UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
52 SOUTH BROAD STREET 13815
NORWICH, NEW YORK (Zip Code)
(Address of principal executive office)
(607) 337-2265
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK ($0. 01 PAR VALUE PER SHARE)
STOCK PURCHASE RIGHTS PURSUANT TO STOCKHOLDERS RIGHTS PLAN
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K (Section 299.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K [X]
Based upon the closing price of the registrant's common stock as of
February 28, 2002, the aggregate market value of the voting stock, common stock,
par value, $0.01 per share, held by non-affiliates of the registrant is
$454,660,456. There were no shares of the registrant's preferred stock, par
value $0.01 per share, outstanding at that date. Rights to purchase shares of
the registrant's preferred stock Series R are attached to the shares of the
registrant's common stock.
The number of shares Common Stock outstanding as of February 28, 2002, was
33,198,072
Documents Incorporated by Reference
Portions of registrant's definitive Proxy Statement for the Registrant's Annual
Meeting of Stockholders to be held on May 2, 2002 are incorporated by reference
into Part III, Items 10, 11, 12 and 13 of this Form 10-K.
CROSS REFERENCE INDEX
Part I. Item 1 Business
Description of Business 4-9
Average Balance Sheets 19
Net Interest Income Analysis - Taxable Equivalent Basis 19
Net Interest Income and Volume/Rate Variance - Taxable Equivalent Basis 20
Securities Portfolio 24
Debt Securities - Maturity Schedule 68-69
Loans 21
Maturities and Sensitivities of Loans to Changes in Interest Rates 23
Nonperforming Assets 28
Allowance for Loan Losses 29-32
Maturity Distribution of Time Deposits 26
Return on Equity and Assets 11
Short-Term Borrowings 72-74
Item 2 Properties 9
Item 3 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. 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Part II. Item 5 Market for the Registrant's Common Stock and Related Shareholder Matters 10,77-78
Item 6 Selected Financial Data 11-12
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 13-43
Item 7A Quantitative and Qualitative Disclosure About Market Risk 43-44
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets at December 31, 2001 and 2000 47
Consolidated Statements of Income for each of the years in three-year period ended
December 31, 2001 48
Consolidated Statements of Changes in Stockholders' Equity for each of the years in the
three-year period ended December 31, 2001 49
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 2001 50
Consolidated Statements of Comprehensive Income for each of the years in the
three-year period ended December 31, 2001 51
Notes to Consolidated Financial Statements 52-92
Independent Auditors' Report 46
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in or disagreements with accountants on accounting
and financial disclosures.
2
CROSS REFERENCE INDEX
Part III. Item 10 Directors and Executive Officers of the Registrant *
Item 11 Executive Compensation *
Item 12 Security Ownership of Certain Beneficial Owners and Management *
Item 13 Certain Relationships and Related Transactions *
Part IV. Item 14 Exhibits, Financial Statement Schedules, and Reports on 8-K
(a)(1) Financial Statements (See Item 8 for Reference).
(2) Financial Statement Schedules normally required on Form 10-K are omitted since they
are not applicable.
(3) Exhibits have been filed separately with the Commission and are available upon
written request.
(b) Reports on Form 8-K. 93-94
(c) Refer to item 14(a)(3) above.
(d) Refer to item 14(a)(2) above.
* Information called for by Part III (Items 10 through 13) is incorporated by
reference to the Registrant's Proxy Statement for the 2002 Annual Meeting
of Stockholders filed with the Securities and Exchange Commission.
3
PART I
ITEM 1. BUSINESS
NBT Bancorp Inc. (the "Registrant" or the "Company") is a registered
financial holding company incorporated in the state of Delaware in 1986, with
its principal headquarters located in Norwich, New York. The Registrant is the
parent holding company of NBT Bank, N.A. ("the Bank"), NBT Financial Services,
Inc. ("NBT Financial"), and CNBF Capital Trust I (see Note 10 to the Notes to
Consolidated Financial Statements). Through these subsidiaries, the Company
operates as one segment focused on community banking operations. The
Registrant's primary business consists of providing commercial banking and
financial services to its customers in its market area. The principal assets of
the Registrant are all of the outstanding shares of common stock of its direct
subsidiaries, and its principal sources of revenue are the management fees and
dividends it receives from the Bank and NBT Financial.
The operating subsidiaries of the Company are the Bank and NBT Financial.
The Bank is a full service commercial bank formed in 1856, which provides a
broad range of financial products to individuals, corporations and
municipalities throughout its Central and Upstate New York and Northeastern
Pennsylvania market area. The Bank conducts business through three operating
divisions, NBT Bank, Pennstar Bank and Central National Bank.
The NBT Bank division has 42 divisional offices and 67 automated teller
machines (ATMs), located primarily in central and upstate New York. At December
31, 2001, NBT Bank had total loans of $1.2 billion and total deposits of $1.3
billion.
The Pennstar Bank division has 41 divisional offices and 51 ATMs, located
primarily in northeastern Pennsylvania. At December 31, 2001, Pennstar Bank had
total loans and leases of $616.6 million and total deposits of $773.0 million.
The Central National Bank division has 29 divisional offices and 24 ATMs
located primarily in upstate New York. At December 31, 2001, Central National
Bank had total loans and leases of $540.6 million and total deposits of $824.9
million.
The Bank has six operating subsidiaries, NBT Capital Corp., LA Lease, Inc.,
Pennstar Realty Trust, CNB Realty, Inc., Colonial Financial Services, Inc.
("CFS"), and Central Asset Management, Inc. ("CAM"). NBT Capital Corp., formed
in 1998, is a venture capital corporation formed to assist young businesses
develop and grow in the markets we serve. LA Lease, Inc., formed in 1987,
provides automobile and equipment leases to individuals and small business
entities. LA Lease, Inc. will be dissolved in the first half of 2002 and the
Bank will assume its operations. Pennstar Realty Trust, formed in 2000, is a
real estate investment trust. CNB Realty, Inc. formed in 1998, is a real estate
investment trust. CFS, formed in 2001, offers a variety of financial services
products. The Company intends to transfer ownership of CFS from the Bank to NBT
Financial in the first half of 2002. CAM, formed in 1996, offers investment
management services for a fee to a focused customer base of high net worth
individuals and businesses. CAM will be dissolved in the first half of 2002 and
the Bank will assume its operations.
NBT Financial, formed in 1999, is the parent company of two operating
subsidiaries, Pennstar Financial Services, Inc. and M. Griffith, Inc. Pennstar
Financial Services, Inc., formed in 1997, offers a variety of financial services
products. M. Griffith, Inc., formed in 1951, is a registered securities
broker-dealer which also offers financial and retirement planning as well as
life, accident and health insurance.
4
Acquisitions
To remain competitive in the rapidly changing financial services industry,
the Company has expanded the breadth of its market area by acquiring other
banking organizations and select niche financial services companies. In
addition, the Company has selectively opened key new businesses that expand our
product offerings. The following provides a chronological listing of mergers and
acquisitions that we have completed since January 1, 2000:
Date of transaction Entity/Branches Former bank holding company Transaction type
February 17, 2000 LA Bank, N.A. Lake Ariel Bancorp, Inc. (1)
May 5, 2000 M. Griffith, Inc. N/A (2)
June 2, 2000 2 branches from Mellon Bank N/A (2)
July 1, 2000 Pioneer American Bank, N.A Pioneer American Holding Co. Corp. (1)
November 10, 2000 6 branches from Sovereign Bank N/A (2)
June 1, 2001 The First National Bank of First National Bancorp, Inc. (2)
Northern New York
September 14, 2001 Deposits of 1 branch of N/A (2)
Mohawk Community Bank
November 8, 2001 Central National Bank CNB Financial Corp. (1)
(1) Transaction was accounted for as a pooling-of-interests and, accordingly,
all of our financial information for the periods prior to the acquisition
has been restated as if the acquisitions had occurred at the beginning of
the earliest reporting period presented.
(2) Transaction accounted for using the purchase accounting method.
Upon completion of their respective mergers, LA Bank, N.A. and Pioneer
American Bank, N.A. became wholly owned subsidiaries of the Registrant. LA Bank,
N.A. changed its name 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. On
March 16, 2001, Pennstar Bank, N.A. was merged into the Bank.
COMPETITION
The banking and financial services industry in New York and Pennsylvania
generally, and in the Company's market areas specifically, is highly
competitive. The increasingly competitive environment is a result primarily of
changes in regulation, changes in technology and product delivery systems,
additional financial service providers, and the accelerating pace of
consolidation among financial services providers. The Company competes for loans
and leases, deposits, and customers with other commercial banks, savings and
loan associations, securities and brokerage companies, mortgage companies,
insurance companies, finance companies, money market funds, credit unions, and
other nonbank financial service providers. Many of these competitors are much
larger in total assets and capitalization, have greater access to capital
markets and offer a broader range of financial services than the Company. In
order to compete with other financial services providers, the Company stresses
the community nature of its banking operations and principally relies upon local
promotional activities, personal relationships established by officers,
directors, and employees with their customers, and specialized services tailored
to meet the needs of the communities served.
SUPERVISION AND REGULATION
As a bank holding company, the Company is subject to extensive regulation,
supervision, and examination by the Federal Reserve System ("FRS") as its
primary federal regulator. The Company also has elected to be registered with
the FRS as a financial holding company. The Bank, as a nationally chartered
bank, is subject to extensive regulation, supervision, and examination by the
Office of the Comptroller of the Currency ("OCC") as its primary federal
regulator and, as to certain matters, by the FRS and the Federal Deposit
Insurance Corporation ("FDIC"). M. Griffith, Inc. ("MGI") is registered as a
broker-dealer and investment adviser and is subject to extensive regulation,
supervision, and examination by the Securities and Exchange Commission ("SEC").
5
MGI also is a member of the National Association of Securities Dealers, Inc. and
is subject to its regulation. MGI is authorized as well to engage as a broker,
dealer, and underwriter of municipal securities, and as such is subject to
regulation by the Municipal Securities Rulemaking Board. In addition, MGI and
Colonial Financial Services, Inc., are licensed insurance agencies with offices
in the state of New York and are subject to registration and supervision by the
New York State Insurance Department. Pennstar Financial Services, Inc. is a
licensed insurance agency with offices in the Commonwealth of Pennsylvania and
is subject to registration and supervision by the Pennsylvania Insurance
Department. CAM is a registered investment adviser and also is subject to
extensive regulation, examination, and supervision by the SEC.
The Company is subject to capital adequacy guidelines of the FRS. The
guidelines apply on a consolidated basis and require bank holding companies to
maintain a minimum ratio of Tier 1 capital to total average assets (or "leverage
ratio") of 4%. For the most highly rated bank holding companies, the minimum
ratio is 3%. The FRS capital adequacy guidelines also require bank holding
companies to maintain a minimum ratio of Tier 1 capital to risk-weighted assets
of 4% and a minimum ratio of qualifying total capital to risk-weighted assets of
8%. As of December 31, 2001, the Company's leverage ratio was 6.34%, its ratio
of Tier 1 capital to risk-weighted assets was 9.43%, and its ratio of qualifying
total capital to risk weighted assets was 10.69%. The FRS may set higher
minimum capital requirements for bank holding companies whose circumstances
warrant it, such as companies anticipating significant growth or facing unusual
risks. The FRS has not advised the Company of any specific capital requirement
applicable to it.
Any bank holding company whose capital does not meet the minimum capital
adequacy guidelines is considered to be undercapitalized and is required to
submit an acceptable plan to the FRS for achieving capital adequacy. Such a
company's ability to pay dividends to its shareholders and expand its lines of
business through the acquisition of new banking or nonbanking subsidiaries also
could be restricted.
The Bank is subject to leverage and risk-based capital requirements and
minimum capital guidelines of the OCC that are similar to those applicable to
the Company. As of December 31, 2001, the Bank was in compliance with all
minimum capital requirements. The Bank's leverage ratio was 6.24%, its ratio of
Tier 1 capital to risk-weighted assets was 9.28%, and its ratio of qualifying
total capital to risk-weighted assets was 10.54%.
Under FDIC regulations, no FDIC-insured bank can accept brokered deposits
unless it is well capitalized, or is adequately capitalized and receives a
waiver from the FDIC. In addition, these regulations prohibit any bank that is
not well capitalized from paying an interest rate on brokered deposits in excess
of three-quarters of one percentage point over certain prevailing market rates.
The Bank also is subject to substantial regulatory restrictions on its
ability to pay dividends to the Company. Under OCC regulations, the Bank may
not pay a dividend, without prior OCC approval, if the total amount of all
dividends declared during the calendar year, including the proposed dividend,
exceed the sum of its retained net income to date during the calendar year and
its retained net income over the preceding two years. The Bank's dividends to
the Company over years 2000 and 2001 exceeded net income during those years.
Therefore, the Bank's first quarter 2002 dividends exceeded the OCC dividend
limitations, and the Bank requested and received OCC approval to pay this
dividend to the Company. The Bank anticipates that it will require approval for
its second quarter 2002 dividend as well. The Bank's ability to pay dividends
also is subject to the Bank being in compliance with regulatory capital
requirements. The Bank is currently in compliance with these requirements.
Deposit Insurance Assessments. The deposits of the Bank are insured up to
regulatory limits by the FDIC and, accordingly, are subject to deposit insurance
assessments to maintain the insurance funds administered by the FDIC. The
deposits of the Bank have historically been subject to deposit insurance
assessments to maintain the Bank Insurance Fund (the "BIF"). Due to certain
branch deposit acquisitions by the Bank and its predecessors, some of the
deposits of the Bank are subject to deposit insurance assessments to maintain
the Savings Association Insurance Fund (the "SAIF").
6
The FDIC has adopted regulations establishing a permanent risk-related
deposit insurance assessment system. Under this system, the FDIC places each
insured bank in one of nine risk categories based on the bank's capitalization
and supervisory evaluations provided to the FDIC by the institution's primary
federal regulator. Each insured bank's insurance assessment rate is then
determined by the risk category in which it is classified by the FDIC.
In the light of the then-prevailing favorable financial situation of the
federal deposit insurance funds and the low number of depository institution
failures, since January 1, 1997 the annual insurance premiums on bank deposits
insured by the BIF or the SAIF have varied between $0.00 per $100 of deposits
for banks classified in the highest capital and supervisory evaluation
categories to $0.27 per $100 of deposits for banks classified in the lowest
capital and supervisory evaluation categories. Recent increases in the amount
of deposits subject to BIF FDIC insurance protection and in the number of bank
failures, and the effect of low interest rates on the FDIC's return on the
assets held in the BIF, have increased the likelihood that the annual insurance
premiums on bank deposits insured by the BIF will increase in the second half of
2002 or thereafter. BIF and SAIF assessment rates are subject to semi-annual
adjustment by the FDIC within a range of up to five basis points without public
comment. The FDIC also possesses authority to impose special assessments from
time to time.
The Deposit Insurance Funds Act provides for additional assessments to be
imposed on insured depository institutions with respect to deposits insured by
the BIF, as well as deposits insured by the SAIF, to pay for the cost of
Financing Corporation ("FICO") funding. The FICO assessments are adjusted
quarterly to reflect changes in the assessment bases of the FDIC insurance funds
and do not vary depending upon a depository institution's capitalization or
supervisory evaluations. During 2001, BIF-insured banks paid an average rate of
approximately $0.019 per $100 for purposes of funding FICO bond obligations.
The assessment rate for BIF member institutions has been set at approximately
$0.018 per $100 annually for the first and second quarters of 2002.
Transactions between the Bank and any of its affiliates, including the
Company, are governed by sections 23A and 23B of the Federal Reserve Act. An
"affiliate" of a bank is any company or entity that controls, is controlled by,
or is under common control with the bank. A subsidiary of a bank that is not
also a depository institution is not treated as an affiliate of the bank for
purposes of sections 23A and 23B, unless the subsidiary engages in activities
that are not permissible for a bank to engage in directly. Generally, sections
23A and 23B limit the extent to which a bank or its subsidiaries may engage in
covered transactions with any one affiliate and with all its affiliates in the
aggregate, and require that all such transactions be on terms that are
consistent with safe and sound banking practices.
The Gramm-Leach-Bliley Act amended the Bank Holding Company Act ("BHC Act")
and, effective March 11, 2000, expanded the permissible activities of certain
qualifying bank holding companies, known as financial holding companies. In
addition to engaging in banking and activities closely related to banking, as
determined by the FRS by regulation or order prior to November 11, 1999,
financial holding companies may engage in activities that are financial in
nature or incidental to financial activities, or activities that are
complementary to a financial activity and do not pose a substantial risk to the
safety and soundness of depository institutions or the financial system
generally.
Under the Gramm-Leach-Bliley Act, all financial institutions, including the
Company and the Bank, were required, effective July 1, 2001, to develop privacy
policies, restrict the sharing of nonpublic customer data with nonaffiliated
parties at the customer's request, and establish procedures and practices to
protect customer data from unauthorized access.
Under the International Money Laundering Abatement and Anti-Terrorism
Financing Act of 2001, adopted as Title III of the USA PATRIOT Act and signed
into law on October 26, 2001, all financial institutions, including the Company
and the Bank, are subject to additional requirements to collect customer
information, monitor customer transactions and report information to U.S. law
enforcement agencies concerning customers and their transactions. In many
cases, the specific requirements of the law will not be established until the
Secretary of the Treasury adopts implementing regulations as directed or
authorized by Congress. In general, accounts maintained by or on behalf of
"non-United States persons," broadly defined, are subject to particular
scrutiny. Correspondent accounts for or on behalf of foreign banks with
7
profiles that raise money laundering concerns are subject to even greater
scrutiny, and correspondent accounts for or on behalf of "shell banks," defined
as a foreign bank with no physical presence in any country, are barred
altogether. Financial institutions must take "reasonable steps," subject to
definition by the Secretary of the Treasury, to ensure that any correspondent
accounts with permissible foreign banks are not used for the benefit of shell
banks. The Secretary of the Treasury also is authorized to require financial
institutions to take "special measures," including new customer identification,
recordkeeping, and reporting requirements and transaction restrictions, if the
financial institutions are involved with jurisdictions, financial institutions,
or transactions of "primary money laundering concern" as determined by the
Secretary. Additional information-sharing among financial institutions,
regulators, and law enforcement authorities is encouraged by creating an
exemption from the privacy provisions of the Gramm-Leach-Bliley Act for
financial institutions that comply with this provision and authorizing the
Secretary of the Treasury to adopt rules to further encourage cooperation and
information-sharing. Upon request by an appropriate federal banking agency, a
financial institution must provide or make available information about an
account within 120 hours. All financial institutions also are required to
establish internal anti-money laundering programs. The effectiveness of a
financial institution in combating money laundering activities is a factor to be
considered in any application submitted by the financial institution after
December 31,2001, under the Federal Deposit Insurance Act, which applies to the
Bank, or the BHC Act, which applies to the Company.
8
EMPLOYEES
At December 31, 2001, the Company had 1,076 full-time employees and 190
part-time employees. The Company's employees are not presently represented by
any collective bargaining group. The Company considers its employee relations to
be good.
ITEM 2. PROPERTIES
The Company's headquarters are located at 52 South Broad Street, Norwich, New
York 13815. The Company operated the following number of community banking
branches and automated teller machines (ATMs) as of December 31, 2001:
New York State Branches ATMs
- ------------------------------ -------- ----
NBT BANK DIVISION
Albany County 1 -
Broome County 3 5
Chenango County 11 14
Clinton County 3 2
Delaware County 5 9
Essex County 3 6
Franklin County 1 1
Fulton County 3 3
Greene County - 2
Oneida County 5 8
Otsego County 2 9
St. Lawrence County 4 4
Sullivan County - 1
Tioga County 1 2
Ulster - 1
CENTRAL NATIONAL BANK DIVISION
Chenango County 1 1
Fulton County 2 3
Herkimer County 2 1
Montgomery County 6 4
Oneida County 1 1
Otsego County 9 7
Saratoga County 3 3
Schenectady County 2 2
Schoharie County 3 2
PENNSTAR BANK DIVISION
Orange County 1 1
Pennsylvania Branches ATMs
- ------------------------------ -------- ----
PENNSTAR BANK DIVISION
Lackawanna County 20 20
Luzerne County 4 10
Monroe County 4 5
Pike County 3 3
Susquehanna County 6 8
Wayne County 3 4
9
The Company leases thirty-eight of the above listed branches from third parties
under terms and conditions considered by management to be equitable to the
Company. The Company owns all other banking premises. All automated teller
machines are owned.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Company or any of its
subsidiaries is a party or of which their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of the Company's shareholders was held on October 16,
2001.
(b) Not applicable.
(c) At the special meeting held on October 16, 2001, the Company's shareholders
approved the issuance of the Company's common stock in connection with the
acquisition of CNB Financial Corp. There were 15,132,892 votes cast for,
644,950 votes cast against, 180,137 abstentions and 8,641,521 broker
non-votes.
(d) Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The common stock of NBT Bancorp Inc. ("Common Stock") is quoted on the Nasdaq
Stock Market National Market Tier under the symbol "NBTB". The following table
sets forth the market prices and dividends declared for the Common Stock for the
periods indicated.
--------------------------------------
HIGH LOW DIVIDEND
--------------------------------------
2000
1st quarter $ 16.50 $11.38 0.170
2nd quarter 14.50 9.38 0.170
3rd quarter 12.50 9.75 0.170
4th quarter 15.94 11.13 0.170
2001
1st quarter $ 17.50 $13.25 0.170
2nd quarter 25.42* 14.30 0.170
3rd quarter 17.30 13.50 0.170
4th quarter 15.99 12.55 0.170
======================================
* This price was reported on June 29, 2001, a day on which the Nasdaq Stock
Market experienced computerized trading disruptions which, among other things,
forced it to extend its regular trading session and cancel its late trading
session. Subsequently the Nasdaq Stock Market recalculated and republished
several closing stock prices (not including NBT Bancorp Inc., for which it had
reported a closing price of $19.30). Excluding trading on June 29, 2001, the
high sales price for the quarter ended June 30, 2001 was $16.75.
The closing price of the Common Stock on February 28, 2002 was $14.05. The
approximate number of holders of record of the Company's Common Stock on
February 28, 2002 was 9,082.
10
ITEM 6. SELECTED FINANCIAL DATA
The following summary financial and other information about the Company is
derived from the Company's audited consolidated financial statements for each of
the five fiscal years ended December 31, 2001, 2000, 1999, 1998 and 1997:
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
Interest, fee and dividend income $ 255,434 $ 260,381 $ 220,849 $ 210,970 $ 195,973
Interest expense 117,502 133,003 102,876 100,870 91,614
Net interest income 137,932 127,378 117,973 110,100 104,359
Provision for loan losses 31,929 10,143 6,896 6,922 5,095
Noninterest income excluding
securities gains 31,826 24,854 21,327 20,078 17,140
Securities gains (losses) (7,692) (2,273) 1,000 2,183 562
Merger, acquisition and reorganization
costs 15,322 23,625 835 - -
Other noninterest expense 110,536 95,509 83,944 81,108 72,971
Income before income taxes 4,279 20,682 48,625 44,331 43,995
Net income 3,737 14,154 32,592 34,576 29,854
========================================================================================================
PER COMMON SHARE*
Basic earnings $ 0.11 $ 0.44 $ 1.01 $ 1.07 $ 0.95
Diluted earnings 0.11 0.44 1.00 1.05 0.93
Cash dividends paid ** 0.68 0.68 0.66 0.59 0.42
Stock dividends distributed - - 5% 5% 5%
Book value at year-end 8.05 8.29 7.62 8.07 7.63
Tangible book value at year-end 6.51 6.88 6.74 7.75 7.33
Average diluted common
shares outstanding 33,085 32,405 32,541 32,899 32,005
========================================================================================================
AT DECEMBER 31,
Trading securities, at fair value $ 126 $ 20,540 $ - $ - $ 1,119
Securities available for sale,
at fair value 909,341 936,757 994,492 709,905 752,786
Securities held to maturity,
at amortized cost 101,604 110,415 113,318 294,119 231,158
Loans and leases 2,339,636 2,247,655 1,924,460 1,658,194 1,504,258
Allowance for loan losses 44,746 32,494 28,240 26,615 24,828
Assets 3,638,202 3,605,506 3,294,845 2,880,943 2,653,173
Deposits 2,915,612 2,843,868 2,573,335 2,292,449 2,126,748
Borrowings 394,344 425,233 429,924 303,021 257,153
Stockholders' equity 266,355 269,641 246,095 259,604 247,162
========================================================================================================
KEY RATIOS
Return on average assets 0.10% 0.41% 1.07% 1.23% 1.17%
Return on average equity 1.32 5.57 12.66 13.59 13.65
Average equity to average assets 7.82 7.35 8.42 9.07 8.59
Net interest margin 4.19 4.02 4.23 4.30 4.51
Efficiency *** 62.89 60.92 59.18 60.94 58.36
Cash dividend per share payout 618.18 154.55 66.00 56.19 45.16
Tier 1 leverage 6.34 6.88 8.07 8.68 8.92
Tier 1 risk-based capital 9.43 9.85 12.49 13.73 14.48
Total risk-based capital 10.69 11.08 13.68 14.93 15.70
========================================================================================================
11
*All share and per share data has been restated to give retroactive effect to stock dividends, splits
and poolings of interest.
**Cash dividends per share represent the historical cash dividends per share of NBT Bancorp Inc.,
adjusted to give retroactive effect to stock dividends.
***The efficiency ratio is computed as total non-interest expense (excluding merger, acquisition and
reorganization costs as well as gains and losses on the sale of other real estate owned) divided by
fully taxable equivalent net interest income plus non-interest income (excluding net security
transactions).
SELECTED QUARTERLY FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands, FIRST SECOND THIRD FOURTH First Second Third Fourth
except per share data)
Interest, fee and
dividend income $66,034 $64,067 $64,232 $ 61,101 $61,851 $64,402 $66,536 $67,592
Interest expense 33,655 30,562 28,923 24,362 30,054 32,233 34,377 36,339
Net interest income 32,379 33,505 35,309 36,739 31,797 32,169 32,159 31,253
Provision for loan losses 1,211 6,872 9,188 14,658 1,874 2,665 1,949 3,655
Noninterest income excluding
securities gains (losses) 8,654 7,476 8,078 7,618 5,302 6,094 6,506 6,952
Net securities gains (losses) 1,023 227 (2,327) (6,615) 313 (639) 226 (2,173)
Noninterest expense 26,650 25,154 29,342 44,712 24,199 25,917 26,282 42,736
Net income (loss) $ 9,654 $ 6,570 $ 1,469 $(13,956) $ 7,464 $ 5,981 $ 7,172 $(6,463)
Basic earnings (loss) per share $ 0.30 $ 0.20 $ 0.04 $ (0.42) $ 0.23 $ 0.19 $ 0.22 $ (0.20)
Diluted earnings (loss) per share $ 0.30 $ 0.20 $ 0.04 $ (0.42) $ 0.23 $ 0.18 $ 0.22 $ (0.20)
Net interest margin 4.06% 4.10% 4.19% 4.39% 4.19% 4.10% 3.98% 3.81%
Return (loss) on average assets 1.10% 0.73% 0.16% (1.51)% 0.90% 0.70% 0.82% (0.72)%
Return (loss) on average equity 14.42% 9.42% 2.02% (18.87)% 12.41% 9.69% 11.21% (9.72)%
Average diluted common
shares outstanding 32,702 33,112 33,500 32,999 32,256 32,433 32,532 32,396
====================================================================================================================
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The financial review which follows focuses on the factors affecting the
consolidated financial condition and results of operations of NBT Bancorp Inc.
(the "Registrant" or the "Company") and its wholly owned subsidiaries, NBT Bank,
N.A. ("the Bank"), NBT Financial Services, Inc. ("NBT Financial), and CNBF
Capital Trust I during 2001 and, in summary form, the preceding two years.
Collectively, the Registrant and its subsidiaries are referred to herein as "the
Company." Net interest margin is presented in this discussion on a fully
taxable equivalent (FTE) basis. Average balances discussed are daily averages
unless otherwise described. The audited consolidated financial statements and
related notes as of December 31, 2001 and 2000 and for each of the years in the
three year period ended December 31, 2001 should be read in conjunction with
this review. Amounts in prior period consolidated financial statements are
reclassified whenever necessary to conform to the 2001 presentation.
The preparation of the consolidated financial statements requires management to
make estimates and assumptions, in the application of certain accounting
policies, about the effect of matters that are inherently uncertain. Those
estimates and assumptions affect the reported amounts of certain assets,
liabilities, revenues and expenses. Different amounts could be reported under
different conditions, or if different assumptions were used in the application
of these accounting policies.
The business of the Company is providing commercial banking and financial
services through its subsidiaries. The Company's primary market area is central
and upstate New York and northeast Pennsylvania. The Company has been, and
intends to continue to be, a community-oriented financial institution offering a
variety of financial services. The Company's principle business is attracting
deposits from customers within its market area and investing those funds
primarily in loans and leases, and, to a lesser extent, in marketable
securities. The financial condition and operating results of the Company are
dependent on its net interest income which is the difference between the
interest and dividend income earned on its earning assets and the interest
expense paid on its interest bearing liabilities, primarily consisting of
deposits and borrowings. Net income is also affected by provisions for loan and
lease losses and noninterest income, such as service charges on deposit
accounts, broker/dealer fees, trust fees, and gains/losses on securities sales;
it is also impacted by noninterest expense, such as salaries and employee
benefits, as well as merger, acquisition and reorganization costs.
The Company's results of operations are significantly affected by general
economic and competitive conditions (particularly changes in market interest
rates), government policies, changes in accounting standards, and actions of
regulatory agencies. Future changes in applicable laws, regulations, or
government policies may have a material impact on the Company. Lending
activities are substantially influenced by the demand for and supply of housing,
competition among lenders, the level of interest rates, the state of the local
and regional economy, and the availability of funds. The ability to gather
deposits and the cost of funds are influenced by prevailing market interest
rates, fees and terms on deposit products, as well as the availability of
alternative investments including mutual funds and stocks.
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," "will", "can", "would", "should", "could", "may", 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
13
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 cautions 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.
Except as required by law, the Company does not undertake, and specifically
disclaims any obligations to, publicly release 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.
MERGER AND ACQUISITION ACTIVITY
On June 1, 2001, the Company completed the acquisition of First National
Bancorp, Inc. (FNB) whereby FNB was merged with and into NBT Bancorp Inc. At
the same time FNB's subsidiary, First National Bank of Northern New York (FNB
Bank) was merged into the Bank. The acquisition was accounted for using the
purchase method. As such, both the assets and liabilities assumed have been
recorded on the consolidated balance sheet of the Company at estimated fair
value as of the date of acquisition and the results of operations are included
in the Company's consolidated statement of income from the acquisition date
forward. To complete the transaction, the Company issued approximately
1,075,000 shares of its common stock valued at $16.0 million. Goodwill,
representing the cost over net assets acquired, was approximately $7.0 million
and was being amortized prior to the adoption of SFAS No. 142 on January 1, 2002
on a straight-line basis based on a 20 year amortization period.
On September 14, 2001, the Company acquired $14.4 million in deposits from
Mohawk Community Bank. Unidentified intangible assets, accounted for in
accordance with SFAS No. 72 and representing the excess of cost over net assets
acquired, was $665,000 and is being amortized over 15 years on a straight-line
basis. Additionally, the Company identified $119,000 of core deposit intangible
assets.
On November 8, 2001, the Company, pursuant to a merger agreement dated June 18,
2001, completed its merger with CNB Financial Corp. (CNB) and its wholly owned
subsidiary, Central National Bank (CNB Bank), whereby CNB was merged with and
into the Company, and CNB Bank was merged with and into the Bank. CNB Bank then
became a division of the Bank. In connection with the merger, CNB stockholders
received 1.2 shares of the Company's common stock for each share of CNB stock
and the Company issued approximately 8.9 million shares of common stock. The
transaction is structured to be tax-free to shareholders of CNB and has been
accounted for as a pooling-of-interests. Accordingly, these consolidated
financial statements have been restated to present combined consolidated
financial condition and results of operations of the Bank and CNB as if the
merger had been in effect for all years presented. At September 30, 2001, CNB
had consolidated assets of $983.1 million, deposits of $853.7 million and equity
of $62.8 million. CNB Bank operated 29 full service banking offices in nine
upstate New York counties.
On February 17, 2000, the Company completed its merger with Lake Ariel Bancorp,
Inc. (Lake Ariel) and its subsidiaries. In connection with the merger each
issued and outstanding share of Lake Ariel exchanged for 0.9961 shares of the
Company's common stock. The transaction resulted in the issuance of
approximately 5.0 million shares of Company's common stock. Lake Ariel's
commercial banking subsidiary was LA Bank, N.A.
14
On July 1, 2000, the Company completed its merger with Pioneer American Holding
Company Corp. (Pioneer Holding Company) and its subsidiary. In connection with
the merger, each issued and outstanding share of Pioneer Holding Company
exchanged for 1.805 shares of the Company's common stock. The transaction
resulted in the issuance of approximately 5.2 million shares of the Company's
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 years presented.
LA Bank, N.A. and Pioneer 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 Lake Ariel
and Pioneer Holding Company mergers described above, the Company was the
surviving holding company for NBT Bank, LA Bank, N.A., Pioneer American Bank,
N.A. and NBT Financial Services, Inc. On November 10, 2000, LA Bank, N.A.
changed its name to Pennstar. On December 9, 2000, Pioneer American Bank, N.A.
was merged into Pennstar. On March 16, 2001, Pennstar was merged with and into
the Bank and became a division of the Bank.
On May 5, 2000, the Company consummated the acquisition 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. At that
time, M. Griffith, Inc., a full-service broker/dealer and a Registered
Investment Advisor, became a wholly-owned subsidiary of NBT Financial. 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 was being amortized prior to the
adoption of SFAS No. 142 on January 1, 2002 over fifteen years on a
straight-line basis.
On June 2, 2000, Pennstar, 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.
Unidentified intangible assets, accounted for in accordance with SFAS No. 72,
and 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 purchased six branches from Soverign Bank.
Deposits from the Soverign Bank branches were approximately $96.8 million,
including accrued interest payable. Pennstar also purchased commercial loans
associated with the branches with a net book balance of $42.4 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. Unidentified intangible assets,
accounted for in accordance with SFAS No. 72, and 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.
In August 1999, CNB purchased five branches from Astoria Federal Savings and
Loan Association (Astoria). Deposits from the Astoria branches were
approximately $156.5 million, including accrued interest payable. CNB also
purchased approximately $3.7 million in branch related assets, primarily the
15
real and personal property associated with the branches, cash at the branches,
as well as a limited amount of deposit related loans. In addition, CNB received
$133.9 million in cash in 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. Unidentified intangible assets, accounted for in accordance with
SFAS No. 72, and representing the excess of cost over net assets acquired, was
$19.9 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.
During 2001, the following merger, acquisition and reorganization costs were
recognized:
Professional fees $ 5,956
Data processing 2,092
Severance 3,270
Branch closings 2,412
Advertising and supplies 313
Hardware and software writeoffs 402
Miscellaneous 877
-------
$15,322
=======
With the exception of hardware and software writeoffs and certain branch closing
costs, all of the above costs have been or will be paid through normal cash flow
from operations. At December 31, 2001, after payments of certain merger,
acquisition and reorganization costs, the Company had a remaining accrued
liability for merger, acquisition and reorganization costs incurred during 2001
as follows:
Professional fees $2,009
Data processing 241
Severance 3,074
Branch closings 1,601
Advertising and supplies 199
Miscellaneous 455
------
$7,579
======
With the exception of certain severance costs which will be paid out over a
period of time consistent with the respective service agreements, all of the
above liabilities are expected to be paid during 2002.
During 2000, the following merger, acquisition and reorganization costs were
recognized:
Professional fees $ 8,525
Data processing 2,378
Severance 7,278
Branch closing 1,736
Advertising and supplies 1,337
Hardware and software write-off 1,428
Miscellaneous 943
----------------------------------------
Total $23,625
----------------------------------------
16
OVERVIEW
The following table summarizes income, income per share and key financial ratios
for the periods indicated in accordance with generally accepted accounting
principles (GAAP) as well as on a recurring basis. Non-recurring items are those
that the Company considers nonoperating in nature and include merger,
acquisition, and reorganization costs, net securities losses and gains, gain on
branch sales, deposit overdraft write-offs, and mark-to-market adjustments on
loans held for sale:
YEAR ENDED DECEMBER 31, 2001 (IN 000'S, EXCEPT PER SHARE AMOUNTS)
ESTIMATED DILUTED
PRE-TAX TAX EFFECT AFTER TAX EPS
GAAP Net Income $ 4,279 542 3,737 0.11
------------ ----------- ---------- -----------
Merger, Acquisition, &
Reorganization Costs 15,322 4,102 11,220 0.34
Net Securities Losses 7,692 2,795 4,897 0.15
Gain on Branch Sale (1,367) (487) (880) (0.03)
Certain Deposit Overdraft Write-offs 2,125 757 1,368 0.04
Certain mark-to-market adjustment on
loans held for sale 50 18 32 -
------------ ----------- ---------- -----------
23,822 7,185 16,637 0.50
------------ ----------- ---------- -----------
Recurring Net Income $ 28,101 7,727 20,374 0.61
============ =========== ========== ===========
YEAR ENDED DECEMBER 31, 2000 (IN 000'S, EXCEPT PER SHARE AMOUNTS)
ESTIMATED DILUTED
PRE-TAX TAX EFFECT AFTER TAX EPS
GAAP Net Income $ 20,682 6,528 14,154 0.44
------------ ----------- ---------- -----------
Merger, Acquisition, &
Reorganization Costs 23,625 5,828 17,797 0.55
Net Securities Losses 2,273 837 1,436 0.04
Certain mark-to-market adjustment on
loans held for sale 117 48 69 -
------------ ----------- ---------- -----------
26,015 6,713 19,302 0.59
------------ ----------- ---------- -----------
Recurring Net Income $ 46,697 13,241 33,456 1.03
============ =========== ========== ===========
YEAR ENDED DECEMBER 31, 1999 (IN 000'S, EXCEPT PER SHARE AMOUNTS)
ESTIMATED DILUTED
PRE-TAX TAX EFFECT AFTER TAX EPS
GAAP Net Income $ 48,625 16,033 32,592 1.00
------------ ----------- ---------- -----------
Merger, Acquisition, &
Reorganization Costs 835 276 559 0.02
Net Securities Gains (1,000) (330) (670) (0.02)
Certain mark-to-market adjustment on
Loans held for sale (341) (113) (228) (0.01)
------------ ----------- ---------- -----------
(506) (167) (339) (0.01)
------------ ----------- ---------- -----------
Recurring Net Income $ 48,119 15,866 32,253 0.99
============ =========== ========== ===========
17
The Company had net income of $3.7 million or $0.11 per diluted share for 2001,
compared to net income of $14.2 million or $0.44 per diluted share for 2000.
Included in 2001 net income were merger, acquisition and reorganization costs,
net securities losses, gain on a branch sale, certain deposit overdraft
write-offs, and other non-operating transactions. These items totaled $23.8
million ($16.6 million after-tax, or $0.50 per diluted share) compared to $26.0
million ($19.3 million after-tax, or $0.59 per diluted share) of similar items
in 2000. During 2001, costs related to merger, acquisition and reorganization
activities totaled $15.3 million ($11.2 million after-tax, or $0.34 per diluted
share) and net securities losses totaled $7.7 million ($4.9 million after-tax,
or $0.15 per diluted share) compared to $23.6 million ($17.8 million after-tax,
or $0.55 per diluted share) related to merger, acquisition and reorganization
activities and $2.3 million ($1.4 million after tax, or $0.04 per diluted share)
in net securities loss in 2000 (see "Securities and Corresponding Interest and
Dividend Income" for further discussion related to net securities losses).
Recurring net income, which excludes the after tax effect of costs related to
merger, acquisition and reorganization activities, net securities transactions,
as well as other non-operating transactions, was $20.4 million, or $0.61 per
diluted share, for 2001 compared to $33.5 million, or $1.03 per diluted share,
for 2000. The decrease in recurring net income resulted primarily from a $31.9
million ($19.9 million after tax, or $0.60 per diluted share) provision for loan
and lease losses in 2001 compared to a provision of $10.1 million ($6.4 million
after-tax, or $0.20 per diluted share) for 2000 (see "Credit Risk" for further
discussion related to the provision for loan and lease losses). Additionally,
recurring net income for 2001 was negatively affected by a $3.5 million charge
($2.3 million after tax, or $0.07 per diluted share) for the
other-than-temporary impairment of the residual value of leased automobiles
compared to a charge of $.6 million ($.4 million after tax, or $0.01 per diluted
share) in the prior year (see "Loans and Leases and Corresponding Interest and
Fees on Loans and Leases" for further discussion related to the
other-than-temporary impairment of the residual value of leased automobiles).
Net interest income for 2001 increased 8.3% to $137.9 million compared to $127.4
million in 2000. The net interest margin for 2001 and 2000 was 4.19% and 4.02%,
respectively. The increase in net interest income and net interest margin
continues to be attributable primarily to the decline in the Company's cost of
funds period-over-period, combined with growth in the average loan portfolio.
For 2001, noninterest income, excluding net securities losses and gain on the
sale of a branch building, totaled $30.5 million compared to $24.9 million for
2000, an increase of 22.5%. Service charges on deposit accounts, ATM fees,
banking fees, broker/dealer fees and insurance commissions primarily contributed
to the increase in noninterest income. For 2001, noninterest expense, excluding
nonrecurring items such as merger, acquisition and reorganization costs and
certain deposit overdraft charge-offs, increased $12.9 million, or 13.5%, to
$108.4 million from $95.5 million in 2000. Included in the increase in
noninterest expense for 2001 was a $3.5 million charge for the
other-than-temporary impairment of the residual value of leased automobiles
compared to a charge of $.6 million in 2000. The remaining increase in
noninterest expense of $10.0 million was primarily related to the required
service and support of our growth.
Net income for 2000 decreased to $14.2 million, or $0.44 per diluted share,
compared to net income of $32.6 million, or $1.00 per diluted share for 1999.
Included in 2000 net income were merger, acquisition and reorganization costs,
net securities losses, and other nonoperating transactions. These items totaled
$26.0 million ($19.3 million after-tax, or $0.59 per diluted share) compared to
$0.5 million ($0.3 million after-tax, or $0.01 per diluted share) of similar
items in 1999. Recurring net income for 2000 was $33.5 million, up $1.2 million
compared to recurring net income of $32.3 million in 1999.
18
ASSET/LIABILITY MANAGEMENT
The Company attempts to maximize net interest income, and net income, while
actively managing its liquidity and interest rate sensitivity through the mix of
various core deposit products and other sources of funds, which in turn fund an
appropriate mix of earning assets. The changes in the Company's asset mix and
sources of funds, and the resultant impact on net interest income, on a fully
tax equivalent basis, are discussed below.
TABLE 1
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 and leases
has been adjusted to a taxable-equivalent basis using the statutory Federal
income tax rate of 35%.
