3) changes in the interest rate environment may reduce interest
margins; (4) general economic conditions, either nationally or regionally, may
be less favorable than expected, resulting in, among other things, a
deterioration in credit quality and/or a reduced demand for credit; (5)
legislative or regulatory changes, including changes in accounting standards,
may adversely affect the businesses in which the Company is engaged; (6) costs
or difficulties related to the integration of the businesses of the Company and
its merger partners may be greater than expected; (7) expected cost savings
associated with recent mergers and acquisitions may not be fully realized or
realized within the expected time frames; (8) deposit attrition, customer loss,
or revenue loss following recent mergers and acquisitions may be greater than
expected; (9) competitors may have greater financial resources and develop
products that enable such competitors to compete more successfully than the
Company; and (10) adverse changes may occur in the securities markets or with
respect to inflation.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including those described above, could affect the
Company's financial performance and could cause the Company's actual results or
circumstances for future periods to differ materially from those anticipated or
projected.
The Company does not undertake, and specifically disclaims any obligations to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect statements to the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
OVERVIEW
The Company earned net income of $7.6 million ($0.32 diluted earnings per share)
for the three months ended March 31, 2001 compared to net income of $5.3 million
($0.23 diluted earnings per share) for the three months ended March 31, 2000.
Recurring net income, which excludes the after-tax effect of costs related to
merger and acquisition activity, reorganizations, net securities gains, gain on
sale of a branch building, and certain deposit overdraft write-offs considered
to be nonrecurring was $7.8 million ($0.33 diluted earnings per share) for the
first quarter of 2001 compared to $6.4 million ($0.27 diluted earnings per
share) of recurring net income for the first quarter of 2000. The quarter to
quarter increase in recurring net income from 2000 to 2001 was primarily the
result of an increase in net interest income, an increase in noninterest income,
excluding net securities gains and the gain on sale of a branch building along
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with a decrease in the provision for loan losses, offset in part by an increase
in noninterest expense, excluding costs related to merger and acquisition
activity, reorganizations and deposit overdraft write-offs.
Table 1 depicts several measurements of performance on an annualized basis.
Returns on average assets and equity measure how effectively an entity utilizes
its total resources and capital, respectively. Both the return on average assets
and the return on average equity ratios increased for the quarter compared to
the same period a year previous.
Net interest margin, net federal taxable equivalent (FTE) interest income
divided by average interest-earning assets, is a measure of an entity's ability
to utilize its earning assets in relation to the cost of funding. Interest
income for tax-exempt securities and loans is adjusted to a taxable equivalent
basis using the statutory Federal income tax rate of 35%.
TABLE 1
PERFORMANCE MEASUREMENTS
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FIRST First
QUARTER Quarter
2001 2000
--------------------------------------------------------------------------------------------
Return on average assets 1.19% 0.88%
Return on average equity 14.55% 11.10%
Net interest margin (FTE) 4.21% 4.25%
--------------------------------------------------------------------------------------------
NET INTEREST INCOME
Net interest income is the difference between interest income on earning assets,
primarily loans and securities, and interest expense on interest-bearing
liabilities, primarily deposits and borrowings. Net interest income is affected
by the interest rate spread, the difference between the yield on earning assets
and cost of interest-bearing liabilities, as well as the volumes of such assets
and liabilities. Net interest income is one of the major determining factors in
a financial institution's performance as it is the principal source of earnings.
Table 2 represents an analysis of net interest income on a federal taxable
equivalent basis.
Federal taxable equivalent (FTE) net interest income increased $1.1 million
during the first quarter of 2001 compared to the same period of 2000. This
increase can be attributed to an increase in average earning assets, the result
of continued loan growth, as well as an increase in the yield earned on average
earning assets, offset by increases in average interest bearing liabilities and
the rates paid on those interest bearing liabilities.
Total FTE interest income increased $3.7 million compared to first quarter
2000, a result of the previously mentioned increase in average earning assets as
well as a 20 basis point increase in the yield earned on those earning assets.
The increase in the yield on earning assets can be primarily attributed to a 14
basis point increase in the yield on the loan portfolio. During the same time
period, total interest expense increased $2.6 million, the result of a $126.5
million increase in average interest bearing liabilities between reporting
periods as well as a 27 basis point increase in their cost. Driving the increase
in the cost of funds was a 58 basis point increase in the cost of time deposits.