2001 2000 1999
AVERAGE YIELD/ Average YielD/ Average Yield/
(dollars in thousands) BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Short-term interest bearing
accounts $ 11,324 $ 569 5.02% $ 15,031 $ 937 6.23% $ 30,846 $ 1,514 4.91%
Securities available for sale (2) 933,122 61,857 6.63 1,017,617 70,918 6.97 899,211 60,907 6.77
Securities held to maturity (2) 99,835 6,644 6.65 117,513 8,086 6.88 154,093 10,109 6.56
Securities trading 5,253 649 12.35 216 8 3.70 - - -
Investment in FRB and
FHLB Banks 23,926 1,555 6.50 31,274 2,254 7.21 29,209 1,944 6.66
Loans and leases(1) 2,312,740 188,053 8.13 2,092,191 182,254 8.71 1,773,159 150,524 8.49
---------- --------- ---------- --------- ---------- ---------
Total earning assets 3,386,200 259,327 7.66 3,273,842 264,457 8.08 2,886,518 224,998 7.79
--------- --------- ---------
Other non-interest-earning assets 240,725 182,749 170,859
---------- ---------- ----------
TOTAL ASSETS $3,626,925 $3,456,591 $3,057,377
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Money market deposit accounts $ 254,735 7,052 2.77 $ 209,562 8,460 4.04 $ 192,955 6,231 3.23
NOW deposit accounts 348,964 5,032 1.44 307,969 5,951 1.93 280,438 4,902 1.75
Savings deposits 427,102 9,385 2.20 403,106 10,511 2.61 383,617 9,682 2.52
Time deposits 1,476,473 77,053 5.22 1,440,173 82,371 5.72 1,206,470 61,661 5.11
---------- --------- ---------- --------- ---------- ---------
Total interest-bearing deposits 2,507,274 98,522 3.93 2,360,810 107,293 4.54 2,063,480 82,476 4.00
Short-term borrowings 123,162 5,365 4.36 194,888 11,940 6.13 145,364 7,268 5.00
Long-term debt 259,583 13,615 5.24 245,383 13,770 5.61 238,612 13,132 5.50
---------- --------- ---------- --------- ---------- ---------
Total interest-bearing liabilities 2,890,019 117,502 4.07% 2,801,081 133,003 4.75% 2,447,456 102,876 4.20%
--------- --------- ---------
Demand deposits 382,489 348,443 314,632
Other non-interest-bearing
liabilities 70,666 53,018 37,749
Stockholders' equity 283,751 254,049 257,540
---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,626,925 $3,456,591 $3,057,377
---------- ---------- ----------
NET INTEREST INCOME $ 141,825 $ 131,454 $ 122,122
--------- --------- ---------
NET INTEREST MARGIN 4.19% 4.02% 4.23%
------ ----- -------
Interest Rate Spread 3.59% 3.33% 3.59%
Taxable equivalent
adjustment $ 3,893 $ 4,076 $ 4,149
--------- --------- ---------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan balances outstanding. The interest collected thereon is
included in interest income based upon the characteristics of the related
loans.
(2) Securities are shown at average amortized cost. For purposes of these
computations, nonaccrual securities are included in the average securities
balances, but the interest collected thereon is is not included in interest
income.
19
NET INTEREST INCOME
On a tax equivalent basis, the Company's net interest income for 2001 was $141.8
million, up from $131.5 million for 2000. The Company's net interest margin
improved to 4.19% for 2001 from 4.02% for 2000. The improvement in net interest
income and net interest margin in 2001 were due primarily to two factors. First,
average earning assets increased from $3.3 billion in 2000 to $3.4 billion in
2001. The increase in average earning assets was due primarily to an increase in
average loans and leases, which increased $221.5 million from $2.1 billion in
2000 to $2.3 billion in 2001. Secondly, due to the falling interest rate
environment in 2001 and the Company's interest bearing liability sensitive
position, rates paid on interest bearing liabilities declined more rapidly than
the yield on earning assets. Rates paid on interest bearing liabilities
decreased 68 basis points ("bp") to 4.07% in 2001 from 4.75% in 2000 compared to
a 42 bp decrease in yield on earnings assets to 7.66% in 2001 from 8.08% in
2000.
The following table presents changes in interest income, on a FTE basis, 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.
TABLE 2
ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) Increase (Decrease)
2001 OVER 2000 2000 over 1999
- ---------------------------------------------------------------------------------------------------
(in thousands) VOLUME RATE TOTAL Volume Rate Total
- ---------------------------------------------------------------------------------------------------
Short-term interest-bearing accounts $ (206) $ (162) $ (368) $ (914) $ 337 $ (577)
Securities available for sale (5,708) (3,353) (9,061) 8,210 1,801 10,011
Securities held to maturity (1,184) (258) (1,442) (2,497) 474 (2,023)
Securities trading 583 58 641 - - -
Investment in FRB and FHLB Banks (493) (206) (699) 143 167 310
Loans and leases 18,428 (12,629) 5,799 27,701 4,029 31,730
- ---------------------------------------------------------------------------------------------------
Total interest income 8,889 (14,019) (5,130) 31,054 8,405 39,459
- ---------------------------------------------------------------------------------------------------
Money market deposit accounts 1,590 (2,998) (1,408) 571 1,658 2,229
NOW deposit accounts 723 (1,642) (919) 506 543 1,049
Savings deposits 599 (1,725) (1,126) 502 327 829
Time deposits 2,036 (7,354) (5,318) 12,825 7,885 20,710
Short-term borrowings (3,683) (2,892) (6,575) 2,812 1,860 4,672
Long-term debt 772 (927) (155) 377 261 638
- ---------------------------------------------------------------------------------------------------
Total interest expense 4,113 (19,614) (15,501) 15,880 14,247 30,127
- ---------------------------------------------------------------------------------------------------
CHANGE IN FTE NET INTEREST INCOME $ 4,776 $ 5,595 $ 10,371 $15,174 $(5,842) $ 9,332
===================================================================================================
Loans and leases and corresponding interest and fees on loans
The average balance of loans and leases increased 9.5%, from $2.1 billion in
2000 to $2.3 billion in 2001. The yield on average loans and leases decreased
from 8.71% in 2000 to 8.13% in 2001, as a falling interest rate environment
prevailed for much of 2001. Interest income from loans and leases increased
3.2%, from $182.3 million in 2000 to $188.1 million in 2001. The increase in
interest income from loans and leases was due to the increase in the average
balance of loans and leases of 9.5%, offset by a decrease in yield on loans and
leases in 2001 of 58 bp when compared to 2000.
Total loans and leases were $2.3 billion at December 31, 2001, up from $2.2
billion at December 31, 2000. The increase in loans and leases was primarily in
the commercial and consumer loan types, as management continued to focus on
growth in these areas. Commercial and agricultural loans were $584.9 million at
December 31, 2001, up $41.8 million or 7.7% from December 31, 2000. Consumer
20
loans also increased in 2001, from $357.8 million at December 31, 2000 to $387.1
million at December 31, 2001, an increase of $29.3 million or 8.2%. Residential
real estate mortgages increased $20.8 million or 4.1% to $525.4 million at
December 31, 2001. The increases in commercial, consumer and real estate
mortgage loans were offset by a $20.9 million or 4.2% decrease in commercial
real estate mortgages, from $498.0 million at December 31, 2000 to $477.1
million at December 31, 2001.
The following table reflects the loan and lease portfolio by major categories as
of December 31 for the years indicated:
TABLE 3
COMPOSITION OF LOAN AND LEASE PORTFOLIO
- -----------------------------------------------------------------------------------------------
December 31, 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------
(in thousands)
Residential real estate mortgages $ 525,411 $ 504,590 $ 521,684 $ 494,783 $ 456,310
Commercial real estate mortgages 477,102 498,040 469,283 395,268 347,443
Real estate construction and
Development 60,513 44,829 25,474 18,626 12,289
Commercial and agricultural 584,857 543,145 371,863 291,089 248,454
Consumer 387,081 357,822 320,682 294,230 310,115
Home equity 232,624 219,355 139,472 120,712 106,123
Lease financing 72,048 79,874 76,002 43,486 23,524
- -----------------------------------------------------------------------------------------------
Total loans and leases $2,339,636 $2,247,655 $1,924,460 $1,658,194 $1,504,258
- -----------------------------------------------------------------------------------------------
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. Consumer loans consist primarily of installment credit to individuals
secured by automobiles and other personal property including manufactured
housing. Manufactured housing loans totaled $41.4 million and $48.1 million at
December 31, 2001 and 2000, respectively, and were 10.7% and 13.4% of total
consumer loans at December 31, 2001 and 2000, respectively. These decreases from
2000 to 2001 are consistent with the Company's plan to de-emphasize loans
secured by manufactured housing.
Lease Financing
The Company maintained an automobile lease financing portfolio totaling $72.0
million at December 31, 2001 and $79.9 million at December 31, 2000. Lease
receivables primarily represent automobile financing to customers through direct
financing leases and are carried at the aggregate of the lease payments
receivable and the estimated residual values, net of unearned income and net
deferred lease origination fees and costs. Net deferred lease origination fees
and costs are amortized under the effective interest method over the estimated
lives of the leases. The estimated residual value related to the total lease
portfolio is reviewed quarterly, and if there has been a decline in the
estimated fair value of the residual that is judged by management to be
other-than-temporary, a loss is recognized. Adjustments related to such
other-than-temporary declines in estimated fair value are recorded with other
noninterest expenses in the consolidated statements of income. One of the most
significant risks associated with leasing operations is the recovery of the
residual value of the leased vehicles at the termination of the lease. When a
lease receivable asset is recorded, included in this amount is the estimated
residual value of the leased vehicle at the termination of the lease. At
termination, the lessor has the option to purchase the vehicle or may turn the
vehicle over to the Company.
The estimation of residual value is critical to the determination of the leasing
terms. The Company currently utilizes published valuations for specific vehicle
types in order to determine estimated residual values. However, from the date
of origination of the lease to the date of the termination of the lease,
valuations for used vehicles change. The residual values included in lease
financing receivables totaled $52.4 million and $56.9 million at December 31,
2001 and 2000, respectively.
21
The Company has acquired residual value insurance protection in order to reduce
the risk related to a decline in the published values of used vehicles between
the date of origination and the date of the lease termination. Residual value
insurance is designed to cover the difference between the industry-published
valuation for used vehicles at the termination of the lease, as compared to the
industry published valuation at the origination of the lease.
In 2001, the Company's then provider of this residual value insurance indicated
that they intended to change the source of the industry valuation for used
vehicles, which, in essence, reduced the insurance coverage and increased losses
the Company would realize upon disposition of the leased vehicles. In January
2000, the Company changed its residual value insurance provider to a new
carrier. However, residual value insurance coverage related to approximately
$25.0 million of the lease financing portfolio at December 31, 2001 is insured
by the former insurance carrier. While the Company believes that the change in
the source of the industry-published valuation was not allowed under the terms
of the insurance policy, the insurance carrier's position has decreased the
amount of insurance coverage that would be available to the Company with respect
to this portfolio.
Notwithstanding the issue associated with the former insurance carrier, there is
an additional risk in the leasing business with respect to recovery of residual
values of leased vehicles. While residual value insurance is designed to
protect against a drop in industry published values, and only to the extent of
any such decline, there remains a risk that the actual sales price for the
turned-in leased vehicles is less than the industry-published value. The
Company experienced significant losses in 2001 because the amounts that
turned-in leased vehicles actually sold for was less than the published industry
values.
Throughout 2001, there has been significant weakness in the market for used
vehicles. This general weakness was significantly exacerbated by the events of
September 11th as well as the extremely favorable financing opportunities
provided by large automakers for new vehicles. This situation not only softened
the demand for used vehicles, but increased the supply.
This situation, coupled with the issue associated with the former insurance
carrier discussed above, resulted in an impairment of residual values, which is
other-than-temporary at December 31, 2001 and 2000. Accordingly, the Company
recorded an other-than-temporary-impairment charge of $3.5 million in 2001 and
$664,000 in 2000. These charges were included in other noninterest expenses on
the consolidated statements of income. At December 31, 2001, the reserve related
to the other-than-temporary impairment of residual values totaled $3.7 million.
The estimation of the other-than-temporary-impairment charge was based upon the
current level of leased vehicles turned in as well as the mix of the leasing
portfolio between types of vehicles. Currently, the Company has projected that
71% of its leased vehicles will be turned in. At December 31, 2001,
approximately 37% of the Company's leasing portfolio is made up of sport utility
vehicles, or SUVs, which have experienced the greatest amount of declines in
values in the used market, as well as the highest turn-in rate. Should the
amount of vehicle turn-ins increase or values for such used vehicles continue to
decline, the level of other-than-temporary impairment might be increased.
The following table, Maturities and Sensitivities of Certain Loans to Changes in
Interest Rates, are the maturities of the commercial and agricultural and real
estate and construction development loan portfolios and the sensitivity of loans
to interest rate fluctuations at December 31, 2001. Scheduled repayments are
reported in the maturity category in which the contractual payment is due.
22
TABLE 4
MATURITIES AND SENSITIVITIES OF CERTAIN LOANS TO CHANGES IN INTEREST RATES
- --------------------------------------------------------------------------
AFTER ONE
YEAR BUT AFTER
REMAINING MATURITY AT WITHIN WITHIN FIVE FIVE
DECEMBER 31, 2001 ONE YEAR YEARS YEARS TOTAL
- --------------------------------------------------------------------------
(in thousands)
Floating/adjustable rate:
Commercial and agricultural $ 138,744 $ 20,132 $ 35,567 $194,443
Real estate construction
and development 18,522 5,675 477 24,674
- --------------------------------------------------------------------------
Total floating rate loans 157,266 25,807 36,044 219,117
- --------------------------------------------------------------------------
Fixed Rate:
Commercial and agricultural 234,546 104,443 51,425 390,414
Real estate construction
and development 7,235 10,228 18,376 35,839
- --------------------------------------------------------------------------
Total fixed rate loans 241,781 114,671 69,801 426,253
- --------------------------------------------------------------------------
Total $ 399,047 $ 140,478 $105,845 $645,370
==========================================================================
Securities and corresponding interest and dividend income
The average balance of securities available for sale was $933.1 million, which
is a decrease of $84.6 million, or 8.3%, from $1.0 billion in 2000. The decrease
is primarily a result of proceeds from sales, maturities and pay-downs of
securities available for sale used to fund loan growth. The yield on average
securities available for sale was 6.63% in 2001 compared to 6.97% in 2000. The
decrease in the average balance of securities available for sale, coupled with
the decrease in yield, resulted in a decrease in interest income on securities
available for sale of $9.0 million, from $70.9 million in 2000 to $61.9 million
in 2001. The average balance of securities held to maturity was $99.8 million
during 2001, which is a decrease of $17.7 million, from $117.5 million in 2000.
As noted above, the decrease is primarily a result of proceeds from maturities
and pay-downs of securities held to maturity used to fund loan growth. The yield
on securities held to maturity was 6.65% in 2001 compared to 6.88% in 2000.
Interest income on securities held to maturity decreased $1.5 million, from $8.1
million in 2000 to $6.6 million during 2001.
The Company classifies its securities at date of purchase as either available
for sale, held to maturity or trading. Held to maturity debt securities are
those that the Company has the ability and intent to hold until maturity.
Available for sale securities are recorded at fair value. 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 a component of accumulated other comprehensive income or loss. Held to
maturity securities are recorded at amortized cost. Trading securities are
recorded at fair value, with net unrealized gains and losses recognized
currently in income. 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. Securities with an other-than-temporary
impairment are generally placed on nonaccrual status.
Non-marketable equity securities are carried at cost, with the exception of
small business investment company (SBIC) investments, which are carried at fair
value in accordance with SBIC rules.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the interest method. Dividend 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.
23
The Company recorded a $8.3 million, $3.5 million and $1.4 million pre-tax
charge during 2001, 2000 and 1999, respectively, related to estimated
other-than-temporary impairment of certain securities classified as available
for sale. The charges were recorded in net security (losses) gains on the
consolidated statements of income. The securities with other-than-temporary
impairment charges at December 31, 2001 had remaining carrying values totaling
$4.5 million, are classified as securities available for sale and are on the
non-accrual status.
Approximately, $1.4 million of the $3.5 million other-than-temporary impairment
charge in 2000 related to the Company's decision in late 2000 to sell certain
debt securities with an amortized cost of $21.7 million. As a result of the
decision to immediately sell these securities, they were considered to be
other-than-temporarily impaired. These securities were sold in early January
2001 at a loss approximating the other-than-temporary impairment charge recorded
in 2000. These securities were presented on the Company's December 31, 2000
consolidated balance sheet as trading securities. The remaining securities with
other-than-temporary impairment charges at December 31, 2000 had carrying values
totaling $1.4 million, and at December 31, 2000, were classified as securities
available for sale and were on non-accrual status.
The following table presents the amortized cost and fair market value of the
securities portfolio as of December 31 for the years indicated.
TABLE 5
SECURITIES PORTFOLIO
As of December 31, 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
(in thousands) COST VALUE Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------
Securities Available for Sale:
U.S. Treasury $ 12,392 $ 11,757 $ 16,392 $ 15,924 $ 16,369 $ 14,473
Federal Agency and mortgage-backed 524,101 530,613 580,934 578,625 632,360 602,684
State & Municipal, collateralized
mortgage obligations and other securities 366,325 366,971 342,811 342,208 387,848 377,335
- -------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 902,818 $909,341 $ 940,137 $936,757 $1,036,577 $994,492
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Trading Securities $ 126 $ 126 $ 20,540 $ 20,540 $ - $ -
- -------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
Federal Agency and mortgage-backed 36,733 36,623 46,376 45,528 51,578 48,568
State & Municipal 64,715 64,715 63,992 64,260 61,730 60,569
Other securities 156 157 47 47 10 10
- -------------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 101,604 $101,495 $ 110,415 $109,835 $ 113,318 $109,147
=============================================================================================================
Included in collateralized mortgage obligations and other securities in the
securities available for sale portfolio at December 31, 2001, are three
securities that management believes are other-than-temporarily impaired. For the
year ended December 31, 2001, the Company wrote-down these securities a total of
$6.0 million. The remaining carrying value and the estimated fair value of these
three securities is $4.5 million at December 31, 2001, which management will
continue to monitor for additional other-than-temporary impairment. These
securities are not accruing interest at December 31, 2001. Also during 2001, the
Company recorded $2.3 million of other-than-temporary impairment charges related
to securities which were sold prior to year end 2001.
24
The following tables summarize the securities considered to be
other-than-temporarily impaired (OTTI) at December 31, 2001:
(in thousands) AMORTIZED
SECURITY TYPE: COST AND OTTI
FAIR VALUE CHARGE
----------- -------
Asset backed securities $ 1,820 $ 1,680
Private issue collateralized
mortgage obligation 2,680 4,021
Corporate debt security - 300
----------- -------
Total $ 4,500 $ 6,001
=========== =======
Also included in collateralized mortgage obligations and other securities in the
securities available for sale portfolio at December 31, 2001, are certain
securities previously held by the recently acquired CNB. These securities
contain a higher level of credit risk when compared to securities held in the
Company's investment portfolio because they are not guaranteed by a governmental
agency. The Company's general practice is to purchases collateralized mortgage
obligations and mortgaged-backed securities that are guaranteed by a
governmental agency coupled with a strong credit rating, typically AAA, issued
by Moody's or Standard and Poors. At December 31, 2001, these securities fair
value were not significantly below amortized cost and did not demonstrate other
characteristics that would result in a other-than-temporary impairment
classification. Management cannot, however, predict the extent to which economic
conditions may worsen or other factors may impact these securities. Accordingly,
there can be no assurance that these securities will not become
other-than-temporarily impaired in the future.
The following tables summarize the securities containing a higher level of
credit risk at December 31, 2001:
(in thousands) AMORTIZED FAIR
SECURITY TYPE: COST VALUE
---------- -------
Asset backed securities $ 30,571 $30,375
Private issue collaterallized
mortgage obligation 6,488 6,462
Private issue mortgage-backed
securities 1,642 1,668
---------- -------
Total $ 38,701 $38,505
========== =======
The Company has certain embedded derivative instruments related to two debt
securities that have returns linked to the performance of the NASDAQ 100 index.
Management determined that these debt securities do not qualify for hedge
accounting under SFAS No. 133 (see Impact of New Accounting Standards). The
embedded derivatives have been separated from the underlying host instruments
for financial reporting purposes and accounted for at fair value. During the
year ended December 31, 2001, the Company recorded $640,000 of net losses
related to the adjustment of the embedded derivatives to estimated fair value
($159,000 of which was recorded on January 1, 2001 upon the adoption of SFAS No.
133), which was recorded in net gain (loss) on securities transactions on the
consolidated statement of income. As of December 31, 2001, the embedded
derivatives related to the debt securities linked to the NASDAQ 100 index had no
fair value. The two debt securities are available for sale and classified as
other securities. At December 31, 2001, the total amortized cost and estimated
fair value of these two debt securities was $6.2 million. The two debt
securities were sold in 2002 at amounts approximating their carrying values at
December 31, 2001.
25
FUNDING SOURCES AND CORRESPONDING INTEREST EXPENSE
The Company utilizes traditional deposit products such as time, savings, NOW,
money market, and demand deposits as its primary source for funding. Other
sources, such as short-term FHLB advances, federal funds purchased, securities
sold under agreements to repurchase, brokered time deposits, and long-term FHLB
borrowings are utilized as necessary to support the Company's growth in assets
and to achieve interest rate sensitivity objectives. The average balance of
interest-bearing liabilities increased $88.9 million, or 3.2 %, from $2.8
billion in 2000 to $2.9 billion in 2001. The rate paid on interest-bearing
liabilities decreased from 4.75% in 2000 to 4.07% in 2001. The decrease in the
rate paid on interest bearing liabilities, offset by the increase in the average
balance, caused a decrease in interest expense of $15.5 million, or 11.7%, from
$133.0 million in 2000 to $117.5 million in 2001.
Deposits
Average interest bearing deposits increased $146.5 million, or 6.2%, during
2001, to $2.5 billion. The increase is due primarily to the full year effect in
2001 on average interest bearing deposits related to branch acquisitions in June
and November of 2000 as well as the FNB acquisition in June 2001. The Company
assumed $133.7 million in deposit liabilities in conjunction with those branch
acquisitions. Additionally, the Company completed the acquisition of First
National Bancorp, Inc. in June of 2001 and assumed approximately $94 million in
interest bearing liabilities. The Company's core deposit mix improved in 2001.
The average balance of NOW, Money Market Deposit Accounts ("MMDA"), and savings
comprised 41.1% of average interest bearing deposits in 2001 compared to 39.9%
in 2000. The average balance of demand deposits increased $34.1 million, or
9.8%, from $348.4 million in 2000 to $382.5 million in 2001. The ratio of
average demand deposits to total average deposits increased from 10.6% in 2000
to 11.3% in 2001.
The improvement in the Company's deposit mix noted above, combined with the
falling interest rate environment prevalent in 2001, resulted in a decrease in
the rate paid on interest bearing liabilities of 61 bp, from 4.54% in 2000 to
3.93% in 2001. The average rate paid on MMDAs, which are very sensitive to
changes in interest rates, declined 127 bp from 4.04% in 2000 to 2.77% in 2001.
The rate paid on average time deposits decreased 50 bp, from 5.72% in 2000 to
5.22% in 2001. The decrease in the rate paid on average time deposits, combined
with a change in the ratio of average time deposits to total average interest
bearing deposits from 61.0% in 2000 to 58.9% in 2001, resulted in a $5.3 million
decrease in interest expense paid on time deposits, from $82.4 million in 2000
to $77.1 million in 2001.
The Company will continue to emphasize developing strong customer relationships
to strengthen our core deposit base in 2002. The Company does not anticipate
deposit growth in 2002, due mainly to planned branch divestitures. To counter
the anticipated decrease in deposits, the Company will utilize alternative
sources of funding, such as brokered deposits and wholesale funding.
The following table presents the maturity distribution of time deposits of
$100,000 or more at December 31, 2001:
TABLE 6
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
---------------------------------------------------------------------
December 31, 2001
---------------------------------------------------------------------
(in thousands)
Within three months $288,913
After three but within six months 81,999
After six but within twelve months 76,458
After twelve months 111,252
---------------------------------------------------------------------
Total $558,622
=====================================================================
26
Borrowings
Average short-term borrowings decreased from $194.9 million in 2000 to $123.2
million in 2001. Consistent with the decreasing interest rate environment
during 2001, the average rate paid also decreased from 6.13% in 2000 to 4.36% in
2001. The decrease in the average balance combined with the decrease in the
average rate paid caused interest expense on short-term borrowings to decrease
$6.5 million from $11.9 million in 2000 to $5.4 million in 2001. Average
long-term debt increased $14.2 million, from $245.4 million in 2000 to $259.6
million in 2001. The increase in long-term debt combined with a decrease in
short-term borrowings was a result of limiting the Company's liability sensitive
position to rising interest rates.
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 and access to brokered deposits available for short-term
financing of approximately $767 million and $555 million at December 31, 2001
and 2000, respectively. Securities collateralizing repurchase agreements are
held in safekeeping by non-affiliated financial institutions and are under the
Company's control. Long-term debt, which is comprised primarily of 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.
RISK MANAGEMENT
CREDIT RISK
Credit risk is managed through a network of loan officers, credit committees,
loan policies, and oversight from the senior credit officers and Board of
Directors. Management follows a policy of continually identifying, analyzing,
and grading credit risk inherent in each loan portfolio. An ongoing independent
review, subsequent to management's review, of individual credits in the
commercial loan portfolio is performed by the independent loan review function.
These components of the Company's underwriting and monitoring functions are
critical to the timely identification, classification, and resolution of problem
credits.
27
Nonperforming Assets
TABLE 7
NONPERFORMING ASSETS
- -----------------------------------------------------------------------------------------------------
December 31, 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
(dollars in thousands)
Nonaccrual loans:
Commercial and agricultural and
commercial real estate $31,372 $14,054 $ 9,519 $ 7,819 $ 8,395
Real estate mortgages 5,119 647 618 744 692
Consumer 3,719 2,402 2,671 3,106 1,406
- -----------------------------------------------------------------------------------------------------
Total nonaccrual loans 40,210 17,103 12,808 11,669 10,493
- -----------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural
and commercial real estate 198 4,523 1,201 1,365 2,202
Real estate mortgages 1,844 3,042 641 761 244
Consumer 933 865 906 1,908 4,164
- -----------------------------------------------------------------------------------------------------
Total loans 90 days or more past due
and still accruing 2,975 8,430 2,748 4,034 6,610
- -----------------------------------------------------------------------------------------------------
Restructured loans 603 656 1,014 1,247 2,877
- -----------------------------------------------------------------------------------------------------
Total nonperforming loans 43,788 26,189 16,570 16,950 19,980
- -----------------------------------------------------------------------------------------------------
Other real estate owned 1,577 1,856 2,696 4,070 3,470
- -----------------------------------------------------------------------------------------------------
Total nonperforming loans and
other real estate owned 45,365 28,045 19,266 21,020 23,450
- -----------------------------------------------------------------------------------------------------
Nonperforming securities 4,500 1,354 1,535 - -
- -----------------------------------------------------------------------------------------------------
Total nonperforming loans, securities,
and other real estate owned $49,865 29,399 20,801 21,020 23,450
=====================================================================================================
Total nonperforming loans to loans and leases 1.87% 1.17% 0.86% 1.02% 1.33%
Total nonperforming loans and
other real estate owned to total assets 1.25% 0.78% 0.58% 0.73% 0.88%
Total nonperforming loans, securities, and other
real estate owned to total assets 1.37% 0.82% 0.63% 0.73% 0.88%
Total allowance for loan and lease losses
to nonperforming loans 102.19% 124.07% 170.43% 157.02% 124.26%
=====================================================================================================
The allowance for loan and lease losses is maintained at a level estimated by
management to provide adequately for risk of probable losses inherent in the
current loan and lease 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 and
lease 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
and lease portfolio.
Management considers the accounting policy relating to the allowance for loan
and lease losses to be a critical accounting policy given the inherent
uncertainty in evaluating the levels of the allowance required to cover credit
losses in the portfolio and the material effect that such judgements can have on
the consolidated results of operations.
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 and
leases, 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; size, trend, composition, and
nature; changes in lending policies and procedures, including underwriting
28
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 and lease losses. Such
agencies may require the Company to recognize additions to the allowance based
on their examination.
After a thorough consideration of the factors discussed above, any required
additions to the allowance for loan and lease losses are made periodically by
charges to the provision for loan and lease 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 and leases,
additions to the allowance may fluctuate from one reporting period to another.
These fluctuations are reflective of changes in risk associated with portfolio
content and/or changes in management's assessment of any or all of the
determining factors discussed above.
TABLE 8
ALLOWANCE FOR LOAN AND LEASE LOSSES
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------
Balance at January 1 $32,494 $28,240 $26,615 $24,828 $23,420
Loans charged-off:
Commercial and agricultural 17,097 3,949 2,737 2,794 1,924
Real estate mortgages 783 1,007 1,165 1,139 914
Consumer 4,491 2,841 2,808 2,796 3,163
- -----------------------------------------------------------------------------------------------
Total loans and leases charged-off 22,371 7,797 6,710 6,729 6,001
- -----------------------------------------------------------------------------------------------
Recoveries:
Commercial and agricultural 1,063 503 367 529 1,197
Real estate mortgages 122 141 198 152 109
Consumer 1,004 739 874 913 1,008
- -----------------------------------------------------------------------------------------------
Total recoveries 2,189 1,383 1,439 1,594 2,314
- -----------------------------------------------------------------------------------------------
Net loans and leases charged-off 20,182 6,414 5,271 5,135 3,687
Allowance related to purchase
acquisitions 505 525 - - -
Provision for loan and lease losses 31,929 10,143 6,896 6,922 5,095
- -----------------------------------------------------------------------------------------------
Balance at December 31 $44,746 $32,494 $28,240 $26,615 $24,828
===============================================================================================
Allowance for loan and lease losses to loans
and leases outstanding at end of year 1.91% 1.45% 1.47% 1.61% 1.65%
Net charge-offs to average loans and leases
outstanding 0.87% 0.31% 0.30% 0.33% 0.26%
===============================================================================================
Several significant risk factors impacted the allowance for loan and lease
losses, the provision for loan and lease losses, net loan and lease charge-offs
(net charge offs) and non-performing loans and leases in 2001. During 2001 the
Company continued to increase its loan and lease portfolio with particular
emphasis in commercial and consumer lending. Commercial and consumer lending
inherently possess higher credit risk as compared to many other loan types such
as residential real estate lending. As discussed above, the commercial and
agricultural loan portfolio increased $41.7 million or 7.7% from December 31,
2000 to December 31, 2001, and makes up 25.0% of the total loan and lease
portfolio at December 31, 2001 as compared to 24.1% at December 31, 2000 and
19.3% at December 31, 1999. The consumer loan portfolio grew $29.3 million or
29
8.2% from December 31, 2000 to December 31, 2001 and now makes up 16.6% of the
total loan portfolio at December 31, 2001 as compared to 15.9% at December 31,
2000 and 16.6% at December 31, 1999. See Table 3 for the Composition of the
Loan Portfolio.
The Company's strategic focus on loan growth, particularly in commercial
lending, was also a focus of the banks acquired by the Company in 2001 and 2000;
CNB Bank, LA Bank, NA and Pioneer American Bank, NA (see also Mergers and
Acquisition). These acquired banks underwrote numerous commercial related loans
prior to merging with the Company, based upon their respective underwriting
processes and analysis, including several larger credits which have become
non-performing in 2001. Additionally, CNB Financial significantly increased its
consumer loan portfolio in recent years. Accordingly, the Company's loan growth
in general, in particular the growth in higher credit risk loan types, combined
with the fact that the recently acquired banks appeared to have used generally
less conservative underwriting and monitoring standards increased the inherent
risk of loss in the loan and lease portfolio.
As the Company's loan and lease portfolio has continued to grow and the loan mix
has continued to move in the direction of higher credit risk, the economy in the
Company's market areas took a dramatic turn for the worse in 2001, especially in
the second half of 2001. This sudden economic down turn came at a particularly
bad time for the Company given the recent growth in the Company's higher credit
risk loan types. The recession experienced in the Company's market areas is
consistent with what has been experienced by the national economy throughout
2001 and has resulted in, among other things, significant reductions in many
borrowers' revenues and cash flows as well as reduced valuations for certain
real estate and other collateral. In fact, certain large commercial
relationships in the Company's portfolio reported significant deterioration in
the later part of 2001, primarily due to the economic recession.
Additionally, as noted above, the recently acquired banks appeared to have
generally less conservative underwriting and monitoring standards that made
certain of the relationships originated by these acquired banks more susceptible
to being negatively impacted by the 2001 economic downturn.
During 2001, the Company completed the integration process with respect to the
Pennstar banking division (formerly LA Bank, N.A. and Pioneer American Bank
N.A.) and has made significant progress in its integration efforts with the
recently merged CNB banking division. The integration process included bringing
these banking divisions' credit administration practices in line with the Bank's
policies, adopting the Bank's credit risk grading system, and upgrading numerous
commercial real estate and other collateral appraisals. At December 31, 2001,
the credit administration function of the Pennstar and CNB banking divisions,
including workout and collections, has been consolidated and standardized using
the Bank model, and key personnel from the Bank's commercial lending area have
been installed at Pennstar and CNB to oversee the lending operations of the
respective divisions.
As a result of the economic downturn, and the integration processes with respect
to recently merged banks discussed above, the Company performed an extensive
review of its loan portfolio during 2001. This review focused on consistency in
the identification and classification of problematic loans and the measurement
of loss exposure on individual loans, especially in light of the generally
weakened financial performance of borrowers caused by the economic downturn and
reduced collateral values.
Non-performing loans increased from $26.2 million at December 31, 2000 to $43.8
million at December 31, 2001. The vast majority, approximately 92%, of
non-performing loans are in the non-accrual category. Within non-accrual loans,
all loan types experienced significant increases, however, the largest increase
was in the commercial and agricultural loans. Commercial and agricultural
non-accrual loans, increased $17.3 million from $14.1 million at December 31,
2000 to $31.4 million at December 31, 2001. Consumer non-accrual loans also
significantly increased from $2.4 million at December 31, 2000 to $3.7 million
at December 31, 2001. While there have been numerous loans added to the
non-accruing loan category, approximately $12.9 million of the total
non-accruing loans is made up of 6 loan relationships. Management believes that
the allowance for loan losses related to these relationships as well as
nonperforming loans is adequate at December 31, 2001.
30
The total allowance for loan and lease losses is 102.2% of non-performing loans
at December 31, 2001 as compared to 124.1% at December 31, 2000. While loans
and leases classified as non-performing have a strong likelihood of experiencing
a loss, substantially all non-performing loans are collateralized, many to a
reasonably high percentage of the outstanding loan balance. As such, it is
unlikely that 100% of the balance of non-performing loans will result in a loss
to the Company. However, if the current economic recession results in further
deterioration of collateral values, loss exposure on all loans and leases could
increase.
Impaired loans, which primarily consist of non-accruing commercial type loans
and all loans restructured in a troubled debt restructuring, also increased
significantly, totaling $32.0 million at December 31, 2001 as compared to $14.7
million at December 31, 2000. The related allowance for these impaired loans is
$1.4 million or 4.4% of the impaired loans at December 31, 2001 as compared to
$1.5 million and 10.2%, respectively, at December 31, 2000. At December 31,
2001 and 2000 there were $29.8 million and $10.8 million, respectively, of
impaired loans which did not have an allowance for loan losses due to the
adequacy of their collateral or previous charge offs.
Non-performing loans are expected to remain at levels higher than historically
experienced. Non-accrual loans will negatively impact interest income in 2002.
Management intends to work closely with borrowers to monitor and improve credit
classifications. The Company does anticipate some migration of non-performing
loans from the non-accrual category to the troubled debt restructuring category,
as the Company works to resolve troubled loans. Furthermore, management expects
that the level of loan growth recently experienced will slow down in 2002 due to
the economic downturn in the Company's market areas and management's focus on
positively resolving current problematic loans.
For the same reasons that non-performing loans increased in 2001, the Company
also experienced a significant increase in net charge-offs in 2001 as compared
to 2000. Net charge-offs in 2001 increased $13.8 million to $20.2 million from
$6.4 in 2000. Consistent with the above, the increased net charge-offs was
primarily in the commercial and agricultural portfolio, where net charge-offs
were $16.0 million in 2001 as compared to $3.4 million in 2000. Net charge offs
of consumer loans and leases also experienced a significant increase in 2001 as
compared to 2000. Net charge-offs as a percentage of average loans and leases
and leases was .87% in 2001 as compared to .31% in 2000. While management does
not anticipate any significant increase in net charge-offs in 2002, future net
charge-offs are expected to be greater than historical charge-offs levels prior
to 2001.
As a result of the growth in the loan and lease portfolio, particularly the
growth in higher credit risk loan types, combined with the fact that recently
acquired banks appeared to have used generally less conservative underwriting
and monitoring standards, the significant downturn in economic conditions in the
Company's market areas as well as the significant increases in non-performing
loans and net charge offs, the Company increased its provision for loan and
lease losses to $31.9 million for 2001 from $10.1 million in 2000.
The allowance for loan and lease losses increased from $32.5 million at December
31, 2000, or 1.45% of total loans and leases, to $44.7 million at December 31,
2001, or 1.91%. Management believes that the level of non-performing loans, the
allowance for loan and lease losses and net charge offs experienced in 2001 are
reflective of the credit risk inherent in the current loan portfolio. Based
upon a thorough analysis of the inherent risk of loss in the Company's current
loan portfolio, management believes that the allowance for loan and lease losses
at December 31, 2001 is adequate. However, should the current economic recession
be prolonged or worsen, non-performing loans, net charge offs and provisions for
loan and lease losses may increase.
The following table sets forth the allocation of the allowance for loan losses
by category, as well as the percentage of loans and leases in each category to
total loans and leases, as prepared by the Company. This allocation is based on
management's assessment of the risk characteristics of each of the component
parts of the total loan portfolio as of a given point in time and is subject to
changes as and when the risk factors of each such component part change. The
allocation is not indicative of either the specific amounts of the loan
categories in which future charge-offs may be taken, nor should it be taken as
an indicator of future loss trends. The allocation of the allowance to each
category does not restrict the use of the allowance to absorb losses in any
category. The following table sets forth the allocation of the allowance for
loan losses by loan category.
31
TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
CATEGORY Category Category Category Category
PERCENT Percent Percent Percent Percent
OF of of of of
(dollars in thousands) ALLOWANCE LOANS Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- ---------------------------------------------------------------------------------------------------------------------------
Commercial
and agricultural $ 34,682 85% $ 20,510 72% $ 14,115 62% $ 12,728 62% $ 9,961 62%
Real estate
mortgages 1,611 4% 1,669 6% 2,506 11% 1,621 8% 1,548 10%
Consumer 4,626 11% 6,379 22% 6,270 27% 6,304 30% 4,583 28%
Unallocated 3,827 - 3,936 - 5,349 - 5,962 - 8,736 -
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 44,746 100% $ 32,494 100% $ 28,240 100% $ 26,615 100% $ 24,828 100%
===========================================================================================================================
In addition to the nonperforming loans discussed above, the Company has also
identified approximately $48.6 million in potential problem loans at December
31, 2001 as compared to $26.1 million at December 31, 2000. Potential problem
loans are loans that are currently performing, but where known information about
possible credit problems of the related borrowers causes management to have
serious doubts as to the ability of such borrowers to comply with the present
loan repayment terms and which may result in disclosure of such loans as
non-performing at some time in the future. At the Company, potential problem
loans are typically loans that are performing but are classified by the
Company's loan rating system as "substandard." At December 31, 2001, potential
problem loans primarily consisted of commercial real estate and commercial and
agricultural loans. Management cannot predict the extent to which economic
conditions may worsen or other factors which may impact borrowers and the
potential problem loans. Accordingly, there can be no assurance that other
loans will not become 90 days or more past due, be placed on non-accrual, become
restructured, or require increased allowance coverage and provision for loan
losses.
At December 31, 2001, approximately 52.8% 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.
LIQUIDITY RISK
Liquidity 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 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 and leases 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. At December 31, 2001,
the Company's Basic Surplus measurement was 9.4% of total assets, which was
above the Company's minimum of 5% set forth in its liquidity policies.
Accordingly, the Company has purchased brokered time deposits, established
borrowing facilities with other banks (Federal funds), including the Federal
Home Loan Bank of New York (short and long-term borrowings which are denoted as
advances), and has entered into repurchase agreements with investment companies.
32
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 December 31, 2001, the
Company considered its Basic Surplus adequate to meet liquidity needs.
At December 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.
OFF-BALANCE SHEET RISK
Commitments to Extend Credit
The Company makes contractual commitments to extend credit and unused lines of
credit which are subject to the Company's credit approval and monitoring
procedures. At December 31, 2001 and 2000, commitments to extend credit in the
form of loans, including unused lines of credit, amounted to $704.7 million and
$394.7 million, respectively. In the opinion of management, there are no
material commitments to extend credit, including unused lines of credit, that
represent unusual risks. All commitments to extend credit in the form of loans,
including unused lines of credit expire within one year.
Stand-By Letters of Credit
The Company guarantees the obligations or performance of customers by issuing
stand-by letters of credit to third parties. These stand-by letters of credit
are frequently issued in support of third party debt, such as corporate debt
issuances, industrial revenue bonds, and municipal securities. The risk
involved in issuing stand-by letters of credit is essentially the same as the
credit risk involved in extending loan facilities to customers, and they are
subject to the same credit origination, portfolio maintenance and management
procedures in effect to monitor other credit and off-balance sheet products. At
December 31, 2001 and 2000, outstanding stand-by letters of credit were
approximately $21.1 million and $6.2 million, respectively. The following table
sets forth the commitment expiration period for stand-by-letters of credit at
December 31, 2001:
Within one year $ 3,628
After one but within three years 3,238
After three but within five years 14,206
-------
Total $21,072
=======
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, do not present more than the normal risk of
collectibility or incorporate other unfavorable features. The aggregate amount
of loans outstanding to qualifying related parties at December 31, 2001 and 2000
were $6.3 million and $6.8 million, respectively.
The Company has entered into repurchase agreements with entities which have
certain executive officers who are directors and significant stockholders of the
Company. These repurchase agreements are entered into in the ordinary course of
business at market terms. These repurchase agreements resulted in approximately
$25.4 million and $18.1 million being owed to these entities at December 31,
2001 and 2000, respectively.
33
The law firm of Kowalczyk, Tolles, Deery and Johnston, of which Director Andrew
S. Kowalczyk, Jr., is a partner, provides legal services to us and NBT Bank from
time to time as does the law firm of Harris Beach LLP, of which Director William
L. Owens is a partner. The law firm of Needle, Goldenziel and Pascale, of which
Director Gene Goldenziel is a partner, provides legal services to us from time
to time as does the law firm of Oliver, Price & Rhodes of which Director Paul
Horger is a partner.
CAPITAL RESOURCES
Consistent with its goal to operate a sound and profitable financial
institution, the Company actively seeks to maintain a "well-capitalized"
institution in accordance with regulatory standards. The principal source of
capital to the Company is earnings retention. The Company's capital measurements
are in excess of both regulatory minimum guidelines and meet the requirements to
be considered well capitalized.
The Company's principal source of funds to pay interest on its capital
securities and pay cash dividends to its shareholders is dividends from its
subsidiaries. Various laws and regulations restrict the ability of banks to pay
dividends to their shareholders. The payment of dividends by the Company in the
future as well as the payment of interest on the capital securities will require
the generation of sufficient future earnings by its subsidiaries.
The Bank also is subject to substantial regulatory restrictions on its ability
to pay dividends to the Company. Under OCC regulations, the Bank may not pay a
dividend, without prior OCC approval, if the total amount of all dividends
declared during the calendar year, including the proposed dividend, exceed the
sum of its retained net income to date during the calendar year and its retained
net income over the preceding two years. The Bank's dividends to the Company
over years 2000 and 2001 exceeded net income during those years. Therefore, the
Bank's first quarter 2002 dividends exceeded the OCC dividend limitations, and
the Bank requested and received OCC approval to pay this dividend to the
Company. The Bank anticipates that it will require approval for its second
quarter 2002 dividend as well. The Bank's ability to pay dividends also is
subject to the Bank being in compliance with regulatory capital requirements.
The Bank is currently in compliance with these requirements.
NONINTEREST INCOME AND EXPENSES
NONINTEREST INCOME
Noninterest income is a significant source of revenue for the Company and an
important factor in the Company's results of operations. The following table
sets forth information by category of noninterest income for the years
indicated:
YEARS ENDED DECEMBER 31,
2001 2000 1999
-------- -------- -------
(in thousands)
Service charges on deposit accounts $12,756 $10,193 $ 9,278
Broker/dealer and insurance revenue 4,500 2,723 46
Trust 3,958 4,047 3,959
Other 9,245 7,891 8,044
-------- -------- -------
Total recurring 30,459 24,854 21,327
Net securities (losses) gains (7,692) (2,273) 1,000
Gain on sale of branch building 1,367 - -
-------- -------- -------
Total $24,134 $22,581 $22,327
======== ======== =======
34
Total recurring noninterest income increased to $30.5 million in 2001, compared
to $24.9 million in 2000 and $21.3 million in 1999. The increase in recurring
noninterest income resulted primarily from a $2.6 million increase in service
charges on deposit accounts, $1.8 million increase in broker/dealer fees and a
$1.3 million increase in other income. The increase in service charges on
deposit accounts resulted primarily from the Company's branch network growth
combined with an increase in fees.
The increase in broker/dealer fees and insurance revenue reflects twelve full
months of revenue from the Company's broker/dealer, M. Griffith, Inc., which was
acquired in May 2000. Revenues from M. Griffith, Inc. totaled $3.8 million in
2001, compared to $2.7 million in 2000. Additionally, the Company's insurance
agency and financial services provider, Colonial Financial Services, Inc., which
started operating in June 2001, contributed to the increase in revenue as well.
Revenues for Colonial Financial Services, Inc. for 2001 totaled $621,000.
Income from trust services decreased slightly in 2001 when compared to 2000. The
decrease is primarily attributable to a decrease in the market value of the
assets held by the Company in a fiduciary capacity. The decrease in the market
value of assets held by the Company in a fiduciary capacity resulted from the
decline in all the major stock indexes during 2001. Trust income is primarily
derived from contractual rates applied to the balances of trust accounts, and as
market values declined, trust income did not experience growth despite an
increase in the number of accounts managed. The number of accounts managed by
the Company's Trust Department increased from 1,577 at December 31, 2000 to
1,629 at December 31, 2001.
The increase in other income resulted primarily from increases in ATM fees and
other banking fees. Total ATM fees and other banking fees amounted to $4.4
million and $1.6 million, respectively, for 2001 compared to $3.8 million and
$639,000, respectively, for 2000. The increase in ATM fees resulted from the
combination of an increase in ATMs deployed and increases in ATM convenience
fees. The increase in banking fees resulted primarily from the continued focus
in business banking activities.
Transactions excluded from recurring noninterest income were net securities
losses of $7.7 million in 2001 compared to $2.3 million in 2000 and a gain on
sale of a branch building totaling $1.4 million in 2001. The increase in net
securities losses in 2001 resulted primarily from charges totaling $8.3 million
taken for the other-than-temporary impairment of certain securities compared to
$3.5 million in 2000, as discussed above.
35
NONINTEREST EXPENSE
Noninterest expenses are also an important factor in the Company's results of
operations. The following table sets forth the major components of noninterest
expense for the years indicated:
YEARS ENDED DECEMBER 31,
2001 2000 1999
-------- -------- -------
(in thousands)
Salaries and employee benefits $ 48,419 $ 44,802 $40,527
Occupancy 8,704 7,761 6,804
Equipment 7,228 7,271 7,046
Data processing and communications 10,690 8,206 7,544
Professional fees and outside services 6,338 5,082 4,252
Office supplies and postage 4,639 3,976 4,106
Amortization of intangible assets 4,248 3,049 1,764
Capital securities 1,278 1,633 582
Residual value lease losses 3,529 664 27
Other 13,338 13,065 11,292
-------- -------- -------
Total recurring noninterest expense 108,411 95,509 83,944
Merger, acquisition and reorganization costs 15,322 23,625 835
Certain deposit overdraft write-offs 2,125 - -
-------- -------- -------
Total noninterest expense $125,858 $119,134 $84,779
======== ======== =======
For 2001, recurring noninterest expense increased $12.9 million, or 13.5%, to
$108.4 million compared to $95.5 million in 2000. This increase was due to
several factors. Expenses for data processing and communications and
professional fees and outside services increased period-over-period by $3.7
million or 28.1%, principally due to the Company's expanded branch network,
costs associated with enhanced technologies and expanded data processing volume
capacities resulting from recent data processing conversions. It is anticipated
that the expanded data processing capacity will allow the Company to reduce data
processing costs in 2002.
Salaries and employee benefits expense increased $3.6 million, or 8.1%, to $48.4
million compared to $44.8 million in 2000. Occupancy expense increased $943,000,
or 12.2%, to $8.7 million compared to $7.8 million in 2000. The increases in
salaries and employee benefits expense and occupancy expense resulted primarily
from twelve full months of expenses in 2001 from the eight branches and the
Company's broker/dealer, M. Griffith, Inc., all of which were acquired during
2000, and an increase in expense resulting from the acquisition of FNB Bancorp,
Inc. on June 1, 2001.
Office supplies and postage increased from $4.0 million in 2000 to $4.6 million
in 2001. The increase resulted primarily from the growth of the Company's branch
network during 2000 and 2001. Capitals securities expense decreased from $1.6
million in 2000 to $1.3 million in 2001. The decrease resulted from a decrease
during 2001 in the index the capital securities interest rate is tied to.
Residual value lease losses increased from $664,000 in 2000 to $3.5 million in
2001. The increase was due to the charge taken for the other-than-temporary
impairment of residual values of leased automobiles in 2001. There was an
increase in expenses relating to the amortization of intangible assets from
certain recently completed acquisitions. Amortization expenses increased $1.2
million for the twelve months ended December 31, 2001 as compared to 2000. As a
result of the adoption of SFAS No. 142 on January 1, 2002, amortization of
intangible assets is expected to be lower in 2002. See "New Accounting
Pronouncement - Business Combinations and Goodwill and Other Intangible Assets".
36
Merger, acquisition and reorganization costs amounted to $15.3 million in 2001
compared to $23.6 million in 2000. The Company completed one merger and one
acquisition in 2001 and completed two mergers, one acquisition, and purchased 8
branches in 2000. Additionally, in 2000, the Company cancelled one proposed
merger. During 2001, the Company recognized $2.1 million in deposit overdraft
write-offs related to two large check-kiting incidents.
INCOME TAXES
In 2001, income tax expense was $542,000, as compared to $6.5 million in 2000
and $16.0 million in 1999. The Company's effective tax rate was 12.7%, 31.6%,
and 33.0% in 2001, 2000, and 1999, respectively. The decrease in the effective
tax rate during 2001 is primarily the result of lower net income before tax,
which resulted in a greater benefit, on a percentage basis, from permanent
non-taxable items such as tax-exempt interest.
2000 OPERATING RESULTS AS COMPARED TO 1999 OPERATING RESULTS
NET INTEREST INCOME
Net interest income for 2000 on a FTE basis was $131.5 million, up from $122.1
million in 1999. The increase was primarily the result of the increase in
average earning assets of $387.3 million offset somewhat by a decrease in the
Company's net interest margin from 4.23% for 1999 to 4.02% for 2000. The
decrease in net interest margin in 2000 when compared to 1999 primarily resulted
from interest bearing liabilities repricing faster than earning assets resulting
from the rising rate environment prevalent for most of 2000.
EARNING ASSETS
Total average earning assets increased $387.3 million, from $2.9 billion in 1999
to $3.3 billion in 2000. The increase was primarily the result of loan growth of
$319.0 million, particularly in commercial loan types, and an increase in
securities of $91.8 million. The increase in earning assets in 2000 was
primarily funded from an increase in deposits, which were assumed from various
branch acquisitions in 1999 and 2000 as well as an increase in borrowings.
Interest income increased $39.5 million, from $225.0 million in 1999 to $264.5
million in 2000. The increase in interest income was caused by increases in
earning assets and yields. The yield on earning assets increased from 7.79% in
1999 to 8.08% in 2000. The increase in yield was primarily the result of the
rising interest rate environment that prevailed for most of 2000.
LOANS AND LEASES AND CORRESPONDING INTEREST AND FEES ON LOANS
The average balance of loans and leases increased from $1.8 billion in 1999 to
$2.1 billion in 2000. The yield on average loans and leases increased from
8.49% in 1999 to 8.71% in 2000, as a rising interest rate environment prevailed
for much of 2000. The increase in the average balance of loans and leases,
coupled with the increase in yields, caused interest income on loans and leases
to increase $31.8 million, or 21.1%, from $150.5 million in 1999 to $182.3
million in 2000. Total loans and leases were $2.2 billion at December 31, 2000,
up from $1.9 billion at December 31, 1999. The increase in loans and leases was
primarily in the commercial and consumer loan types. Commercial and agricultural
loans were $543.1 million at December 31, 2000, up $171.2 million or 46.0% from
December 31, 1999. Home equity loans increased $79.9 million to $219.4 million
at December 31, 2000. Consumer loans increased $37.1 million, or 11.5%, to
$357.8 million at December 31, 2000 as compared to December 31, 1999.
37
SECURITIES AND CORRESPONDING INTEREST AND DIVIDEND INCOME
The average balance of securities available for sale was $1.0 billion during
2000, which is an increase of $128.4 million from $889.2 million in 1999. The
increase is primarily the result of investing excess funds from deposits assumed
from branch transactions during 1999 and 2000. The yield on average securities
available for sale was 6.97% in 2000 compared to 6.77% in 1999. The increase in
the average balance, coupled with the increase in yield, resulted in an increase
in interest income on securities available for sale of $10.0 million, from $60.9
million in 1999 to $70.9 million in 2000.
The average balance of securities held to maturity was $117.5 million during
2000, which is a decrease of $36.6 million, from $154.1 million in 1999. The
decrease was primarily a result of Central National Bank transferring all of its
investment securities held to maturity to securities available for sale in 1999.
The transfer was made for asset/liability management purposes and to allow CNB
flexibility with certain tax planning strategies. Subsequent to this transfer,
CNB no longer maintained a held to maturity portfolio. The yield on securities
held to maturity was 6.88% in 2000 compared to 6.56% in 1999.
FUNDING SOURCES AND CORRESPONDING INTEREST EXPENSE
DEPOSITS
Average interest bearing deposits increased $297.3 million during 2000, to $2.4
billion compared to $2.1 billion in 1999. The increase in interest bearing
deposits resulted primarily from the 3 branch acquisitions in 2000 and 1999. 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. In August of 1999, the Company purchased
approximately $156.5 million in deposits in conjunction with the purchase of
branches from Astoria Federal Savings and Loan Association.
The average rate paid on interest bearing deposits increased from 4.00% in 1999
to 4.54% in 2000. The increase in the average rate paid was primarily
attributable to time deposits, which are the most expensive interest bearing
deposits. The average rate paid on time deposits during 2000 was 5.72%, as
compared to 5.11% during 1999. Time deposits also made up a greater percentage
of total interest bearing liabilities. During 1999, time deposits were 58.5% of
interest bearing deposits, while in 2000, time deposits made up 61.0% of total
interest bearing deposits. The increase in the average rates paid for interest
bearing deposits during 2000 was also consistent with the rising interest rate
environment that prevailed for most of the year. The increase in the average
balance of interest bearing time deposits, coupled with the increase in the
average rate paid, caused interest expense on interest bearing deposits to
increase $24.8 million, from $82.5 million in 1999 to $107.3 million in 2000.
BORROWINGS
Average short-term borrowings increased from $145.4 million in 1999 to $194.9
million in 2000. Consistent with the increasing interest rate environment
during most of 2000, the average rate paid also increased from 5.00% in 1999 to
6.13% in 2000. The increase in the average balance combined with the increase
in the average rate paid caused interest expense on short-term borrowings to
increase $4.6 million from $7.3 million in 1999 to $11.9 million in 2000.
Average long-term debt increased $6.8 million, from $238.6 million in 1999 to
$245.4 million in 2000.
38
CREDIT RISK
Nonperforming loans at December 31, 2000 were $26.2 million as compared to $16.6
million at December 31, 1999. This increase is primarily the result of the
beginning of the process of integrating newly acquired banks into the Company
given the Company's more conservative approach to identifying and resolving
nonperforming loans. Net charge-offs increased during 2000 by $1.1 million, to
$6.4 million for the year. The increase in net charge-offs was primarily in the
area of commercial and agricultural loans. This increase was consistent with
the increase in commercial and agricultural loans discussed above. The
provision for loan and lease losses in 2000 was $10.1 million, as compared to
$6.9 million in 1999. The increase in the provision in 2000 as compared to 1999
was primarily due to the increase in the total loan and lease portfolio, the mix
of the portfolio, the increase in nonperforming loans and leases, and net loan
and lease charge-offs. The allowance as a percentage of loans and leases
outstanding was 1.45% at December 31, 2000 and 1.47% at December 31, 1999.
NONINTEREST INCOME
Recurring noninterest income, as presented above, increased $3.6 million, from
$21.3 million in 1999 to $24.9 million in 2000. The $3.6 million, or 16.9%,
increase in 2000 is primarily the result of an increase in broker/dealer fees of
approximately $2.7 million. The increase in broker/dealer fees is 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. Service
charges on deposit accounts increased $915,000, from $9.3 million in 1999 to
$10.2 million in 2000. The increase in service charges on deposit accounts
resulted primarily from the branch acquisitions in 1999 and 2000. All other
categories of recurring noninterest income remained consistent from 1999 to
2000. Net securities losses totaled $2.3 million in 2000 as compared to $1.0
million in gains in 1999. The net securities losses in 2001 resulted primarily
from the $3.5 million in charges taken for the other-than-temporary impairment
of certain securities.
NONINTEREST EXPENSE
For 2000, recurring noninterest expense, as presented above, increased $11.6
million, or 13.8%, to $95.5 million compared to $83.9 million in 1999. This
increase was due to several factors. Salaries and employee benefits expense
increased $4.3 million, or 10.6%, to $44.8 million compared to $40.5 million in
1999. The increase in salaries and employee benefits expense resulted primarily
from the eight branches and the Company's broker/dealer, M. Griffith, Inc.,
which were acquired during 2000, and a full twelve months of expense in 2000
resulting from the acquisition of 5 branches from Astoria in August of 1999.
Residual value lease losses increased $637,000, from $27,000 for 1999 to
$664,000 in 2000. The increase is primarily attributable to a $595,000 charge
taken in 2000 due to a decline in residual values of leased vehicles considered
to be other-than-temporary.
Other operating expenses increased $1.8 million, or 15.7%, to $13.1 million in
2000 from $11.3 million in 1999. The increase on other operating expenses
resulted primarily from advertising expense, which increased $840,000 in 2000
when compared to 1999. The increase in advertising expense primarily resulted
from advertising campaigns associated with the new branches the Company acquired
in 2000 and 1999.
Capital securities expense increased $1.0 million, to $1.6 million in 2000 from
$582,000 in 1999. The increase in capital securities expense reflects a full
twelve months of expense in 2000 from the obligations issued by the Company in
August 1999. Lastly, there was an increase in expenses relating to the
amortization of intangible assets due to certain of the recently completed
acquisitions. Amortization expense increased $1.2 million from $1.8 million in
1999 to $3.0 million in 2000.
39
IMPACT OF INFLATION AND CHANGING PRICES
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increasing cost of
the Company's operations. Unlike most industrial companies, nearly all assets
and liabilities of the Company are monetary. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. In addition, interest rates do not necessarily move in the
direction of, or to the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES
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 Company has certain embedded derivative instruments related to a deposit
product and two debt securities that have costs and returns linked to the
performance of the NASDAQ 100 index. Management determined that these debt
securities and the deposit product do not qualify for hedge accounting under
SFAS No. 133. The embedded derivatives have been separated from the underlying
host instruments for financial reporting purposes and accounted for at fair
value. In connection with the adoption of SFAS No. 133 as of January 1, 2001,
the Company recorded a charge to earnings for a transition adjustment of
$159,000 ($95,000, after-tax) for the net impact of recording these embedded
derivatives on the consolidated balance sheet at fair value. Due to the
insignificance of the amount, the transition adjustment is not reflected as a
cumulative effect of a change in accounting principle or the consolidated
statement of income for the year ended December 31, 2001 but is instead recorded
in net securities losses.
The total amortized cost and estimated fair value of these two debt securities
(including the embedded derivatives, which are classified in the consolidated
balance sheet with the underlying host instrument) is $6.2 million and $6.2
million, respectively, at December 31, 2001 and $7.0 and $6.7, respectively, at
December 31, 2000. The securities' rate of return is based on an original
NASDAQ 100 index value, with the index value resetting annually over a five-year
period. The rate or return is capped on these debt securities as follows:
$3.000 million have a 35% annual rate of return cap and $4.000 million have a
25% annual rate of return cap. The $4.000 million security has a guaranteed
rate of return of 2% regardless of the performance of the NASDAQ 100 index over
its five year period. The securities are scheduled to mature in 2005 and the
Company is guaranteed to receive the face value of the securities at maturity.
These two debt securities are valued similar to zero coupon bonds coupled with
the value of NASDAQ 100 futures contracts. The primary purpose of these debt
securities is to provide a certain level of hedging related to a deposit product
the Company offered in 2000 that has similar characteristics to the bonds. The
two debt securities were sold in 2002 approximating their carrying values at
December 31, 2001.
40
As of December 31, 2001 and 2000, the face value of the NASDAQ 100 deposit
product was $1.3 million and $1.4 million, respectively, with an estimated fair
value (including the embedded derivative, which is classified in the
consolidated balance sheet with the underlying host instrument) of $1.0 million
and $1.2 million, respectively. The NASDAQ 100 deposit product is a five year
certificate of deposit with a maturity date in July 2005. The deposit's
interest rate is based on an original NASDAQ 100 index value, with the index
value resetting annually over a five-year period. The maximum annual interest
rate is 20%, and the Company has guaranteed the return of the original deposit
balance to the customer (i.e. the minimum rate for the five period cannot be
negative). The Company does not currently offer the NASDAQ 100 deposit product
and does not currently intend to re-introduce this product in the foreseeable
future.
As of January 1, 2001, the Company had recorded on its consolidated balance
sheet an asset of $800,000 and a liability of $160,000 representing the
estimated fair values of both embedded derivatives related to the debt
securities and time deposit product, respectively, linked to the NASDAQ 100
index. During the year ended December 31, 2001, the Company recorded a $640,000
net loss related to the adjustment of the embedded derivatives to estimated fair
value, which was recorded in net gain (loss) on securities transactions on the
consolidated statement of income. As of December 31, 2001, both the embedded
derivatives related to the debt securities and time deposit product linked to
the NASDAQ 100 index were completely written-off as these embedded derivatives
had no value.
At December 31, 2001, the Company has no other derivatives as currently defined
by SFAS No. 133.
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR CERTAIN TRANSITIONS INVOLVING
STOCK COMPENSATION
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation". FASB Interpretation No. 44
clarifies the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" for certain issues. The adoption of
this Interpretation on July 1, 2000 did not have a material effect on the
Company's consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
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 No. 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 the
provisions of SFAS No. 125 without reconsideration. SFAS No. 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 retroactive application is
not permitted. The adoption of SFAS No. 140 did not have a material effect on
the Company's consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENT - BUSINESS COMBINATIONS AND GOODWILL AND OTHER
INTANGIBLE ASSETS
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. In addition, the provisions of Statement No. 141 apply to all
purchase method business combinations completed after June 30, 2001. SFAS 141
also specifies the criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS 142.
SFAS 142 will also require that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
41
residual values, and reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. Effective January 1, 2002, SFAS No. 121 was superceded by SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Currently, the FASB has stated that the unidentifiable intangible asset acquired
in the acquisition of a bank or thrift (including acquisitions of branches),
where the fair value of the liabilities assumed exceeds the fair value of the
assets acquired, should continue to be accounted for under SFAS No. 72,
"Accounting for Certain Acquisitions of Banking or Thrift Institutions." Under
SFAS No. 72, all of the intangible assets associated with branch acquisitions
recorded on the Company's consolidated balance sheet as of December 31, 2001
will continue to be amortized. The FASB has announced that additional research
will be performed to decide whether unidentifiable intangible assets recorded
under SFAS No. 72 should be accounted for similarly to goodwill under SFAS No.
142. However, issuance of final opinion with respect to this matter is not
expected until the fourth quarter of 2002.
The Company adopted the provisions of Statement 141 in 2001. The adoption of
this Statement did not have an impact on the Company's consolidated financial
statements. The Company is required to adopt the provisions of Statement 142
effective January 1, 2002. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 continued to be amortized prior to
the adoption of Statement 142.
SFAS No. 141 will require upon adoption of SFAS No. 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible assets is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period.
In connection with the transitional goodwill impairment evaluation, SFAS No. 142
requires the Company to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption based upon criteria
contained in SFAS No. 142. Any transitional impairment loss would be recognized
as the cumulative effect of a change in accounting principle in the Company's
consolidated statement of income. At this time, the Company has not completed
its transitional goodwill impairment evaluation. However, the Company does not
anticipate there will be any significant transitional impairment losses from the
adoption of SFAS No. 142.
Prior to the adoption of SFAS No. 142, goodwill and other intangible assets were
being amortized on a straight-line basis over periods ranging from 10 years to
25 years from the acquisition date. The Company reviewed goodwill and other
intangible assets on a periodic basis for events or changes in circumstances
that may have indicated that the carrying amount of goodwill was not
recoverable.
At December 31, 2001, the Company had unamortized goodwill related to its
acquisitions of First National Bancorp, Inc. (FNB) in June 2001, M. Griffith
Inc. in May 2000 (see note 2) and other bank acquisitions totaling $15.5
million. The amortization of this goodwill amounted to $.8 million for the year
ended December 31, 2001 ($1.0 million when annualized for a full year's
amortization of the FNB goodwill). In accordance with SFAS No. 142, the Company
will no longer amortize this goodwill subsequent to December 31, 2001, which
will reduce non-interest expenses by $.8 million in 2002, as compared to 2001.
At December 31, 2001, the Company had unidentified intangible assets accounted
for under SFAS No. 72 of approximately $33.0 million related to various branch
acquisitions (see note 2). This intangible asset is currently excluded for the
scope of SFAS No. 142. The amortization expense related to these unidentified
intangible assets totaled $2.7 million for the year ended December 31, 2001. As
noted above, while the FASB is reconsidering the exclusion of this type of
intangible asset from the scope of SFAS No. 142, at the present time this
intangible asset will continue to be amortized.
42
At December 31, 2001, the Company had core deposit intangible assets related to
various branch acquisitions of $2.2 million. The amortization of these
intangible assets amounted to $.7 million during the years ended December 31,
2001. In accordance with SFAS No. 142, these intangible assets will continue to
be amortized.
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
On August 16, 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." Statement 143 addresses financial accounting and
reporting for obligations associated with retirement of tangible long-lived
assets and the associated asset retirement costs. Statement 143 applies to all
entities. This Statement requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. Under this Statement, the liability is discounted and the
accretion expense is recognized using the credit-adjusted risk-free interest
rate in effect when the liability was initially recognized. The FASB issued
this Statement to provide consistency for the accounting and reporting of
liabilities associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. Earlier
application is permitted. The Company does not expect a material impact on its
consolidated financial statements when this Statement is adopted.
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS
On October 3, 2001, The FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supersedes SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
also supersedes the accounting and reporting provisions of APB Opinion No. 30
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The changes in this Statement improve financial
reporting by requiring that one accounting model be used for long-lived assets
to be disposed of by broadening the presentation of discontinued operations to
include more disposal transactions. This Statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. The provisions of this Statement are to be
applied prospectively. The Company does not expect a material impact on its
consolidated financial statements when this Statement is adopted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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.
In an attempt to manage the Company's 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.
43
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 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 leases 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 of 200 bp
and a gradual decrease of 150 bp takes place over a 12 month period. A fourth
and fifth model are run in which a gradual increase and decrease, respectively,
of 100 bp 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.
In the declining rate scenarios, net interest income is projected to remain
relatively unchanged when compared to the flat rate scenario through the
simulation period. The level of net interest income remaining unchanged is 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 offset by continued time deposits
re-pricing downward.
In the rising rate scenarios, net interest income is projected to experience a
decline from the flat rate 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/- 150 bp scenario is
within the internal policy risk limits of a not more than a 5% change in net
interest income. 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 using
the December 31, 2001 balance sheet position:
INTEREST RATE SENSITIVITY ANALYSIS
---------------------------------------------------------
Change in interest rates Percent change in
(in basis points) net interest income
---------------------------------------------------------
+200 (1.54%)
+100 (0.63%)
-100 0.16%
-150 (0.01%)
---------------------------------------------------------
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
Responsibility for the integrity, objectivity, consistency, and fair
presentation of the financial information presented in this Annual Report rests
with NBT Bancorp Inc. management. The accompanying consolidated financial
statements and related information have been prepared in conformity with
accounting principles generally accepted in the United States of America
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 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 a Risk Management Committee composed
entirely of directors who are not employees of the Company. The Risk Management
Committee is responsible for recommending to the Board the independent auditors
to be retained for the coming year. The Risk Management 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 Risk Management Committee reports to the Board on its activities
and findings.
/s/ Daryl R. Forsythe
Daryl R. Forsythe
President and Chief Executive Officer
/s/ Michael J. Chewens
Michael J. Chewens, CPA
Senior Executive Vice President
Chief Financial Officer and Corporate Secretary
45
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NBT Bancorp Inc.:
We have audited the accompanying consolidated balance sheets of NBT Bancorp Inc.
and subsidiaries as of December 31, 2001 and 2000, and the related 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, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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.
In our opinion, the 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Albany, New York
January 28, 2002
46
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 and 2000
(in thousands, except share and per share data)
ASSETS 2001 2000
----------- ----------
Cash and due from banks $ 123,201 114,848
Short term interest bearing accounts 6,756 15,595
Trading securities, at fair value 126 20,540
Securities available for sale, at fair value 909,341 936,757
Securities held to maturity (fair value $101,495 and $109,835) 101,604 110,415
Federal Reserve and Federal Home Loan Bank stock 21,784 31,686
Loans and leases 2,339,636 2,247,655
Less allowance for loan and lease losses 44,746 32,494
----------- ----------
Net loans and leases 2,294,890 2,215,161
Premises and equipment, net 62,685 56,116
Goodwill and intangible assets, net 50,688 45,908
Other assets 67,127 58,480
----------- ----------
Total assets $3,638,202 3,605,506
=========== ==========
LIABILITIES, GUARANTEED PREFERRED BENEFICIAL
INTERESTS IN COMPANY'S JUNIOR SUBORDINATE
DEBENTURES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 431,407 372,181
Savings, NOW, and money market 1,097,156 970,859
Time 1,387,049 1,500,828
----------- ----------
Total deposits 2,915,612 2,843,868
Short-term borrowings 122,013 184,704
Long-term debt 272,331 240,529
Other liabilities 44,891 49,764
----------- ----------
Total liabilities 3,354,847 3,318,865
----------- ----------
Guaranteed preferred beneficial interests in Company's junior
subordinate debentures ("capital securities") 17,000 17,000
Stockholders' equity:
Preferred stock, $0.01 par at December 31, 2001 and 2000;
shares authorized - 2,500,000
Common stock, $0.01 par value
and 30,000,000 shares authorized at December 31, 2001
and 2000; issued 34,252,661 and 33,205,742 at December 31, 2001
and 2000, respectively 343 332
Additional paid-in-capital 209,176 195,422
Retained earnings 72,531 88,921
Accumulated other comprehensive income (loss) 3,921 (1,934)
Common stock in treasury, at cost, 1,147,848 and 672,773 shares (19,616) (13,100)
----------- ----------
Total stockholders' equity 266,355 269,641
----------- ----------
Total liabilities, guaranteed preferred beneficial interests in
Company's junior subordinate debentures and stockholders'
equity $3,638,202 3,605,506
=========== ==========
See accompanying notes to consolidated financial statements.
47
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2001, 2000 and 1999
(in thousands, except per share data)
2001 2000 1999
--------- -------- -------
Interest, fee, and dividend income:
Interest and fees on loans and leases $187,188 181,699 149,999
Securities available for sale 60,241 69,346 58,911
Securities held to maturity 5,232 6,137 8,480
Trading securities 649 8 1
Other 2,124 3,191 3,458
--------- -------- -------
Total interest, fee, and dividend income 255,434 260,381 220,849
--------- -------- -------
Interest expense:
Deposits 98,522 107,293 82,476
Short-term borrowings 5,365 11,940 7,268
Long-term debt 13,615 13,770 13,132
--------- -------- -------
Total interest expense 117,502 133,003 102,876
--------- -------- -------
Net interest income 137,932 127,378 117,973
Provision for loan losses 31,929 10,143 6,896
--------- -------- -------
Net interest income after provision for loan losses 106,003 117,235 111,077
--------- -------- -------
Noninterest income:
Service charges on deposit accounts 12,756 10,193 9,278
Broker/dealer and insurance revenue 4,500 2,723 46
Trust 3,958 4,047 3,959
Net securities (losses) gains (7,692) (2,273) 1,000
Gain on sale of branch building 1,367 - -
Other 9,245 7,891 8,044
--------- -------- -------
Total noninterest income 24,134 22,581 22,327
--------- -------- -------
Noninterest expense:
Salaries and employee benefits 48,419 44,802 40,527
Occupancy 8,704 7,761 6,804
Equipment 7,228 7,271 7,046
Data processing and communications 10,690 8,206 7,544
Professional fees and outside services 6,338 5,082 4,252
Office supplies and postage 4,639 3,976 4,106
Amortization of intangible assets 4,248 3,049 1,764
Merger, acquisition and reorganization costs 15,322 23,625 835
Writedowns of lease residual values 3,529 664 27
Deposit overdraft write-offs 2,125 - -
Capital securities 1,278 1,633 582
Other 13,338 13,065 11,292
--------- -------- -------
Total noninterest expense 125,858 119,134 84,779
--------- -------- -------
Income before income tax expense 4,279 20,682 48,625
Income tax expense 542 6,528 16,033
--------- -------- -------
Net income $ 3,737 14,154 32,592
========= ======== =======
Earnings per share:
Basic $ 0.11 0.44 1.01
========= ======== =======
Diluted $ 0.11 0.44 1.00
========= ======== =======
See accompanying notes to consolidated financial statements.
Note: All per share data has been restated to give retroactive effect to stock
dividends and pooling-of-interests.
48
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2001, 2000 and 1999
(in thousands except share and per share data)
ACCUMULATED
ADDITIONAL OTHER COMPRE- COMMON
COMMON PAID-IN- RETAINED HENSIVE STOCK IN
STOCK CAPITAL EARNINGS (LOSS)/INCOME TREASURY TOTAL
------------ -------------- --------- -------------- --------- --------
Balance at December 31, 1998 $ 32,300 149,924 87,982 2,360 (12,962) 259,604
Net income - - 32,592 - - 32,592
Issuance of 621,143 shares for a stock dividend 621 10,994 (11,615) - - -
Cash dividends - $0.656 per share - - (15,729) - - (15,729)
Payment in lieu of fractional shares - - (16) - - (16)
Purchase of 563,391 treasury shares - - - - (9,628) (9,628)
Issuance of 436,957 shares to employee benefit
plans and other stock plans, including tax benefit 116 (20) - - 7,026 7,122
Retirement of 205,999 shares of treasury stock
of pooled companies (206) (2,398) - - 2,604 -
Other comprehensive loss - - - (29,117) - (29,117)
------------ -------------- --------- -------------- --------- --------
Balance at December 31, 1999 32,831 158,500 93,214 (26,757) (12,960) 244,828
Net income - - 14,154 - - 14,154
Cash dividends - $0.68 per share - - (18,424) - - (18,424)
Payment in lieu of fractional shares - - (23) - - (23)
Purchase of 139,393 treasury shares - - - - (1,680) (1,680)
Issuance of 56,606 shares to employee benefit plans
and other stock plans, including tax benefit 7 582 - - 578 1,167
Change of $1.00 stated value per share to $0.01
par value per share (32,509) 32,509 - - - -
Issuance of 420,989 shares to purchase
M. Griffith, Inc. 4 4,792 - - - 4,796
Retirement of 75,763 shares of treasury stock of
pooled Company (1) (961) - - 962 -
Other comprehensive income - - - 24,823 - 24,823
------------ -------------- --------- -------------- --------- --------
Balance at December 31, 2000 332 195,422 88,921 (1,934) (13,100) 269,641
Net income - - 3,737 - - 3,737
Cash dividends - $0.68 per share - - (20,123) - - (20,123)
Issuance of 1,075,366 shares to purchase First
National Bancorp, Inc. 11 15,991 - - - 16,002
Payment in lieu of fractional shares - - (4) - - (4)
Purchase of 727,037 treasury shares - - - - (11,126) (11,126)
Issuance of 223,515 shares to employee benefit plans
and other stock plans, including tax benefit 1 (1,529) - - 3,901 2,373
Retirement of 63,034 shares of treasury stock of
pooled company (1) (708) - - 709 -
Other comprehensive income - - - 5,855 - 5,855
------------ -------------- --------- -------------- --------- --------
Balance at December 31, 2001 $ 343 209,176 72,531 3,921 (19,616) 266,355
============ ============== ========= ============== ========= ========
See accompanying notes to consolidated financial statements.
Note: Cash dividends per share represent the historical cash dividends per share
of NBT Bancorp Inc., adjusted to give retroactive effect to stock
dividends. All other share and per share data is adjusted to give
retroactive effect to stock dividends and pooling-of-interests.
49
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
(in thousands)
2001 2000 1999
---------- --------- ---------
Operating activities:
Net income $ 3,737 14,154 32,592
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 31,929 10,143 6,896
Depreciation of premises and equipment 6,197 6,646 6,253
Net accretion on securities (5,369) (678) (1,211)
Amortization of intangible assets 4,248 3,049 1,764
Deferred income tax (benefit) expense (6,333) (2,194) 2,067
Proceeds from sale of loans held for sale 16,570 25,425 41,899
Originations and purchases of loans held for sale (14,360) (20,950) (40,471)
Purchase of trading securities (6,194) (5,250) (24,257)
Proceeds from sales of trading securities 29,844 5,261 24,305
Net loss on disposal of premises and equipment 164 - -
Net gains on sales of loans held for sale (27) (172) (342)
Net security losses (gains) 7,692 2,273 (1,000)
Net (gain) loss on sales of other real estate owned (17) 28 (159)
Writedowns on other real estate owned 253 235 220
Gain on sale of branch building (1,367) - -
Tax benefit from exercise of stock options 327 660 296
Net decrease (increase) in other assets (5,471) (1,725) 1,221
Net (decrease) increase in other liabilities (8,579) 24,784 1,622
---------- --------- ---------
Net cash provided by operating activities 53,244 61,689 51,695
---------- --------- ---------
Investing activities:
Net cash and cash equivalents provided by acquisitions 9,509 74,434 116,911
Securities available for sale:
Proceeds from maturities, calls and principal paydowns 335,280 98,755 139,519
Proceeds from sales 43,318 128,889 189,202
Purchases (324,701) (159,984) (469,044)
Securities held to maturity:
Proceeds from maturities, calls, and principal paydowns 40,427 34,347 41,952
Purchases (26,121) (23,445) (45,292)
Net increase in loans (39,589) (306,113) (276,761)
Net decrease (increase) in Federal Reserve and FHLB stock 9,902 (505) (4,553)
Purchases of premises and equipment, net (8,451) (1,642) (11,602)
Proceeds from sales of other real estate owned 3,476 4,272 5,451
---------- --------- ---------
Net cash provided by (used in) investing activities 43,050 (150,992) (314,217)
---------- --------- ---------
Financing activities:
Net (decrease) increase in deposits (36,214) 132,950 144,106
Net (decrease) increase in short-term borrowings (63,437) 13,129 59,328
Proceeds from issuance of long-term debt 247,083 5,000 75,000
Repayments of long-term debt (215,005) (22,543) (7,425)
Proceeds from the issuance of shares to employee
benefit plans and other stock plans 2,046 507 6,826
Issuance of capital securities - - 17,000
Purchase of treasury stock (11,126) (1,680) (9,628)
Cash dividends and payment for fractional shares (20,127) (18,447) (15,745)
---------- --------- ---------
Net cash (used in) provided by financing activities (96,780) 108,916 269,462
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents (486) 19,613 6,940
Cash and cash equivalents at beginning of year 130,443 110,830 103,890
---------- --------- ---------
Cash and cash equivalents at end of year $ 129,957 130,443 110,830
========== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 124,362 125,886 100,590
Income taxes 8,361 10,093 15,121
========== ========= =========
Noncash investing activities:
Transfer of securities available for sale to trading securities $ 3,804 20,286 -
Adjustment of securities AFS to fair value and decrease
in net unrealized loss on securities AFS transferred
to investment securities held to maturity, net of tax - 24,823 29,117
Transfer of held to maturity securities to securities
available for sale $ - - 184,007
Transfer of loans to other real estate owned $ 3,400 3,634 4,138
Fair value of assets acquired $ 109,599 43,873 -
Fair value of liabilities assumed $ 112,134 133,891 136,780
Common stock issued for acquisitions $ 16,002 4,796 -
========== ========= =========
See accompanying notes to consolidated financial statements.
50
NBT BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2001, 2000 and 1999
(in thousands)
2001 2000 1999
------ ------ --------
Net income $3,737 14,154 32,592
------ ------ --------
Other comprehensive income (loss), net of tax:
Unrealized net holding gains (losses) arising
during the year (pre-tax amounts of $2,779;
$36,323 and $(50,196)) 1,641 23,334 (32,015)
Net unrealized gain on securities transferred from
investment securities held to maturity to
securities available for sale (pre tax amounts of
$-, $- and $4,877) - - 3,414
Less: Reclassification adjustment for net losses
(gains) related to securities available for sale
included in net income (pre-tax amounts
of $7,124; $2,320 and ($1,000)) 4,214 1,489 (516)
------ ------ --------
Total other comprehensive income (loss) 5,855 24,823 (29,117)
------ ------ --------
Comprehensive income $9,592 38,977 3,475
====== ====== ========
See accompanying notes to consolidated financial statements
51
NBT BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of NBT Bancorp Inc. ("Bancorp") and
its subsidiaries, NBT Bank, N.A. (NBT Bank) and NBT Financial Services,
Inc. conform, in all material respects, to accounting principles generally
accepted in the United States of America ("GAAP") and to general practices
within the banking industry. Collectively, Bancorp and its subsidiaries are
referred to herein as "the Company".
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:
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Bancorp and its wholly-owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation. Amounts previously
reported in the consolidated financial statements are reclassified whenever
necessary to conform with the current year's presentation. In the "Parent
Company Financial Information," the investment in subsidiaries is carried
under the equity method of accounting.
SEGMENT REPORTING
The Company's operations are solely in the community banking industry and
include the provision of traditional banking services. The Company operates
solely in the geographical regions of central and northern New York and
northeastern Pennsylvania. Management makes operating decisions and
assesses performance based on an ongoing review of its community banking
operations, which constitute the Company's only reportable segment.
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 for purposes of the consolidated statements of cash flows.
52
SECURITIES
The Company classifies its securities at date of purchase as either
available for sale, held to maturity or trading. Held to maturity debt
securities are those that the Company has the ability and intent to hold
until maturity. Available for sale securities are recorded at fair value.
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 a component of accumulated other comprehensive
income or loss. Held to maturity securities are recorded at amortized cost.
Trading securities are recorded at fair value, with net unrealized gains
and losses recognized currently in income. 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. Securities with
an other-than-temporary impairment are generally placed on nonaccrual
status.
Non-marketable equity securities are carried at cost, with the exception of
small business investment company (SBIC) investments, which are carried at
fair value in accordance with SBIC rules.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the interest method.
Dividend 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.
Investments in Federal Reserve and Federal Home Loan Bank stock are
required for membership in those organizations and are carried at cost
since there is no market value available.
LOANS, LEASES, AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans are recorded at their current unpaid principal balance, net of
unearned income and unamortized loan fees and expenses, which are amortized
under the effective interest method over the estimated lives of the loans.
Interest income on loans is primarily accrued based on the principal amount
outstanding.
Lease receivables primarily represent automobile financing to customers
through direct financing leases and are carried at the aggregate of the
lease payments receivable and the estimated residual values, net of
unearned income and net deferred lease origination fees and costs. Net
deferred lease origination fees and costs are amortized under the effective
interest method over the estimated lives of the leases. The estimated
residual value related to the total lease portfolio is reviewed quarterly,
and if there has been a decline in the estimated fair value of the total
residual value that is judged by management to be other-than-temporary, a
loss is recognized. Adjustments related to such other-than-temporary
declines in estimated fair value are recorded in noninterest expense in the
consolidated statements of income.
53
Loans and leases are placed on nonaccrual status when timely collection of
principal and interest in accordance with contractual terms is doubtful.
Loans and leases 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. When a loan or lease is
transferred to a nonaccrual status, all interest previously accrued in the
current period but not collected is reversed against interest income in
that period. Interest accrued in a prior period and not collected is
charged-off against the allowance for loan and lease losses.
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, 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 they become
current as to principal and interest or demonstrate a period of performance
under the contractual terms and, in the opinion of management, are fully
collectible as to principal and interest. When in the opinion of management
the collection of principal appears unlikely, the loan balance is
charged-off in total or in part.
Commercial type loans are considered impaired when it is probable that the
borrower will not repay the loan according to the original contractual
terms of the loan agreement, and all loan types are considered impaired if
the loan is restructured in a troubled debt restructuring.
A loan is considered to be a trouble debt restructured loan (TDR) when the
Company grants a concession to the borrower because of the borrower's
financial condition that it would not otherwise consider. Such concessions
include the reduction of interest rates, forgiveness of principal or
interest or other modifications at interest rates that are less than the
current market rate for new obligations with similar risk. TDR loans that
are in compliance with their modified terms and that yield a market rate
may be removed from the TDR status after a period of performance.
The allowance for loan and lease losses is the amount which, in the opinion
of management, is necessary to absorb probable losses inherent in the loan
and lease portfolio. The allowance is determined based upon numerous
considerations, including 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, comprehensive reviews of the
loan portfolio by the Independent Loan Review staff and management, as well
as consideration of volume and trends of delinquencies, non-performing
loans, and loan charge-offs. As a result of the test of adequacy, required
additions to the allowance for loan and lease losses are made periodically
by charges to the provision for loan and lease losses.
The allowance for loan and lease losses related to impaired loans is based
on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain loans where repayment of
the loan is expected to be provided solely by the underlying collateral
(collateral dependent loans). The Company's impaired loans are generally
collateral dependent. The Company considers the estimated cost to sell, on
a discounted basis, when determining the fair value of collateral in the
measurement of impairment if those costs are expected to reduce the cash
flows available to repay or otherwise satisfy the loans.
54
Management believes that the allowance for loan and lease losses is
adequate. While management uses available information to recognize loan and
lease losses, future additions to the allowance for loan and lease 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
and lease losses. Such agencies may require the Company to recognize
additions to the allowance for loan and lease 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.
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.
55
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. On
January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair
value of all stock based awards measured on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma net income per share disclosures for employee stock-based grants made
in 1995 and thereafter as if the fair value based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures of
SFAS No. 123.
PER SHARE AMOUNTS
Basic earnings per share (EPS) 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 EPS 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 (such as the Company's dilutive stock options).
All share and per share data has been restated to give retroactive effect
to pooling-of-interests and stock dividends.
OTHER FINANCIAL INSTRUMENTS
The Company is a party to certain other financial instruments with
off-balance-sheet risk such as commitments to extend credit, unused lines
of credit, and standby letters of credit, as well as certain mortgage loans
sold to investors with recourse. The Company's policy is to record such
instruments when funded.