The increase in the cost of funds resulted in a 7 basis point decline in the
interest rate spread.
Another important performance measurement of net interest income is the net
interest margin. This is computed by dividing annualized FTE net interest income
by average earning assets for the period. Net interest margin decreased to 4.21%
for first quarter 2001, down from 4.25% for the comparable period in 2000. The
decrease in the net interest margin can be attributed to the previously
mentioned decrease in the interest rate spread driven by the increase in the
cost of interest bearing liabilities exceeding the increase in yields on earning
assets.
-12-
TABLE 2
AVERAGE BALANCES AND NET INTEREST INCOME
The following table includes the condensed consolidated average balance sheet,
an analysis of interest income/expense and average yield/rate for each major
category of earning assets and interest bearing 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%.
Three months ended March 31,
2001 2000
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST RATES Balance Interest Rates
- --------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------
Short-term interest bearing
accounts $ 14,118 $ 189 5.43% $ 3,922 $ 52 5.33%
Securities available for sale (2) 577,764 9,670 6.79 639,415 10,805 6.80
Securities held to maturity (2) 96,853 1,719 7.20 115,131 1,974 6.90
Investment in FRB and FHLB Banks 25,754 433 6.82 27,653 458 6.66
Loans (1) 1,719,895 37,487 8.84 1,502,129 32,494 8.70
--------- ------ --------- ------
Total earning assets 2,434,384 49,498 8.25 2,288,250 45,783 8.05
------ ------
Other assets 160,573 113,076
------- -------
Total assets $2,594,957 $2,401,326
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Money market deposit accounts $ 163,374 1,454 3.61 $ 133,636 1,068 3.21
NOW deposit accounts 235,340 1,140 1.96 199,875 883 1.78
Savings deposits 271,044 1,608 2.41 265,552 1,643 2.49
Time deposits 1,047,697 15,326 5.93 938,131 12,472 5.35
--------- ------ ------- ------
Total interest bearing deposits 1,717,455 19,528 4.61 1,537,194 16,066 4.20
Short-term borrowings 107,703 1,442 5.43 150,554 2,094 5.59
Long-term debt 235,817 3,229 5.55 246,763 3,450 5.62
------- ----- ------- -----
Total interest bearing
liabilities 2,060,975 24,199 4.76% 1,934,511 21,610 4.49%
------ ------
Demand deposits 286,168 255,084
Other liabilities 34,953 20,343
Stockholders' equity 212,861 191,388
------- -------
Total liabilities and
stockholders' equity $2,594,957 $2,401,326
---------- ----------
Net interest income $25,299 $24,173
------- -------
Interest rate spread 3.49% 3.56%
----- -----
Net interest margin 4.21% 4.25%
----- -----
Taxable equivalent adjustment $ 832 $ 872
------- -------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan balances outstanding.
(2) Securities are shown at average amortized cost.
The following table presents changes in interest income and interest expense
attributable to changes in volume (change in average balance multiplied by prior
year rate), changes in rate (change in rate multiplied by prior year volume),
and the net change in net interest income. The net change attributable to the
combined impact of volume and rate has been allocated to each in proportion to
the absolute dollar amounts of change.
-13-
TABLE 3
ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
Three months ended March 31,
- ----------------------------------------------------------------------------------
INCREASE (DECREASE)
2001 OVER 2000
- ----------------------------------------------------------------------------------
(in thousands) VOLUME RATE TOTAL
- ----------------------------------------------------------------------------------
Short-term interest bearing accounts $ 136 $ 1 $ 137
Securities available for sale (1,033) (102) (1,135)
Securities held to maturity (322) 67 (255)
Investment in FRB and FHLB Banks (32) 7 (25)
Loans 4,745 248 4,993
- ----------------------------------------------------------------------------------
Total interest income 2,962 753 3,715
- ----------------------------------------------------------------------------------
Money market deposit accounts 256 130 386
NOW deposit accounts 166 91 257
Savings deposits 34 (69) (35)
Time deposits 1,535 1,319 2,854
Short-term borrowings (576) (76) (652)
Long-term debt (151) (70) (221)
- ----------------------------------------------------------------------------------
Total interest expense 1,453 1,136 2,589
- ----------------------------------------------------------------------------------
CHANGE IN FTE NET INTEREST INCOME $ 1,509 $ (383) $ 1,126
- ----------------------------------------------------------------------------------
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level estimated by management
to provide adequately for risk of probable losses inherent in the current loan
portfolio. The adequacy of the allowance for loan losses is continuously
monitored. It is assessed for adequacy using a methodology designed to ensure
the level of the allowance reasonably reflects the loan portfolio's risk
profile. It is evaluated to ensure that it is sufficient to absorb all
reasonably estimable credit losses inherent in the current loan portfolio.