COMPREHENSIVE INCOME
At the Company, comprehensive income represents net income plus other
comprehensive income, which consists of the net change in unrealized gains
or losses on securities available for sale, net unrealized gains from the
transfer of held to maturity securities to available for sale, net of
income taxes, for the period. Accumulated other comprehensive income
represents the net unrealized gains or losses on securities available for
sale, net of income taxes, as of the consolidated balance sheet dates.
PENSION COSTS
The Company maintains a non contributory, defined benefit pension plan
covering substantially all employees, as well as supplemental employee
retirement plans covering certain executives. Costs associated with these
plans, based on actuarial computations of current and future benefits for
employees, are charged to current operating expenses.
56
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. Such assets totaled $1.3
billion and $1.4 billion at December 31, 2001 and 2000, respectively. Trust
income is recognized on the accrual method based on contractual rates
applied to the balances of trust accounts.
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES
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 Company has certain embedded derivative instruments related to a
deposit product and two debt securities that have costs and returns linked
to the performance of the NASDAQ 100 index. Management determined that
these debt securities and the deposit product do not qualify for hedge
accounting under SFAS No. 133. The embedded derivatives have been separated
from the underlying host instruments for financial reporting purposes and
accounted for at fair value. In connection with the adoption of SFAS No.
133 as of January 1, 2001, the Company recorded a charge to earnings for a
transition adjustment of $159,000 ($95,000, after-tax) for the net impact
of recording these embedded derivatives on the consolidated balance sheet
at fair value. Due to the insignificance of the amount, the transition
adjustment is not reflected as a cumulative effect of a change in
accounting principle or the consolidated statement of income for the year
ended December 31, 2001 but is instead recorded in net securities (losses)
gains.
57
The total amortized cost and estimated fair value of these two debt
securities (including the embedded derivatives, which are classified in the
consolidated balance sheet with the underlying host instrument) is $6.2
million and $6.2 million, respectively, at December 31, 2001 and $7.0
million and $6.4 million, respectively, at December 31, 2000. The
securities' rate of return is based on an original NASDAQ 100 index value,
with the index value resetting annually over a five-year period. The rate
or return is capped on these debt securities as follows: $3.0 million have
a 35% annual rate of return cap and $4.0 million have a 25% annual rate of
return cap. The $4.000 million security has a guaranteed rate of return of
2% regardless of the performance of the NASDAQ 100 index over its five year
period. The securities are scheduled to mature in 2005 and the Company is
guaranteed to receive the face value of the securities at maturity. These
two debt securities are valued similar to zero coupon bonds coupled with
the value of NASDAQ 100 futures contracts. The primary purpose of these
debt securities is to provide a certain level of hedging related to a
deposit product the Company offered in 2000 that has similar
characteristics to the bonds. The two debt securities were sold in 2002 at
amounts approximating their carrying values at December 31, 2001.
As of December 31, 2001 and 2000, the face value of the NASDAQ 100 deposit
product was $1.3 million and $1.4 million, respectively, with an estimated
fair value (including the embedded derivative, which is classified in the
consolidated balance sheet with the underlying host instrument) of $1.0
million and $1.2 million, respectively. The NASDAQ 100 deposit product is a
five year certificate of deposit with a maturity date in July 2005. The
deposit's interest rate is based on an original NASDAQ 100 index value,
with the index value resetting annually over a five-year period. The
maximum annual interest rate is 20%, and the Company has guaranteed the
return of the original deposit balance to the customer (i.e. the minimum
rate for the five period cannot be negative). The Company does not
currently offer the NASDAQ 100 deposit product and does not currently
intend to re-introduce this product in the foreseeable future.
As of January 1, 2001, the Company had recorded on its consolidated balance
sheet an asset of $800,000 and a liability of $160,000 representing the
estimated fair values of both the embedded derivatives related to the debt
securities and time deposit product, respectively, linked to the NASDAQ 100
index. During the year ended December 31, 2001, the Company recorded a
$640,000 net loss related to the adjustment of the embedded derivatives to
estimated fair value, which was recorded in net gain (loss) on securities
transactions on the consolidated statement of income. As of December 31,
2001, the embedded derivatives related to the debt securities and time
deposit product linked to the NASDAQ 100 index had no value.
At December 31, 2001, the Company has no other derivatives as currently
defined by SFAS No. 133.
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR CERTAIN TRANSITIONS INVOLVING
STOCK COMPENSATION
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation". FASB Interpretation No.
44 clarifies the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" for certain issues. The adoption
of this Interpretation on July 1, 2000 did not have a material effect on
the Company's consolidated financial statements.
58
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
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 No. 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 the provisions of SFAS No. 125 without
reconsideration. SFAS No. 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 retroactive application is not permitted. The
adoption of SFAS No. 140 did not have a material effect on the Company's
consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENT - BUSINESS COMBINATIONS AND GOODWILL AND OTHER
INTANGIBLE ASSETS
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. In addition, the provisions of Statement No.
141 apply to all purchase method business combinations completed after June
30, 2001. SFAS 141 also specifies the criteria intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill. SFAS 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 will also require that intangible assets
with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Effective
January 1, 2002, SFAS No. 121 was superceded by SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."
Currently, the FASB has stated that the unidentifiable intangible asset
acquired in the acquisition of a bank or thrift (including acquisitions of
branches), where the fair value of the liabilities assumed exceeds the fair
value of the assets acquired, should continue to be accounted for under
SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift
Institutions." Under SFAS No. 72, all of the intangible assets associated
with branch acquisitions recorded on the Company's consolidated balance
sheet as of December 31, 2001 will continue to be amortized. The FASB has
announced that additional research will be performed to decide whether
unidentifiable intangible assets recorded under SFAS No. 72 should be
accounted for similarly to goodwill under SFAS No. 142. However, issuance
of final opinion with respect to this matter is not expected until the
fourth quarter of 2002.
The Company adopted the provisions of Statement 141 in 2001. The adoption
of this Statement did not have an impact on the Company's consolidated
financial statements. The Company is required to adopt the provisions of
Statement 142 effective January 1, 2002. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 continued
to be amortized prior to the adoption of Statement 142.
59
SFAS No. 141 will require upon adoption of SFAS No. 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in
a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in SFAS No. 141
for recognition apart from goodwill. Upon adoption of SFAS No. 142, the
Company will be required to reassess the useful lives and residual values
of all intangible assets acquired in purchase business combinations, and
make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible
assets is identified as having an indefinite useful life, the Company will
be required to test the intangible asset for impairment in accordance with
the provisions of SFAS No. 142 within the first interim period.
In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 requires the Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption based
upon criteria contained in SFAS No. 142. Any transitional impairment loss
would be recognized as the cumulative effect of a change in accounting
principle in the Company's consolidated statement of income. At this time,
the Company has not completed its transitional goodwill impairment
evaluation. However, the Company does not anticipate there will be any
significant transitional impairment losses from the adoption of SFAS No.
142.
Prior to the adoption of SFAS No. 142, goodwill and other intangible assets
were being amortized on a straight-line basis over periods ranging from 10
years to 25 years from the acquisition date. The Company reviewed goodwill
and other intangible assets on a periodic basis for events or changes in
circumstances that may have indicated that the carrying amount of goodwill
was not recoverable.
At December 31, 2001, the Company had unamortized goodwill related to its
acquisitions of First National Bancorp, Inc. (FNB) in June 2001, M.
Griffith Inc. in May 2000 (see note 2) and other bank acquisitions totaling
$15.5 million. The amortization of this goodwill amounted to $.8 million
for the year ended December 31, 2001 ($1.0 million when annualized for a
full year's amortization of the FNB goodwill). In accordance with SFAS No.
142, the Company will no longer amortize this goodwill subsequent to
December 31, 2001, which will reduce non-interest expenses by $.8 million
in 2002, as compared to 2001.
At December 31, 2001, the Company had unidentified intangible assets
accounted for under SFAS No. 72 of approximately $33.0 million related to
various branch acquisitions (see note 2). This intangible asset is
currently excluded for the scope of SFAS No. 142. The amortization expense
related to these unidentified intangible assets totaled $2.7 million for
the year ended December 31, 2001. As noted above, while the FASB is
reconsidering the exclusion of this type of intangible asset from the scope
of SFAS No. 142, at the present time this intangible asset will continue to
be amortized.
At December 31, 2001, the Company had core deposit intangible assets
related to various branch acquisitions of $2.2 million. The amortization of
these intangible assets amounted to $.7 million during the year ended
December 31, 2001. In accordance with SFAS No. 142, these intangible assets
will continue to be amortized.
60
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
On August 16, 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." Statement 143 addresses financial accounting and
reporting for obligations associated with retirement of tangible long-lived
assets and the associated asset retirement costs. Statement 143 applies to
all entities. This Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it
is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. Under this Statement, the liability is
discounted and the accretion expense is recognized using the
credit-adjusted risk-free interest rate in effect when the liability was
initially recognized. The FASB issued this Statement to provide consistency
for the accounting and reporting of liabilities associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. The Statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002. Earlier application
is permitted. The Company does not expect a material impact on its
consolidated financial statements when this Statement is adopted.
NEW ACCOUNTING PRONOUNCEMENT - ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS
On October 3, 2001, The FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This Statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement supersedes SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." This Statement also supersedes the accounting and reporting
provisions of APB Opinion No. 30 "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The changes in this Statement improve financial reporting by
requiring that one accounting model be used for long-lived assets to be
disposed of by broadening the presentation of discontinued operations to
include more disposal transactions. This Statement is effective for
financial statements issued for fiscal years beginning after December 15,
2001 and interim periods within those fiscal years. The provisions of this
Statement are to be applied prospectively. The Company does not expect a
material impact on its consolidated financial statements when this
Statement is adopted.
(2) MERGER AND ACQUISITION ACTIVITY
On June 1, 2001, the Company completed the acquisition of First National
Bancorp, Inc. (FNB) whereby FNB was merged with and into NBT Bancorp Inc.
At the same time FNB's subsidiary, First National Bank of Northern New York
(FNB Bank) was merged into NBT Bank, N.A. The acquisition was accounted for
using the purchase method. As such, both the assets and liabilities assumed
have been recorded on the consolidated balance sheet of the Company at
estimated fair value as of the date of acquisition and the results of
operations are included in the Company's consolidated statement of income
from the acquisition date forward. To complete the transaction, the Company
issued approximately 1,075,000 shares of its common stock valued at $16.0
million. Goodwill, representing the cost over net assets acquired, was
approximately $7.0 million and was being amortized through December 31,
2001 on a straight-line basis based on a twenty year amortization period.
61
On September 14, 2001, the Company acquired $14.4 million in deposits from
Mohawk Community Bank. Unidentified intangible assets, accounted for in
accordance with SFAS No. 72 and representing the excess of cost over net
assets acquired, was $665,000 and is being amortized over 15 years on a
straight-line basis. Additionally, the Company identified $119,000 of core
deposit intangible asset.
On November 8, 2001, the Company, pursuant to a merger agreement dated June
18, 2001, completed its merger with CNB Financial Corp. (CNB) and its
wholly owned subsidiary, Central National Bank (CNB Bank), whereby CNB was
merged with and into NBT, and CNB Bank was merged with and into NBT Bank.
CNB Bank then became a division of NBT Bank. In connection with the merger,
CNB stockholders received 1.2 shares of the Company's common stock for each
share of CNB stock and the Company issued approximately 8.9 million shares
of common stock. The transaction is structured to be tax-free to
shareholders of CNB and has been accounted for as a pooling-of-interests.
Accordingly, these consolidated financial statements have been restated to
present combined consolidated financial condition and results of operations
of NBT and CNB as if the merger had been in effect for all years presented.
At September 30, 2001, CNB had consolidated assets of $983.1 million,
deposits of $853.7 million and equity of $62.8 million. CNB Bank operated
29 full service banking offices in nine upstate New York counties.
The following table presents net interest income, net income, and earnings
per share reported by CNB, NBT and the Company on a combined basis:
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2001 2000
------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net interest income:
NBT $ 76,697 70,933
CNB 24,496 25,192
------------------- ------------------
Combined $ 101,193 96,125
=================== ==================
Net income:
NBT $ 17,427 14,504
CNB 266 6,113
------------------- ------------------
Combined $ 17,693 20,617
=================== ==================
Basic earnings per share:
NBT $ 0.72 0.62
CNB 0.04 0.82
Combined 0.54 0.64
Diluted earnings per share:
NBT $ 0.72 0.62
CNB 0.04 0.81
Combined 0.54 0.63
62
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 shares of Bancorp common stock. The transaction resulted in the
issuance of approximately 5.0 million shares of Bancorp 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 Bancorp common stock.
The transaction resulted in the issuance of approximately 5.2 million
shares of Bancorp 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 years presented.
LA Bank, N.A. and Pioneer 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
Lake Ariel and Pioneer Holding Company mergers described above, Bancorp was
the surviving holding company for NBT Bank, LA Bank, N.A., Pioneer American
Bank, N.A. and NBT Financial Services, Inc. On November 10, 2000, LA Bank,
N.A. changed its name to Pennstar. On December 9, 2000, Pioneer American
Bank, N.A. was merged into Pennstar. On March 16, 2001, Pennstar was merged
with and into NBT Bank and became a division of NBT Bank.
On May 5, 2000, the Company consummated the acquisition 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. 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 was being amortized, prior to the
adoption of SFAS No. 142 on January 1, 2002, over fifteen years on a
straight-line basis.
63
On June 2, 2000, one of Bancorp's subsidiaries, LA Bank, N.A. (subsequently
renamed Pennstar), 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. Unidentified intangible assets, accounted for in
accordance with SFAS No. 72 and 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 purchased six branches from Soverign Bank.
Deposits from the Soverign Bank branches were approximately $96.8 million,
including accrued interest payable. Pennstar. also purchased commercial
loans associated with the branches with a net book balance of $42.4
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.
Unidentified intangible assets, accounted for in accordance with SFAS No.
72 and 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.
In August 1999, CNB purchased five branches from Astoria Federal Savings
and Loan. Deposits from the Astoria branches were approximately $156.5
million, including accrued interest payable. CNB also purchased
approximately $3.7 million in branch related assets, primarily the real and
personal property associated with the branches, cash at the branches, as
well as a limited amount of deposit related loans. In addition, CNB
received $133.9 million in cash considerations 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. Unidentified intangible assets, accounted for in
accordance with SFAS No. 72 and representing the excess of cost over net
assets acquired, was $19.9 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.
During 2001, the following merger, acquisition and reorganization costs
were recognized:
Professional fees $ 5,956
Data processing 2,092
Severance 3,270
Branch closings 2,412
Advertising and supplies 313
Hardware and software writeoffs 402
Miscellaneous 877
-------
$15,322
=======
64
With the exception of hardware and software writeoffs and certain branch
closing costs, all of the above costs have been or will be paid through
normal cash flow from operations. At December 31, 2001, after payments of
certain merger, acquisition and reorganization costs, the Company had a
remaining accrued liability for merger, acquisition and reorganization
costs incurred during 2001 as follows:
Professional fees $2,009
Data processing 241
Severance 3,074
Branch closings 1,601
Advertising and supplies 199
Miscellaneous 455
------
$7,579
======
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 2002.
During 2000, the following merger, acquisition and reorganization costs
were recognized:
Professional fees $ 8,525
Data processing 2,378
Severance 7,278
Branch closings 1,736
Advertising and supplies 1,337
Hardware and software write-off 1,428
Miscellaneous 943
-------
Total $23,625
=======
(3) EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per share
for the years presented in the consolidated statements of income:
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
2001 2000 1999
--------------------------- --------------------------- ---------------------------
WEIGHTED PER WEIGHTED PER WEIGHTED PER
NET AVERAGE SHARE NET AVERAGE SHARE NET AVERAGE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- --------- ------- ------- --------- ------- ------- --------- -------
(In thousands, except per share data)
Basic Earnings per Share $ 3,737 32,897 $ 0.11 $14,154 32,291 $ 0.44 $32,592 32,181 $ 1.01
Effect of dilutive securities:
Stock based compensation 123 45 360
Contingent shares 65 69 -
--------- --------- ---------
Diluted earnings per share $ 3,737 33,085 $ 0.11 $14,154 32,405 $ 0.44 $32,592 32,541 $ 1.00
========= ========= =========
65
There were approximately 936,000, 923,000 and 289,000 stock options for the
years ended December 31, 2001, 2000 and 1999, respectively, that were not
considered in the calculation of diluted earnings per share since the stock
options' exercise prices were greater than the average market price during
these periods.
(4) FEDERAL RESERVE BANK REQUIREMENT
The Company is required to maintain reserve balances with the Federal
Reserve Bank. The required average total reserve for NBT Bank for the 14
day maintenance period ending December 26, 2001 was $38.0 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 ESTIMATED
COST GAINS LOSSES FAIRVALUE
---------- ---------- ---------- ---------
(IN THOUSANDS)
December 31, 2001:
U.S. Treasury $ 12,392 64 699 11,757
Federal Agency 111,020 1,810 254 112,576
State & municipal 92,982 576 1,573 91,985
Mortgage-backed 413,081 5,639 683 418,037
Collateralized mortgage
obligations 184,777 2,335 826 186,286
Asset-backed securities 32,391 642 838 32,195
Corporate 42,468 836 1,126 42,178
Other securities 13,707 687 67 14,327
---------- ---------- ---------- ---------
Total securities
available for sale $ 902,818 12,589 6,066 909,341
========== ========== ========== =========
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIRVALUE
---------- ---------- ---------- ---------
(IN THOUSANDS)
December 31, 2000:
U.S. Treasury $ 16,392 5 473 15,924
Federal Agency 193,533 2,430 3,434 192,529
State & municipal 60,375 531 605 60,301
Mortgage-backed 387,401 1,770 3,075 386,096
Collateralized mortgage
obligations 169,765 3,187 2,553 170,399
Asset-backed securities 18,841 376 268 18,949
Corporate 75,408 1,450 2,918 73,940
Other securities 18,422 477 300 18,619
---------- ---------- ---------- ---------
Total securities
available for sale $ 940,137 10,226 13,626 936,757
========== ========== ========== =========
Other securities include non-marketable equity securities, including
certain securities acquired by the Company's small business investment
company (SBIC) subsidiary, and trust preferred securities. Collateralized
mortgage obligations at December 31, 2001 include securities with an
amortized cost of $9.2 million and estimated fair value of $9.1 million
that are privately issued and are not backed by Federal agencies. The
remaining collateralized mortgage obligations were issued or backed by
Federal agencies.
66
The following table sets forth information with regard to sales
transactions of securities available for sale:
FOR THE YEARS ENDED DECEMBER 31,
2001 2000 1999
-------- -------- --------
(in thousands)
Proceeds from sales $43,318 128,889 189,202
======== ======== ========
Gross realized gains $ 2,213 1,751 2,431
Gross realized losses (1,046) (604) (39)
Other-than-temporary impairment writedowns (8,291) (3,467) (1,392)
-------- -------- --------
Net security (losses) gains and writedowns on
securities available for sale (7,124) (2,320) 1,000
Net realized (losses) gains on trading securities
and embedded derivatives (568) 47 -
-------- -------- --------
Net securities (losses) gains $(7,692) (2,273) 1,000
======== ======== ========
The Company recorded a $8.3 million, $3.5 million and $1.4 million pre-tax
charge during 2001, 2000 and 1999, respectively, related to estimated
other-than-temporary impairment of certain securities classified as
available for sale. The charges were recorded in net security (losses)
gains on the consolidated statements of income. The securities with
other-than-temporary impairment charges at December 31, 2001 had remaining
carrying values totaling $4.5 million, are classified as securities
available for sale and are on the non-accrual status.
Approximately, $1.4 million of the other-than-temporary impairment charge
in 2000 related to the Company's decision in late 2000 to sell certain debt
securities available for sale with an amortized cost of $21.7 million. As a
result of the decision to immediately sell these securities, they were
considered to be other-than-temporarily impaired. These securities were
sold in early January 2001 at amounts approximating their carrying values.
These securities were presented on the Company's December 31, 2000
consolidated balance sheet as trading securities. The remaining securities
with other-than-temporary impairment charges at December 31, 2000 had
carrying values totaling $1.4 million, at December 31, 2000, are classified
as securities available for sale and are on the non-accrual status.
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 net
realized gain of $0.18 million.
During 1999, CNB transferred all of its investment securities held to
maturity to securities available for sale. At the date of transfer, the
amortized cost of investment securities held to maturity was approximately
$112.9 million and the estimated fair value was approximately $117.7
million. The transfer was made for asset/liability management purposes and
to allow CNB flexibility with respect to certain tax planning strategies.
Subsequent to this transfer, CNB no longer maintained a held to maturity
portfolio.
67
At December 31, 2001 and 2000, securities available for sale with amortized
costs totaling $628.8 million and $695.3 million, respectively, were
pledged to secure public deposits and for other purposes required or
permitted by law. Additionally, at December 31, 2001, securities available
for sale with an amortized cost of $74.4 were pledged as collateral for
securities sold under repurchase agreements.
The amortized cost, estimated fair value, and unrealized gains and losses
of securities held to maturity are as follows:
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- -------
(IN THOUSANDS)
December 31, 2001:
Mortgage-backed $ 36,733 295 405 36,623
State & municipal 64,715 - - 64,715
Other securities 156 1 - 157
---------- ---------- ---------- -------
Total securities held
to maturity $ 101,604 296 405 101,495
========== ========== ========== =======
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- -------
(IN THOUSANDS)
December 31, 2000:
Mortgage-backed $ 46,376 70 918 45,528
State & municipal 63,992 460 192 64,260
Other securities 47 - - 47
---------- ---------- ---------- -------
Total securities held
to maturity $ 110,415 530 1,110 109,835
========== ========== ========== =======
At December 31, 2001 and 2000, substantially all of the mortgage-backed
securities available for sale and held to maturity held by the Company were
issued or backed by Federal agencies.
The following tables set forth information with regard to contractual
maturities of debt securities at December 31, 2001:
Debt Securities Classified AMORTIZED ESTIMATED
as Available for Sale COST FAIR VALUE
- --------------------------- ---------- ----------
(in thousands)
Within one year $ 133,741 134,721
From one to five years 264,734 266,525
From five to ten years 239,872 243,122
After ten years 250,764 250,646
---------- ----------
$ 889,111 895,014
========== ==========
68
Debt Securities Classified AMORTIZED ESTIMATED
as Held to Maturity COST FAIR VALUE
- --------------------------- ---------- ----------
(in thousands)
Within one year $ 34,016 33,903
From one to five years 29,552 29,352
From five to ten years 6,737 6,691
After ten years 31,299 31,549
---------- ----------
$ 101,604 101,495
========== ==========
Maturities of mortgage-backed, collateralized mortgage obligations and
asset-backed securities are stated based on their estimated average lives.
Actual maturities may differ from estimated average lives or contractual
maturities because, in certain cases, borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
Except for U.S. Government securities, there were no holdings, when taken
in the aggregate, of any single issues that exceeded 10% of consolidated
stockholders' equity at December 31, 2001 and 2000.
(6) LOANS ON LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES
A summary of loans and leases, net of deferred fees and origination costs,
by category is as follows:
DECEMBER 31,
2001 2000
---------- ---------
(IN THOUSANDS)
Residential real estate mortgages $ 525,411 504,590
Commercial real estate mortgages 477,102 498,040
Real estate construction and development 60,513 44,829
Commercial and agricultural 584,857 543,145
Consumer 387,081 357,822
Home equity 232,624 219,355
Lease financing 72,048 79,874
---------- ---------
Total loans $2,339,636 2,247,655
========== =========
FHLB advances are collateralized by a blanket lien on the Company's
residential real estate mortgages.
69
Changes in the allowance for loan and lease losses for the three years
ended December 31, 2001, are summarized as follows:
2001 2000 1999
--------- ------- -------
(IN THOUSANDS)
Balance at January 1, $ 32,494 28,240 26,615
Allowance related to
purchase acquisitions 505 525 -
Provision 31,929 10,143 6,896
Recoveries 2,189 1,383 1,439
Charge-offs (22,371) (7,797) (6,710)
--------- ------- -------
Balance at December 31, $ 44,746 32,494 28,240
========= ======= =======
The following table sets forth information with regard to non-performing loans:
AT DECEMBER 31,
-----------------------
2001 2000 1999
------- ------ ------
(IN THOUSANDS)
Loans in non-accrual status $40,210 17,103 12,808
Loans contractually past due
90 days or more and still
accruing interest 2,975 8,430 2,748
Restructured loans 603 656 1,014
------- ------ ------
Total non-performing
loans $43,788 26,189 16,570
======= ====== ======
There were no material commitments to extend further credit to borrowers
with non-performing loans.
Accumulated interest on the above non-accrual loans of approximately
$3,241,000, $1,043,000, and $966,000 would have been recognized as income
in 2001, 2000, and 1999, respectively, had these loans been in accrual
status. Approximately $591,000, $534,000, and $493,000 of interest on the
above non-accrual loans was collected in 2001, 2000, and 1999,
respectively.
At December 31, 2001 and 2000, the recorded investment in loans that are
considered to be impaired totaled $32.0 million and $14.7 million,
respectively, for which the related allowance for loan losses is $1.4
million and $1.5 million, respectively. As of December 31, 2001 and 2000,
there were $23.7 million and $10.8 million, respectively, of impaired loans
which did not have an allowance for loan losses due to the adequacy of
their collateral. Included in total impaired loans at December 31, 2001 and
2000 were $603,000 and $656,000, respectively, of restructured loans.
70
The following provides additional information on impaired loans for the
periods presented:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
----------- ---------- ----------
(IN THOUSANDS)
Average recorded investment
on impaired loans $ 21,618 12,191 8,900
Interest income recognized
on impaired loans 591 308 200
Cash basis interest income
recognized on impaired
loans 591 308 200
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, do 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:
2001 2000
-------- -------
(IN THOUSANDS)
Balance at January 1, $ 6,847 6,790
New loans 3,114 3,007
Repayments (3,676) (2,950)
-------- -------
Balance at December 31, $ 6,285 6,847
======== =======
(7) PREMISES AND EQUIPMENT, NET
A summary of premises and equipment follows:
DECEMBER 31,
2001 2000
-------- -------
(IN THOUSANDS)
Land, buildings and improvements $ 65,350 60,559
Equipment 50,752 40,775
Construction in progress 443 350
-------- -------
116,545 101,684
Accumulated depreciation 53,860 45,568
-------- -------
Total premises and equipment $ 62,685 56,116
======== =======
71
Land, buildings and improvements with a carrying value of approximately
$4.1 million and $4.2 million at December 31, 2001 and 2000, respectively,
are pledged to secure long-term borrowings.
Rental expense included in occupancy expense amounted to $2.1 million in
2001, $1.9 million in 2000, and $1.7 million in 1999. The future minimum
rental payments related to noncancellable operating leases with original
terms of one year or more are as follows at December 31, 2001:
(IN THOUSANDS)
2002 $ 1,583
2003 1,053
2004 846
2005 645
2006 504
Thereafter 4,333
---------------
Total $ 8,964
===============
(8) DEPOSITS
The following table sets forth the maturity distribution of time deposits
at December 31, 2001:
(IN THOUSANDS)
Within one year $ 1,081,821
After one but within two years 155,001
After two but within three years 85,955
After three but within four years 43,149
After four but within five years 10,385
After five years 10,738
---------------
Total $ 1,387,049
===============
Time deposits of $100,000 or more aggregated $558.6 million and $646.0
million at year end 2001 and 2000, respectively.
(9) SHORT-TERM BORROWINGS
Short-term borrowings total $122.0 million and $184.7 million at December
31, 2001 and 2000, respectively, and 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 with the FHLB
available for short-term financing and access to brokered deposits of
approximately $767 million and $555 million at December 31, 2001 and 2000,
respectively.
72
In addition, the Company has two other lines of credit, expiring on
November 6, 2002, which are available with the FHLB. The first is an
overnight line of credit for approximately $50.0 million with interest
based on existing market conditions. The second is a one-month overnight
repricing line of credit for approximately $50.0 million with interest
based on existing market conditions. As of December 31, 2001, there was
$31.0 million (included in federal funds purchased) and $7.7 million
(included in other short-term borrowings), respectively, outstanding on
these overnight lines of credit. Borrowings on these lines are secured by
FHLB stock, certain securities and one-to-four family first lien mortgage
loans.
Securities collateralizing repurchase agreements are held in safekeeping by
non-affiliated financial institutions and are under the Company's control.
Information related to short-term borrowings is summarized as follows:
2001 2000 1999
-------- -------- --------
(DOLLARS IN THOUSANDS)
FEDERAL FUNDS PURCHASED:
Balance at year-end $31,000 50,000 58,130
Average during the year 30,752 52,218 45,628
Maximum month end balance 47,200 70,695 88,140
Weighted average rate
during the year 4.79% 5.95% 5.23%
Weighted average rate at
December 31 1.35% 6.66% 5.46%
SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS:
Balance at year-end $64,973 46,050 68,241
Average during the year 56,408 57,679 51,719
Maximum month end balance 64,973 130,262 81,790
Weighted average rate
during the year 3.38% 5.02% 4.49%
Weighted average rate
at December 31 1.62% 4.76% 4.52%
OTHER SHORT-TERM
BORROWINGS:
Balance at year-end $26,040 88,654 45,480
Average during the year 36,002 84,991 48,017
Maximum month end balance 71,654 131,077 108,161
Weighted average rate
during the year 5.35% 6.42% 5.23%
Weighted average rate
at December 31 5.11% 6.65% 5.45%
73
The Company has entered into repurchase agreements with entities which have
certain executive officers who are directors and significant stockholders
of the Company. These repurchase agreements are entered into in the
ordinary course of business at market terms. These repurchase agreements
resulted in approximately $25.4 million and $18.1 million being owed to
these entities at December 31, 2001 and 2000, respectively.
(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, 2001 is as
follows:
MATURITY DATE INTEREST RATE AMOUNT
-------------- -------------- -----------
(DOLLARS IN THOUSANDS)
FHLB advance 2002 1.98-6.45% $ 36,276
FHLB advance 2003 4.50-6.27% 90,757
FHLB advance 2005 4.40-6.41% 30,000
FHLB advance 2008 5.06-7.20% 35,599
FHLB advance 2009 4.97-5.50% 75,000
Note payable 2010 6.50% 275
IDA bonds 2025 4.44% 4,424
-----------
Total $ 272,331
===========
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) GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR SUBORDINATED
DEBENTURES
On June 14, 1999, CNB established CNBF Capital Trust I (the Trust), which
is a statutory business trust. The Trust exists for the exclusive purpose
of issuing and selling 30 year guaranteed preferred beneficial interests in
the Company's junior subordinated debentures (capital securities). On
August 4, 1999, the Trust issued $18.0 million in capital securities at
3-month LIBOR plus 275 basis points, which equaled 8.12% at issuance. The
rate on the capital securities resets quarterly, equal to the 3-month LIBOR
plus 275 basis points (5.35% and 9.57% for the December 31, 2001 and 2000
quarterly payments, respectively). The capital securities are the sole
asset of the Trust. The obligations of the Trust are guaranteed by Bancorp.
Capital securities totaling $1.0 million were issued to NBT. These capital
securities were retired upon the merger of NBT and CNB (see note 2). The
net proceeds from the sale of the capital securities were used for general
corporate purposes and to provide a capital contribution of $15.0 million
to CNB Bank, which was merged into NBT Bank. The capital securities, with
associated expense that is tax deductible, qualify as Tier I capital under
regulatory definitions, subject to certain restrictions. The Bancorp's
primary source of funds to pay interest on the debentures owed to the Trust
are current dividends from the NBT Bank. Accordingly, the Bancorp's ability
to service the debentures is dependent upon the continued ability of NBT
Bank to pay dividends (see also note 13). The capital securities are not
classified as debt for financial statement purposes and therefore the
expense associated with the capital securities is recorded as non-interest
expense in the consolidated statements of income.
74
(12) INCOME TAXES
The significant components of income tax expense attributable to operations
are:
YEARS ENDED DECEMBER 31,
-------------------------
2001 2000 1999
-------- ------- ------
(IN THOUSANDS)
Current:
Federal $ 5,404 7,887 11,383
State 1,471 835 2,583
-------- ------- ------
6,875 8,722 13,966
Deferred:
Federal (4,963) (1,766) 1,412
State (1,370) (428) 655
-------- ------- ------
(6,333) (2,194) 2,067
-------- ------- ------
Total income tax
expense $ 542 6,528 16,033
======== ======= ======
Not included in the above table is income tax expense (benefit) of
approximately $3.7 million, $13.2 million and ($17.5 million) for 2001,
2000 and 1999, respectively, relating to unrealized gain (loss) on
available for sale securities and tax benefits recognized with respect to
stock options exercised, which were recorded directly in stockholders'
equity.
75
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,
---------------
2001 2000
------- ------
(IN THOUSANDS)
Deferred tax assets:
Allowance for loan and lease losses $17,140 12,508
Deferred compensation 2,873 3,198
Postretirement benefit obligation 1,437 1,594
Loss on trading securities - 504
Writedowns on corporate debt securities 2,868 1,328
Accrued severance and contract termination costs 1,097 678
Pension and executive retirement 311 -
Other real estate owned 193 73
Purchase accounting adjustments, net 223 -
Accrued liabilities 1,905 199
Alternate minimum tax credit carry forward 521 2,202
New York State tax credit carryforward 207 214
Intangible amortization 663 493
Other 346 610
------- ------
Total deferred tax assets 29,784 23,601
------- ------
Deferred tax liabilities:
Pension and executive retirement - 823
Premises and equipment, primarily due
to accelerated depreciation 1,491 1,739
Equipment leasing 10,335 11,771
Securities discount accretion 600 588
Deferred loan costs 547 165
Tax bad debt reserve 302 437
Other 277 174
------- ------
Total deferred tax liabilities 13,552 15,697
------- ------
Net deferred tax asset at year-end 16,232 7,904
------- ------
Net deferred tax asset at beginning of year 7,904 5,710
------- ------
Increase in net deferred tax asset 8,328 2,194
Net deferred tax assets acquired 1,995 -
------- ------
Deferred tax benefit $ 6,333 2,194
======= ======
The above table does not include the recorded deferred tax liability of
$2.6 million as of December 31, 2001 and deferred tax asset of $1.5 million
as of December 31, 2000 related to the net unrealized holding gain/loss in
the available-for-sale securities portfolio.
76
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, 2001 and 2000.
As of December 31, 2001 and 2000, the Company had alternative minimum tax
(AMT) credit carryforwards of $521,000 and $2.2 million, respectively. AMT
credits may be used indefinitely to reduce regular Federal income taxes to
the extent regular Federal income taxes exceed the related alternative
minimum tax otherwise due. As of December 31, 2001 and 2000, the Company
had New York State tax credit carryforwards of $207,000 and $214,000,
respectively. These credits may be used indefinitely to reduce New York
State taxes due.
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:
YEARS ENDED DECEMBER 31,
--------------------------
2001 2000 1999
-------- ------- -------
(IN THOUSANDS)
Federal income tax at statutory rate $ 1,498 7,144 16,934
Tax exempt income (2,475) (2,677) (2,880)
Non-deductible expenses 400 274 443
Non-deductible merger expenses 1,419 2,122 -
Net increase in CSV of life insurance (121) (230) (95)
Dividend received deduction (142) (139) (77)
State taxes, net of federal tax benefit 66 264 2,105
Other, net (103) (230) (397)
-------- ------- -------
Income tax expense $ 542 6,528 16,033
======== ======= =======
(13) STOCKHOLDERS' EQUITY
Certain restrictions exist regarding the ability of the subsidiary bank to
transfer funds to the Company in the form of cash dividends. The approval
of the Office of Comptroller of the Currency (OCC) is required to pay
dividends when a bank fails to meet certain minimum regulatory capital
standards or when such dividends are 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). The Bank's dividends
to the Company over years 2000 and 2001 exceeded net income during those
years. Therefore, the Bank's first quarter 2002 dividends exceeded the OCC
dividend limitations, and the Bank requested and received OCC approval to
pay this dividend to the Company. The Bank anticipates that it will require
approval for its second quarter 2002 dividend as well. The Bank's ability
to pay dividends also is subject to the Bank being in compliance with
regulatory capital requirements. The Bank is currently in compliance with
these requirements. 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.
77
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. 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
$0.01 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.
(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, 2001 and 2000, 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, 2001, the most recent
notification from NBT Bank's regulators categorized NBT Bank as well
capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized NBT Bank 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 changed the NBT Bank's category.
78
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, 2001:
Total capital (to risk weighted assets):
Company combined $259,316 10.69% 8.00% 10.00%
NBT Bank 253,401 10.54% 8.00% 10.00%
Tier I Capital (to risk weighted assets):
Company combined 228,803 9.43% 4.00% 6.00%
NBT Bank 223,170 9.28% 4.00% 6.00%
Tier I Capital (to average assets):
Company combined 228,803 6.34% 4.00% 5.00%
NBT Bank 223,170 6.24% 4.00% 5.00%
As of December 31, 2000:
Total capital (to risk weighted assets):
Company combined $272,716 11.08% 8.00% 10.00%
NBT Bank 123,419 11.73% 8.00% 10.00%
Pennstar 63,263 8.97% 8.00% 10.00%
CNB Bank 67,814 10.30% 8.00% 10.00%
Tier I Capital (to risk weighted assets):
Company combined 242,576 9.85% 4.00% 6.00%
NBT Bank 109,973 10.48% 4.00% 6.00%
Pennstar 54,981 7.80% 4.00% 6.00%
CNB Bank 59,669 9.10% 4.00% 6.00%
Tier I Capital (to average assets):
Company combined 242,576 6.88% 4.00% 5.00%
NBT Bank 109,973 7.40% 4.00% 5.00%
Pennstar 54,981 5.12% 4.00% 5.00%
CNB Bank 59,669 6.40% 4.00% 5.00%
79
(14) EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company has a qualified, noncontributory, defined benefit pension plan
covering substantially all of its employees at December 31, 2001. M.
Griffith, Inc. and the former Pennstar (and its predecessors Lake Ariel and
Pioneer Holding Company) did not provide for pension benefits to employees
through January 1, 2001. As such, M. Griffith, Inc. and Pennstar employees
are not included in this plan at December 31, 2000. M. Griffith, Inc. and
Pennstar employees began to participate and accrue benefits under this Plan
as of January 1, 2001. No benefit credit was provided in the Company's plan
for service with M. Griffith, Inc. and the former Pennstar (and its
predecessors Lake Ariel or Pioneer Holding Company). Benefits paid from the
plan are based on age, years of service, compensation, 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. Assets of the plan are invested in publicly traded stocks and
bonds. Prior to January 1, 2000, the Company's plan was a traditional
defined benefit plan based on final average compensation. On January 1,
2000, the plan was converted to a cash balance plan with grandfathering
provisions for existing participants.
Prior to December 31, 2001, the Company maintained two noncontributory
defined benefit retirement plans, the NBT Bancorp Inc. Defined Benefit
Pension Plan and the Central National Bank, Canajoharie Pension Plan.
Effective December 31, 2001, the Company merged those two plans.
80
The net periodic pension expense and the funded status of the plan are as
follows:
YEARS ENDED DECEMBER 31,
-----------------------------
2001 2000 1999
--------- -------- --------
(IN THOUSANDS)
Components of net periodic benefit cost:
Service cost $ 1,968 1,382 1,368
Interest cost 2,038 2,041 1,989
Expected return on plan assets (2,703) (2,790) (2,817)
Amortization of initial unrecognized asset (196) (196) (196)
Amortization of prior service cost 234 233 268
Amortization of unrecognized net gain (23) (117) (12)
--------- -------- --------
Net periodic pension cost $ 1,318 553 600
========= ======== ========
Change in projected benefit obligation:
Benefit obligation at beginning of year (28,867) (27,364) (29,543)
Service cost (1,968) (1,382) (1,368)
Interest cost (2,038) (2,041) (1,989)
Actuarial (loss) gain (1,438) (1,309) 3,415
Benefits paid 2,465 2,933 2,121
Prior service cost - 296 -
--------- -------- --------
Projected benefit obligation
at end of year $(31,846) (28,867) (27,364)
========= ======== ========
Change in plan assets:
Fair value of plan assets at beginning of year 28,666 31,091 30,757
Actual return on plan assets (814) 302 1,272
Employer contributions 3,950 - 550
Benefits paid (2,465) (2,933) (2,121)
Actuarial gain due to measurement date
prior to December 31 211 206 633
--------- -------- --------
Fair value of plan assets at end of year $ 29,548 28,666 31,091
========= ======== ========
Plan assets (less than) in excess of projected benefit
obligation $ (2,298) (201) 3,727
Unrecognized portion of net asset at transition (1,364) (1,560) (1,756)
Unrecognized net actuarial loss (gain) 2,913 (1,854) (5,563)
Unrecognized prior service cost 3,006 3,240 3,770
--------- -------- --------
Prepaid (accrued) pension cost $ 2,257 (375) 178
========= ======== ========
Weighted average assumptions as of December 31,
Discount rate 7.00% 7.25% 7.75%
Expected long-term return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% 4.00%
========= ======== ========
81
In addition to the Company's noncontributory defined benefit retirement and
pension plan, the Company provides a supplemental employee retirement plans
to certain current and former executives. The amount of the liabilities
recognized in the Company's consolidated balance sheets associated with
these plans was $7.1 million and $4.8 million at December 31, 2001 and
2000, respectively. The charges to expense with respect to these plans
amounted to $0.4 million, $1.7 million, and $0.2 million for the years
ended December 31, 2001, 2000, and 1999, respectively. The discount rate
used in determining the actuarial present values of the projected benefit
obligations was 7.00%, 7.25% and 7.75%, at December 31, 2001, 2000, and
1999, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care benefits for retired employees.
Benefits are accrued over the employees' active service period. Pennstar
(and its predecessors Lake Ariel and Pioneer Holding Company) did not
provide such benefits to retired employees. As such, Pennstar employees are
not included in this plan as of December 31, 2000. Pennstar employees began
to participate in this plan and to accrue benefits under this plan as of
January 1, 2001. The plan is contributory for participating retirees,
requiring participants to absorb certain deductibles and coinsurance
amounts with contributions adjusted annually to reflect cost sharing
provisions and benefit limitations called for in the plan. Employees become
eligible for these benefits if they reach normal retirement age while
working for the Company. 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.
82
The net postretirement health benefits expense and obligations (the plan is
unfunded) are as follows:
YEARS ENDED DECEMBER 31,
--------------------------
2001 2000 1999
-------- ------- -------
(IN THOUSANDS)
Components of net periodic benefit cost:
Service cost $ 175 199 235
Interest cost 300 304 288
Amortization of
transition obligation 39 124 124
Amortization of (gains)
and losses 31 (15) 9
Amortization of unrecognized
prior service cost (14) - -
-------- ------- -------
Net periodic postretirement
benefit cost $ 531 612 656
======== ======= =======
Change in accumulated benefit
obligation:
Benefit obligation at beginning
of the year 4,738 3,959 4,517
Service cost 175 199 235
Interest cost 300 304 288
Plan participants' contributions - 129 106
Actuarial loss (gain) 1,640 439 (935)
Amendments (1,224) - -
Benefits paid (230) (292) (252)
-------- ------- -------
Accumulated benefit
obligation at end of year $ 5,399 4,738 3,959
======== ======= =======
Components of accrued
benefit cost:
Accumulated benefit obligation
at end of year $(5,399) (4,738) (3,959)
Unrecognized
transition obligation 139 1,196 1,320
Unrecognized prior service cost (192) - -
Unrecognized actuarial
net loss 2,077 468 14
-------- ------- -------
Accrued benefit cost $(3,375) (3,074) (2,625)
======== ======= =======
Weighted average discount rate 7.00% 7.25% 7.75%
======== ======= =======
The Company used a health care trend rate in calculating the postretirement cost
of 7.5% during December 31, 2001, grading down uniformly to 5.5% for 2005 and
thereafter.
83
Assumed health care cost trend rates have a significant effect on amounts
reported for health care plans. A one-percentage point change in the health
care trend rates would have the following effects as of and for the year ended
December 31, 2001:
1-PERCENTAGE 1-PERCENTAGE
POINT POINT
INCREASE DECREASE
------------- --------------
(IN THOUSANDS)
Effect on total service and interest cost
components $ 111 (88)
============= ==============
Effect on postretirement accumulated
benefit obligation $ 1,026 (844)
============= ==============
EMPLOYEE 401(K) AND EMPLOYEE STOCK OWNERSHIP PLANS
At December 31, 2001, the Company maintains a 401(k) and employee stock
ownership plan (the Plan). The Company contributes to the Plan based on
employees' contributions out of their annual salary. In addition, the Company
may also make discretionary contributions to the Plan based on profitability.
Participation in the Plan is contingent upon certain age and service
requirements.
Through December 31, 2000, Pennstar maintained a profit-sharing plan and a
401(k) savings plan for employees of the former LA Bank, N.A. and maintained an
ESOP and a savings and investment plan for employees of the former Pioneer
American Bank, N.A. On January 1, 2001, these plans were merged into the
Company's Plan. CNB maintained a 401(k) plan. On January 1, 2002, the CNB plan
was merged into the Company's Plan. The recorded expenses associated with these
plans was $794,000 in 2001, $1.7 million in 2000 and $1.6 million in 1999.
STOCK OPTION PLANS
At December 31, 2001, the Company has two stock option plans (Plans). Under the
terms of the plans, options are granted to directors and 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 have
a vesting period of four years and terminate eight or ten years from the date of
the grant.
The per share weighted-average fair value of stock options granted during 2001,
2000 and 1999 was $3.70, $3.35 and $5.47, respectively. The fair value of each
award is estimated on the grant date using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants in the
years ended December 31:
2001 2000 1999
------------- ----------- -----------
Dividend yield 4.26% 5.34% 3.72%
Expected volatility 30.19% 29.88% 29.05%
Risk-free interest rates 4.63% - 5.04% 6.04%-6.62% 4.63%-6.16%
Expected life 7 years 7 years 7 years
84
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 estimated
fair value at the grant date for its stock options under 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:
2001 2000 1999
------ ------ ------
Net income:
As reported $3,737 14,154 32,592
Pro forma 2,450 13,261 31,824
Basic earnings per share:
As reported 0.11 0.44 1.01
Pro forma 0.07 0.41 0.99
Diluted earnings per share:
As reported 0.11 0.44 1.00
Pro forma 0.07 0.41 0.98
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.
85
The following is a summary of changes in options outstanding:
WEIGHTED
AVERAGE OF
EXERCISE PRICE
NUMBER OF OF OPTIONS
OPTIONS UNDER THE PLANS
--------------- ----------------
Balance at December 31, 1998 1,248,782 $ 8.85
--------------- ----------------
Granted 242,417 20.36
Exercised (177,812) 7.21
Lapsed (23,135) 15.83
--------------- ----------------
Balance at December 31, 1999 1,290,252 13.73
--------------- ----------------
Granted 515,369 13.67
Exercised (277,880) 7.32
Lapsed (49,917) 14.14
--------------- ----------------
Balance at December 31, 2000 1,477,824 13.59
--------------- ----------------
Granted 726,746 15.13
Exercised (219,659) 8.92
Lapsed (79,036) 15.83
--------------- ----------------
Balance at December 31, 2001 1,905,875 $ 14.61
=============== ================
The following table summarizes information concerning stock options outstanding
at December 31, 2001:
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
- ------------- ----------- -------------- ------------- ----------- ------------
$ 4.01-$ 8.50 87,690 3.06 $ 6.52 87,690 $ 6.52
$ 8.51-$13.00 492,781 6.23 10.56 463,980 10.59
$13.01-$17.50 949,911 8.26 15.54 187,151 14.58
$17.51-$22.00 375,493 6.65 19.41 258,877 19.29
- ------------- ----------- -------------- ------------- ----------- ------------
$ 4.01-$22.00 1,905,875 7.18 $ 14.61 997,698 $ 13.24
============= =========== ============== ============= =========== ============
86
(15) COMMITMENTS AND CONTINGENT LIABILITIES
The Company's concentrations of credit risk are reflected in the
consolidated balance sheets. The concentrations of credit risk with standby
letters of credit, unused lines of credit and commitments to originate new
loans and loans sold with recourse generally follow the loan
classifications. At December 31, 2001, approximately 52.8% 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.
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, unused lines of credit, and standby letters of credit, as well as
certain mortgage loans sold to investors with recourse. The Company's
exposure to credit loss in the event of nonperformance by the other party
to the commitments to extend credit, unused lines of credit, standby
letters of credit and loans sold with recourse 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,
2001 2000
-------- -------
(IN THOUSANDS)
Commitments to extend credits, primarily
variable rate $509,750 230,668
Unused lines of credit 194,931 164,062
Standby letters of credit 21,072 6,249
Loans sold with recourse 18,258 20,000
The total amount of loans serviced by the Company for unrelated third parties
was approximately $173.3 million and $208.3 million at December 31, 2001 and
2000, respectively.
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 balance sheets or results of
operations of the Company.
87
(16) PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
- ------------------------
DECEMBER 31,
ASSETS 2001 2000
-------- -------
(IN THOUSANDS)
Cash and cash equivalents $ 1,971 7,827
Securities available for sale, at estimated fair value 8,401 8,774
Investment in subsidiaries, on equity basis 279,725 285,770
Other assets 11,654 8,317
-------- -------
Total assets $301,751 310,688
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities $ 35,396 41,047
-------- -------
Stockholders' equity 266,355 269,641
-------- -------
Total liabilities and stockholders' equity $301,751 310,688
======== =======
CONDENSED STATEMENTS OF INCOME
- ------------------------------
YEARS ENDED DECEMBER 31,
--------------------------
2001 2000 1999
--------- ------- ------
(IN THOUSANDS)
Dividends from subsidiaries $ 27,775 35,270 22,649
Management fee from
subsidiaries 25,860 17,266 -
Interest and other dividend
income 1,273 1,578 1,125
Net gain on sale of securities
available for sale 294 151 1,036
--------- ------- ------
55,202 54,265 24,810
Operating expense 41,535 36,374 2,400
--------- ------- ------
Income before income tax (benefit)
expense and (distributions in
excess of) equity in undistributed
income of subsidiaries 13,667 17,891 22,410
Income tax (benefit) expense (3,907) (5,738) 223
(Distributions in excess of)
equity in undistributed
income of subsidiaries (13,837) (9,475) 10,405
--------- ------- ------
Net income $ 3,737 14,154 32,592
========= ======= ======
88
CONDENSED STATEMENTS OF CASH FLOWS
- ----------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------
2001 2000 1999
--------- -------- --------
(IN THOUSANDS)
Operating activities:
Net income $ 3,737 14,154 32,592
Adjustments to reconcile net
income to net cash provided
by operating activities:
Net gains on sale of securities
available for sale (294) (151) (1,036)
Tax benefit from exercise of
stock options 327 660 296
Distributions in excess of
(equity in undistributed)
income of subsidiaries 13,837 9,475 (10,405)
Other, net 4,354 2,242 (956)
--------- -------- --------
Net cash provided by
operating activities 21,961 26,380 20,491
--------- -------- --------
Investing activities:
Securities available for sale:
Proceeds from sales 4,458 384 2,301
Purchases of securities
available for sale (390) (1,742) (6,514)
Maturities and calls of securities
available for sale - - 1,000
Investment in bank subsidiary - - (15,000)
Investment in non-bank subsidiaries - - (720)
Purchases of premises and equipment (2,603) (4) (55)
--------- -------- --------
Net cash provided by (used in)
investing activities 1,465 (1,362) (18,988)
Financing activities:
Proceeds from the issuance of shares
to employee benefit plans and other stock
plans 2,046 507 6,826
Payment on long-term debt (75) (65) (66)
Issuance of liability to subsidiary
related to capital securities - - 17,000
Purchase of treasury shares (11,126) (1,680) (9,628)
Cash dividends and payment for
fractional shares (20,127) (18,447) (15,745)
--------- -------- --------
Net cash provided by (used in)
financing activities (29,282) (19,685) (1,613)
Net (decrease) increase in
cash and cash equivalents (5,856) 5,333 (110)
Cash and cash equivalents at beginning
of year 7,827 2,494 2,604
--------- -------- --------
Cash and cash equivalents at end
of year $ 1,971 7,827 2,494
========= ======== ========
89
(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. 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.
LONG-TERM DEBT
The fair value of long-term debt 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.
90
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR SUBORDINATED
DEBENTURES.
Given the variable rate nature of this financial instrument, the carrying value
approximates fair value.
Estimated fair values of financial instruments at December 31 are as follows:
2001 2000
-------------------------- -------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
AMOUNT VALUE AMOUNT VALUE
---------- -------------- --------- --------------
(IN THOUSANDS)
FINANCIAL ASSETS
Cash and cash equivalents $ 129,957 129,957 130,443 130,443
Trading securities 126 126 20,540 20,540
Securities available for sale 909,341 909,341 936,757 936,757
Securities held to maturity 101,604 101,495 110,415 109,835
Loans (1) 2,339,636 2,399,044 2,247,655 2,232,573
Less allowance for loan losses 44,746 - 32,494 -
---------- -------------- --------- --------------
Net loans 2,294,890 2,399,044 2,215,161 2,232,573
Accrued interest receivable 18,152 18,152 21,043 21,043
FINANCIAL LIABILITIES
Deposits:
Interest bearing:
Savings, NOW and
money market $1,097,156 1,097,156 970,859 970,859
Time deposits 1,387,049 1,400,996 1,500,828 1,503,756
Noninterest bearing 431,407 431,407 372,181 372,181
Short-term borrowings 122,013 122,013 184,704 184,704
Long-term debt 272,331 282,426 240,529 241,396
Accrued interest payable 13,145 13,145 17,041 17,041
Guaranteed preferred beneficial
interests in company's junior
subordinated debentures 17,000 17,000 17,000 17,000
(1) Lease receivables, although excluded from the scope of SFAS No. 107, are
included in the estimated fair value amounts at their carrying amounts.
91
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. 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.
92
93
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required is incorporated herein by reference from the Company's
definitive Proxy Statement for its annual meeting of shareholders to be held on
May 2, 2002 (the "Proxy Statement"), which will be filed with the Securities and
Exchange Commission within 120 days of the Company's 2001 fiscal year end.
ITEM 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference from the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated herein by reference from the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference from the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements are incorporated by
reference from Item 8 hereof:
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 2001 and 2000.
Consolidated Statements of Income for each of the three years ended
December 31, 2001, 2000 and 1999.
Consolidated Statements of Changes in Stockholders' Equity for each
of the three years ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for each of the three years
ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Comprehensive Income for each of the
three years ended December 31, 2001, 2000 and 1999. Notes to the
Consolidated Financial Statements.
(a)(2) There are no financial statement schedules that are required to be
filed as part of this form since they are not applicable or the
information is included in the consolidated financial statements.
(a)(3) See (c) below for all exhibits filed herewith and the Exhibit
Index.
(b) Reports on Form 8-K
-94-
The Company filed a Current Report on Form 8-K with the Securities and Exchange
Commission on November 13, 2001 (date of report November 8, 2001) (announcing
the completion of the Company's acquisition of CNB Financial Corp. and the
appointment of Messrs. Van Ness Robinson, John P. Woods, Jr., and Joseph A.
Santangelo to serve as members of the Company's Board of Directors).
(c) Exhibits. The following exhibits are either filed as part of this
annual report on Form 10-K, or are incorporated herein by reference:
Exhibit
Number
3.1 Certificate of Incorporation of NBT Bancorp Inc.
3.2 Amended and Restated By-laws of NBT Bancorp Inc.
3.3 Rights Agreement, dated as of November 15, 1994, between NBT Bancorp
Inc. and American Stock Transfer Trust Company as Rights Agent (filed as
Exhibit 4.1 to Registrant's Form 8-A, file number 0-14703, filed on
November 25, 1994, and incorporated by reference herein).
3.4 Amendment No. 1 to Rights Agreement, dated as of December 16, 1999,
between NBT Bancorp Inc. and American Stock Transfer Trust Company as
Rights Agent (filed as Exhibit 4.2 to Registrant's Form 8-A/A, file
number 0-14703, filed on December 21, 1999, and incorporated by
reference herein).
3.5 Amendment No. 2 to Rights Agreement, dated as of April 19, 2000, between
NBT Bancorp Inc. and American Stock Transfer Trust Company as Rights
Agent (filed as Exhibit 4.3 to Registrant's Form 8-A12G/A, file number
0-14703, filed on May 25, 2000, and incorporated by reference herein).
10.1 NBT Bancorp Inc. 401(K) and Employee Stock Ownership Plan made as of
January 1, 2001 (filed as Exhibit 10.1 to Registrant's Form 10-K for the
year ended December 31, 2000, filed on March 29, 2001 and incorporated
by reference herein).
10.2 First Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock
Ownership Plan effective July 2, 2001.
10.3 Second Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock
Ownership Plan effective July 2, 2001.
10.4 Third Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock
Ownership Plan effective January 1, 2002.
10.5 Fourth Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock
Ownership Plan effective January 1, 2002.
10.6 Fifth Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock
Ownership Plan effective January 1, 2002.
10.7 NBT Bancorp Inc. Defined Benefit Pension Plan, Amended and Restated
Effective as of January 1, 2000 (filed as Exhibit 10.2 to Registrant's
Form 10-K for the year ended December 31, 2000, filed on March 29, 2001
and incorporated by reference herein).
10.8 Amendment Number One to NBT Bancorp Inc. Defined Benefit Pension Plan
effective December 31, 2001.
10.9 NBT Bancorp Inc. 1993 Stock Option Plan (filed as Exhibit 99.1 to
Registrant's Form S-8 Registration Statement, file number 333-71830
filed on October 18, 2001 and incorporated by reference herein).
10.10 NBT Bancorp Inc. Non-Employee Director, Divisional Director and
Subsidiary Director Stock Option Plan (filed as Exhibit 99.1 to
Registrant's Form S-8 Registration Statement, file number 333-73038
filed on November 9, 2001 and incorporated by reference herein).
-95-
EXHIBIT INDEX (continued)
Exhibit
Number
10.11 NBT Bancorp Inc. Employee Stock Purchase Plan.
10.12 NBT Bancorp Inc. Directors Restricted Stock Plan (filed as Exhibit
99.1 to Registrant's Form S-8 Registration Statement, file number
333-72772 filed on November 5, 2001, and incorporated by reference
herein).
10.13 NBT Bancorp Inc. 2002 Executive Incentive Compensation Plan.
10.14 Change in control agreement with Daryl R. Forsythe (filed as Exhibit
10.4 to the Registrant's Form 10-Q for the quarterly period ended
September 30, 2001, filed on November 14, 2001 and incorporated herein
by reference).
10.15 Form of Employment Agreement between NBT Bancorp Inc. and Daryl R.
Forsythe made as of January 1, 2002.
10.16 Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank,
National Association and Daryl R. Forsythe as Amended and Restated
Effective January 28, 2002.
10.17 Death Benefits Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe made August 22, 1995 (filed as Exhibit
10.8 to Registrant's Form 10-K for the year ended December 31, 2000,
filed on March 29, 2001 and incorporated herein by reference).
10.18 Amendment dated January 28, 2002 to Death Benefits Agreement between
NBT Bancorp Inc., NBT Bank, National Association and Daryl R. Forsythe
made August 22, 1995.
10.19 Split-Dollar Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe made August 22, 1995.
10.20 Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe made as of August 1, 1995 (filed as
Exhibit 10.9 to Registrant's Form 10-K for the year ended December 31,
2000, filed on March 29, 2001 and incorporated herein by reference).
10.21 Form of Employment Agreement between NBT Bancorp Inc. and Martin A.
Dietrich made as of January 1, 2002.
10.22 Supplemental Executive Retirement Agreement between NBT Bancorp Inc.
and Martin A. Dietrich made as of July 23, 2001(filed as Exhibit 10.13
to Registrant's Form 10-Q for the quarterly period ended September 30,
2001, filed on November 14, 2001 and incorporated herein by reference).
10.23 Change in control agreement with Martin A. Dietrich (filed as Exhibit
10.3 to Registrant's Form 10-Q for the quarterly period ended September
30, 2001, filed on November 14, 2001 and incorporated herein by
reference).
10.24 Form of Employment Agreement between NBT Bancorp Inc. and Michael J.
Chewens made as of January 1, 2002.
10.25 Supplemental Executive Retirement Agreement between NBT Bancorp Inc.
and Michael J. Chewens made as of July 23, 2001 (filed as Exhibit 10.12
to Registrant's Form 10-Q for the quarterly period ended September 30,
2001, filed on November 14, 2001 and incorporated by reference herein).
10.26 Change in control agreement with Michael J. Chewens (filed as Exhibit
10.1 to Registrant's Form 10-Q for the quarterly period ended September
30, 2001, filed on November 14, 2001 and incorporated herein by
reference).
10.27 Form of Employment Agreement between NBT Bancorp Inc. and David E.
Raven made as of January 1, 2002.
10.28 Change in control agreement with David E. Raven (filed as Exhibit 10.7
to Registrant's Form 10-Q for the quarterly period ended September 30,
2001, filed on November 14, 2001 and incorporated by reference herein).
10.29 Form of Employment Agreement between NBT Bancorp Inc. and Lance D.
Mattingly made as of January 1, 2002.
-96-
10.30 Change in control agreement with Lance D. Mattingly (filed as Exhibit
10.5 to Registrant's Form 10-Q for the quarterly period ended September
30, 2001, filed on November 14, 2001 and incorporated by reference
herein).
10.31 Form of Employment Agreement between NBT Bancorp Inc. and Peter Corso
made as of January 1, 2002.
10.32 Change in control agreement with Peter Corso (filed as Exhibit 10.2 to
Registrant's Form 10-Q for the quarterly period ended September 30,
2001, filed on November 14, 2001 and incorporated herein by reference).
10.33 Change in control agreement with Tom Delduchetto
10.34 NBT Bancorp Inc. and Subsidiaries Master Deferred Compensation Plan of
Directors, adopted February 11, 1992 (filed as Exhibit 10.9 to
Registrant's Form 10-K for the year ended December 31, 2000, filed on
March 29, 2001 and incorporated herein by reference).
10.35 Agreement and Plan of Merger by and between NBT Bancorp Inc. and First
National Bancorp, Inc., dated as of January 2, 2001 (filed as Annex A to
Registrant's Form S-4 Registration Statement, file number 333-55360,
filed on February 9, 2001, and incorporated by reference herein).
-97-
EXHIBIT INDEX (continued)
Exhibit
Number
10.36 Agreement and Plan of Merger among NBT Bancorp Inc., NBT Bank,
National Association, CNB Financial Corp. and Central National Bank,
Canajoharie dated as of June 19, 2001 (filed as Appendix A to
Registrant's Form S-4/A Registration Statement, file number 333-66472,
filed on August 27, 2001, and incorporated by reference herein).
21 A list of the subsidiaries of the Registrant.
23 Consent of KPMG LLP.
-98-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, NBT Bancorp Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NBT BANCORP INC. (Registrant)
March 25, 2002
/s/ Daryl R. Forsythe
- ----------------------
Daryl R. Forsythe
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Daryl R. Forsythe /s/ Michael J. Chewens
- -------------------------------------------- ----------------------------------
Daryl R. Forsythe Michael J. Chewens
President, Chief Executive Officer Chief Financial Officer (Principal
and Chairman (Principal Executive Officer) Financial Officer)
Date: March 25, 2002 Date: March 25, 2002
/s/ J. Peter Chaplin /s/ John C. Mitchell
- -------------------------------------------- ----------------------------------
J. Peter Chaplin, Director John C. Mitchell, Director
Date: March 25, 2002 Date: March 25, 2002
/s/ Richard Chojnowski, /s/ Joseph G. Nasser
- -------------------------------------------- ----------------------------------
Richard Chojnowski, Director Joseph G. Nasser, Director
Date: March 25, 2002 Date: March 25, 2002
/s/ Gene E. Goldenziel /s/ William L. Owens
- -------------------------------------------- ----------------------------------
Gene E. Goldenziel, Director William L. Owens, Director
Date: March 25, 2002 Date: March 25, 2002
/s/ Peter B. Gregory /s/ Van Ness D. Robinson
- -------------------------------------------- ----------------------------------
Peter B. Gregory, Director Van Ness D. Robinson, Director
Date: March 25, 2002 Date: March 25, 2002
/s/ William C. Gumble /s/ Joseph A. Santangelo
- -------------------------------------------- ----------------------------------
William C. Gumble, Director Joseph A. Santangelo, Director
Date: March 25, 2002 Date: March 25, 2002
/s/ Bruce D. Howe /s/ Paul O. Stillman
- -------------------------------------------- ----------------------------------
Bruce D. Howe, Director Paul O. Stillman, Director
Date: March 25, 2002 Date: March 25, 2002
/s/ Andrew S. Kowalczyk, Jr. /s/ John P. Woods, Jr.
- -------------------------------------------- ----------------------------------
Andrew S. Kowalczyk, Jr., Director John P. Woods, Director
Date: March 25, 2002 Date: March 25, 2002
-99-
Exhibit 3.1
Certificate of Incorporation of NBT BANCORP INC., as amended through July 23,
2001.
-100-
RESTATED
CERTIFICATE OF INCORPORATION
OF
NBT BANCORP INC.
FIRST: The name of the corporation (hereinafter called the Corporation)
-----
is NBT BANCORP INC.
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is 2711 Centerville Road Suite 400, Wilmington, New Castle
County, Delaware, 19808; and the name of the registered agent of the Corporation
in the State of Delaware at such address is The Prentice-Hall Corporation
System, Inc.
THIRD: The nature of the business and the purpose to be conducted and
-----
promoted by the Corporation shall be to conduct any lawful business, to promote
any lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
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 $.01 per share and Two Million
Five Hundred Thousand (2,500,000) shares of Preferred Stock, par value $.01 per
share.
FIFTH: The Board of Directors is authorized, subject to limitations
-----
prescribed by law and the provisions of the Article FOURTH, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not to be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(g) The right of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series;
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(h) Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment, before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, the assets available for distribution to holders of shares
of Preferred Stock of all series shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
SIXTH: The Corporation is to have perpetual existence.
-----
SEVENTH: The name and the mailing address of the incorporator are as
-------
follows:
NAME MAILING ADDRESS
---- ---------------
Everett A. Gilmour 52 South Broad Street
Norwich, New York 13815
EIGHTH: For the management of the business and for the conduct of the
------
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
(a) The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors shall be fixed by, or in the manner provided in, the By-Laws.
Directors need not be elected by written ballot, unless so required by the
By-Laws of the Corporation.
(b) After the original or other By-Laws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and after the Corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the By-Laws of the Corporation
may be exercised by the Board of Directors of the Corporation.
NINTH: Meetings of stockholders may be held within or without the State
-----
of Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statute) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
TENTH: From time to time, any of the provisions of this Certificate of
-----
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, all in the manner now or hereafter prescribed by the laws of
the State of Delaware, and all rights and powers at any time conferred upon the
stockholders and the directors of the Corporation by this Certificate of
Incorporation are granted subject to the provisions of this Article TENTH. The
provisions set forth in Article ELEVENTH may not be repealed or amended in any
respect, unless such action is approved by the affirmative vote of the holders
of not less than eighty percent (80%) of the outstanding shares of Voting Stock
(as defined in Article ELEVENTH) of the Corporation; provided, however, if there
is a Major Stockholder as defined in Article ELEVENTH, such eighty percent (80%)
vote must include the affirmative vote of at least eighty percent (80%) of
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the outstanding shares of voting stock held by shareholders other than the Major
Stockholder.
ELEVENTH:
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(a) The affirmative vote of the holders of not less than eighty percent
(80%) of the total voting power of all outstanding shares entitled to vote in
the election of any particular Class of Directors (as defined in Section (e) of
this Article ELEVENTH) and held by disinterested shareholders (as defined below)
shall be required for the approval or authorization of any "Business
Combination," as defined and set forth below:
(1) Any merger, consolidation or other business reorganization or
combination of the Corporation or any of its subsidiaries with any other
corporation that is a Major Stockholder of the Corporation;
(2) Any sale, lease or exchange by the Corporation of all or a
substantial part of its assets to or with a Major Stockholder;
(3) Any issue of any stock or other security of the Corporation or any
of its subsidiaries for cash, assets or securities of a Major Stockholder;
(4) Any reverse stock split of, or exchange of securities, cash or
other properties or assets for any outstanding securities of the
Corporation or any of its subsidiaries or liquidation or dissolution of the
Corporation or any of its subsidiaries in any such case in which a Major
Stockholder receives any securities, cash or other assets whether or not
different from those received or retained by any holder of securities of
the same class as held by such Major Shareholder.
The affirmative vote required by this Article ELEVENTH shall be in addition
to the vote of the holders of any class or series of stock of the Corporation
otherwise required by law, by any other Article of this Certificate of
Incorporation or as this Certificate of Incorporation may be amended, by any
resolution of the Board of Directors providing for the issuance of a class or
series of stock, or by any agreement between the Corporation and any national
securities exchange.
(b) For the purpose of this Article ELEVENTH:
(1) The term "Major Stockholder" shall mean and include any person,
corporation, partnership, or other person or entity which, together with
its "Affiliates" and "Associates" (as defined at Rule 12b-2 under the
Securities Exchange Act of 1934), "beneficially owns" (as hereinafter
defined) in the aggregate five percent (5%) or more of the outstanding
shares of Voting Stock, and any Affiliates or Associates of any such
person, corporation, partnership, or other person or entity.
(2) The term "Substantial Part" shall mean more than twenty-five
percent (25%) of the fair market value of the total consolidated assets of
the Corporation in question or more than twenty-five percent (25%) of the
aggregate par value of authorized and issued Voting Stock of the
Corporation in question, as of the end of its most recent fiscal quarter
ending prior to the time the determination is being made.
(3) The term "Voting Stock" shall mean the stock of Corporation
entitled to vote in the election of directors.
(4) The term "Beneficial Owner" shall mean any person and certain
related parties, directly or indirectly, who own shares or have the right
to acquire or vote shares of the company.
(5) The term "Disinterested Shareholder" shall mean any holder of
voting securities of the company other then (i) a Major Stockholder if it
or any of them has a financial interest in the transaction being voted on
(except for a financial interest attributable solely to such person's
interest as a stockholder of
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the company which is identical to the interests of all stockholders of the
same class) and (ii) in the context of a transaction described in (a) (4)
above, any Major Stockholder (whether or not having a financial interest
described in clause (i) of this sentence) if it or any of them has directly
or indirectly proposed the transaction, solicited proxies to vote in favor
of the transaction, financed any such solicitation of proxies or entered
into any contract, arrangement, or understanding with any person for the
voting of securities of the company in favor of the transaction.
(c) The provisions of this Article shall not apply to a Business
Combination which is approved by sixty-six and two-thirds percent (66-2/3%) of
those members of the Board of Directors who were directors prior to the time
when the Major Stockholder became a Major Stockholder. The provisions of this
Article shall not apply to a Business Combination which (i) does not change any
stockholder's percentage ownership in the shares of stock entitled to vote in
the election of directors of any successor of the Corporation from the
percentage of the shares of Voting Stock owned by such stockholder; (ii)
provides for the provisions of this Article without any amendment, change,
alteration, or deletion, to apply to any successor to the Corporation; and (iii)
does not transfer all or a Substantial Part of the Corporation's assets or
Voting Stock other than to a wholly-owned subsidiary of the Corporation.
(d) Nothing contained in the Article shall be construed to relieve a Major
Stockholder from any fiduciary obligation imposed by law. In addition, nothing
contained in this Article shall prevent any stockholders of the Corporation from
objecting to any Business Combination and from demanding any appraisal rights
which may be available to such stockholder.
(e) The Board of Directors of the Corporation shall be divided into three
classes: Class 1, Class 2 and Class 3, which shall be as nearly equal as
possible. Each Director shall serve for a term ending on the date of the third
Annual Meeting of Shareowners following the Annual Meeting at which such
Director was elected; provided, however, that each initial Director in Class 1
shall hold office until the Annual Meeting of Shareowners in 1987; each initial
Director in Class 2 shall hold office until the Annual Meeting of Shareowners in
1988; and each initial Director in Class 3 shall hold office until the Annual
Meeting of Shareowners in 1989. Such initial Directors for each of the three
Classes of Directors shall be as follows: Class 1 - John M. Kolbas and Paul O.
Stillman; Class 2 - Donald E. Stone, Darryl R. Gregson and Paul R. Enggaard;
Class 3 - Everett A. Gilmour, J. K. Weinman and Thomas J. Mirabito. In the event
of any increase or decrease in the authorized number of Directors, (1) each
Director then serving as such nevertheless continue as a Director of the Class
of which he is a member until the expiration of his current term, or his earlier
resignation, removal from office or death, and (2) the newly created or
eliminated directorships resulting from such increase or decrease shall be
appointed by the Board of Directors among the three Classes of Directors so as
to maintain such Classes as nearly equal as possible. Notwithstanding any of the
foregoing provisions of this Article Eleventh, each Director shall serve until
his successor is elected and qualified or until his earlier resignation, removal
from office or death.
TWELFTH: A director of the corporation shall not be personally liable
-------
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation of its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the Delaware General Corporation Law hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware General Corporation Law. Any repeal or
modification of this paragraph by the stockholders of the corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the corporation existing at the time of such repeal
or modification.
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Exhibit 3.2
By-laws of NBT BANCORP INC., as amended and restated through July 23, 2001.
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BY-LAWS OF
NBT BANCORP INC.
(herein called the "Corporation")
ARTICLE I. OFFICES
Section 1. Principal Office. The principal office of the Corporation
----------------
shall be at:
52 South Broad Street
Norwich, New York 13815
or such other place as the Board of Directors may designate.
Section 2. Other Offices. In addition to its principal office, the
-------------
Corporation may have offices at such other places, within or without the State
of Delaware, as the Board of Directors may from time to time appoint or as the
business of the Corporation may require.
ARTICLE II. STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of the stockholders of the
---------------
Corporation, for the purpose of electing directors for the ensuing year and for
the transaction of such other business as may properly come before the meeting,
shall be held at such time as may be specified by the Board of Directors.
Section 2. Special Meetings. A special meeting of the stockholders may be
----------------
called at any time by the Board of Directors or by the Chairman of the Board of
Directors, or, if there is none, by the President, or by the holders of not less
than one-half of all the shares entitled to vote at such meeting.
Section 3. Place of Meetings. Each annual meeting of the stockholders
-----------------
shall be held at the principal office of the Corporation, or at such other
place, within or without the State of Delaware, as the Board of Directors may
designate in calling such meeting.
Section 4. Notice of Meetings. Written notice of each annual and each
------------------
special meeting of the stockholders shall be given by or at the direction of the
officer or other person calling the meeting. Such notice shall state the
purpose or purposes for which the meeting is called, the time when and the place
where it is to be held, and such other information as may be required by law.
Except as otherwise required by law, a copy thereof shall be delivered
personally, mailed in a postage prepaid envelope or transmitted electronically
or by telegraph, cable or wireless, not less than ten (10) days nor more than
sixty (60) days before such meeting to each stockholder of record entitled to
vote at such meeting; and if mailed, it shall be directed to such stockholder at
his address as it appears on the stock transfer books of the Corporation, unless
he shall have filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to the address designated in such request.
Notwithstanding the foregoing, a waiver of any notice herein or by law required,
if in writing and signed by the person entitled to such notice, whether before
or after the time of the event for which notice was required to be given, shall
be the equivalent of the giving of such notice. A stockholder who attends shall
be deemed to have had timely and proper notice of the meeting, unless he attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Notice of any adjourned or
recessed meeting need not be given if the time and place thereof are announced
at the meeting at which the adjournment or recess is taken, unless the
adjournment or recess is for more than 30 days, or if after the adjournment or
recess a new record date is fixed for the adjourned or recessed meeting.
Section 5. Quorum. Except as otherwise provided by law, at any meeting of
------
the stockholders of the Corporation, the presence in person or by proxy of the
holders of a majority of the total number of issued and outstanding shares of
Common Stock of the Corporation shall constitute a quorum for the transaction of
business. In
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the absence of a quorum, a majority in voting power of the stockholders present
in person or represented by proxy and entitled to vote may adjourn the meeting
from time to time and from place to place until a quorum is obtained. At any
such adjourned meeting at which a quorum is present any business may be
transacted which might have been transacted at the meeting as originally called.
Section 6. Organization. At every meeting of the stockholders, the
------------
Chairman of the Board, or failing him the President, or, in the absence of the
Chairman of the Board and the President, a person chosen by a majority vote of
the stockholders present in person or by proxy and entitled to vote, shall act
as Chairman of the meeting. The Secretary, or an Assistant Secretary, or, in
the discretion of the Chairman, any person designated by him, shall act as a
secretary of the meeting.
Section 7. Inspections. The directors, in advance of any meeting, shall
-----------
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. In case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon discharge of his duties, shall
take and sign an oath to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his ability. The
inspector or inspectors shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive and count votes, ballots or consents and hear and determine all
challenges and questions arising in connection with the right to vote. The
inspectors shall certify their determination of the number of shares represented
at the meeting, and their count of all votes and ballots, and shall make a
report in writing of any challenge, question or matter determined by him or them
and execute a certificate of any fact found by him or them.
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Section 8. Business and Order of Business. At each meeting of the
------------------------------
stockholders such business may be transacted as may properly be brought before
such meeting, whether or not such business is stated in the notice of meeting or
in a waiver of notice thereof, except as expressly provided otherwise by law or
by these By-Laws. The order of business at all meetings of stockholders shall
be as follows:
1. Call to order.
2. Selection of secretary of the meeting.
3. Determination of quorum.
4. Appointment of voting inspectors.
5. If the meeting of stockholders is for the election of directors, the
nomination and election of directors.
6. Other business.
For other business to be properly brought before an annual meeting of
stockholders, the stockholder seeking to bring such other business before the
meeting must have given timely notice thereof in writing to the President of the
Corporation, and such business must be a proper matter for stockholder action.
To be timely, a stockholder's notice shall be delivered to or mailed, postage
prepaid, and received by the President at the principal executive offices of the
Corporation at least 60 days but no more than 90 days prior to the anniversary
date of the immediately preceding annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than 30
days before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. Such stockholder's notice shall set
forth (a) a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting, and any
material interest in such
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business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made, and (b) as to the stockholder giving notice and the
beneficial owner, if any, on whose behalf the proposal is made, (I) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner, and (II) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
Notwithstanding the foregoing provisions of this Section 8, a stockholder
seeking to bring such other business before the meeting shall also comply with
all applicable requirements of the Securities Exchange Act of 1934 and the rules
and regulations thereunder with respect to the matters set forth in this Section
8. Nothing in this Section 8 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934.
Section 9. Voting. Except as otherwise provided by law or by the
------
Certificate of Incorporation, holders of Common Stock of the Corporation shall
be entitled to vote upon matters to be voted upon by the stockholders. At each
meeting of stockholders held for any purpose, each stockholder of record of
stock entitled to vote thereat shall be entitled to vote the shares of such
stock standing in his name on the books of the Corporation on the date
determined in accordance with Section 11 of this Article II, each such share
entitling him to one vote.
At all meetings of stockholders for the election of directors, if a quorum
is present, a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors shall be sufficient to elect. All other elections and questions
shall, unless otherwise provided by law, the Certificate of Incorporation or
these By-Laws, or unless a separate vote by a class or series or classes or
series is required, be decided by the affirmative vote of a majority in voting
power of the shares of stock which are present in person or represented by proxy
at the meeting and entitled to vote on the subject matter.
The voting shall be by voice or by ballot as the Chairman may decide,
except that upon demand for a vote by ballot on any question or election, made
by any stockholder or his proxy present and entitled to vote on such question or
election, such vote by ballot shall immediately be taken.
Section 10. Voting List. The Secretary of the Corporation shall make, at
-----------
least ten (10) days before each meeting of stockholders, a complete list of the
stockholders entitled to vote at any such meeting or any adjournment thereof,
with the address of and the number of shares registered in the name of each
stockholder. Such list shall be opened to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, (i) on a reasonably
accessible electronic network, provided that the information required to gain
access to such list is provided with the notice of the meeting, or (ii) during
ordinary business hours, at the principal place of business of the Corporation.
Such list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting and shall be subject to inspection by any
stockholder who is present. The original stock transfer books shall be prima
facie evidence as to who are the stockholders entitled to examine such list or
transfer books or to vote at any meeting of stockholders.
If the requirements of this Section 10 have not been substantially complied
with, the meeting shall, on the demand of any stockholder in person or by proxy,
be adjourned until the requirements are complied with.
Section 11. Record Dates. (a) In order that the Corporation may determine
------------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action other than stockholder action by written
consent, the Board of Directors may fix a record date, which shall not precede
the date such record date is fixed and shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any such other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given and the record date for any purpose other than
stockholder action by written consent shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto. A
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determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within 10 days after the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or any officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
Section 12. Adjournment. Any meeting of stockholders, annual or special,
-----------
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 13. Action by Stockholders Without a Meeting. Any action required
----------------------------------------
or permitted to be taken at any annual or special meeting of stockholders of the
Corporation may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business or to an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of any action by written consent
shall be given to stockholders who have not consented in writing and who, if the
action had been taken at a meeting, would have been entitled to notice of the
meeting if the record date for such meeting had been the date that written
consents signed by a sufficient number of stockholders to take the action were
delivered to the Corporation as provided herein.
Section 14. Proxies. At any meeting of the stockholders, each stockholder
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entitled to vote thereat may vote either in person or by proxy executed in
writing or granted or authorized in such other manner as is permitted under the
General Corporation Law of the State of Delaware. Such proxy shall be filed
with the Secretary at or before the meeting; provided, however, that no proxy
shall be voted or acted upon after eleven months from its date, unless said
proxy provides for a longer period. A proxy need not be sealed, witnessed or
acknowledged.
ARTICLE III. DIRECTORS
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Section 1. General Powers. The business and affairs of the Corporation
--------------
shall be managed by or under the direction of the Board of Directors, and all
corporate powers shall be exercised by or under the direction of the Board of
Directors, except as otherwise expressly required by these By-Laws, by the
Certificate of Incorporation or by law.
Section 2. Qualification, Number, Classification and Term of Office.
--------------------------------------------------------
Every director must be a citizen of the United States and have resided in the
State of New York, or within two hundred miles of the location of the principal
office of the Corporation, for at least one year immediately preceding his
election, and must own $1,000.00 aggregate book value of Corporate Stock. The
number of directors shall be not less than five nor more than twenty-five. A
Board of Directors shall be elected in the manner provided in these By-Laws.
Each director shall have one vote at any directors' meeting.
The Board of Directors shall be divided into three classes: Class 1, Class
2 and Class 3, which shall be as nearly equal in number as possible. Each
director shall serve for a term ending on the date of the third Annual Meeting
of Shareowners following the Annual Meeting at which such director was elected;
provided, however, that each initial director in Class 1 shall hold office until
the Annual Meeting of Shareowners in 1987; each initial director in Class 2
shall hold office until the Annual Meeting of Shareowners in 1988; and each
initial director in Class 3 shall hold office until the Annual Meeting of
Shareowners in 1989.
In the event of any increase or decrease in the authorized number of
directors, (1) each director then serving as such shall nevertheless continue as
a director of the class of which he is a member until the expiration of his
current term, or his earlier resignation, removal from office or death, and (2)
the newly created or eliminated directorships resulting from such increase or
decrease shall be apportioned by the Board of Directors among the three classes
of directors so as to maintain such classes as nearly equal as possible.
Notwithstanding any of the foregoing provisions of this Section 2, each
director shall serve until his successor is elected and qualified or until his
earlier resignation, removal from office or death.
This Article III, Section 2, shall not be altered, amended or repealed
except by an affirmative vote of at least sixty-six and two-thirds percent
(66-2/3%) of the total number of shareowners.
Section 3. Election of Directors. At each meeting of the stockholders for
---------------------
the election of directors, a quorum being present, as defined in Section 5 of
Article II, the election shall proceed as provided in these By-Laws and under
applicable Delaware law. No election need be by written ballot.
If the election of directors shall not be held on the day designated for
any annual meeting or at any adjournment of such meeting, the Board of Directors
shall cause the election to be held at a special meeting of the stockholders as
soon thereafter as may be convenient.
Nominations of candidates for election as directors of the Corporation must
be made in writing and delivered to or received by the President of the
Corporation within ten days following the day on which public disclosure of the
date of any shareholders' meeting called for the election of directors is first
given. Such notification shall contain the name and address of the proposed
nominee, the principal occupation of the proposed nominee, the number of shares
of Common Stock that will be voted for the proposed nominee by the notifying
shareowner, including shares to be voted by proxy, the name and residence of the
notifying shareowner and the number of shares of Common Stock beneficially owned
by the notifying shareowner.
No person shall be eligible for election or re-election as a director if he
or she shall have attained the age of 70 years.
Nominations not made in accordance herewith may be disregarded by the
Chairman of the meeting.
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Section 4. Removal of Directors. Any director may be removed at any time,
--------------------
but only for cause, by the affirmative vote of a majority in voting power of the
stockholders of record entitled to elect a successor, and present in person or
by proxy at a special meeting of such stockholders for which express notice of
the intention to transact such business was given and at which a quorum shall be
present.
Section 5. Organization. The Board of Directors, by majority vote, may
------------
from time to time appoint a Chairman of the Board who shall preside over its
meetings. The period and terms of the appointment shall be determined by the
Board of Directors. The Secretary of the Corporation, or an Assistant
Secretary, or, in the discretion of the Chairman, any person appointed by him,
shall act as secretary of the meeting.
Section 6. Place of Meeting, etc. The Board of Directors may hold its
---------------------
meetings at such place or places within or without the State of Delaware as the
Board of Directors may from time to time, by resolution determine, or (unless
contrary to resolution of the Board of Directors), at such place as shall be
specified in the respective notices or waivers of notice thereof. Unless
otherwise restricted by law or by the Certificate of Incorporation, members of
the Board of Directors or any committee thereof may participate in a meeting of
the Board of Directors such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 6 shall constitute presence at such meeting. The Chairman or any person
appointed by him shall act as secretary of the meeting.
Section 7. Annual Meeting. The Board of Directors may meet, without
--------------
notice of such meeting, for the purpose of organization, the election of
officers and the transaction of other business, on the same day as, at the place
at which, and as soon as practicable after each annual meeting of stockholders
is held. Such annual meeting of directors may be held at any other time or
place specified in a notice given as hereinafter provided for special meetings
of the Board of Directors, or in a waiver of notice thereof.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held at such times and places as may be fixed from time to time by action
of the Board of Directors. Unless required by resolution of the Board of
Directors, notice of any such meeting need not be given.
Section 9. Special Meetings. Special meetings of the Board of Directors
----------------
shall be held whenever called by the Chief Executive Officer, or by any three or
more directors, or, at the direction of any of the foregoing, by the Secretary.
Notice of each such meeting shall be mailed to each director, addressed to him
at his residence or usual place of business, not less than three (3) days before
the date on which the meeting is to be held; or such notice shall be sent to
each director at such place by telegraph, cable, telefax, telephone or wireless,
or by electronic mail to an address previously provided by the director to the
Corporation for delivery of such notices, in each such case not less than
twenty-four (24) hours before the time at which the meeting is to be held. Every
such notice shall state the time and place of the meeting. Notice of any
adjourned or recessed meeting of the directors need not be given.
Section 10. Waivers of Notice of Meetings. Anything in these By-Laws or
-----------------------------
in any resolution adopted by the Board of Directors to the contrary
notwithstanding, proper notice of any meeting of the Board of Directors shall be
deemed to have been given to any director if such notice shall be waived by him
in writing (including telegraph, cable, telefax, wireless, or electronic mail)
before or after the meeting. A director who attends a meeting shall be deemed
to have had timely and proper notice thereof, unless he attends for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called.