For purposes of evaluating the adequacy of the allowance, the Company considers
a number of significant factors that affect the collectibility of the portfolio.
For individually analyzed loans, these include estimates of loss exposure, which
reflect the facts and circumstances that affect the likelihood of repayment of
such loans as of the evaluation date. For homogeneous pools of loans, estimates
of the Company's exposure to credit loss reflect a thorough current assessment
of a number of factors, which could affect collectibility. These factors
include: past loss experience; the size, trend, composition, and nature; changes
in lending policies and procedures, including underwriting standards and
collection, charge-off and recovery practices; trends experienced in
nonperforming and delinquent loans; current economic conditions in the Company's
market; portfolio concentrations that may affect loss experienced across one or
more components of the portfolio; the effect of external factors such as
competition, legal and regulatory requirements; and the experience, ability, and
depth of lending management and staff. In addition, various regulatory agencies,
as an integral component 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 based on their judgment about information
available to them at the time of their examination, which may not be currently
available to management.
After a thorough consideration and validation of the factors discussed above,
required additions to the allowance for loan losses are made periodically by
charges to the provision for loan losses. These charges are necessary to
maintain the allowance at a level which management believes is reasonably
reflective of overall inherent risk of probable loss in the portfolio. While
management uses available information to recognize losses on loans, additions to
the allowance may fluctuate from one reporting period to another. These
fluctuations are reflective of changes in risk associated with portfolio content
-14-
and/or changes in management's assessment of any or all of the determining
factors discussed above. The allowance for loan losses to outstanding loans at
March 31, 2001 was 1.40% compared to 1.34% at March 31, 2000. Management
considers the allowance for loan losses to be adequate based on evaluation and
analysis of the loan portfolio.
Table 3 reflects changes to the allowance for loan losses for the periods
presented. The allowance is increased by provisions for losses charged to
operations and is reduced by net charge-offs. Charge-offs are made when the
collectability of loan principal within a reasonable time is unlikely. Any
recoveries of previously charged-off loans are credited directly to the
allowance for loan losses.
The provision for loan losses was approximately $1.0
million, $3.3 million, and $1.5 million for the three months ended March 31,
2001, December 31, 2000, and March 31, 2000, respectively. The increase in the
provision during the fourth quarter of 2000 was primarily the result of
significant loan growth, primarily in the higher risk commercial and consumer
type loans, an increase in nonperforming loans, and an increase in net
charge-offs. The increase in nonperforming loans was primarily the result of a
continuing process of integrating newly acquired banks into the Company given
the Company's more conservative approach to identifying and resolving
nonperforming loans. The fourth quarter provision for loan losses reflected the
loan portfolio's increased inherent risk of loss related to the significantly
increased nonperforming loans at December 31, 2000, the increased net
charge-offs during the quarter ended December 31, 2000, and an anticipated net
charge-off level in 2001 higher than previously experienced.
As expected, net charge-offs in the first quarter of 2001 (approximately
$1.1 million) were significantly higher than the net charge-offs in the first
quarter of 2000 (approximately $0.5 million), however they were reduced from the
fourth quarter of 2000 (approximately $2.1 million). As noted above, the
increased net charge-offs in the first quarter of 2001 as compared to the first
quarter of 2000 were anticipated and primarily addressed in the provision for
loan losses for the fourth quarter of 2000. Nonperforming loans at March 31,
2001 totaled approximately $22.5 million, representing a significant increase
from nonperforming loans of approximately $12.6 million at March 31, 2000.
However, as mentioned above, this increase was the result of the Company's
fourth quarter of 2000 integration effort. Nonperforming loans at December 31,
2000 were approximately $21.5 million. Accordingly, the provision for loan
losses in the first quarter of 2001 of approximately $1.0 million was lower than
the provision of approximately $1.5 million in the first quarter of 2000,
despite the increase in net loan charge-offs and nonperforming loans which were
primarily addressed through higher provision for loan losses in the fourth
quarter of 2000. Additionally, the Company's loan growth slowed during the first
quarter of 2001 when compared to both the fourth and first quarters of 2000,
which also contributed to the reduction in the provision for loan losses in the
first quarter of 2001 as compared to both the fourth and first quarters of 2000.