Section 11. Quorum and Manner of Acting. A majority of the directors
---------------------------
shall constitute a quorum for the transaction of business. Except as may
otherwise be expressly provided by these By-Laws, the act of a majority of the
directors present at any meeting at which a quorum is present, shall be the act
of the Board of Directors. In the absence of a quorum, a majority of the
directors present may adjourn the meeting from time to time until a quorum be
had. The directors shall act only as a Board and the individual directors shall
have no power as such.
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Section 12. Resignations. Any director of the Corporation may resign at
------------
any time, in writing, by notifying the Chief Executive Officer, or the President
or the Secretary of the Corporation. Such resignation shall take effect at the
time therein specified; and, unless otherwise specified, the acceptance of such
resignation shall not be necessary to make it effective.
Section 13. Manner of Fixing the Number of Directors; Vacancies. The
---------------------------------------------------
number of directors authorized to serve until the next annual meeting of
stockholders of the Corporation shall be the number designated, at the annual
meeting and prior to the election of directors, by the stockholders entitled to
vote for the election of directors at that meeting. Between annual meetings of
the stockholders of the Corporation, the Board of Directors shall have the power
to increase, by not more than three (3), the number of directors of the
Corporation.
Any vacancy in the Board of Directors, caused by death, resignation,
removal, disqualification, increase in the number of directors, or any other
cause (other than an increase by more than three (3) in the number of
directors), may be filled by the majority vote of the remaining directors then
in office, though less than a quorum, at any regular meeting of the Board of
Directors. If, at the time of the next election of directors by the
stockholders, the term of office of any vacancy filled by the remaining
directors has not expired, then the stockholders shall fill such vacancy for the
remainder of the unexpired term. Any vacancy, including one caused by an
increase in the number of directors, may be filled at a meeting called for such
purpose, by vote of the stockholders.
Section 14. Committees. The Board of Directors may designate one or more
----------
Committees, each Committee to consist of one or more of the Directors of the
Corporation, which to the extent provided in said resolution or resolutions,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation to the fullest extent
permitted by law and shall have power to authorize the seal of the Corporation
to be affixed to all papers which may require it. Such Committee or Committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
In the absence or disqualification of any member of any Committee appointed
by the Board, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at a meeting in the place
of any such absent or disqualified member, subject, however, to the right of the
Board of Directors to designate one or more alternate members of such Committee,
which alternate members all have power to serve, subject to such conditions as
the Board may prescribe, as a member or members of said Committee during the
absence or inability to act of any one or more members of said Committee. The
Board of Directors shall have the power at any time to change the membership of
any Committee, to fill vacancies in it, or to dissolve it. A Committee may make
rules for the conduct of its business and shall act in accordance therewith,
except as otherwise provided herein or required by law. A majority of the
members of the Committee shall constitute a quorum. A Committee shall keep
regular minutes of its proceedings and report the same to the Board when
required.
The Chief Executive Officer, if he is a director, shall be a voting member
of all Committees of the Board of Directors, except the Risk Management
Committee and the Compensation and Benefits Committee.
Section 15. Directors' Action Without a Meeting. Unless otherwise
-----------------------------------
provided by the Certificate of Incorporation, any action required to be taken at
a meeting of the directors, or any action which may be taken at a meeting of the
directors or of a committee, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed before such action
by all the directors, or all the members of the committee, as the case may be.
Such consent shall have the same force and effect as a unanimous vote.
Section 16. Compensation. Directors, as such, may receive compensation as
------------
fixed by resolution of the Board of Directors, including annual fees for
services as directors, and a fixed fee and expenses of attendance, if any, for
attendance at each meeting of the Board. The compensation may be in the form of
cash, stock of the Corporation, options to purchase stock of the Corporation, or
a combination of the foregoing, as the Board in its discretion shall determine.
Nothing in this section shall be construed to preclude a Director from serving
the Corporation in any other capacity and receiving compensation therefor.
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ARTICLE IV. OFFICERS
Section 1. Officers. The officers of the Corporation shall be a Chairman
--------
of the Board of Directors, one or more Vice Chairmen of the Board of Directors,
a President, a Chief Financial Officer and a Secretary, and where elected, one
or more Vice-Presidents, and the holders of such other offices as may be
established in accordance with the provisions of Section 3 of this Article. Any
two or more offices may be held by the same person; provided only, that the same
person shall not hold the offices of Chairman and Secretary.
Section 2. Election, Term of Office and Qualifications. The officers
-------------------------------------------
shall be elected annually by the Board of Directors, as soon as practicable
after the annual election of directors in each year. Each officer shall hold
office until his successor shall have been duly chosen and shall qualify, or
until his death, resignation or removal in the manner hereinafter provided.
Section 3. Subordinate Officers. The Board of Directors may from time to
--------------------
time establish offices in addition to those designated in Section 1 of this
Article IV with such duties as are provided in these By-Laws, or as they may
from time to time determine.
Section 4. Removal. Any officer may be removed, either with or without
-------
cause, by resolution declaring such removal to be in the best interests of the
Corporation and adopted at any regular or special meeting of the Board of
Directors by a majority of the directors then in office. Any such removal shall
be without prejudice to the recovery of damages for breach of contract rights,
if any, of the person removed. Election of appointment of an officer or agent
shall not of itself, however, create contract rights.
Section 5. Resignations. Any officer may resign at any time by giving
------------
written notice to the Board of Directors or the Chairman of the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the date of receipt of such notice or at any
later time therein specified; and, unless otherwise specified, the acceptance of
such resignation shall not be necessary to make it effective. However, no
resignation hereunder, or the acceptance thereof by the Board of Directors,
shall prejudice the contract or other rights, if any, of the Corporation with
respect to the person resigning.
Section 6. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term by the Board of Directors.
Section 7. Compensation. Salaries or other compensation of the officers
------------
may be fixed from time to time by the Board of Directors or in such manner as it
shall determine. No officer shall be prevented from receiving his salary by
reason of the fact that he is also a director of the Corporation.
Section 8. Chairman of the Board of Directors. Where there is a Chairman
----------------------------------
of the Board of Directors he shall be an officer and a director; and he may be
the Chief Executive Officer of the Corporation and as such may have general
supervision of the business of the Corporation, subject, however, to the control
of the Board of Directors and of any duly authorized committee of directors. The
Chief Executive Officer shall have full power and authority to cast any votes
which the Corporation is entitled to cast as a shareholder of another
corporation. Where there is no Chairman of the Board, or he is unable to
discharge his duties, the powers of the Chairman shall be vested in the
President. The Chairman of the Board shall preside at all meetings of
stockholders and of the Board of Directors at which he is present.
Section 9. Vice Chairman of the Board of Directors. The Vice Chairman
---------------------------------------
shall be a director of the Corporation. In general, he shall perform all duties
incident to the office of Vice Chairman and such other duties as may from time
to time be designated to him by the Board of Directors or by any duly authorized
committee of directors, and shall have such other powers and authorities as are
conferred upon him elsewhere in these By-Laws.
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Section 10. President. The President shall be a director and may be the
---------
Chief Executive Officer or the Chief Operating Officer of the Corporation. In
general, he shall perform all duties incident to the office of the President and
such other duties as may from time to time be designated to him by the Board of
Directors or by any duly authorized committee of directors, and shall have such
other powers and authorities as are conferred upon him elsewhere in these
By-Laws.
Section 11. The Vice Presidents. The Vice Presidents shall perform such
-------------------
duties as from time to time may be assigned to them by the Board of Directors,
or by any duly authorized committee of directors or by the President, and shall
have such other powers and authorities as are conferred upon them elsewhere in
these By-Laws.
Section 12. Chief Financial Officer. Except as may otherwise be
-----------------------
specifically provided by the Board of Directors or any duly authorized committee
thereof, the Chief Financial Officer shall have the custody of, and be
responsible for, all funds and securities of the Corporation; receive and
receipt for money paid to the Corporation from any source whatsoever; deposit
all such monies in the name of the Corporation in such banks, trust companies,
or other depositories as shall be selected in accordance with the provisions of
these By-Laws; against proper vouchers, cause such funds to be disbursed by
check or draft on the authorized depositories of the Corporation signed in such
manner as shall be determined in accordance with the provisions of these
By-Laws; regularly enter or cause to be entered in books to be kept by him or
under his direction, full and adequate accounts of all money received and paid
by him for account of the Corporation; in general, perform all duties incident
to the office of Chief Financial Officer and such additional duties as are
assigned by the General Corporation Law of the State of Delaware to the
treasurer of a corporation organized under the laws of the State of Delaware and
such other duties as from time to time may be assigned to him by the Board of
Directors, or by any duly authorized committee of directors, or by the Chief
Executive Officer, and have such other powers and authorities as are conferred
upon him elsewhere in these By-Laws.
Section 13. Secretary. The Secretary shall act as Secretary of all
---------
meetings of the stockholders and of the Board of Directors of the Corporation;
shall keep the minutes thereof in the proper books to be provided for that
purpose; shall see that all notices required to be given by the Corporation are
duly given and served; shall be the custodian of the seal of the Corporation and
may affix the seal or cause it to be affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these By-Laws; shall have charge of the books,
records and papers of the Corporation relating to its organization and
management as a corporation, and shall see that any reports or statements
relating thereto, required by law or otherwise, are properly kept and filed;
shall, in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
of Directors, or by any duly authorized committee of directors or by the Chief
Executive Officer, and shall have such other powers and authorities as are
conferred upon him elsewhere in these By-Laws.
Section 14. Assistant Financial Officers and Assistant Secretaries. The
------------------------------------------------------
Assistant Financial Officers and Assistant Secretaries shall perform such duties
as shall be assigned to them by the Chief Financial Officer and by the
Secretary, respectively, or by the Board of Directors, or by any duly authorized
committee of directors, or by the Chief Executive Officer, and shall have such
other powers and authorities as are conferred upon them elsewhere in these
By-Laws.
ARTICLE V. SHARES OF STOCK
Section 1. Regulation. Subject to the terms of any contract of the
----------
Corporation, the Board of Directors may make such rules and regulations as it
may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the stock of the Corporation, including the issue of
new certificates for lost, stolen or destroyed certificates and including the
appointment of transfer agents and registrars.
Section 2. Stock Certificates. Certificates for shares of the stock of
------------------
the Corporation shall be respectively numbered serially for each class of
shares, or series thereof and, as they are issued, shall be impressed with the
corporate seal or a facsimile thereof, and shall be signed by the Chairman of
the Board, the Vice Chairman, the
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President or any Vice President and by the Secretary or any Assistant Secretary,
or any two officers of the Corporation designated by the Board of Directors,
provided that such signatures may be facsimiles on any certificate countersigned
by a transfer agent other than the Corporation or its employee or by a registrar
other than the Corporation or its employee. Each certificate shall exhibit the
name of the Corporation, the class (or series of any class) and number of shares
represented thereby and the name of the holder. Each certificate shall be
otherwise in such form as may be prescribed by the Board of Directors.
ARTICLE VI. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or an
officer of the Corporation or is or was serving at the request of the
Corporation as a director of another corporation or of a partnership, joint
venture, trust or other enterprise, or as a plan fiduciary with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, officer, or
plan fiduciary or in any other capacity while serving as a Director, officer or
plan fiduciary, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter by amended, against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section 3 of this Article VI with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
Section 2. The right to indemnification conferred in Section 1 of this
Article VI shall include the right to be paid by the Corporation the expenses
(including attorney's fees) incurred in defending any such proceeding in advance
of its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and
to the advancement of expenses conferred in Section 1 and 2 of this Article VI
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a Director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
Section 3. If a claim under Sections 1 or 2 of this Article VI is not paid
in full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a
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presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article VI or
otherwise shall be on the Corporation.
Section 4. The rights to indemnification and to the advancement of
expenses conferred in this Article VI shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, By-Laws, agreement, vote of
stockholders or disinterested Directors or otherwise.
Section 5. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, officer, employee or agent of the Corporation
or of another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
Section 6. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation, or any
person serving at the request of the Corporation as an officer, employee or
agent of another entity, to the fullest extent of the provisions of this Section
with respect to the indemnification and advancement of expenses of Directors and
officers of the Corporation.
ARTICLE VII. MISCELLANEOUS
Section 1. Seal. The corporate seal of the Corporation shall contain the
----
name of the Corporation, the year of its creation, and the words "Corporate
Seal, Delaware," and shall be in such form as may be approved by the Board of
Directors.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be as
-----------
set by the Board of Directors.
Section 3. Loans. Any officer or officers or agent or agents of the
-----
Corporation thereunto authorized by the Board of Directors or by any duly
authorized committee of directors may effect loans or advances at any time for
the Corporation, in the ordinary course of the Corporation's business, from any
bank, trust company or other institution or from any firm, corporation or
individual, and for such loans and advances may make, execute and deliver
promissory notes, bonds or other certificates or evidences of indebtedness of
the Corporation, and when authorized to do so may pledge and hypothecate or
transfer any securities or other property of the Corporation as security for any
such loans or advances. Such authority conferred by the Board of Directors or
any duly authorized committee of directors may be general or confined to
specific instances.
Section 4. Checks, Drafts, Withdrawal of Securities, Safe Deposit Boxes,
-------------------------------------------------------------
etc. All checks, drafts and other orders for payment of money out of the funds
- ---
of the Corporation shall be signed on behalf of the Corporation in such manner
as shall from time to time be determined by resolution of the Board of Directors
or of any duly authorized committee of directors. The Corporation shall furnish
to each depository, bank, custodian and entity providing safe deposit boxes, a
certified copy of its resolution regarding the authorization of disbursements
and the entry to safe deposit boxes or withdrawal of securities from
safekeeping.
Section 5. Deposits. The funds of the Corporation, not otherwise
--------
employed, shall be deposited from time to time to the order of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
or any duly authorized committee of directors may from time to time select, or
as may be selected by an officer or officers, or agent or agents, of the
Corporation to whom such power may from time to time be delegated by the Board
of Directors or any duly authorized committee of directors.
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Section 6. Contracts, etc., How Executed. The Chief Executive Officer,
-----------------------------
and those officers who are designated by resolution of the Board, shall be
authorized to enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation, and such authority may be delegated,
in specific instances to such other officers, employees or agents as such
authorized officers may designate.
Section 7. Voting of Stock or Other Securities Held. Unless otherwise
----------------------------------------
provided by resolution of the Board of Directors, the Chief Executive Officer
may from time to time appoint an attorney or attorneys or agent or agents of
this Corporation, in the name and on behalf of this Corporation to cast the
votes which this Corporation may be entitled to cast as a stockholder or
otherwise in any other corporation, any of whose stock or securities may be held
by this Corporation, at meetings of the holders of the stock or other securities
of such other corporations, or to consent in writing to any action by any such
other corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of this Corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments that he
or they may deem necessary or proper in the premises; or the Chief Executive
Officer may attend any meeting of the holders of stock or other securities of
any such other corporation and thereat vote or exercise any or all other powers
of this Corporation as the holder of such stock or other securities of such
other corporation.
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Section 8. Waivers of Notice. Whenever any notice is required to be given
-----------------
under the provisions of the statutes or of the Certificate of Incorporation, or
of these By-Laws, a waiver thereof in writing signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VIII. AMENDMENTS
Section 1. By the Directors. The Board of Directors by a majority vote
----------------
thereof shall have the power to make, alter, amend or repeal the By-Laws of the
Corporation at any regular or special meeting of the Board of Directors. This
power shall not be exercised by any committee of the Board of Directors.
Section 2. By the Stockholders. Except as otherwise provided in these
-------------------
By-Laws, all By-Laws shall be subject to amendment, alteration or repeal by the
vote of a majority of the total number of issued and outstanding shares of
Common Stock of the Corporation entitled to vote at any annual or special
meeting. The stockholders, at any annual or special meeting, may provide that
certain By-Laws by them adopted, approved or designated may not be amended,
altered or repealed except by a certain specified percentage in interest of the
stockholders or by a certain specified percentage in interest of a particular
class of stockholders.
A-118
Exhibit 10.2
First Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock Ownership Plan
Effective July 2, 2001.
A-119
FIRST AMENDMENT TO THE
NBT BANCORP INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN
THIS AMENDMENT, made this 2nd day of July, 2001, by NBT BANCORP INC. (
hereinafter called the "Employer").
WHEREAS, the Employer did establish the NBT BANCORP INC. 401(K) AND EMPLOYEE
STOCK OWNERSHIP PLAN (the "Plan") for the sole and exclusive benefit of its
eligible participants and their respective beneficiaries under the terms and
provisions of the Internal Revenue Code of 1986, as amended, and
WHEREAS, the Employer reserved the right to amend said Plan;
NOW, THEREFORE, effective as of January 1, 2001, the Plan shall be amended as
follows:
1. Section 8.3 of ARTICLE VIII PAYMENT OR DISTRIBUTION OF BENEFITS, is hereby
amended by adding after the last paragraph of this Section the following
provision:
"With respect to distributions under the Plan made for calendar years
beginning on or after January 1, 2001, the Plan will apply the minimum
distribution requirements of section 401(a)(9) of the Internal Revenue Code
in accordance with the regulations under section 401(a)(9) that were
proposed on January 17, 2001, notwithstanding any provision of the Plan to
the contrary. This amendment shall continue in effect until the end of the
last calendar year beginning before the effective date of final regulations
under section 401(a)(9) or such other date as may be specified in guidance
published by the Internal Revenue Service."
2. Subpart (a), of Section 1.14 of ARTICLE I, DEFINITIONS, is hereby amended
by adding after the last sentence thereof the following provision:
"Effective on and after January 1, 2001, Compensation shall include
elective amounts that are not includible in the gross income of the
Participant by reason of Code section 132(f)(4)."
3. Section 1.32, of ARTICLE I, DEFINITIONS, is hereby amended by adding after
the last sentence thereof the following provision:
"Effective on and after January 1, 2001, Compensation shall include
elective amounts that are not includible in the gross income of the
Participant by reason of Code section 132(f)(4)."
4. Section 1.33 of ARTICLE I, DEFINITIONS, is hereby amended by adding after
the last sentence thereof following provision:
"Effective January 1, 2001, "414(s) Compensation" shall not include
elective amounts that are not includible in the gross income of the
Participant under section 125, 132(f)(4), 402(e)(3), 402(h), or 403(b)."
5. In all other respects, the Plan shall remain unchanged by this Amendment.
IN WITNESS WHEREOF, the Employer has caused this instrument to be executed the
day and year first above written.
/s/ Jane E. Neal
Executive Vice President
A-120
Exhibit 10.3
Second Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock Ownership
Plan
Effective July 2, 2001.
A-121
SECOND AMENDMENT TO THE
NBT BANCORP INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN
THIS AMENDMENT, made this 2nd day of July, 2001, by NBT BANCORP INC.
(hereinafter called "Employer").
WHEREAS, the Employer did establish the NBT BANCORP INC. 401(K) AND EMPLOYEE
STOCK OWNERSHIP PLAN (the "Plan") for the sole and exclusive benefit of its
eligible participants and their respective beneficiaries under the terms and
provisions of the Internal Revenue Code of 1986, as amended, and
WHEREAS, the Employer reserved the right to amend said Plan;
NOW THEREFORE, effective as of January 1, 2001, the Plan shall be amended as
follows:
1. Section 4.1 of ARTICLE IV, CONTRIBUTION AND ALLOCATION is hereby amended by
adding after the last sentence thereof the following provision as Subpart
(e):
"(e) A special one-time contribution of $13,142.24, which shall be deemed a
Participating Employer Non-Elective Contribution. Only Participants
who are employed on January 24, 2001 and who were penalized by a
liquidation fee in the SF Guaranteed contract issued by Mass Mutual as
a result of the merger of LA Bank, N.A. with NBT Bancorp Inc. shall be
eligible to share in the special one-time contribution."
2. Subpart (b) of Section 4.4 of ARTICLE IV, CONTRIBUTION AND ALLOCATION is
hereby amended by adding after the last sentence thereof the following
provision as Subpart (4):
"(4) With respect to the special one-time contribution made pursuant to
Section 4.1(e), to each Participant's Account in an amount equal to
4.137% of the amount of the Participant's Account invested in the SF
Guaranteed contract issued by Mass Mutual as of January 24, 2001.
Notwithstanding the foregoing, no amount shall be contributed to a
Participant's Account if the contribution would cause the
Participant's Account to exceed the limitations of Code Section 415."
3. In all other respects, the Plan shall remain unchanged by this Amendment.
IN WITNESS WHEREOF, the Employer has caused this instrument to be executed the
day and year first above written.
/s/ Jane E. Neal
Executive Vice President
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Exhibit 10.4
Third Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock Ownership Plan
effective January 1, 2002.
A-123
THIRD AMENDMENT
TO
NBT BANCORP INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, NBT BANCORP INC. (the "Employer") sponsors and maintains the NBT
BANCORP INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan") for the
benefit of certain of its employees; and
WHEREAS, Section 11.1 of the Plan authorizes the Employer to amend the
Plan; and
WHEREAS, the Employer desires to amend the Plan to provide express
procedures for the adoption of the Plan by affiliated employers and to provide
for the adoption of the Plan by certain of those affiliated employers;
NOW THEREFORE, the Plan is amended, effective January 1, 2002 in the form
attached hererto.
NBT BANCORP INC.
By: /s/ Jane E. Neal
Title: Executive Vice President
Date: 12/13/2001
A-124
Exhibit 10.5
Fourth Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock Ownership
Plan
effective January 1, 2002.
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FOURTH AMENDMENT
TO
NBT BANCORP INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, NBT BANCORP INC. (the "Employer") sponsors and maintains the NBT
BANCORP INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan") for the
benefit of certain of its employees; and
WHEREAS, Section 11.1 of the Plan authorizes the Employer to amend the
Plan; and
WHEREAS, the Employer desires to amend the Plan to reflect certain
provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
("EGTRRA"). This amendment is intended as good faith compliance with the
requirements of EGTRRA and is to be construed in accordance with EGTRRA and
guidance issued thereunder. Except as otherwise provided, this amendment shall
be effective as of the first day of the first plan yeas beginning after December
31, 2001.
NOW THEREFORE, the Plan is amended, effective January 1, 2002 as follows:
1. Section 1.14 shall be amended to increase the Compensation Limit.
The annual compensation of each participant taken into account in
determining allocations for any plan year beginning after December 31,
2001, shall not exceed $200,000, as adjusted for cost-of-living increases
in accordance with Code Section 401(a)(17)(B). Annual compensation means
compensation during the plan year or such other consecutive 12-month period
over which compensation is otherwise determined under the plan (the
determination period). The cost-of-living adjustment in effect for a
calendar year applies to annual compensation for the determination period
that begins with or within such calendar year.
2. Section 4.9 shall be amended to change the limitations on contributions.
Except to the extent permitted under Section 7 of this amendment and Code
Section 414(v), if applicable, the annual addition
that may be contributed or allocated to a
participant's account under the plan for any
limitation year shall not exceed the lesser of:
(a) $40,000, as adjusted for increases in the cost-of-living under
Code Section 415(d), or
(b) 100 percent of the participant's compensation, within the meaning
of Code Section 415(c)(3), for the limitation year. The compensation
limit referred to in (b) shall not apply to any contribution for
medical benefits after separation from service (within the meaning of
Code Sections 401(h) or 419A(f)(2)), which is otherwise treated as an
annual addition.
3. Sections 4.2(e) and 9.2(b) shall be amended to change the suspension period
for elective deferrals following a hardship distribution from twelve months
to six months.
4. Section 10.12 shall be amended to change the definition of an eligible
rollover distribution.
For purposes of the direct rollover provisions under Section 10.12 of
the Plan, any amount distributed on account of hardship after December
31, 2001 shall not be an "Eligible Distribution" and therefore, the
distributee may not elect to have any portion of such a distribution
paid directly to an "Eligible Plan".
5. Section 8.1 shall be amended to change the involuntary cash-out rules.
For purposes of the involuntary cash-out provisions under Section 8.1,
in determining the value of a Participants or Former Participants
Combined Account, after December 31, 2001, the value shall be
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determined without regard to that portion of the account balance that
is attributable to rollover contributions (and earnings allocable
thereto) within the meaning of Code Sections 402(c), 403(a)(4),
403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16). If the value of the
Participant's or Former Participant's account balance as so determined
is $5,000 or less, the plan shall immediately distribute the
Participant's or Former Participant's nonforfeitable account balance.
6. Section 4.2(a) shall be amended with regard to the maximum salary reduction
contributions.
No participant shall be permitted to have elective deferrals made
under this plan, or any other qualified plan maintained by the
Employer during any taxable year, in excess of the dollar limitation
contained in Code Section 402(g) in effect for such taxable year,
except to the extent permitted under Section 7 of this amendment and
Code Section 414(v), if applicable.
7. Section 4.2(j) shall be added to the Plan to deal with Catch-Up
Contributions.
All employees who are eligible to make elective deferrals under this
Plan and who have attained age fifty before the close of the plan year
effective January 1, 2002 shall be eligible to make catch-up
contributions in accordance with and subject to the limitations of,
Section 414(v) of the Code. Such catch-up contributions shall not be
taken into account for purposes of the provisions of the Plan
implementing the required limitations of Code Sections 402(g),
401(k)(3), 410(b), 415 and 416, as applicable, by reason of the making
of such catch-up contributions.
8. Section 4.4(o) shall be added to the Plan to deal with ESOP Dividend
Reinvestment.
Each Participant shall, upon first becoming eligible to participate in
the Plan pursuant to Sec.3.1, and on an annual basis thereafter, with
respect to the cash dividends on Company Stock held in his Company
Stock Account that are credited to his Other Investments Account in
accordance with Sec.4.4(c), have the option to:
(1) receive payments from the Plan of such cash dividends as soon as
administratively practicable following the crediting thereof, but
in no event later than 90 days following the close of the Plan
Year in which such cash dividends were credited to the
Participant's Other Investments Account; or
(2) have such cash dividends re-invested in his Company Stock Account
in the Plan as soon as administratively practicable following the
crediting thereof, but in no event later than the date such cash
dividends would have otherwise been paid as provided for in
paragraph (1) above, (the "default election").
Cash dividends re-invested in a Participant's Company Stock Account in
accordance with Sec.4.4(o)(2) above and Code Sec.404(k)(2)(A)(iii)(II)
shall not be treated as: (1) annual additions for purposes of Code
Sec.415; or (2) Elective Contributions for purposes of Code
Sec.401(k); or (3) Employee contributions for purposes of Code
Sec.401(m) and Article IV of the Plan.
The Plan Administrator shall institute and adopt such administrative
procedures pursuant to and in accordance with Sec.2.4, which shall be
applied in a uniform and nondiscriminatory manner, as necessary to
provide for Participant elections and the payment and re-investment of
cash dividends on Company Stock. Such procedures shall provide that:
(i) a Participant may only make one irrevocable election with
respect to the cash dividends to be credited to his Other
Investments Account in a given Plan Year, made prospectively
at the beginning of such Plan Year or upon first becoming
eligible to participate in the Plan; and
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(ii) a Participant's election shall remain in effect for all
subsequent Plan Years until the Participant makes a new
election or his entire Vested account balance is distributed
to him; and
(iii) if a Participant fails to make an election upon first
becoming eligible to participate in the Plan, or, if later,
the effective date of this provision, then he shall be
deemed to have elected to re-invest cash dividends as
provided for in paragraph (2) above, and such default
election shall remain in effect in accordance with paragraph
(ii) above.
Notwithstanding the above, for the Plan Year beginning January 1, 2001
and ending December 31, 2001, a Participant's election to receive or
re-invest cash dividends for such Plan Year as described herein shall
be made after December 31, 2001 and before March 31, 2002.
Furthermore, if a Participant elects to receive payment of such cash
dividends credited to his Other Investments Account for the 2001 Plan
Year in accordance with paragraph (1) above, a single sum payment of
all such dividends credited for the year shall be paid to the
Participant after December 31, 2001 and before March 31, 2002.
9. Section 8.16 shall be deleted in its entirety and Sections 8.17 through
8.19 shall be renumbered accordingly.
NBT BANCORP INC.
By: /s/ Jane Neal
Title: Executive Vice Pres.
Date: 12/13/2001
A-128
Exhibit 10.6
Fifth Amendment to the NBT Bancorp Inc. 401(k) and Employee Stock Ownership Plan
effective January 1, 2002.
A-129
FIFTH AMENDMENT
TO
NBT BANCORP INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, NBT BANCORP INC. (the "Employer") sponsors and maintains the NBT
BANCORP INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan") for the
benefit of certain of its employees; and
WHEREAS, Section 11.1 of the Plan authorizes the Employer to amend the
Plan; and
WHEREAS, the Employer desires to amend the Plan to reflect certain
provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
("EGTRRA"). This amendment is intended as good faith compliance with the
requirements of EGTRRA and is to be construed in accordance with EGTRRA and
guidance issued thereunder. Except as otherwise provided, this amendment shall
be effective as of the first day of the first plan years beginning after
December 31, 2001.
NOW THEREFORE, the Plan is amended, effective January 1, 2002 as follows:
1. Section 7.4(b) shall be amended by adding the following language at the end
thereof:
Notwithstanding the vesting schedules listed above, a Particpant shall
be fully vested at all times in his Elective Contribution Account.
Effective January 1, 2002, any dividends received in accordance with
Section 4.4(o) shall be fully vested at all times. In addition, a
Participant who had an account balance in the Plan as of December 31,
2001 shall be fully vested in any dividends paid during the 2001 Plan
Year.
2. Section 9.1(b) shall be amended by adding the following additional section
(4) at the end thereof:
The Participant has elected to receive all dividends in cash to the
extent such election is currently available to him in accordance with
Section 4.4(o).
3. In all other respects, the Plan shall remain unchanged by this Amendment.
IN WITNESS WHEREOF, the Employer has caused this instrument to be executed the
day and year first above written.
NBT BANCORP INC.
/S/ MICHAEL J. CHEWENS
SIGNATURE
SECRETARY
TITLE
12/17/01
DATE
A-130
Exhibit 10.8
Amendment Number One to NBT Bancorp Inc. Defined Benefit Pension Plan effective
December 31, 2001.
A-131
AMENDMENT #1 TO
NBT BANCORP INC. DEFINED BENEFIT PENSION PLAN
PURSUANT TO ARTICLE 14.1 OF THE NBT BANCORP INC. DEFINED BENEFIT PENSION PLAN,
WHICH PROVIDES FOR THE AMENDMENT THEREOF WHEN NECESSARY, THE PLAN IS HEREBY
AMENDED EFFECTIVE DECEMBER 31, 2001, AS FOLLOWS:
ADD THE FOLLOWING PARAGRAPH TO THE END OF THE PREAMBLE:
Effective December 31, 2001, the Central National Bank, Canajoharie Pension Plan
("CNB Plan") merged into the Plan, and for all purposes the NBT Bancorp Inc.
Defined Benefit Pension Plan shall be the surviving and continuing Plan. All
benefits, rights and features accrued to Participants in the CNB Plan as of
December 31, 2001, as determined under the terms of the CNB Plan in effect as of
such date and incorporated herein by reference, shall transfer to the Plan on
December 31, 2001, together with all the assets and liabilities of the CNB Plan
on said date.
Furthermore, in accordance with Article 14.4 and applicable IRS Regulations, if
the Plan is terminated, the benefits that would have been paid to Participants
in the CNB Plan if such CNB Plan terminated immediately prior to this merger,
and the benefits that would have been paid to Participants in the Plan if the
Plan terminated immediately prior to this merger, shall not be reduced as a
result of such termination.
REPLACE THE EXISTING LANGUAGE IN SECTION 1.35 WITH THE FOLLOWING NEW LANGUAGE:
1.35 "Plan" means the NBT Bancorp Inc. Defined Benefit Pension Plan as amended
and restated effective January 1, 2000, as set forth herein and as
hereafter may be amended from time to time. The Plan is a continuation,
through amendment and restatement, of the Appendix A Plan. Plan also means
the Central National Bank, Canajoharie Pension Plan with respect to
Participants and benefits accrued under such Plan as of December 31, 2001,
at which time such Plan was merged into this Plan.
The Employer consents to the foregoing amendment; and except as herein amended,
the Plan is hereby ratified and confirmed.
NBT Bancorp Inc.
By: /s/ Jane Neal
Employer
Date: 12/13/2001
A-132
Exhibit 10.11
NBT Bancorp Inc. Employee Stock Purchase Plan
A-133
NBT BANCORP INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I-PURPOSE
The NBT Bancorp Inc. Employee Stock Purchase Plan (the "Plan") is intended
to provide to employees of NBT Bancorp Inc. (the "Corporation") and its
subsidiaries the opportunity to acquire ownership interests in the Corporation
through a regular investment program. The Corporation believes that ownership
of its Common Stock will motivate employees to improve their job performance,
and enhance the financial results of the Corporation. The Plan is intended to
qualify as an "employee stock purchase plan" under section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), and shall be construed so as to
extend and limit participation in a manner consistent with the requirements
thereof.
ARTICLE II-DEFINITIONS
2.01. BASE PAY
"Base Pay" shall mean an Employee's basic hourly wage or salary, excluding
any bonuses, overtime, or other extra or incentive pay. With respect to any
Employee compensated on a commission basis, the Committee shall make a good
faith estimate of the Employee's expected "Base Pay" by taking into account
prior-year compensation, excluding any bonuses, overtime, or other extra or
incentive pay, and any changes in circumstances for the current year.
2.02. BOARD
"Board" shall mean the Board of Directors of the Corporation.
2.03. CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
2.04. COMMENCEMENT DATE
"Commencement Date" shall mean March 31, 2000 and each January 1 thereafter
during which the Plan is in effect.
2.05. COMMITTEE
"Committee" shall mean the individuals described in Article IX.
2.06. COMMON STOCK
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
the Corporation.
2.07. CORPORATION
"Corporation" shall mean NBT Bancorp Inc., a Delaware corporation.
2.08. EMPLOYEE
"Employee" shall mean any person employed by the Corporation or a
Subsidiary Corporation (as defined in Sec. 2.10).
2.09. OFFERING
"Offering" shall mean an annual offering of Common Stock pursuant to Sec.
4.01.
2.10. SUBSIDIARY CORPORATION
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"Subsidiary Corporation" shall mean any present or future corporation which
would be a "subsidiary corporation" of the Corporation as that term is defined
in section 424 of the Code.
2.11. TERMINATION DATE
"Termination Date" shall mean the December 31 immediately following the
Commencement Date of an Offering.
ARTICLE III-ELIGIBILITY AND PARTICIPATION
3.01. INITIAL ELIGIBILITY
Except as otherwise provided in Sec.Sec. 3.02 and 9.01, each Employee shall
be eligible to participate in Offerings that commence on or after the date he or
she becomes an Employee.
3.02. RESTRICTIONS ON PARTICIPATION
No Employee shall participate in an Offering:
(a) if, immediately after the Commencement Date, such Employee would own
stock, and/or hold outstanding options to purchase stock, possessing 5% or more
of the total combined voting power or value of all classes of stock of the
Corporation (for purposes of this paragraph, the rules of section 424(d) of the
Code shall apply in determining stock ownership of any Employee); or
(b) to the extent that his or her rights to purchase stock under all
employee stock purchase plans of the Corporation accrue at a rate which exceeds
$25,000 in fair market value of the stock (determined at the time such options
are granted) for each calendar year in which such options are outstanding.
3.03. COMMENCEMENT OF PARTICIPATION
An Employee may participate in Offerings by completing an authorization for
regular payroll deductions on the form provided by the Corporation and filing it
with the Corporation on or before the date set therefor by the Committee, which
date shall be prior to the Commencement Date for an Offering. Payroll
deductions for an Employee shall commence on the applicable Commencement Date.
Once enrolled, an Employee shall continue to participate in this Plan for each
succeeding Offering until the Employee terminates his or her participation as
provided in Article VII or ceases to be an Employee. An Employee who desires to
change his or her rate of contribution may do so effective as of the beginning
of the next Commencement Date for an Offering by completing an authorization and
filing it with the Corporation prior to that Commencement Date.
ARTICLE IV-GRANTING OF OPTIONS
4.01. ANNUAL OFFERINGS
The Plan shall be implemented by annual offerings of Common Stock beginning
on March 31, 2000 and on the 1st day of January in each subsequent year, each
Offering terminating on the December 31 immediately following the Commencement
Date (the Termination Date).
4.02. NUMBER OF OPTION SHARES
On the Commencement Date of each Offering, a participating Employee shall
be deemed to have been granted an option to purchase a number of shares of
Common Stock equal to (i) the aggregate amount of payroll deductions during the
Offering elected by the Employee, divided by (ii) the option price determined
under Sec. 4.03(i).
4.03. OPTION PRICE
The option price of Common Stock purchased in an Offering shall be the
lower of:
(i) 85% of the fair market value of Common Stock on the Commencement Date,
or
(ii) 85% of the fair market value of Common Stock on the Termination Date.
A-135
Fair market value as of any date shall mean:
(a) if the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are regularly reported
for the Common Stock, the average of the closing or last prices of the Common
Stock on the Composite Tape or other comparable reporting system for the 10
consecutive trading days immediately preceding such date;
(b) if the Common Stock is traded on the over-the-counter market, but sales
prices are not regularly reported for the Common Stock for the 10 days referred
to in (a) above, and if bid and asked prices for the Common Stock are regularly
reported, the average of the mean between the bid and the asked price for the
Common Stock at the close of trading in the over-the-counter market for such 10
days; and
(c) if the Common Stock is neither listed on a national securities
exchange nor traded on the over-the counter market, such value as the Committee,
in good faith, shall determine.
4.04. MAXIMUM SHARES
The maximum number of shares which shall be issued under the Plan, subject
to adjustment upon changes in capitalization of the Corporation as provided in
Sec. 11.02, shall be 500,000 shares. If the total number of shares for which
options are exercised on any Offering Termination Date, together with the
aggregate number of shares as to which options were exercised on all previous
Offering Termination Dates, exceeds the foregoing maximum number of shares, the
Corporation shall make a pro rata allocation of the shares available for
purchase in as nearly a uniform manner as shall be practicable and as it shall
determine to be equitable, and the balance credited to the account of each
Employee under Sec. 5.02 not used to purchase Common Stock shall be returned to
him or her as promptly as possible. Common Stock issued pursuant to the Plan
may be either authorized but unissued shares or shares held in the treasury of
the Corporation.
4.05. EMPLOYEE'S INTEREST IN OPTION STOCK
The Employee shall have no interest in Common Stock covered by his or her
option until such option has been exercised in accordance with the provisions of
Article VI.
ARTICLE V-PAYROLL DEDUCTIONS
5.01. AMOUNT OF DEDUCTION
An Employee's authorization for payroll deduction shall elect deductions of
at least 1% of Base Pay, but not more than 10% of Base Pay, in effect on the
Commencement Date of each Offering. No change in the amount of payroll
deductions shall be made during a year if the Employee's rate of Base Pay
changes during the year.
5.02. EMPLOYEE'S ACCOUNT
All payroll deductions made for an Employee shall be credited to his or her
account under the Plan. An Employee may not make any separate cash payment into
such account except when on leave of absence, and then only as provided in Sec.
5.04.
5.03. CHANGES IN PAYROLL DEDUCTIONS
An Employee may discontinue his or her payroll deductions under the Plan as
provided in Article VII, but may make no other change during an Offering and,
specifically, may not alter the amount of his or her payroll deductions for that
Offering.
5.04. LEAVE OF ABSENCE
An Employee on a leave of absence without pay shall have the right to (i)
discontinue contributions to the Plan, or (ii) make a cash payment to the
Corporation at the end of each payroll period in the amount of the Employee's
authorized Plan deductions.
ARTICLE VI-EXERCISE OF OPTIONS
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6.01. AUTOMATIC EXERCISE
Unless an Employee gives written notice to the Corporation as hereinafter
provided, his or her option with respect to any Offering shall be exercised
automatically on the Termination Date applicable to such Offering, for the
number of full and fractional shares of Common Stock subject to his or her
option, as determined under Sec. 4.02. Any amount in his or her account not
used to purchase Common Stock shall be returned to the Employee within a
reasonable time after the Termination Date of the Offering.
6.02. BOOK ENTRY ACCOUNTS; DELIVERY OF STOCK
The Corporation shall maintain a book entry account, in the name of each
Employee who purchased shares of Common Stock under Sec. 6.01, to record book
entries of the number of full and fractional shares (to 1/1,000 of a share) of
Common Stock purchased by an Employee. Statements of shares held in each
Employee's book entry account shall be delivered to each Employee within a
reasonable time after the Termination Date of each Offering. Shares credited to
an Employee's book entry account will be held in uncertificated form for a
period of one year from the date of purchase, except as provided in Sec.Sec.
6.04 and 7.03. Thereafter, Employees may obtain stock certificates for those
shares that have been held for one year in their respective book entry accounts
upon submitting a written request to the Committee.
6.03. REGISTRATION OF STOCK
Common Stock to be delivered to an Employee under the Plan shall be
registered in the name of the Employee, or, if the Employee so directs by
written notice to the Corporation prior to the Offering Termination Date
applicable thereto, in the names of the Employee and one such other person as
may be designated by the Employee, as joint tenants with rights of survivorship
or as tenants by the entirety, to the extent permitted by applicable law.
6.04. TRANSFERABILITY OF STOCK
Common Stock issued pursuant to the Plan shall not be transferable, other
than to the Employee's estate or by bequest or inheritance, incident to the
Employee's divorce, or due to the Employee's immediate and heavy financial need,
for one year after the date of purchase.
Stock certificates representing those shares that have been held in an
Employee's book entry account for less than one year from the date of purchase
will be issued to an Employee due to an immediate and heavy financial need of
the Employee if the Employee has incurred (or is about to incur) any of the
following financial obligations:
(i) Expenses incurred or necessary for medical care described in Code
section 213(d) for the Employee, his or her spouse, children or other
dependents;
(ii) Costs directly related to the purchase of the principal residence for
the Employee (excluding mortgage payments);
(iii) Payment of tuition, related educational fees, and room and board
expenses, for the next twelve (12) months of post-secondary education for
the Employee, his or her spouse, children or other dependents; or
(iv) Payments necessary to prevent the eviction of the Employee from his or
her principal residence or foreclosure on the mortgage of his or her
principal residence.
A financial hardship request for stock certificates must be submitted to
the Committee in writing. The Employee making the application shall have the
burden of presenting to the Committee evidence that he or she has an immediate
and heavy financial need and that the issuance of stock certificates and
subsequent sale of those shares of Common Stock is necessary to satisfy that
financial need. Action upon any such application shall be taken by the
Committee in its absolute discretion.
6.05. WITHHOLDING
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The Corporation shall have the right to withhold from an Employee's
compensation amounts sufficient to satisfy all federal, state and local tax
withholding requirements, and shall have the right to require the Employee to
remit to the Corporation such additional amounts as may be necessary to satisfy
such requirements.
ARTICLE VII-WITHDRAWAL
7.01. IN GENERAL
An Employee may withdraw the full amount credited to his or her account
under the Plan at any time by giving written notice to the Corporation. The
balance credited to the Employee's account shall be paid to him or her promptly
after receipt of the notice of withdrawal, and no further deductions shall be
made from his or her pay during such Offering.
7.02. EFFECT ON SUBSEQUENT PARTICIPATION
An Employee's withdrawal from any Offering shall not have any effect upon
his or her eligibility to participate in any succeeding Offering by filing with
the Corporation a new authorization for payroll deduction.