However, the integration process described above is continuing. As this
integration process continues, management expects that additional credit risk
may be identified, which may result in future charge-offs being higher than
anticipated. Also, additional non-accrual loans may be identified as a result
of the continuing integration process. An increase in charge-offs and non-
accrual loans that is greater than anticipated could result in an increase in
the provision for loan losses in future periods.
-15-
TABLE 4
ALLOWANCE FOR LOAN LOSSES
- -----------------------------------------------------------------------------------------------------------------------
Three months ended March 31,
(dollars in thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $24,349 $19,711
Recoveries 352 261
Charge-offs (1,443) (738)
- -----------------------------------------------------------------------------------------------------------------------
Net charge-offs (1,091) (477)
Provision for loan losses 951 1,454
- -----------------------------------------------------------------------------------------------------------------------
Balance, end of period $24,209 $20,688
- -----------------------------------------------------------------------------------------------------------------------
Composition of Net Charge-Offs
Commercial and agricultural $ (504) 46% $ (97) 20%
Real estate mortgage (76) 7% (116) 24%
Consumer (511) 47% (264) 56%
- -----------------------------------------------------------------------------------------------------------------------
Net charge-offs $(1,091) 100% $ (477) 100%
- -----------------------------------------------------------------------------------------------------------------------
Annualized net charge-offs to average loans 0.26% 0.13%
- -----------------------------------------------------------------------------------------------------------------------
Net charge-offs to average loans for the year ended
December 31, 2000 0.28%
- -----------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest income is a significant source of revenue for the Company and an
important factor in the Company's results of operations. Noninterest income,
exclusive of net securities gains and the gain on the sale of a branch building,
totaled $6.2 million for the first quarter of 2001 compared to $4.2 million for
the first quarter of 2000. The $2.0 million, or 47.1%, increase in 2001 is
primarily the result of an increase in broker/dealer fees of approximately $1.0
million, the direct result of the Company's acquisition of M. Griffith, Inc., a
full service broker/dealer and registered investment advisor, on May 5, 2000. In
addition, service charges on deposit accounts increased $0.4 million and other
income increased $0.6 million during the first quarter of 2001 compared to the
same period in 2000. The increase in service charges on deposit accounts can be
attributed to an increase in the number of deposit accounts between reporting
periods.
NONINTEREST EXPENSE AND OPERATING EFFICIENCY
Total noninterest expense, excluding nonrecurring merger, acquisition and
reorganization expenses and deposit overdraft write-offs, increased $1.6 million
between the quarter ended March 31, 2001 and the same period for 2000.
Salaries and employee benefits for the first quarter of 2001 increased $0.6
million compared to the same period of 2000, primarily the result of the
addition of M. Griffith in May of 2000.
Data processing and communications expense for the first quarter of 2001
experienced a $0.7 million increase compared to the same period in 2000, the
result of an expanded communication network and increased transaction volume.
Amortization of intangible assets expense for the quarter ended March 31,
2001 experienced a $0.3 million increase compared to the same period in 2000,
the result of the previously mentioned Mellon Bank and Soveriegn Bank branch
acquisitions, as well as the M. Griffith, Inc. acquisition.
One important operating efficiency measure that the Company closely
monitors is the efficiency ratio. The efficiency ratio is computed as total
noninterest expense (excluding nonrecurring charges) divided by net interest
income plus noninterest income (excluding net security gains and losses and
nonrecurring income). The efficiency ratio of 57.48% in the first quarter of
2001 was comparable to the efficiency ratio of 57.47% in the same period of
2000.
-16-
At March 31, 2001, after payments of certain merger, acquisition and
reorganization costs, the Company had a remaining accrued liability for merger,
acquisition and reorganization costs as follows:
Professional fees $ 158
Data processing 562
Severance 3,096
Branch closings 195
Advertising and supplies 155
Miscellaneous 87
------------------------------------------------------
Total $ 4,253
------------------------------------------------------
With the exception of certain severance costs, which will be paid out over a
period of time consistent with the respective severance agreements, all of the
above liabilities are expected to be paid during 2001.
All other categories of noninterest expense remained fairly consistent from the
first quarter of 2000 to the first quarter of 2001.
INCOME TAXES
Income tax expense was $3.8 million for the first quarter of 2001 compared to
$3.1 million for the first quarter of 2000. The effective tax rate was 33.0% for
the first quarter of 2001 and 36.9% for the same period of 2000. The higher tax
rate during 2000 can be attributed to non-deductible merger and acquisition
costs as well as a corporate realignment in 2000.
SECURITIES
Average total securities were $79.9 million less for the first quarter of 2001
than for the same period of 2000. The majority of this decrease was in the
available for sale portfolio as the proceeds from the sales and paydowns from
the mortgage-backed securities were used to fund the loan growth experienced
during 2000. During the first quarter of 2001, the securities portfolio
represented 27.7% of average earning assets compared to 33.0% for the first
quarter of 2000. At March 31, 2001, the securities portfolio was comprised of
86% available for sale and 14% held to maturity securities.
LOANS
The Company has continued to experience strong growth in the loan portfolio.
Average loan volume for the first quarter of 2001 was $1,719.9 million, or 14.5%
greater than the first quarter 2000 average. This growth has been present in all
loan categories, with increases in the average commercial, consumer and mortgage
portfolios of $139.8 million, $33.2 million and $46.1 million, respectively.
The Company has continued to experience an increase in the demand for
commercial loans, primarily in the business and real estate categories. The
Company does not engage in highly leveraged transactions or foreign lending
activities.
NONPERFORMING ASSETS
Nonperforming assets consist of nonaccrual loans, loans 90 days or more past
due, restructured loans and other real estate owned (OREO). Loans are generally
placed on nonaccrual when principal or interest payments become ninety days past
due, unless the loan is well secured and in the process of collection. Loans may
also be placed on nonaccrual when circumstances indicate that the borrower may
be unable to meet the contractual principal or interest payments. OREO
represents property acquired through foreclosure and is valued at the lower of
the carrying amount or fair market value, less any estimated disposal costs.
Total nonperforming assets were $23.3 million at March 31, 2001 compared to
$22.2 million at December 31, 2000 and $13.6 million at March 31, 2000. The
increase since March 31, 2000 can be attributed to a $6.5 million increase in
loans 90 days or more past due as well as a $4.0 million increase in nonaccrual
loans between reporting periods. These increases were primarily the result
integrating newly acquired banks into the Company.
-17-
TABLE 5
NONPERFORMING ASSETS
- -----------------------------------------------------------------------------------------------------------------------
MARCH 31, March 31,
(dollars in thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Commercial and agricultural $11,153 81% $ 6,379 66%
Real estate mortgage 1,350 10% 2,483 25%
Consumer 1,247 9% 846 9%
- -----------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 13,750 100% 9,708 100%
- -----------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 5,525 67% 64 4%
Real estate mortgage 1,574 19% 1,189 69%
Consumer 1,148 14% 469 27%
- -----------------------------------------------------------------------------------------------------------------------
Total loans 90 days or more past due and still accruing 8,247 100% 1,722 100%
- -----------------------------------------------------------------------------------------------------------------------
Restructured loans in compliance with modified terms: 509 1,184
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 22,506 12,614
- -----------------------------------------------------------------------------------------------------------------------
Other real estate owned 803 957
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $23,309 $13,571
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans to loans 1.30% 0.82%
Total nonperforming assets to assets 0.90% 0.55%
Total allowance for loan losses to nonperforming loans 107.57% 164.01%
- -----------------------------------------------------------------------------------------------------------------------
DEPOSITS
Customer deposits represent the greatest source of funding assets. The Company
purchased approximately $133.7 million in deposits in conjunction with the
purchase of branches from Mellon Bank and Sovereign Bank in June and November of
2000, respectively. Average total deposits for the quarter ended March 31, 2001
were $2.0 billion compared to $1.8 billion at March 31, 2000. This growth has
been present in all deposit categories, with increases in the average demand,
savings and time deposits of $31.1 million, $70.7 million and $109.6 million,
respectively. The increase in time deposits was primarily the result of the
increase in time deposits greater than $100,000, which includes brokered CD's.
Brokered CD's were approximately $110.5 million, $130.5 million and $89.4
million at March 31, 2001, December 31, 2000 and March 31, 2000, respectively.
Time deposits greater than $100,000 were approximately $470.3 million, $503.8
million and $433.0 million at March 31, 2001, December 31, 2000 and March 31,
2000, respectively.