7.03. TERMINATION OF EMPLOYMENT
Upon termination of an Employee's employment for any reason, including
retirement (but excluding death while in the employ of the Corporation), the
amount credited to his or her account shall be returned to him or her or, in the
case of death subsequent to the termination of his or her employment, to the
person or persons entitled thereto under Sec. 11.08. Certificates for the
number of full shares of Common Stock allocated to a terminated Employee's book
entry account shall be issued to him or her as promptly as practicable after his
or her termination date, with any fractional shares paid in cash.
7.04. TERMINATION OF EMPLOYMENT DUE TO DEATH
Upon termination of an Employee's employment because of his or her death,
his or her beneficiary (as defined in Sec. 11.08) shall have the right to elect,
by written notice given to the Corporation prior to the Offering Termination
Date, either:
(i) to withdraw the amount credited to the Employee's account under the
Plan, or
(ii) to exercise his or her option on the Termination Date next following
the date of the Employee's death for the number of full and fractional shares of
Common Stock which the Employee's payroll deductions prior to death will
purchase at the applicable option price, but not more than the number of shares
subject to the Employee's option determined under Sec. 4.02, with any amount in
such account not used to purchase Common Stock returned to the beneficiary.
In the event that no such timely written notice of election shall be
received by the Corporation, the beneficiary shall automatically be deemed to
have elected, pursuant to paragraph (ii), to exercise the Employee's option.
ARTICLE VIII-INTEREST
8.01. PAYMENT OF INTEREST
No interest shall be paid or allowed on any money paid into the Plan or
credited to the account of any Employee; provided, however, that interest shall
be paid on any and all money which is distributed to an Employee or his or her
beneficiary pursuant to the provisions of Sec.Sec. 7.01, 7.03 and 7.04. Such
distributions shall bear simple interest during the period from the date of
withholding to the date of return at the regular passbook savings account rate
per annum in effect at NBT Bank, N.A., Norwich, New York. Where the amount
returned represents an excess amount in an Employee's account after such account
has been applied to the purchase of Common Stock under Sec. 6.01, the Employee's
withholding account shall be deemed to have been applied first toward purchase
of Common Stock under the Plan, so that interest shall be paid on the last
withholdings during the period which results in the excess amount.
A-138
ARTICLE IX-ADMINISTRATION
9.01. APPOINTMENT OF COMMITTEE
The Board shall appoint the Compensation and Benefits Committee to
administer the Plan, which shall consist of no fewer than two members of the
Board. No members of the Committee shall be eligible to purchase Common Stock
under the Plan. If at any time no Committee is in existence, the Board shall
have the authority and responsibility to carry out the duties of the Committee
under the Plan.
9.02. AUTHORITY OF COMMITTEE
Subject to the express provisions of the Plan, the Committee shall have
plenary authority in its discretion to interpret and construe any and all
provisions of the Plan, to adopt rules and regulations for administering the
Plan, to make all other determinations deemed necessary or advisable for
administering the Plan. The Committee's determination on the foregoing matters
shall be conclusive.
9.03. RULES GOVERNING THE COMMITTEE
The Board may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may select one of
its members as its Chairman and shall hold its meetings at such times and places
as it shall deem advisable, and may hold telephonic meetings. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. The Committee may correct any defect or
omission or reconcile any inconsistency in the Plan, in the manner and to the
extent it shall deem desirable. Any decision or determination reduced to
writing and signed by a majority of the members of the Committee shall be as
fully effective as if it had been made by a majority vote at a meeting duly
called and held. The Committee may appoint a secretary and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.
ARTICLE X-INDEMNIFICATION OF COMMITTEE
10.01. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is liable
for negligence or misconduct in the performance of his or her duties; provided
that within sixty (60) days after institution of any such action, suit or
proceeding, a Committee member shall in writing offer the Corporation the
opportunity, at its own expense, to handle and defend the same.
ARTICLE XI-MISCELLANEOUS
11.01. TRANSFERABILITY
Neither payroll deductions credited to an Employee's account nor any rights
with regard to the exercise of an option or to receive Common Stock or a return
of payroll deductions under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way other than by the laws of descent and
distribution, nor shall be subject to execution, attachment or similar process.
Any such attempted voluntary or involuntary disposition shall be without effect,
except that the Corporation may treat such act as an election to withdraw funds
in accordance with Sec. 7.01. During an Employee's lifetime, options granted to
the Employee shall be exercisable only by the Employee.
A-139
11.02. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
If, while any options under the Plan are outstanding, the outstanding
shares of Common Stock have increased, decreased, changed into, or been
exchanged for a different number or kind of shares or securities of the
Corporation, or of another corporation, through reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, stock
dividend (either in shares of the Corporation's Common Stock or of another class
of the Corporation's stock), stock split, or similar transaction, appropriate
and proportionate adjustments may be made by the Committee in the number and/or
kind of shares which are subject to purchase under outstanding options and in
the exercise price applicable to such outstanding options. In addition, in any
such event, the number and/or kind of shares which may be offered in the
Offerings shall also be proportionately adjusted.
11.03. AMENDMENT AND TERMINATION
A-140
The Board shall have complete power and authority to terminate or amend the
Plan; provided, however, that the Board shall not, without the approval of the
stockholders of the Corporation, (i) increase the maximum number of shares which
may be issued under the Plan (except pursuant to Sec. 11.02); or (ii) amend the
requirements as to the class of Employees eligible to purchase Common Stock
under the Plan or permit the members of the Committee or non-employee directors
to purchase Common Stock under the Plan. No termination, modification, or
amendment of the Plan may, without the consent of an Employee then having an
option under the Plan to purchase Common Stock, adversely affect the rights of
such Employee under the option as to payroll deductions previously credited to
the Employee's account. The Plan shall not be amended more than once every 6
months, other than to comport with changes in the Code or the rules thereunder.
11.04. USE OF FUNDS
All payroll deductions received or held by the Corporation under this Plan
may be used by the Corporation for any corporate purpose and the Corporation
shall not be obligated to segregate such payroll deductions.
11.05. EFFECTIVE DATE
The Plan shall become effective as of March 31, 2000, subject to approval
by the holders of a majority of the Common Stock present and represented at a
special or annual meeting of the shareholders held within 12 months after the
Plan is adopted by the Board. If the Plan is not so approved, the Plan shall
not become effective, and all account balances under the Plan shall be
distributed promptly to the contributing Employees.
11.06. NO EMPLOYMENT RIGHTS
The Plan does not, directly or indirectly, create in any Employee or class
of Employees any right with respect to continuation of employment by the
Corporation, and it shall not be deemed to interfere in any way with the
Corporation's right to terminate, or otherwise modify, an Employee's employment
at any time.
11.07. GOVERNING LAW
The laws of the State of Delaware, without regard to conflicts of laws
principles, shall govern all matters relating to this Plan except to the extent
they are superseded by federal law.
11.08. DESIGNATION OF BENEFICIARY
An Employee may file a written designation of a beneficiary who is to
receive any Common Stock and/or cash credited to the Employee under this Plan in
the event of such Employee's death prior to the delivery to him or her of such
Common Stock and/or cash. Such designation of beneficiary may be changed by the
Employee at any time by written notice to the Treasurer of the Corporation.
Upon the death of an Employee and upon receipt of the Corporation of proof of
identity and existence at the Employee's death of a beneficiary validly
designated by him or her under the Plan, the Corporation shall deliver such
Common Stock and/or cash to such beneficiary. In the event of the death of an
Employee and in the absence of a beneficiary validly designated under the Plan
who is living at the time of such Employee's death, the Corporation shall
deliver such Common Stock and/or cash to the executor or administrator of the
estate of the Employee, or if no such executor or administrator has been
appointed (to the knowledge of the Corporation), the Corporation, in its sole
discretion, may deliver such Common Stock and/or cash to the spouse or to any
one or more dependents or relatives of the Employee, or if no spouse, dependent,
or relative is known to the Corporation, then to such other person as the
Corporation may designate. No designated beneficiary shall, prior to the death
of the Employee by whom he or she has been designated, acquire any interest in
the Common Stock or cash credited to the Employee under this Plan.
Exhibit 10.13
NBT Bancorp Inc. 2002 Executive Incentive Compensation Plan
NBT BANCORP INC. AND SUBSIDIARIES
2002 EXECUTIVE INCENTIVE COMPENSATION PLAN
NBT BANCORP INC. AND SUBSIDIARIES
2002 EXECUTIVE INCENTIVE COMPENSATION PLAN
------------------------------------------
Table of Contents
Page
----------
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2
Incentive Plan
- --------------
Section I - Definitions . . . . . . . . . . . . . . . . . . . . . . 3
Section II - Participation. . . . . . . . . . . . . . . . . . . . . 4
Section III - Activating the Plan . . . . . . . . . . . . . . . . . 4
Section IV - Calculation of Awards. . . . . . . . . . . . . . . . . 4
Section V - President's Special Recommendations . . . . . . . . . . 4
Section VI - Distribution of Awards . . . . . . . . . . . . . . . . 5
Section VII - Plan Administration . . . . . . . . . . . . . . . . . 5
Section VIII - Amendment, Modification, Suspension or Termination . 5
Section IX - Effective Date . . . . . . . . . . . . . . . . . . . . 5
Section X - Employer Relations with Participants. . . . . . . . . . 6
Section XI - Governing Law. . . . . . . . . . . . . . . . . . . . . 6
Incentive Plan Participants and Distribution of Awards. . . . . . . Appendix A
NBT BANCORP INC. AND SUBSIDIARIES
Introduction
------------
It is important to examine the benefits that accrue to the organization through
the operation of the Executive Incentive Compensation Plan (EICP). The Plan
impacts directly on the success of the organization and its purpose can be
summarized as follows:
* Provides Motivation: The opportunity for incentive awards provides
---------------------
Executives with the impetus to "stretch" for challenging, yet
attainable, goals.
* Provides Retention: By enhancing the organization's competitive
--------------------
compensation posture.
* Provides Management Team Building: By making the incentive award
-------------------------------------
dependent on the attainment of organization goals, a "team
orientation" is fostered among the participant group.
* Provides Individual Motivation: By encouraging the participant to
---------------------------------
make significant personal contribution to the corporate effort.
- Provides Competitive Compensation Strategy: The implementation of
----------------------------------------------
incentive arrangements is competitive with current practice in the
banking industry.
-1-
Highlights of the 2002 Executive Incentive Compensation Plan (EICP) are listed
below:
1. The Plan is competitive compared with similar sized banking
organizations and the banking industry in general.
2. The Compensation Committee of the Board of Directors controls all
aspects of the Plan.
3. All active Executives are eligible for participation.
4. The financial criteria necessary for Plan operation consist of
achieving certain levels of Earnings Per Share (EPS) for the Company
and its Subsidiaries as applicable. Certain non-recurring events may
be excluded from the financials at the discretion of the President
and CEO and the Compensation Committee.
5. Incentive distributions will be made during the first quarter of the
year following the Plan Year and will be based on the matrix in
Appendix A.
6. Incentive awards will be based on attainment of corporate goals.
Total incentive awards may contain Corporate, Subsidiary and
Individual components. The Corporate and Subsidiary components are
awarded by virtue of performance related to pre-established goals and
the individual component is awarded by virtue of individual
performance related to individual goals. No bonus will be paid unless
the Corporation attains its pre-established goals.
-2-
NBT BANCORP INC. AND SUBSIDIARIES
The Board of Directors has established this 2002 Executive Incentive
Compensation Plan. The purpose of the Plan is to meet and exceed financial
goals and to promote a superior level of performance relative to the competition
in our market areas. Through payment of incentive compensation beyond base
salaries, the Plan provides reward for meeting and exceeding financial goals.
SECTION I - DEFINITIONS
-----------
Various terms used in the Plan are defined as follows:
Base Salary: The base salary at the end of the Plan Year, excluding any
-------------
bonuses, contributions to Executive benefit programs, or other compensation
not designated as salary.
Board of Directors: The Board of Directors of NBT Bancorp, Inc.
---------------------
President & CEO: The Chairman, President & CEO of NBT Bancorp Inc.
------------------
Corporate Goals: Those pre-established objectives and goals of NBT Bancorp
----------------
Inc. which are required to activate distribution of awards under the Plan.
Subsidiary Goals: Those pre-established objectives and goals which apply
------------------
to each of the Banking Divisions of NBT Bancorp Inc. and which may activate
distribution of awards under the Plan.
Individual Goals: Key objectives mutually agreed upon between participants
-----------------
and management.
Compensation Committee: The Compensation Committee of the NBT Bancorp Inc.
-----------------------
Board of Directors.
Plan Participant: An eligible Executive as designated by the CEO and
------------------
approved by the Compensation Committee for participation for the Plan Year.
Plan Year: The 2002 calendar year.
-----------
-3-
SECTION II - ELIGIBILITY TO PARTICIPATE
----------------------------
To be eligible for an award under the Plan, a Plan participant must be an
Executive in full-time service at the start and close of the calendar year and
at the time of the award. Newly hired employees may be designated by the CEO
and approved by the Compensation Committee as eligible for an award as
determined by their date of hire or any relevant employment agreement. A Plan
participant must be in the same or equivalent position, at year end as they were
when named a participant or have been promoted during the course of the year, to
be eligible for an award. If a Plan participant voluntarily leaves the company
prior to the payment of the award, he/she is not eligible to receive an award.
However, if the active full-time service of a participant in the Plan is
terminated by death, disability, retirement, or if the participant is on an
approved leave of absence, an award will be recommended for such a participant
based on the proportion of the Plan Year that he/she was in active service.
SECTION III - ACTIVATING THE PLAN
---------------------
The operation of the Plan is predicated on attaining and exceeding management
performance goals. The goals will consist of the attainment of certain Earnings
Per Share (EPS) levels as applicable. Non-recurring events may be excluded from
the financial results at the discretion of the President and CEO and the
Compensation Committee. The Corporation must achieve a minimum EPS set forth in
Appendix A to trigger an award pursuant to the terms of this Plan.
SECTION IV - CALCULATION OF AWARDS
-----------------------
The Compensation Committee designates the incentive formula as shown in Appendix
A. The Compensation Committee will make final decisions with respect to all
incentive awards and will have final approval over all incentive awards. The
individual participant data regarding maximum award and formulas used in
calculation has been customized and appears as Appendix A.
SECTION V - SPECIAL RECOMMENDATIONS
------------------------
The President and CEO will recommend to the Compensation Committee the amounts
to be awarded to individual participants in the incentive Plan. The CEO may
recommend a change beyond the formula to a bonus award (increase or decrease) to
an individual participant by a specified percentage based on assessment of
special individual performance beyond the individual goals. The Compensation
Committee may amend the CEO's bonus award. No award will be granted to an
Executive whose performance is unacceptable.
-4-
SECTION VI - DISTRIBUTION OF AWARDS
------------------------
Distribution of the EICP will be made during the first quarter of the year
following the plan. Distribution of the award must be approved by the
Compensation Committee.
In the event of death, any approved award earned under the provisions of this
plan will become payable to the beneficiary designated under this Plan; or if no
such designation, to the designated beneficiary of the participant as recorded
under the Company's group life insurance program; or in the absence of a valid
designation, to the participant's estate.
SECTION VII - PLAN ADMINISTRATION
-------------------
The Compensation Committee shall, with respect to the Plan have full power and
authority to construe, interpret, manage, control and administer this Plan. The
Committee shall decide upon cases in conformity with the objectives of the Plan
under such rules as the Board of Directors may establish.
Any decision made or action taken by NBT Bancorp Inc., the Board of Directors,
or the Compensation Committee arising out of, or in connection with, the
administration, interpretation, and effect of the Plan shall be at their
absolute discretion and will be conclusive and binding on all parties. No
member of the Board of Directors, Compensation Committee, or employee shall be
liable for any act or action hereunder, whether of omission or commission, by a
Plan participant or employee or by any agent to whom duties in connection with
the administration of the Plan have been delegated in accordance with the
provision of the Plan.
SECTION VIII - AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION
------------------------------------------------------
NBT Bancorp Inc. reserves the right, by and through its Board of Directors to
amend, modify, suspend, reinstate or terminate all or part of the Plan at any
time. The Compensation Committee will give prompt written notice to each
participant of any amendment, suspension or termination or any material
modification of the Plan. In the event of a merger or acquisition, the Plan and
related financial formulas will be reviewed and adjusted to take into account
the effect of such activities.
SECTION IX - EFFECTIVE DATE OF THE PLAN
------------------------------
The effective date of the Plan shall be January 1, 2002.
-5-
SECTION X - EMPLOYER RELATION WITH PARTICIPANTS
--------------------------------------
Neither establishment nor the maintenance of the Plan shall be construed as
conferring any legal rights upon any participant or any person for a
continuation of employment, nor shall it interfere with the right of an employer
to discharge any participant or otherwise deal with him/her without regard to
the existence of the Plan.
SECTION XI - GOVERNING LAW
--------------
Except to the extent pre-empted under federal law, the provisions of the Plan
shall be construed, administered and enforced in accordance with the domestic
internal law of the State of New York. In the event of relevant changes in the
Internal Revenue Code, related rulings and regulations, changes imposed by other
regulatory agencies affecting the continued appropriateness of the Plan and
awards made thereunder, the Board may, at its sole discretion, accelerate or
change the manner of payments of any unpaid awards or amend the provisions of
the Plan.
-6-
Exhibit 10.15
Form of Employment Agreement between NBT Bancorp Inc. and
Daryl R. Forsythe made as of January 1, 2002.
II-13
EMPLOYMENT AGREEMENT (REVISED)
This EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of the
first day of January, 2000 (and revised on January 22, 2001 and again on January
1, 2002) by and between DARYL R. FORSYTHE ("Executive") and NBT BANCORP INC., a
Delaware corporation having its principal office in Norwich, New York ("NBTB")
W I T N E S S E T H T H A T:
WHEREAS, Executive is the chairman, president and chief executive officer
of NBTB; and
WHEREAS, NBTB desires to secure the continued employment of Executive,
subject to the provisions of this Agreement; and
WHEREAS, Executive is desirous of entering into the Agreement for such
periods and upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, intending to be legally bound, the parties
agree as follows:
1. Employment; Responsibilities and Duties.
---------------------------------------
(a) NBTB hereby agrees to employ Executive, and Executive hereby
agrees to serve as the chairman, president and chief executive officer of NBTB.
Executive shall have such executive duties, responsibilities, and authority as
shall be set forth in the bylaws of NBTB or as may otherwise be determined by
NBTB.
(b) Executive shall devote his full working time and best efforts
to the performance of his responsibilities and duties hereunder. During the
Term of Employment, Executive shall not, without the prior written consent of
the Board of Directors of NBTB, render services as an employee, independent
contractor, or otherwise, whether or not compensated, to any person or entity
other than NBTB or its affiliates; provided that Executive may, where
involvement in such activities does not individually or in the aggregate
significantly interfere with the performance by Executive of his duties or
violate the provisions of section 4 hereof, (i) render services to charitable
organizations, (ii) manage his personal investments, and (iii) with the prior
permission of the Board of Directors of NBTB, hold such other directorships or
part-time academic appointments or have such other business affiliations as
would otherwise be prohibited under this section 1.
2. Term of Employment.
------------------
(a) The term of this Agreement ("Term of Employment") shall be the
period commencing on the date of this Agreement (the "Commencement Date") and
continuing until the Termination Date, which shall mean the earliest to occur
of:
(i) the Executive's 60th birthday (August 2, 2003), unless
the Term of Employment shall be extended for one or two additional year(s) by
the mutual agreement of the parties;
(ii) the death of Executive;
(iii) Executive's inability to perform his duties hereunder,
as a result of physical or mental disability as reasonably determined by the
personal physician of Executive, for a period of at least 180 consecutive days
or for at least 180 days during any period of twelve consecutive months during
the Term of Employment; or
(iv) the discharge of Executive by NBTB "for cause," which
shall mean one or more of the following:
(A) any willful or gross misconduct by Executive with
respect to the business and affairs of NBTB or with respect to any of its
affiliates for which Executive is assigned material responsibilities or duties;
II-14
(B) the conviction of Executive of a felony (after the
earlier of the expiration of any applicable appeal period without perfection of
an appeal by Executive or the denial of any appeal as to which no further appeal
or review is available to Executive) whether or not committed in the course of
his employment by NBTB;
(C) Executive's willful neglect, failure, or refusal to
carry out his duties hereunder in a reasonable manner (other than any such
failure resulting from disability or death or from termination by Executive for
Good Reason, as hereinafter defined) after a written demand for substantial
performance is delivered to Executive that specifically identifies the manner in
which NBTB believes that Executive has not substantially performed his duties
and Executive has not resumed substantial performance of his duties on a
continuous basis within thirty days of receiving such demand; or
(D) the breach by Executive of any representation or
warranty in section 6(a) hereof or of any agreement contained in section 1, 4,
5, or 6(b) hereof, which breach is material and adverse to NBTB or any of its
affiliates for which Executive is assigned material responsibilities or duties;
or
(v) Executive's resignation from his position as chairman,
president, or chief executive officer of NBTB for other than "Good Reason," as
hereinafter defined; or
(vi) the termination of Executive's employment by NBTB
"without cause," which shall be for any reason other than those set forth in
subsections (i), (ii), (iii), (iv), or (v) of this section 2(a), at any time,
upon the thirtieth day following notice to Executive; or
(vii) Executive's resignation for "Good Reason."
"Good Reason" shall mean, without Executive's express written consent,
reassignment of Executive to a position other than as set forth in section 1(a)
of this Agreement other than for "Cause," or a decrease in the amount or level
of Executive's salary or benefits from the amount or level established in
section 3 hereof.
(b) In the event that the Term of Employment shall be terminated
for any reason other than that set forth in section 2(a)(vi) or 2(a)(vii)
hereof, Executive shall be entitled to receive, upon the occurrence of any such
event:
(i) any salary (as hereinafter defined) payable pursuant to
section 3(a)(i) hereof which shall have accrued as of the Termination Date; and
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof.
(c) In the event that the Term of Employment shall be terminated
for the reason set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive
shall be entitled to receive:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date, and, for the period
commencing on the date immediately following the Termination Date and ending
upon and including the later of the third anniversary of the Commencement Date
or the second anniversary of the Termination Date, salary payable at the rate
established pursuant to section 3(a)(i) hereof, in a manner consistent with the
normal payroll practices of NBTB with respect to executive personnel as
presently in effect or as they may be modified by NBTB from time to time; and
(ii) such rights as Executive may have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof.
(d) Any provision of this section 2 to the contrary
notwithstanding, in the event that the employment of Executive with NBTB is
terminated in any situation described in section 3 of the change-in-control
letter agreement
II-15
dated July 23, 2001 between NBTB and Executive (the "Change-in-Control
Agreement") so as to entitle Executive to a severance payment and other benefits
described in section 3 of the Change-in-Control Agreement, then Executive shall
be entitled to receive the following, and no more, under this section 2:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date;
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof;
and
(iii) the severance payment and other benefits provided in
the Change-in-Control Agreement.
3. Compensation. For the services to be performed by Executive for
------------
NBTB and its affiliates under this Agreement, Executive shall be compensated in
the following manner:
(a) Salary.
------
(i) NBTB shall pay Executive a salary which, on an annual
basis, shall not be less than $375,000 in 2002 and $425,000 in 2003. NBTB
further agrees that in the event that the Term of Agreement shall be extended
pursuant to section 2(a)(i), NBTB shall pay Executive a mutually agreed upon
salary which shall not be less than the salary in effect as of August 2, 2003.
Salary shall be payable in accordance with the normal payroll practices of NBTB
with respect to executive personnel as presently in effect or as they may be
modified by NBTB from time to time.
(ii) Executive shall be eligible to be considered for
performance bonuses commensurate with Executive's title and salary grade, in
accordance with the compensation policies of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time.
(b) Employee Benefit Plans or Arrangements. During the Term of
--------------------------------------
Employment, Executive shall be entitled to participate in all employee benefit
plans of NBTB, as presently in effect or as they may be modified by NBTB from
time to time, under such terms as may be applicable to officers of Executive's
rank employed by NBTB or its affiliates, including, without limitation, plans
providing retirement benefits, stock options, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, provided
that there be no duplication of such benefits as are provided under any other
provision of this Agreement.
(c) Stock Options. Each January or February annually during the
-------------
Term of Employment, NBTB will cause Executive to be granted a non-statutory
("non-qualified") stock option (each an "Option") to purchase the number of
shares of the common stock of NBTB, $0.01 par value (the "NBTB Common Stock"),
pursuant to the NBT Bancorp Inc. 1993 Stock Option Plan, as amended, or any
appropriate successor plan (the "Stock Option Plan"), computed by using a
formula approved by NBTB that is commensurate with the Executive's title and
salary grade. The option exercise price per share of the shares subject to each
Option shall be such Fair Market Value, and the terms, conditions of exercise,
and vesting schedule of such Option shall be as set forth in section 8 of the
Stock Option Plan.
(d) Vacation and Sick Leave. During the Term of Employment,
-----------------------
Executive shall be entitled to paid annual vacation periods and sick leave in
accordance with the policies of NBTB as in effect as of the Commencement Date or
as may be modified by NBTB from time to time as may be applicable to officers of
Executive's rank employed by NBTB or its affiliates, but in no event less than
five weeks of paid vacation during any year of the Term of Employment. In
addition, and continuing for any additional year(s), if any, by which the Term
of Employment shall be extended pursuant to section 2(a)(i), Executive shall
also be excused from physical presence at NBTB headquarters (52 S. Broad Street,
Norwich, New York) during the months of January, February and March except on an
as - required basis as mutually agreed by the Board of Directors of NBTB and
Executive.
(e) Automobile. During the Term of Employment, Executive shall be
----------
entitled to the use of an automobile owned by NBTB or an affiliate of NBTB, the
make and model of which automobile shall be appropriate to an
II-16
officer of Executive's rank, and which will be replaced with a new automobile
every two years (or earlier if accumulated mileage exceeds 50,000 miles).
Executive shall be responsible for all expenses of ownership and use of such
automobile, subject to reimbursement of expenses for business use in accordance
with section 3(h).
(f) Country Club Dues. During the Term of Employment, Executive
-----------------
shall be reimbursed for dues and assessments incurred in relation to Executive's
membership at a country club(s) mutually agreed upon by the Board of Directors
of NBTB and Executive. Such reimbursement during the initial year of membership
shall include any and all initiation fees incurred with respect to Executive's
membership at selected club(s).
(g) Withholding. All compensation to be paid to Executive
-----------
hereunder shall be subject to required withholding and other taxes.
(h) Expenses. During the Term of Employment, Executive shall be
--------
reimbursed for reasonable travel and other expenses incurred or paid by
Executive in connection with the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as may from time to time be requested, in accordance with
such policies of NBTB as are in effect as of the Commencement Date and as may be
modified by NBTB from time to time, under such terms as may be applicable to
officers of Executive's rank employed by NBTB or its affiliates.
4. Confidential Business Information; Non-Competition.
--------------------------------------------------
(a) Executive acknowledges that certain business methods, creative
techniques, and technical data of NBTB and its affiliates and the like are
deemed by NBTB to be and are in fact confidential business information of NBTB
or its affiliates or are entrusted to third parties. Such confidential
information includes but is not limited to procedures, methods, sales
relationships developed while in the service of NBTB or its affiliates,
knowledge of customers and their requirements, marketing plans, marketing
information, studies, forecasts, and surveys, competitive analyses, mailing and
marketing lists, new business proposals, lists of vendors, consultants, and
other persons who render service or provide material to NBTB or its affiliates,
and compositions, ideas, plans, and methods belonging to or related to the
affairs of NBTB or its affiliates. In this regard, NBTB asserts proprietary
rights in all of its business information and that of its affiliates except for
such information as is clearly in the public domain. Notwithstanding the
foregoing, information that would be generally known or available to persons
skilled in Executive's fields shall be considered to be "clearly in the public
domain" for the purposes of the preceding sentence. Executive agrees that he
will not disclose or divulge to any third party, except as may be required by
his duties hereunder, by law, regulation, or order of a court or government
authority, or as directed by NBTB, nor shall he use to the detriment of NBTB or
its affiliates or use in any business or on behalf of any business competitive
with or substantially similar to any business of NBTB or its affiliates, any
confidential business information obtained during the course of his employment
by NBTB. The foregoing shall not be construed as restricting Executive from
disclosing such information to the employees of NBTB or its affiliates. On or
before the Termination Date, Executive shall promptly deliver to NBTB any and
all tangible, confidential information in his possession.
(b) Executive hereby agrees that from the Commencement Date until
the first anniversary of the Termination Date, Executive will not (i) interfere
with the relationship of NBTB or its affiliates with any of their employees,
suppliers, agents, or representatives (including, without limitation, causing or
helping another business to hire any employee of NBTB or its affiliates), or
(ii) directly or indirectly divert or attempt to divert from NBTB or its
affiliates any business in which any of them has been actively engaged during
the Term of Employment, nor interfere with the relationship of NBTB or its
affiliates with any of their customers or prospective customers. This paragraph
4(b) shall not, in and of itself, prohibit Executive from engaging in the
banking, trust, or financial services business in any capacity, including that
of an owner or employee.
(c) Executive acknowledges and agrees that irreparable injury will
result to NBTB in the event of a breach of any of the provisions of this section
4 (the "Designated Provisions") and that NBTB will have no adequate remedy at
law with respect thereto. Accordingly, in the event of a material breach of any
Designated Provision, and in addition to any other legal or equitable remedy
NBTB may have, NBTB shall be entitled to the entry of a preliminary and
permanent injunction (including, without limitation, specific performance) by a
court of competent jurisdiction in Chenango County, New York, or elsewhere, to
restrain the violation or breach thereof by Executive, and Executive submits to
the jurisdiction of such court in any such action.
II-17
(d) It is the desire and intent of the parties that the provisions
of this section 4 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this section 4 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, should any court determine that the provisions of this section 4 shall
be unenforceable with respect to scope, duration, or geographic area, such court
shall be empowered to substitute, to the extent enforceable, provisions similar
hereto or other provisions so as to provide to NBTB, to the fullest extent
permitted by applicable law, the benefits intended by this section 4.
5. Life Insurance. In light of the unusual abilities and experience of
--------------
Executive, NBTB in its discretion may apply for and procure as owner and for its
own benefit insurance on the life of Executive, in such amount and in such form
as NBTB may choose. NBTB shall make all payments for such insurance and shall
receive all benefits from it. Executive shall have no interest whatsoever in
any such policy or policies but, at the request of NBTB, shall submit to medical
examinations and supply such information and execute such documents as may
reasonably be required by the insurance company or companies to which NBTB has
applied for insurance.
6. Representations and Warranties.
------------------------------
(a) Executive represents and warrants to NBTB that his execution,
delivery, and performance of this Agreement will not result in or constitute a
breach of or conflict with any term, covenant, condition, or provision of any
commitment, contract, or other agreement or instrument, including, without
limitation, any other employment agreement, to which Executive is or has been a
party.
(b) Executive shall indemnify, defend, and hold harmless NBTB for,
from, and against any and all losses, claims, suits, damages, expenses, or
liabilities, including court costs and counsel fees, which NBTB has incurred or
to which NBTB may become subject, insofar as such losses, claims, suits,
damages, expenses, liabilities, costs, or fees arise out of or are based upon
any failure of any representation or warranty of Executive in section 6(a)
hereof to be true and correct when made.
7. Notices. All notices, consents, waivers, or other communications
-------
which are required or permitted hereunder shall be in writing and deemed to have
been duly given if delivered personally or by messenger, transmitted by telex or
telegram, by express courier, or sent by registered or certified mail, return
receipt requested, postage prepaid. All communications shall be addressed to
the appropriate address of each party as follows:
If to NBTB:
NBT Bancorp Inc.
52 South Broad Street
Norwich, New York 13815
Attention: Board of Directors
With a required copy to:
NBT Bancorp Inc. Corporate Counsel
If to Executive:
Mr. Daryl R. Forsythe
21 Ridgeland Road
Norwich, New York 13815
All such notices shall be deemed to have been given on the date delivered,
transmitted, or mailed in the manner provided above.
8. Assignment. Neither party may assign this Agreement or any rights
----------
or obligations hereunder without the consent of the other party.
II-18
9. Governing Law. This Agreement shall be governed by, construed, and
-------------
enforced in accordance with the laws of the State of New York, without giving
effect to the principles of conflict of law thereof. The parties hereby
designate Chenango County, New York to be the proper jurisdiction and venue for
any suit or action arising out of this Agreement. Each of the parties consents
to personal jurisdiction in such venue for such a proceeding and agrees that it
may be served with process in any action with respect to this Agreement or the
transactions contemplated thereby by certified or registered mail, return
receipt requested, or to its registered agent for service of process in the
State of New York. Each of the parties irrevocably and unconditionally waives
and agrees, to the fullest extent permitted by law, not to plead any objection
that it may now or hereafter have to the laying of venue or the convenience of
the forum of any action or claim with respect to this Agreement or the
transactions contemplated thereby brought in the courts aforesaid.
10. Entire Agreement. This Agreement constitutes the entire
----------------
understanding among NBTB and Executive relating to the subject matter hereof.
Any previous agreements or understandings between the parties hereto or between
Executive and NBTB or any of its affiliates regarding the subject matter hereof,
including without limitation the terms and conditions of employment,
compensation, benefits, retirement, competition following employment, and the
like, are merged into and superseded by this Agreement. Neither this Agreement
nor any provisions hereof can be modified, changed, discharged, or terminated
except by an instrument in writing signed by the party against whom any waiver,
change, discharge, or termination is sought.
11. Illegality; Severability.
------------------------
(a) Anything in this Agreement to the contrary notwithstanding,
this Agreement is not intended and shall not be construed to require any payment
to Executive which would violate any federal or state statute or regulation,
including without limitation the "golden parachute payment regulations" of the
Federal Deposit Insurance Corporation codified to Part 359 of title 12, Code of
Federal Regulations.
(b) If any provision or provisions of this Agreement shall be held
to be invalid, illegal, or unenforceable for any reason whatsoever:
(i) the validity, legality, and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal, or unenforceable) shall not in any way be affected or
impaired thereby; and
(ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provisions held to be invalid, illegal, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
12. Arbitration. Subject to the right of each party to seek specific
-----------
performance (which right shall not be subject to arbitration), if a dispute
arises out of or related to this Agreement, or the breach thereof, such dispute
shall be referred to arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). A dispute subject to the
provisions of this section will exist if either party notifies the other party
in writing that a dispute subject to arbitration exists and states, with
reasonable specificity, the issue subject to arbitration (the "Arbitration
Notice"). The parties agree that, after the issuance of the Arbitration Notice,
the parties will try in good faith to resolve the dispute by mediation in
accordance with the Commercial Rules of Arbitration of AAA between the date of
the issuance of the Arbitration Notice and the date the dispute is set for
arbitration. If the dispute is not settled by the date set for arbitration,
then any controversy or claim arising out of this Agreement or the breach hereof
shall be resolved by binding arbitration and judgment upon any award rendered by
arbitrator(s) may be entered in a court having jurisdiction. Any person serving
as a mediator or arbitrator must have at least ten years' experience in
resolving commercial disputes through arbitration. In the event any claim or
dispute involves an amount in excess of $100,000, either party may request that
the matter be heard by a panel of three arbitrators; otherwise all matters
subject to arbitration shall be heard and resolved by a single arbitrator. The
arbitrator shall have the same power to compel the attendance of witnesses and
to order the production of documents or other materials and to enforce discovery
as could be exercised by a United States District Court judge sitting in the
Northern District of New York. In the event of any arbitration, each party
shall have a reasonable right to conduct discovery to the same extent permitted
by the Federal Rules of Civil Procedure, provided that such discovery shall be
concluded within ninety days after the date the matter is set for arbitration.
In the event of any arbitration, the
II-19
arbitrator or arbitrators shall have the power to award reasonable attorney's
fees to the prevailing party. Any provision in this Agreement to the contrary
notwithstanding, this section shall be governed by the Federal Arbitration Act
and the parties have entered into this Agreement pursuant to such Act.
13. Costs of Litigation. In the event litigation is commenced to
-------------------
enforce any of the provisions hereof, or to obtain declaratory relief in
connection with any of the provisions hereof, the prevailing party shall be
entitled to recover reasonable attorney's fees. In the event this Agreement is
asserted in any litigation as a defense to any liability, claim, demand, action,
cause of action, or right asserted in such litigation, the party prevailing on
the issue of that defense shall be entitled to recovery of reasonable attorney's
fees.
14. Affiliation. A company will be deemed to be "affiliated" with NBTB
-----------
according to the definition of "Affiliate" set forth in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended.
15. Headings. The section and subsection headings herein have been
--------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
II-20
IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to
be executed as of the day and year first above written.
NBT BANCORP INC.
By: /s/ANDREW KOWALCZYK, JR.
---
CHAIRMAN OF THE COMPENSATION
AND BENEFITS COMMITTEE OF
NBT BANCORP INC.
DARYL R. FORSYTHE
/s/ Daryl R. Forsythe 1/28/02
II-21
Exhibit 10.16
Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe as Amended and Restated Effective January 28,
2002.
II-22
SUPPLEMENTAL RETIREMENT AGREEMENT
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 28, 2002)
----------------------------------------------------
(REVISED)
This sets forth the terms of an agreement for the payment of supplemental
retirement income ("Agreement") made as of January 1, 1995 (and as revised on
April 28, 1998, January 1, 2000, January 22, 2001 and on January 28, 2002)
between (i) NBT BANCORP INC., a Delaware corporation and a registered bank
holding company, and NBT BANK, NATIONAL ASSOCIATION, a national banking
association chartered under the laws of the United States, both having offices
located at Norwich, New York (collectively, the "Bank"), and (ii) DARYL R.
FORSYTHE, an individual residing at 21 Ridgeland Road, Norwich, New York 13815,
and who is a member of a select group of management or highly compensated
employees within the meaning of section 201(2) of the Employee Retirement Income
Security Act of 1974, as amended ("Forsythe").
1. PURPOSE OF THE AGREEMENT. The purpose of this Agreement is to
---------------------------
provide Forsythe a supplemental retirement benefit in accordance with the terms
of this Agreement.
2. DEFINITIONS. For purposes of this Agreement, the following words
-----------
shall have the meaning indicated:
(a) ACTUARIAL EQUIVALENT. "Actuarial Equivalent" shall have the
---------------------
same meaning the term "Actuarial Equivalent" has under Section 2.03 of
Appendix A to the Qualified Plan (i.e., the NBT BANCORP Inc. Defined
Benefit Pension Plan, as amended and restated as of October 1, 1989,
including amendments adopted through August 31, 1998) using the
following actuarial assumptions:
MORTALITY: "Applicable Mortality Rate" as such term is
---------
defined in Section 2.03c of said Appendix A
to the Qualified Plan.
INTEREST RATE: "Applicable Interest Rate" as such term is
-------------
defined in Section 2.09b of said Appendix A
to the Qualified Plan.
(b) BENEFICIARY. "Beneficiary" shall mean such living person or
-----------
living persons designated by Forsythe in accordance with subparagraph
5(a) to receive benefits under this Agreement after his death, or his
personal or legal representative, all as herein described and
provided. If no Beneficiary is designated by Forsythe or if no
Beneficiary survives Forsythe, the Beneficiary shall be Forsythe's
estate.
(c) CAUSE. "Cause" shall mean Forsythe's:
-----
(i) willful or gross misconduct with respect to the
business and affairs of the Bank, or with respect to any of its
affiliates for which Forsythe is assigned material
responsibilities or duties;
(ii) conviction of a felony (after the earlier of the
expiration of any applicable appeal period without perfection of
an appeal by Forsythe or the denial of any appeal as to which no
further appeal or review is available to Forsythe) whether or not
committed in the course of his employment by the Bank;
II-23
(iii) willful neglect, failure, or refusal to carry out his
duties under the Employment Agreement between NBT Bancorp Inc.
and Forsythe dated as of January 1, 2000 (the "Employment
Agreement") in a reasonable manner (other than any such failure
resulting from disability or death or from termination by
Forsythe for Good Reason, as defined in the Employment Agreement)
after a written demand for substantial performance is delivered
to Forsythe that specifically identifies the manner in which the
Bank believes that Forsythe has not substantially performed his
duties and he has not resumed substantial performance of his
duties on a continuous basis within thirty days of receiving such
demand; or
(iv) breach of any representation or warranty in section
6(a) of the Employment Agreement or of any agreement contained in
section 1, 4, 5, or 6(b) of the Employment Agreement, which
breach is material and adverse to the Bank or any of its
affiliates for which Forsythe is assigned material
responsibilities or duties.
(d) CHANGE OF CONTROL. "Change of Control" shall mean a Change
-------------------
in Control as such term is defined in the Change of Control Agreement
between Forsythe and the Bank dated January 1, 2000 (a revision of the
April 28, 1998 and February 21, 1995 agreements).
(e) CODE. "Code" shall mean the Internal Revenue Code of 1986,
----
as amended.
(f) DETERMINATION DATE. "Determination Date" shall mean the
------------------
earlier of (i) the date of termination of Forsythe's employment with
the Bank or (ii) the first day of the month following Forsythe's 65th
birthday.
(g) FINAL AVERAGE COMPENSATION. "Final Average Compensation"
--------------------------
shall have the same meaning the term "Final Average Compensation" has
under Section 2.27 of Appendix A to the Qualified Plan (i.e., the NBT
BANCORP Inc. Defined Benefit Pension Plan, as amended and restated as
of October 1, 1989, including amendments adopted through August 31,
1998), except that in determining the amount of Compensation (as
defined in Section 2.14 of said Appendix A to the Qualified Plan) to
be used in calculating Final Average Compensation under Section 2.27
of said Appendix A to the Qualified Plan, Compensation shall not be
subject to the compensation limitation of section 401(a)(17) of the
Code.
(h) FULL-TIME EMPLOYEE. "Full-Time Employee" shall mean an
-------------------
employee who works not less than 1,000 hours in a calendar year.
(i) OTHER RETIREMENT BENEFITS. "Other Retirement Benefits" shall
--------------------------
mean the sum of:
(i) The annual benefit payable to Forsythe from the
Qualified Plan, plus
(ii) The annual benefit that could be provided by (A) Bank
contributions (other than elective deferrals) made on Forsythe's
behalf under the NBT Bancorp Inc. 401(k) and Employee Stock
Ownership Plan, and (B) actual earnings on contributions in (A),
if such contributions and earnings were converted to a benefit
payable at age 65 in the same form as the benefit paid under this
Agreement, using the same actuarial assumptions as are provided
under subparagraph 2(a).
The amount of Other Retirement Benefits shall be determined by an
actuary selected by the Bank, with such determination to be made without
reduction for payment of benefits prior to any stated "normal retirement
II-24
date" and without regard to whether Forsythe is receiving payment of such
benefits on the Determination Date. To the extent Forsythe receives a
payment of Other Retirement Benefits described in subparagraph 2(i)(ii)
prior to the date the Supplemental Retirement Benefit is determined
pursuant to this Agreement, the total of such Other Retirement Benefits
shall be determined by including and assuming that such amounts earned
interest at a variable rate equal to the one-year United States Treasury
bill rate as reported in the New York edition of The Wall Street Journal on
the Determination Date from the date received to the date Other Retirement
Benefits are calculated for purposes of this Agreement.
(j) PRESENT VALUE. "Present Value" shall mean the present
--------------
value of a benefit determined on the basis of the following actuarial
assumptions:
MORTALITY: "Applicable Mortality Rate" as such term is
---------
defined in Section 2.03c of Appendix A to the
Qualified Plan (i.e., the NBT BANCORP Inc.
Defined Benefit Pension Plan, as amended and
restated as of October 1, 1989, including
amendments adopted through August 31, 1998).
INTEREST RATE: "Applicable Interest Rate" as such term is
--------------
defined in Section 2.09b of said Appendix A
to the Qualified Plan.
(k) QUALIFIED PLAN. "Qualified Plan" shall mean the NBT BANCORP
---------------
Inc. Defined Benefit Pension Plan, as amended and restated
effective as of January 1, 2000.