BORROWED FUNDS
The Company's borrowed funds consist of short-term borrowings and long-term
debt. Average short-term borrowings for the first quarter of 2001 were $107.7
million compared to $150.6 million for the same period of 2000. Average
long-term debt for the first quarter of 2001 was $235.8 million compared to
$246.8 million for the same period of 2000. The previously mentioned increase in
deposits contributed to the decline in average borrowings as it has enabled the
Company to pay down a portion of its existing debt.
CAPITAL AND DIVIDENDS
Stockholders' equity of $217.4 million represents 8.4% of total assets at March
31, 2001, compared with $194.6 million, or 8.0% a year previous, and $208.0
million, or 7.8% at December 31, 2000. The Company does not have a target
dividend payout ratio, rather the Board of Directors considers the Company's
earnings position and earnings potential when making dividend decisions.
As the capital ratios in Table 6 indicate, the Company remains well
capitalized. Capital measurements are significantly in excess of regulatory
minimum guidelines and meet the requirements to be considered well capitalized
for all periods presented. Tier 1 leverage, Tier 1 capital and Risk-based
capital ratios have regulatory minimum guidelines of 3%, 4% and 8% respectively,
with requirements to be considered well capitalized of 5%, 6% and 10%,
-18-
respectively.
TABLE 6
CAPITAL MEASUREMENTS
- ------------------------------------------------------------------------------------------------
FIRST First
QUARTER Quarter
2001 2000
- ------------------------------------------------------------------------------------------------
Tier 1 leverage ratio 7.32% 8.59%
Tier 1 capital ratio 11.18% 13.24%
Total risk-based capital ratio 12.43% 14.40%
Cash dividends as a percentage
of net income 52.98% 69.11%
Per common share:
Book value $ 9.13 $ 8.36
Tangible book value $ 7.99 $ 7.99
- ------------------------------------------------------------------------------------------------
The accompanying Table 7 presents the high, low and closing sales price for the
common stock as reported on the NASDAQ Stock Market, and cash dividends declared
per share of common stock. The Company's price to book value ratio was 1.83 at
March 31, 2001 and 1.73 a year ago. The Company's price was 13 times annualized
earnings at March 31, 2001, compared to 16 times a year previous.
TABLE 7
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION*
- ----------------------------------------------------------------------------------------------------------
Cash
Dividends
Quarter Ending High Low Close Declared
- ----------------------------------------------------------------------------------------------------------
2000
- ----------------------------------------------------------------------------------------------------------
March 31 $16.50 $11.38 $14.50 $0.170
June 30 14.50 9.38 10.69 0.170
September 30 12.50 9.75 12.00 0.170
December 31 15.94 11.13 14.63 0.170
- ----------------------------------------------------------------------------------------------------------
2001
- ----------------------------------------------------------------------------------------------------------
MARCH 31 $17.50 $13.25 $16.69 $0.170
- ----------------------------------------------------------------------------------------------------------
*historical NBT Bancorp Inc. only
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
MARKET RISK
Interest rate risk is the most significant market risk affecting the Company.
Other types of market risk, such as foreign currency exchange rate risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
Interest rate risk is defined as an exposure to a movement in interest rates
that could have an adverse effect on the Company's net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than earning
assets. When interest-bearing liabilities mature or reprice more quickly than
earning assets in a given period, a significant increase in market rates of
interest could adversely affect net interest income. Similarly, when earning
assets mature or reprice more quickly than interest-bearing liabilities, falling
interest rates could result in a decrease in net interest income.
-19-
In an attempt to manage its exposure to changes in interest rates, management
monitors the Company's interest rate risk. Management's asset/liability
committee (ALCO) meets monthly to review the Company's interest rate risk
position and profitability, and to recommend strategies for consideration by the
Board of Directors. Management also reviews loan and deposit pricing, and the
Company's securities portfolio, formulates investment and funding strategies,
and oversees the timing and implementation of transactions to assure attainment
of the Board's objectives in the most effective manner. Notwithstanding the
Company's interest rate risk management activities, the potential for changing
interest rates is an uncertainty that can have an adverse effect on net income.
In adjusting the Company's asset/liability position, the Board and management
attempt to manage the Company's interest rate risk while enhancing the net
interest margin. At times, depending on the level of general interest rates, the
relationship between long and short term interest rates, market conditions and
competitive factors, the Board and management may determine to increase the
Company's interest rate risk position somewhat in order to increase its net
interest margin. The Company's results of operations and net portfolio values
remain vulnerable to changes in interest rates and to fluctuations in the
difference between long and short-term interest rates.
The primary tool utilized by ALCO to manage interest rate risk is a balance
sheet/income statement simulation model (interest rate sensitivity analysis).
Information such as principal balance, interest rate, maturity date, cash flows,
next repricing date (if needed), and current rates is uploaded into the model to
create an ending balance sheet. In addition, ALCO makes certain assumptions
regarding prepayment speeds for loans and mortgage related investment securities
along with any optionality within the deposits and borrowings.
The model is first run under an assumption of a flat rate scenario (i.e. no
change in current interest rates) with a static balance sheet over a 12-month
period. A second and third model are run in which a gradual increase and
decrease, respectively, of 200 basis points takes place over a 12 month period.
A fourth and fifth model are run in which a gradual increase and decrease,
respectively, of 100 basis points takes place over a 12 month period. Under
these scenarios, assets subject to prepayments are adjusted to account for
faster or slower prepayment assumptions. Any investment securities or borrowings
that have callable options embedded into them are handled accordingly based on
the interest rate scenario. The resultant changes in net interest income are
then measured against the flat rate scenario. The following table summarizes the
percentage change in net interest income in the rising and declining rate
scenarios over a 12 month period from the forecasted net interest income in the
flat rate scenario.
In the declining rate scenarios, net interest income is projected to be below
the flat rate scenario through the simulation period. Net interest income
experiences a reduction as a result of adjustable rate loans repricing, and
increased cash flow as a result of higher prepayments on loans reinvested at
lower market rates, callable securities reinvested at lower market rates and
limited continued deposit pricing reductions.
In the plus 100 basis points scenario, net interest income is projected to be
stable compared to the flat rate scenario. However, in the plus 200 basis point
scenario net interest income is projected to remain at lower levels than in a
flat rate scenario through the simulation period primarily due to a lag in
assets repricing while funding costs increase. The potential impact on earnings
is dependent on the ability to lag deposit repricing.
Net interest income for the next twelve months in a +/- 200 basis point scenario
is within the internal policy risk limits of a not more than a 5% change in net
interest income. The following table projects the percent change in net interest
income over the next year using the March 31, 2001 balance sheet position.
-20-
TABLE 10
INTEREST RATE SENSITIVITY ANALYSIS
-----------------------------------------------------------------------
Change in interest rates Percent change in
(in basis points) net interest income
-----------------------------------------------------------------------
+200 (1.39%)
+100 0.12%
-100 (0.96%)
-200 (1.99%)
-----------------------------------------------------------------------
LIQUIDITY RISK
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 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. Liquidity management includes a focus on interest rate
sensitivity management with a goal of avoiding widely fluctuating net interest
margins through periods of changing economic conditions.
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 purchased brokered time deposits, established borrowing facilities with
other banks (Federal funds), the Federal Home Loan Banks of New York and
Pittsburgh (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 operational 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 March 31, 2001, the
Company considered its Basic Surplus adequate to meet liquidity needs. At March
31, 2001, a large percentage of the Company's loans and securities are pledged
as collateral on borrowings. Therefore, future growth of earning assets will
depend upon the Company's ability to obtain additional funding, through growth
of core deposits and collateral management, and may require further use of
brokered time deposits, or other higher cost borrowing arrangements.
-21-
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, the aggregate amount involved in such
proceedings is not material to the financial condition or results of operations
of the Company.
Item 2 -- Changes in Securities
Following are listed changes in the Company's Common Stock outstanding during
the quarter ended March 31, 2001 as well as certain actions which have been
taken which may affect the number of shares of Common Stock (shares) outstanding
in the future. There was no Preferred Stock outstanding during the quarter ended
March 31, 2001.
At the Annual Meeting of Stockholders held on May 3, 2001, the stockholders
of NBT Bancorp Inc. approved an amendment to the Company's Certificate of
Incorporation that increased the number of authorized shares of NBT Bancorp Inc.
common stock from 30 million to 50 million.
At the Annual Meeting of Stockholders held on May 3, 2001, the stockholders
of NBT Bancorp Inc. approved the Board of Directors adoption of the NBT
Non-Employee Director, Divisional Director and Subsidiary Director Stock Option
Plan and the reservation of 500,000 shares of common stock for issuance under
the plan. The purpose of the NBT Non-Employee Director, Divisional Director and
Subsidiary Director Stock Option Plan is to attract and retain these individuals
and to motivate them to exercise their best efforts on behalf of NBT Bancorp
Inc. and its subsidiaries.
At the Annual Meeting of Stockholders held on May 3, 2001, the stockholders of
NBT Bancorp Inc. approved an amendment to the NBT 1993 Stock Option Plan to
increase the number of shares of common stock authorized for issuance under the
plan and to approve the reservation of 2,500,000 shares of common stock for
issuance under the plan. The purpose of the plan is to promote our interests and
those of our stockholders by encouraging ownership of our common stock by our
officers and other key employees and our subsidiaries in order to help attract
and retain in our service persons of exceptional competence, by furnishing added
incentives for them to increase their efforts on our behalf, and by gaining for
us the advantages inherent in key employees having an ownership interest in us.
Item 3 -- Defaults Upon Senior Securities
This item is omitted because there were no defaults upon the Company's senior
securities during the quarter ended March 31, 2001.
Item 4 -- Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 3, 2001.
Stockholders approved the following proposals:
a. A proposal to fix the number of directors at thirteen was approved. Daryl
R. Forsythe, William C. Gumble, William L. Owens and Gene E. Goldenziel
were elected as directors with terms of office to expire at the 2004 Annual
Meeting of Stockholders.
Daryl R. Forsythe was elected, with 17,888,784 votes FOR, and 1,210,794
votes WITHHELD. William C. Gumble was elected, with 17,903,341 votes FOR,
and 1,196,240 votes WITHHELD. William L. Owens was elected, with 17,768,014
votes FOR, and 1,331,564 votes WITHHELD. Gene E. Goldenziel was elected,
with 17,336,069 votes FOR, and 1,763,510 votes WITHHELD.
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b. Proposal to approve the amendment to Article Fourth of NBT's Certificate of
Incorporation to increase the number of authorized shares of common stock from
30 million to 50 million.
The proposal was approved, with 17,349,390 votes FOR, 1,686,905 votes
AGAINST, and 318,714 votes ABSTAINING.
c. Proposal to approve the NBT Non-Employee Director, Divisional Director and
Subsidiary Director Stock Option Plan and the reservation of 500,000 shares of
common stock for issuance under the plan.
The proposal was approved, with 13,359,982 votes FOR, 2,760,287 votes
AGAINST, and 464,254 votes ABSTAINING.
d. Proposal to approve an amendment to the NBT 1993 Stock Option Plan to
increase the number of shares of common stock authorized for issuance under the
plan and to approve the reservation of 2,500,000 shares of common stock for
issuance under the plan.
The proposal was approved, with 13,274,129 votes FOR, 2,890,468 votes
AGAINST, and 419,931 votes ABSTAINING.
Item 5 -- Other Information
Not Applicable
Item 6 -- Exhibits and Reports on FORM 8-K
(a) An index to exhibits follows the signature page of this FORM 10-Q.
(b) During the first quarter ended March 31, 2001, the Company filed the
following Current Reports on Form 8-K:
Current report on Form 8K, Item 5, filed with the Securities and
Exchange Commission on January 3, 2001
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on FORM 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized, this 15th day of May, 2001.
NBT BANCORP INC.
By: /s/ MICHAEL J. CHEWENS
------------------------------------------------
Michael J. Chewens, CPA
Executive Vice President
Chief Financial Officer and Corporate Secretary
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INDEX TO EXHIBITS
The following documents are attached as Exhibits to this FORM 10-Q or, if
annotated by the symbol *, are incorporated by reference as Exhibits as
indicated by the page number or exhibit cross-reference to the prior filings of
the Registrant with the Commission.
FORM 10-Q
Exhibit Exhibit
Number Cross-Reference
- ------ ---------------
3.1 Certificate of Amendment of Certificate of Incorporation of NBT Bancorp Inc., as of May 3, 2001. Herein
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EXHIBIT 3.1
Certificate of Amendment of Certificate of Incorporation of NBT Bancorp Inc.,
as of May 3, 2001.
Article FOURTH of the Certificate of Incorporation of the Corporation is hereby
amended to read in its entirety as follows:
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have the authority to issue is Fifty-Two Million
Five Hundred Thousand (52,500,000) shares consisting of Fifty Million
(50,000,000) shares of Common Stock, par value of $.01 per share and Two
Million Five Hundred Thousand (2,500,000) shares of Preferred Stock, par
value $.01 per share.