(l) SOCIAL SECURITY BENEFIT. "Social Security Benefit" shall
-------------------------
mean Forsythe's actual social security benefit at his Social
Security Retirement Age.
(m) SOCIAL SECURITY RETIREMENT AGE. "Social Security Retirement
--------------------------------
Age" shall have the same meaning the term "Social Security Retirement
Age" has under Section 2.58 of Appendix A to the Qualified Plan (i.e.,
the NBT BANCORP Inc. Defined Benefit Pension Plan, as amended and
restated as of October 1, 1989, including amendments adopted through
August 31, 1998).
3. AMOUNT OF SUPPLEMENTAL RETIREMENT BENEFIT.
---------------------------------------------
(a) SUPPLEMENTAL RETIREMENT BENEFIT.
---------------------------------
(i) AMOUNT PAYABLE ON AND AFTER AGE 65. If Forsythe shall
------------------------------------
remain employed by the Bank until reaching his 65th birthday,
serving as a Full-Time Employee until such date, and subject to
the other terms and conditions of this Agreement, the Bank shall
pay Forsythe an annual "Supplemental Retirement Benefit"
determined as follows:
(A) ON AND AFTER AGE 65 BUT BEFORE SOCIAL SECURITY
--------------------------------------------------
RETIREMENT AGE. Forsythe shall be entitled to a Supplemental
---------------
Retirement Benefit on and after his 65th birthday but before
his Social Security Retirement Age in an amount equal to the
excess of (1) 75 percent of Forsythe's Final Average
Compensation, over (2) Forsythe's Other Retirement Benefits,
determined as of the Determination Date and calculated in
accordance with subparagraph 2(i).
II-25
(B) ON AND AFTER SOCIAL SECURITY RETIREMENT AGE.
-------------------------------------------------
Forsythe shall be entitled to a Supplemental Retirement
Benefit on and after his Social Security Retirement Age in
an amount equal to the excess of (1) 75 percent of
Forsythe's Final Average Compensation, over (2) the sum of
(aa) Forsythe's Other Retirement Benefits, determined as of
the Determination Date and calculated in accordance with
subparagraph 2(i), plus (bb) Forsythe's Social Security
Benefit.
(ii) AMOUNT PAYABLE ON AND AFTER AGE 56 BUT BEFORE AGE 60.
------------------------------------------------------
If Forsythe shall remain employed by the Bank until reaching his
56th birthday, serving as a Full-Time Employee until such date
and he continues to serve as a Full-Time Employee until the date
of his retirement, and he retires then or thereafter but before
reaching his 60th birthday, and subject to the other terms and
conditions of this Agreement, the Bank shall pay Forsythe on his
60th birthday, pursuant to subparagraph 4(b), or to his spouse or
other Beneficiary, pursuant and subject to subparagraph 6(c) if
he has died before his 60th birthday, a reduced early
Supplemental Retirement Benefit calculated in accordance with
subparagraph 3(b) and the following schedule:
(A) If the date of Forsythe's retirement shall be on
or after his 56th birthday but before his 57th birthday, the
Bank shall pay Forsythe 20% of the reduced early
Supplemental Retirement Benefit so calculated;
(B) If the date of Forsythe's retirement shall be on
or after his 57th birthday but before his 58th birthday, the
Bank shall pay Forsythe 40% of the reduced early
Supplemental Retirement Benefit so calculated;
(C) If the date of Forsythe's retirement shall be on
or after his 58th birthday but before his 59th birthday, the
Bank shall pay Forsythe 60% of the reduced early
Supplemental Retirement Benefit so calculated; and
(D) If the date of Forsythe's retirement shall be on
or after his 59th birthday but before his 60th birthday, the
Bank shall pay Forsythe 80% of the reduced early
Supplemental Retirement Benefit so calculated.
(iii) AMOUNT PAYABLE ON AND AFTER AGE 60 BUT BEFORE AGE 65.
-----------------------------------------------------
If Forsythe shall remain employed by the Bank until
reaching his 60th birthday, serving as a Full-Time
Employee until such date and he continues to serve
As a Full-Time Employee until the date of his
retirement, and he retires then or thereafter but
before reaching his 65th birthday, and subject to
the other terms and conditions of this Agreement, the
Bank shall pay Forsythe a reduced early Supplemental
Retirement Benefit calculated in accordance with
subparagraph 3(b) except that at age 62 the amount
shall not be less than an amount equal to the excess
of (A) 65% of Forsythe's Final Average Compensation
over (B) Forsythe's Other Retirement Benefits
determined as of the Determination Date and
calculated in accordance with subparagraph 2(i)
(b) EARLY SUPPLEMENTAL RETIREMENT BENEFIT. If the Bank commences
-------------------------------------
payment of a reduced early Supplemental Retirement Benefit before
Forsythe reaches age 65, the amount paid shall equal the product of
(i) the Supplemental Retirement Benefit, as calculated under
subparagraph 3(a)(i)(A), times (ii) a fraction, the numerator of which
shall be the number of complete months of Forsythe's employment with
the Bank after January 1, 1995, and the denominator of which is 164
(the number of complete months of employment Forsythe would have had
after January 1, 1995 if he remained employed by the Bank until the
first day of the month following his 65th birthday).
II-26
(c) CONTINUED MEDICAL BENEFITS. Upon Forsythe's retirement, the
----------------------------
Bank will continue in force the same level of medical benefits
(including medical, dental and vision care) for Executive until his
death and for his spouse (if alive) at the time of his death that was
in effect at the time of Executive's retirement.
(d) DISABILITY. If Forsythe's employment with the Bank
-
terminates because of his disability (as defined for purposes of the
long term disability plan or policy of the Bank that is applicable to
him at such time) before he attains age 62, for purposes of this
Section 3, he shall be deemed to have continued to be employed as a
Full-Time Employee of the Bank while such disability continues, until
he attains age 62, and to have then retired.
4. TIME OF PAYMENT.
-----------------
(a) Except as provided in subparagraph 4(b) (early retirement)
and paragraph 6 (payment on death), the Bank shall pay the
Supplemental Retirement Benefit commencing on the first day of the
month following Forsythe's attainment of age 65.
(b) Notwithstanding subparagraph 4(a), the Bank shall commence
payment of a reduced early Supplemental Retirement Benefit on the
first day of the month following Forsythe's Determination Date in
connection with early retirement after reaching age 60 and prior to
the date of his 65th birthday; provided that, if Forsythe shall retire
prior to his 60th birthday as permitted in this Agreement, the Bank
shall commence payment of the reduced early Supplemental Retirement
Benefit on the first day of the month following Forsythe's 60th
birthday.
5. FORM OF PAYMENT.
-----------------
(a) The Supplemental Retirement Benefit described in paragraph 3
of this Agreement shall be paid as a straight life annuity, payable in
monthly installments, for Forsythe's life; provided, however, that if
Forsythe has no surviving spouse and dies before having received 60
monthly payments, such monthly payments shall be continued to his
Beneficiary until the total number of monthly payments to Forsythe and
his Beneficiary equal 60, whereupon all payments shall cease and the
Bank's obligation under this Agreement shall be deemed to have been
fully discharged. If Forsythe and his Beneficiary shall die before
having received a total of 60 monthly payments, an amount equal to the
Actuarial Equivalent of the balance of such monthly payments shall be
paid in a single sum to the estate of the survivor of Forsythe and his
Beneficiary. If Supplemental Retirement Benefits are payable in the
form described in this subparagraph 5(a), Forsythe shall designate in
writing, as his Beneficiary, any person or persons, primarily,
contingently or successively, to whom the Bank shall pay benefits
following Forsythe's death if Forsythe's death occurs before 60
monthly payments have been made.
(b) Notwithstanding the form of payment described in subparagraph
5(a), if Forsythe is married on the date payment of the Supplemental
Retirement Benefit commences, the benefit shall be paid as a 50% joint
and survivor annuity with Forsythe's spouse as the Beneficiary. The
50% joint and survivor annuity shall be the Actuarial Equivalent of
the benefit described in subparagraph 5(a). If the Supplemental
Retirement Benefit is payable pursuant to this subparagraph 5(b), but
Forsythe's spouse fails to survive him, no payments will be made
pursuant to this Agreement following Forsythe's death.
(c) Notwithstanding the foregoing provisions of this paragraph 5,
the Bank and Forsythe or his surviving spouse, if applicable, by
mutual agreement may accelerate the payment of all or any portion of
the Supplemental Retirement Benefit or the reduced early Supplemental
Retirement Benefit at any time.
II-27
Any payment accelerated in accordance with this subparagraph 5(c)
shall be the Actuarial Equivalent of the payment being accelerated.
(d) If payment of a reduced early Supplemental Retirement Benefit
commences pursuant to subparagraph 4(b), and payments are accelerated
pursuant to subparagraph 5(c), the reduction described in subparagraph
3(b) shall be applied before any Actuarial Equivalent is determined
under this paragraph 5.
6. PAYMENTS UPON FORSYTHE'S DEATH.
---------------------------------
(a) Except as provided in subparagraphs 6(b) and (c), if Forsythe
shall die before his 65th birthday, no payment shall be due his estate
under this Agreement.
(b) If Forsythe's death shall occur on or after his 60th
birthday, before payment of any Supplemental Retirement Benefit has
commenced, Forsythe's surviving spouse shall be paid as a straight
life annuity 50 percent of the Supplemental Retirement Benefit for her
life commencing within 30 days following Forsythe's death, calculated
in accordance with subparagraph 3(b) and, if such death occurs while
Forsythe is employed by the Bank, as if he had retired on the day
before his death. Such payments shall be made in monthly installments,
subject to the right of the Bank and such surviving spouse to
accelerate payment at any time in accordance with subparagraph 5(c).
(c) If Forsythe dies before his 60th birthday and on or after his
56th birthday, before payment of any Supplemental Retirement Benefit
has commenced, Forsythe's surviving spouse shall be paid, in monthly
installments, as a straight life annuity, 50 percent of such
Supplemental Retirement Benefit for her life commencing within 30 days
following Forsythe's death, calculated in accordance with subparagraph
3(a)(ii) and, if such death occurs while Forsythe is employed by the
Bank, as if he had retired on the day before his death, subject to the
right of the Bank and such surviving spouse to accelerate such
payments as provided in subparagraph 5(c). However, if Forsythe's
spouse fails to survive him, the Bank shall pay to Forsythe's estate a
lump sum benefit equal to 50 percent of the Present Value of
Forsythe's Supplemental Retirement Benefit, calculated as provided in
the preceding sentence.
(d) Except as otherwise provided in subparagraph 6(c), no
payments shall be made under this Agreement if Forsythe dies before
payment of any Supplemental Retirement Benefit begins and his spouse
fails to survive him.
(e) If Forsythe's death shall occur after payment of a
Supplemental Retirement Benefit has commenced, Forsythe's surviving
spouse or other Beneficiaries shall receive payments under this
Agreement to the extent provided in paragraph 5.
7. FORFEITURE FOR CAUSE. Notwithstanding any other provision of this
----------------------
Agreement, if Forsythe's employment with the Bank is terminated for Cause,
Forsythe and his spouse or other Beneficiaries shall forfeit all rights to any
payment under this Agreement.
8. POWERS. The Bank shall have such powers as may be necessary to discharge
------
its duties under this Agreement, including the power to interpret and construe
this Agreement and to determine all questions regarding employment, disability
status, service, earnings, income and such factual matters as birth and marital
status. The Bank's determinations hereunder shall be conclusive and binding upon
the parties hereto and all other persons having or claiming an interest under
this Agreement. The Bank shall have no power to add to, subtract from, or modify
any of the terms of this Agreement. The Bank's determinations hereunder shall be
entitled to deference upon
II-28
review by any court, agency or other entity empowered to review its decisions,
and shall not be overturned or set aside by any court, agency or other entity
unless found to be arbitrary, capricious or contrary to law.
9. CLAIMS PROCEDURE.
-----------------
(a) Any claim for benefits by Forsythe, his spouse or other
Beneficiaries shall be made in writing to the Bank. In this paragraph,
Forsythe and his Beneficiaries are referred to as "claimants."
(b) If the Bank denies a claim in whole or in part, it shall send the
claimant a written notice of the denial within 90 days after the date it
receives a claim, unless it needs additional time to make its decision. In
that case, the Bank may authorize an extension of an additional 90 days if
it notifies the claimant of the extension within the initial 90-day period.
The extension notice shall state the reasons for the extension and the
expected decision date.
(c) A denial notice shall contain:
(i) The specific reason or reasons for the denial of the claim;
(ii) Specific reference to pertinent Agreement provisions upon
which the denial is based;
(iii) A description of any additional material or information
necessary to perfect the claim, with an explanation of why the
material or information is necessary; and
(iv) An explanation of the review procedures provided below.
(d) Within 60 days after the claimant receives a denial notice, he or
she may file a request for review with the Bank. Any such request must be
made in writing.
(e) A claimant who timely requests review shall have the right to
review pertinent documents, to submit additional information or written
comments, and to be represented.
(f) The Bank shall send the claimant a written decision on any request
for review within 60 days after the date it receives a request for review,
unless an extension of time is needed, due to special circumstances. In
that case, the Bank may authorize an extension of an additional 60 days,
provided it notifies the claimant of the extension within the initial
60-day period.
(g) The review decision shall contain:
(i) The specific reason or reasons for the decision; and
(ii) Specific reference to the pertinent Agreement provisions
upon which the decision is based.
II-29
(h) If the Bank does not send the claimant a review decision within
the applicable time period, the claim shall be deemed denied on review.
(i) The denial notice or, in the case of a timely review, the review
decision (including a deemed denial under subparagraph 9(h)) shall be the
Bank's final decision.
10. ASSIGNMENT. Neither Forsythe nor his spouse or other Beneficiaries may
----------
transfer his, her or their right to payments to which he, she or they are
entitled under this Agreement. Except insofar as may otherwise be required by
law, any Supplemental Retirement Benefit payable under this Agreement shall not
be subject in any manner to alienation by anticipation, sale, transfer,
assignment, pledge or encumbrance, nor subject to the debts, contracts, or
liabilities of Forsythe or his spouse or other Beneficiaries.
11. CONTINUED EMPLOYMENT. This Agreement shall not be construed as
---------------------
conferring on Forsythe a right to continued employment with the Bank.
12. FUNDING.
-------
(a) The Supplemental Retirement Benefit at all times shall be entirely
unfunded, and no provision shall at any time be made with respect to
segregating any assets of the Bank for payments of any benefits hereunder,
except that in the event of a Change of Control, the Bank, within five (5)
days of such Change of Control, shall fund a grantor trust within the
meaning of section 671 of the Code with an amount sufficient to cover all
potential liabilities under this Agreement.
(b) Neither Forsythe nor his spouse or other Beneficiaries shall have
any interest in any particular assets of the Bank by reason of the right to
receive a benefit under this Agreement. Forsythe and his spouse or other
Beneficiaries shall have only the rights of general unsecured creditors of
the Bank with respect to any rights under this Agreement.
(c) Nothing contained in this Agreement shall constitute a guarantee
by the Bank or any entity or person that the assets of the Bank will be
sufficient to pay any benefit hereunder.
13. WITHHOLDING. Any payment made pursuant to this Agreement shall be
-----------
reduced by federal and state income, FICA or other employee payroll, withholding
or other similar taxes the Bank may be required to withhold. In addition, as the
Supplemental Retirement Benefit accrues during Forsythe's employment with the
Bank, the Bank may withhold from Forsythe's regular compensation from the Bank
any FICA or other employee payroll, withholding or other similar taxes the Bank
may be required to withhold.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and shall
----------------------
inure to the benefit of, the successors and assigns of the Bank.
15. APPLICABLE LAW. This Agreement shall be construed and administered in
---------------
accordance with the laws of the State of New York, except to the extent
preempted by federal law.
16. AMENDMENT. This Agreement may not be amended, modified or otherwise
---------
altered except by written instrument executed by both parties.
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17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
-----------------
understanding of the parties, and supersedes all prior agreements or
understanding (whether oral or written) between the parties, relating to
deferred compensation and/or supplemental retirement income.
II-31
The parties hereby execute this Agreement as follows:
NBT BANCORP INC.
By: /s/ Andrew Kowalczyk Jr.
Date: 1/28/02 Its: Chairman Compensation Committee
NBT BANK, NATIONAL ASSOCIATION
By: /s/ Michael J. Chewens
Date: 1/28/02 Its: Secretary
Date: 1/28/02 /s/ Daryl R. Forsythe
DARYL R. FORSYTHE
II-32
Exhibit 10.18
Amendment dated January 28, 2002 to Death Benefits Agreement between NBT Bancorp
Inc., NBT Bank, National Association and Daryl R. Forsythe made August 22,
1995.
II-33
AMENDMENT TO DEATH BENEFITS AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into effective as of
the 28 day of January, 2002, by and among NBT BANCORP INC., a Delaware
corporation, and NBT Bank, N.A., a national banking association organized under
the laws of the United States (hereinafter referred to collectively as the
"Bank"), Daryl R. Forsythe (the "Employee").
WHEREAS, the Bank and the Employee have entered to that certain
Death Benefits Agreement dated as of August 22, 1995 (the "1995 Agreement");
WHEREAS, the 1995 Agreement may be amended by a written
instrument signed by the Bank and the Employee; and
WHEREAS, the Bank and the Employee desire to amend the 1995
Agreement as set out in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Section 1 of Article IX of the 1995 Agreement is amended to
read in its entirety as follows:
1. THIS AGREEMENT MAY BE TERMINATED AT ANY TIME WHILE THE EMPLOYEE IS
LIVING BY A WRITTEN INSTRUMENT SIGNED BY THE BANK AND THE EMPLOYEE, PROVIDED,
THAT THE BANK MAY TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO THE EMPLOYEE AT
ANY TIME AFTER THE EMPLOYEE HAS CEASED TO BE THE CHAIRMAN OF THE BANK OTHER THAN
BECAUSE OF HIS DEATH; AND, IN ANY EVENT, THIS AGREEMENT WILL TERMINATE UPON
TERMINATION OF THE EMPLOYEE'S EMPLOYMENT WITH THE BANK FOR ANY REASON OTHER THAN
HIS DEATH.
2. The following new sentence is added to the end of Article X
of the 1995 Agreement:
WITHOUT LIMITING THE FOREGOING, FOLLOWING TERMINATION OF THIS AGREEMENT, TO
THE EXTENT PERMITTED BY THE POLICY, THE BANK MAY DESIGNATE ANY OFFICER OR OTHER
EMPLOYEE OF THE BANK AS THE INSURED UNDER THE POLICY AND MAY CONTINUE THIS
AGREEMENT WITH SUCH OFFICER OR EMPLOYEE.
3. The foregoing amendments shall be effective upon the date of
this Agreement.
4. In other respects, the 1995 Agreement shall continue in full force
and effect.
The parties hereby execute this Agreement as follows:
NBT BANCORP INC.
By: /s/ Andrew Kowalczyk Jr.
Date: 1/28/02 Its: Chairman Compensation Committee
NBT BANK, NATIONAL ASSOCIATION
By: /s/ Michael J. Chewens
Date: 1/28/02 Its: Secretary
Date: 1/28/02 /s/ Daryl R. Forsythe
DARYL R. FORSYTHE
II-34
Exhibit 10.19
Split-Dollar Agreement between NBT Bancorp Inc., NBT Bank, National Association
and Daryl R. Forsythe made August 22, 1995.
II-35
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of this 28 day
of January, 2002, by and among NBT Bancorp Inc., a Delaware corporation, and NBT
Bank, N.A., a national banking association organized under the laws of the
United States (collectively, the "Bank"), and Daryl R. Forsythe, an individual
residing in the State of New York (the "Employee").
WHEREAS, the Employee is employed by the Bank as its president and chief
executive officer;
WHEREAS, the Employee wishes to provide additional life insurance
protection for his family in the event of his death;
WHEREAS, the Bank is willing to pay the premiums due on a policy of life
insurance as an employment benefit for the Employee, on the terms and conditions
hereinafter set forth;
WHEREAS, the Bank and the Employee have applied for Insurance Policy Number
28105185 on the life of the Employee (the "Policy") from New England Financial
(the "Insurer") in the face amount of $1,500,000, pursuant to which the Bank
will be the owner of the Policy;
WHEREAS, the Bank and the Employee agree to make the Policy subject to this
Agreement; and
WHEREAS, it is understood and agreed that this Agreement is to be effective
as of the date on which the Policy is issued by the Insurer.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
contained herein, the parties hereto agree as follows:
1. INSURANCE POLICY. The Bank shall purchase the Policy from the Insurer
and shall be the sole and absolute owner of the Policy. The parties agree that
the Policy shall be subject to the terms of this Agreement and of the
endorsement to the Policy filed with the Insurer to implement the provisions of
this Agreement. The Bank may exercise all ownership rights granted to the owner
of the Policy by the terms thereof, except as otherwise provided in this
Agreement. The Bank shall be the direct beneficiary of the total death proceeds,
less $1,000,000.00 (the "Bank's Interest in the Policy"). The Bank will keep
possession of the Policy. The Bank agrees to make the Policy available at
reasonable times to the Employee or the Insurer for the purpose of endorsing or
filing any change of beneficiary on the Policy for the portion of the death
proceeds that is in excess of the Bank's Interest in the Policy, but the Policy
shall thereafter be promptly returned to the Bank. Any indebtedness on the
Policy will first be deducted from the proceeds payable to the Bank. Also, any
collateral assignment made by the Bank will be deducted from the proceeds
payable to it. The Employee shall be entitled to designate the beneficiary or
beneficiaries of the remainder of the Policy death proceeds in excess of the
Bank's Interest in the Policy.
2. ELECTION OF SETTLEMENT OPTION AND BENEFICIARY. By notice to the Bank,
the Employee may select the settlement option for payment of, and the
beneficiary or beneficiaries to receive, the portion of the death benefit
provided under the Policy in excess of the Bank's Interest in the Policy. Upon
receipt of such notice, the Bank shall execute and deliver to the Insurer the
forms necessary to elect the requested settlement option and to designate the
requested person, persons or entity as the beneficiary or beneficiaries to
receive such portion of the death proceeds of the Policy. The parties hereto
agree to take all actions necessary to cause the beneficiary designation and
settlement election provisions of the Policy to conform to the provisions
hereof. The Bank shall not terminate, alter or amend such designation or
election without the express written consent of the Employee.
3. POLICY DIVIDENDS. Any dividend declared on the Policy shall be applied
to reduce premiums on the Policy.
4. PAYMENT OF PREMIUMS. The Bank shall pay a sufficient amount of premiums
to the Insurer to maintain the Policy in force, and shall, upon request, provide
evidence to the Employee that the Policy remains in force. The Bank shall
annually furnish the Employee a statement of the amount of income reportable by
the Employee for federal and state income tax purposes, as a result of the
insurance protection provided the Employee.
II-36
5. LIMITATION ON THE BANK'S RIGHTS IN THE POLICY. The Employee will have
rights set out in Section 2 hereof with respect to the death benefit provided
under the Policy in excess of the Bank's Interest in the Policy. The Bank shall
not sell, surrender, change the insured or assign or transfer ownership of the
Policy except after termination of the Agreement pursuant to Section 6 hereof,
other than for the purpose of obtaining a loan against the Policy. The aggregate
amount of such loans, together with the unpaid interest accrued thereon, will at
no time exceed the lesser of (a) the Bank's Interest in the Policy or (b) the
loan value of the Policy as determined by the Insurer. The Bank will not take
any action dealing with the Insurer that would impair any right or interest of
the Employee in the Policy. Without limiting the foregoing, following
termination of this Agreement, to the extent permitted by the Policy, the Bank
may designate any officer or other employee of the Bank as the insured under the
Policy and may continue this Agreement with such officer or employee. The
exercise by the Bank of the right to surrender the policy or to change the
insured will terminate the rights of the Employee in the Policy.
6. TERMINATION OF THE AGREEMENT DURING THE EMPLOYEE'S LIFETIME. This
Agreement may be terminated at any time while the Employee is living by a
written instrument signed by the Bank and the Employee, provided, that the Bank
may terminate this Agreement by written notice to the Employee at any time after
the Employee has ceased to be the Chairman of the Bank other than because of his
death; and, in any event, this Agreement will terminate upon termination of the
Employee's employment with the Bank for any reason whatsoever other than
Employee's death.
7. INSURER NOT A PARTY. The Insurer shall be fully discharged from its
obligations under the Policy by payment of the Policy death benefit to the
beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall the Insurer be considered a party to
this Agreement, or any modification or amendment hereof. No provision of this
Agreement, nor of any modification or amendment hereof, shall in any way be
construed as enlarging, changing, varying, or in any other way affecting the
obligations of the Insurer as expressly provided in the Policy, except insofar
as the provisions hereof are made a part of the Policy by the beneficiary
designation executed by the Bank and filed with the Insurer in connection
herewith. The Insurer shall not be obligated to inquire as to the distribution
of any monies payable or paid by it under the Policy on the Employee's life
pursuant to the terms of this Agreement.
8. ASSIGNMENT BY THE EMPLOYEE. Notwithstanding any provision hereof to the
contrary, the Employee shall have the right to absolutely and irrevocably assign
by gift all of his right, title and interest in and to this Agreement and to the
Policy to an assignee. This right shall be exercisable by the execution and
delivery to the Bank of a written assignment, in the form provided by the Bank.
Upon receipt of such written assignment executed by the Employee and duly
accepted by the assignee thereof, the Bank shall consent thereto in writing, and
shall thereafter treat the Employee's assignee as the sole owner of all of the
Employee's right, title and interest in and to this Agreement and in and to the
Policy. Thereafter the Employee shall have no right, title or interest in and to
this Agreement or the Policy, all such rights being vested in and exercisable
only by such assignee.
9. NAMED FIDUCIARY, DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND
ADMINISTRATION.
a. The Bank is hereby designated as the named fiduciary under this
Agreement. The named fiduciary shall have authority to control and manage the
operation and administration of this Agreement, and it shall be responsible for
establishing and carrying out a funding policy and method consistent with the
objectives of this Agreement.
b. (1) Claim.
A person who believes that he or she is being denied a benefit to
which he or she is entitled under this Agreement (hereinafter referred to as a
"Claimant") may file a written request for such benefit with the Bank, setting
forth his or his claim. The request must be addressed to the general counsel of
the Bank at its then principal place of business.
(2) Claim Decision.
Upon receipt of a claim, the Bank shall advise the Claimant that a
reply will be forthcoming within 90 days and shall, in fact, deliver such reply
within such period. The Bank may, however, extend the reply period for an
additional 90 days for reasonable cause.
II-37
If the claim is denied in whole or in part, the Bank shall adopt a written
opinion, using language calculated to be understood by the Claimant, setting
forth: (a) the specific reason or reasons for such denial; (b) the specific
reference to pertinent provisions of this Agreement on which such denial is
based; (c) a description of any additional material or information necessary for
the Claimant to perfect his or his claim and an explanation why such material or
such information is necessary; (d) appropriate information as to the steps to be
taken if the Claimant wishes to submit the claim for review; and (e) the time
limits for requesting a review under subsection (3) and for review under
subsection (4) hereof.
(3) Request for Review.
Within 60 days after the receipt by the Claimant of the written opinion
described above, the Claimant may request in writing that the Bank review the
determination of the Bank. Such request must be addressed to the general
counsel of the Bank, at its then principal place of business. The Claimant or
his or her duly authorized representative may, but need not, review the
pertinent documents and submit issues and comments in writing for consideration
by the Bank. If the Claimant does not request a review of the Bank's
determination within such 60 day period, he or she shall be barred and estopped
from challenging the Bank's determination.
(4) Review of Decision.
Within 60 days after the general counsel's receipt of a request for review,
he or she will review the Bank's determination. After considering all materials
presented by the Claimant, the general counsel will render a written opinion,
written in a manner calculated to be understood by the Claimant, setting forth
the specific reasons for the decision and containing specific references to the
pertinent provisions of this Agreement on which the decision is based. If
special circumstances require that the 60 day time period be extended, the
Secretary will so notify the Claimant and will render the decision as soon as
possible, but no later than 120 days after receipt of the request for review.
10. AMENDMENT. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their respective
successors or assigns, and may not be otherwise terminated except as provided
herein.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Bank and its successors and assigns, and the Employee, his
successors, assigns, heirs, executors, administrators and beneficiaries.
12. NOTICES. Any notice, consent or demand required or permitted to be
given under the provisions of this Agreement shall be in writing, and shall be
signed by the party giving or making the same. If such notice, consent or demand
is mailed to a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as shown on the
records of the Bank. The date of such mailing shall be deemed the date of
notice, consent or demand.
13. GOVERNING LAW. This Agreement, and the rights of the parties hereunder,
shall be governed by and construed in accordance with the laws of the United
States, to the extent applicable, and otherwise by the laws of the State of New
York applicable to contracts entered into and performed wholly within its
borders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate, as of the day and year first above written.
NBT BANCORP INC.
By: /s/ Andrew Kowalczyk Jr. 1/28/02
Title: Chairman Compensation Committee
II-38
NBT BANK, NATIONAL ASSOCIATION
By: /s/ Michael J. Chewens
Its: Secretary 1/28/02
DARYL R. FORSYTHE
/s/ Daryl R. Forsythe 1/28/02
II-39
Exhibit 10.21
Form of Employment Agreement between NBT Bancorp Inc. and Martin A. Dietrich
made as of January 1, 2002.
II-40
EMPLOYMENT AGREEMENT (REVISED)
This EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this
first day of January, 2000 and revised on January 1, 2002, by and between MARTIN
A. DIETRICH ("Executive") and NBT BANCORP INC., a Delaware corporation having
its principal office in Norwich, New York ("NBTB")
W I T N E S S E T H T H A T :
WHEREAS, Executive is the president and chief operating officer and a
director of NBT Bank, National Association, a national banking association which
is a wholly-owned subsidiary of NBTB ("NBT Bank");
WHEREAS, NBTB desires to secure the continued employment of Executive,
subject to the provisions of this Agreement; and
WHEREAS, Executive is desirous of entering into the Agreement for such
periods and upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, intending to be legally bound, the parties
agree as follows:
1. Employment; Responsibilities and Duties.
------------------------------------------
(a) NBTB hereby agrees to cause NBT Bank to employ Executive, and
Executive hereby agrees to serve as the president and chief operating officer of
NBT Bank, during the Term of Employment. Executive shall have such executive
duties, responsibilities, and authority as shall be set forth in the bylaws of
NBT Bank or as may otherwise be determined by NBTB or by NBT Bank. During the
Term of Employment, Executive shall report directly to the chief executive
officer of NBTB.
(b) NBTB hereby agrees to cause Executive to be reelected to the
board of directors of NBT Bank for successive terms throughout the Term of
Employment.
(c) Executive shall devote his full working time and best efforts
to the performance of his responsibilities and duties hereunder. During the
Term of Employment, Executive shall not, without the prior written consent of
the chief executive officer of NBTB, render services as an employee, independent
contractor, or otherwise, whether or not compensated, to any person or entity
other than NBTB or its affiliates; provided that Executive may, where
involvement in such activities does not individually or in the aggregate
significantly interfere with the performance by Executive of his duties or
violate the provisions of section 4 hereof, (i) render services to charitable
organizations, (ii) manage his personal investments, and (iii) with the prior
permission of the chief executive officer of NBTB, hold such other directorships
or part-time academic appointments or have such other business affiliations as
would otherwise be prohibited under this section 1.
2. Term of Employment.
--------------------
(a) The term of this Agreement ("Term of Employment") shall be the
period commencing on the date of this Agreement (the "Commencement Date") and
continuing until the Termination Date, which shall mean the earliest to occur
of:
(i) JANUARY 1, 2005, PROVIDED, HOWEVER, THAT ON JANUARY 1, 2003,
AND ON EACH JANUARY 1 THEREAFTER, THE TERM OF EMPLOYMENT SHALL
AUTOMATICALLY EXTEND ITSELF BY ONE ADDITIONAL YEAR;
(ii) the death of Executive;
(iii) Executive's inability to perform his duties hereunder,
as a result of physical or mental disability as reasonably determined by the
personal physician of Executive, for a period of at least 180 consecutive days
or for at least 180 days during any period of twelve consecutive months during
the Term of Employment; or
II-41
(iv) the discharge of Executive by NBTB "for cause," which
shall mean one or more of the following:
(A) any willful or gross misconduct by Executive with
respect to the business and affairs of NBTB or NBT Bank, or with respect to any
of its affiliates for which Executive is assigned material responsibilities or
duties;
(B) the conviction of Executive of a felony (after the
earlier of the expiration of any applicable appeal period without perfection of
an appeal by Executive or the denial of any appeal as to which no further appeal
or review is available to Executive) whether or not committed in the course of
his employment by NBTB;
(C) Executive's willful neglect, failure, or refusal
to carry out his duties hereunder in a reasonable manner (other than any such
failure resulting from disability or death or from termination by Executive for
Good Reason, as hereinafter defined) after a written demand for substantial
performance is delivered to Executive that specifically identifies the manner in
which NBTB believes that Executive has not substantially performed his duties
and Executive has not resumed substantial performance of his duties on a
continuous basis within thirty days of receiving such demand; or
(D) the breach by Executive of any representation or
warranty in section 6(a) hereof or of any agreement contained in section 1, 4,
5, or 6(b) hereof, which breach is material and adverse to NBTB or any of its
affiliates for which Executive is assigned material responsibilities or duties;
or
(v) Executive's resignation from his position as president
and chief operating officer of NBT Bank other than for "Good Reason," as
hereinafter defined; or
(vi) the termination of Executive's employment by NBTB
"without cause," which shall be for any reason other than those set forth in
subsections (i), (ii), (iii), (iv), or (v) of this section 2(a), at any time,
upon the thirtieth day following notice to Executive; or
(vii) Executive's resignation for "Good Reason."
"Good Reason" shall mean, without Executive's express written consent,
reassignment of Executive to a position other than as president and chief
operating officer of NBT Bank other than for "Cause," or a decrease in the
amount or level of Executive's salary or benefits from the amount or level
established in section 3 hereof.
(b) In the event that the Term of Employment shall be terminated
for any reason other than that set forth in section 2(a)(vi) or 2(a)(vii)
hereof, Executive shall be entitled to receive, upon the occurrence of any such
event:
(i) any salary (as hereinafter defined) payable pursuant to
section 3(a)(i) hereof which shall have accrued as of the Termination Date; and
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof.
(c) In the event that the Term of Employment shall be terminated
for the reason set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive
shall be entitled to receive:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date, and, for the period
commencing on the date immediately following the Termination Date and ending
upon and including the latest of January 1, 2005, the date to which the Term of
Employment shall (as of the Termination Date) have automatically extended itself
II-42
under section 2(a)(i) hereof, or the second anniversary of the Termination Date,
salary payable at the rate established pursuant to section 3(a)(i) hereof, in a
manner consistent with the normal payroll practices of NBTB with respect to
executive personnel as presently in effect or as they may be modified by NBTB
from time to time; and
(ii) such rights as Executive may have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof.
(d) Any provision of this section 2 to the contrary
notwithstanding, in the event that the employment of Executive with NBTB is
terminated in any situation described in section 3 of the change-in-control
letter agreement dated July 23, 2001 between NBTB and Executive (the
"Change-in-Control Agreement") so as to entitle Executive to a severance payment
and other benefits described in section 3 of the Change-in-Control Agreement,
then Executive shall be entitled to receive the following, and no more, under
this section 2:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date;
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof;
and
(iii) the severance payment and other benefits provided in
the Change-in-Control Agreement.
3. Compensation. For the services to be performed by Executive for
------------
NBTB and its affiliates under this Agreement, Executive shall be compensated in
the following manner:
(a) Salary. During the Term of Employment:
------
(i) NBTB shall pay Executive a salary which, on an annual
basis, shall not be less than $260,000 during 2002. Salary shall be payable in
accordance with the normal payroll practices of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time.
(ii) Executive shall be entitled to annual salary increases
of 8 percent during the Term of Employment, beginning in 2003, and shall be
eligible to be considered for further salary increases, upon review, in
accordance with the compensation policies of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time.
(iii) Executive shall be eligible to be considered for
performance bonuses commensurate with the Executive's title and salary grade, in
accordance with the compensation policies of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time.
(b) Employee Benefit Plans or Arrangements. During the Term of
------------------------------------------
Employment, Executive shall be entitled to participate in all employee benefit
plans of NBTB, as presently in effect or as they may be modified by NBTB from
time to time, under such terms as may be applicable to officers of Executive's
rank employed by NBTB or its affiliates, including, without limitation, plans
providing retirement benefits, stock options, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, provided
that there be no duplication of such benefits as are provided under any other
provision of this Agreement.
(c) Stock Options. Each January or February annually during the
--------------
Term of Employment, NBTB will cause Executive to be granted a non-statutory
("non-qualified") stock option (each an "Option") to purchase the number of
shares of the common stock of NBTB, $0.01 par value (the "NBTB Common Stock"),
pursuant to the NBT Bancorp Inc. 1993 Stock Option Plan, as amended, or any
appropriate successor plan (the "Stock Option Plan"), computed using a formula
approved by NBTB that is commensurate with the Executive's title and salary
grade. The option exercise price per share of the shares subject to each
Option shall be such Fair Market Value, and the terms, conditions of exercise,
and vesting schedule of such Option shall be as set forth in section 8 of the
Stock Option Plan.
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(d) Vacation and Sick Leave. During the Term of Employment,
--------------------------
Executive shall be entitled to paid annual vacation periods and sick leave in
accordance with the policies of NBTB as in effect as of the Commencement Date or
as may be modified by NBTB from time to time as may be applicable to officers of
Executive's rank employed by NBTB or its affiliates, but in no event less than
four weeks of paid vacation per year.
(e) Automobile. During the Term of Employment, Executive shall be
----------
entitled to the use of an automobile owned by NBTB or an affiliate of NBTB, the
make, model, and year of which automobile shall be appropriate to an officer of
Executive's rank employed by NBTB or its affiliates and consistent with that
provided to others of Executive's rank employed by NBTB or its affiliates.
During the second year of the Term of Employment, the automobile used by
Executive will be replaced with a new automobile, whose value shall not exceed
$45,000 escalated by an amount calculated by the controller's division of NBT
Bank to adjust for the effect of inflation upon $45,000 between the Commencement
Date and the date of the replacement of the vehicle (an "Inflation Adjustment").
During the remaining term of the Term of Employment, should three years elapse
from the date of the automobile replacement described in the previous sentence
(or any subsequent automobile replacement that takes place under this section),
or, if earlier, should the replaced automobile (or any automobile provided under
such subsequent automobile replacement) have accumulated 50,000 miles, then it
will be replaced with a new automobile whose value shall not exceed the sum of
$45,000 and an Inflation Adjustment. Executive shall be responsible for all
expenses of ownership and use of any such automobile, subject to reimbursement
of expenses for business use in accordance with section 3(h).
(f) Country Club Dues. During the Term of Employment, Executive
-------------------
shall be reimbursed for dues and assessments incurred in relation to Executive's
membership at a country club mutually agreed upon by NBTB and the Executive.
(g) Withholding. All compensation to be paid to Executive
-----------
hereunder shall be subject to required withholding and other taxes.
(h) Expenses. During the Term of Employment, Executive shall be
--------
reimbursed for reasonable travel and other expenses incurred or paid by
Executive in connection with the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as may from time to time be requested, in accordance with
such policies of NBTB as are in effect as of the Commencement Date and as may be
modified by NBTB from time to time, under such terms as may be applicable to
officers of Executive's rank employed by NBTB or its affiliates.
4. Confidential Business Information; Non-Competition.
--------------------------------------------------
(a) Executive acknowledges that certain business methods, creative
techniques, and technical data of NBTB and its affiliates and the like are
deemed by NBTB to be and are in fact confidential business information of NBTB
or its affiliates or are entrusted to third parties. Such confidential
information includes but is not limited to procedures, methods, sales
relationships developed while in the service of NBTB or its affiliates,
knowledge of customers and their requirements, marketing plans, marketing
information, studies, forecasts, and surveys, competitive analyses, mailing and
marketing lists, new business proposals, lists of vendors, consultants, and
other persons who render service or provide material to NBTB or NBT Bank or
their affiliates, and compositions, ideas, plans, and methods belonging to or
related to the affairs of NBTB or NBT Bank or their affiliates. In this regard,
NBTB asserts proprietary rights in all of its business information and that of
its affiliates except for such information as is clearly in the public domain.
Notwithstanding the foregoing, information that would be generally known or
available to persons skilled in Executive's fields shall be considered to be
"clearly in the public domain" for the purposes of the preceding sentence.
Executive agrees that he will not disclose or divulge to any third party, except
as may be required by his duties hereunder, by law, regulation, or order of a
court or government authority, or as directed by NBTB, nor shall he use to the
detriment of NBTB or its affiliates or use in any business or on behalf of any
business competitive with or substantially similar to any business of NBTB or
NBT Bank or their affiliates, any confidential business information obtained
during the course of his employment by NBTB. The foregoing shall not be
construed as restricting Executive from disclosing such information to the
employees of NBTB or NBT Bank or their affiliates. On or before the Termination
Date, Executive shall promptly deliver to NBTB any and all tangible,
confidential information in his position.
II-44
(b) Executive hereby agrees that from the Commencement Date until
the first anniversary of the Termination Date, Executive will not (i) interfere
with the relationship of NBTB or NBT Bank or its affiliates with any of their
employees, suppliers, agents, or representatives (including, without limitation,
causing or helping another business to hire any employee of NBTB or NBT Bank or
its affiliates), or (ii) directly or indirectly divert or attempt to divert from
NBTB or NBT Bank or its affiliates any business in which any of them has been
actively engaged during the Term of Employment, nor interfere with the
relationship of NBTB or NBT Bank or its affiliates with any of their customers
or prospective customers. This paragraph 4(b) shall not, in and of itself,
prohibit Executive from engaging in the banking, trust, or financial services
business in any capacity, including that of an owner or employee.
(c) Executive acknowledges and agrees that irreparable injury will
result to NBTB in the event of a breach of any of the provisions of this section
4 (the "Designated Provisions") and that NBTB will have no adequate remedy at
law with respect thereto. Accordingly, in the event of a material breach of any
Designated Provision, and in addition to any other legal or equitable remedy
NBTB may have, NBTB shall be entitled to the entry of a preliminary and
permanent injunction (including, without limitation, specific performance) by a
court of competent jurisdiction in Chenango County, New York, or elsewhere, to
restrain the violation or breach thereof by Executive, and Executive submits to
the jurisdiction of such court in any such action.
(d) It is the desire and intent of the parties that the provisions
of this section 4 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this section 4 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, should any court determine that the provisions of this section 4 shall
be unenforceable with respect to scope, duration, or geographic area, such court
shall be empowered to substitute, to the extent enforceable, provisions similar
hereto or other provisions so as to provide to NBTB, to the fullest extent
permitted by applicable law, the benefits intended by this section 4.
5. Life Insurance. In light of the unusual abilities and experience of
--------------
Executive, NBTB in its discretion may apply for and procure as owner and for its
own benefit insurance on the life of Executive, in such amount and in such form
as NBTB may choose. NBTB shall make all payments for such insurance and shall
receive all benefits from it. Executive shall have no interest whatsoever in
any such policy or policies but, at the request of NBTB, shall submit to medical
examinations and supply such information and execute such documents as may
reasonably be required by the insurance company or companies to which NBTB has
applied for insurance.
6. Representations and Warranties.
------------------------------
(a) Executive represents and warrants to NBTB that his execution,
delivery, and performance of this Agreement will not result in or constitute a
breach of or conflict with any term, covenant, condition, or provision of any
commitment, contract, or other agreement or instrument, including, without
limitation, any other employment agreement, to which Executive is or has been a
party.
(b) Executive shall indemnify, defend, and hold harmless NBTB for,
from, and against any and all losses, claims, suits, damages, expenses, or
liabilities, including court costs and counsel fees, which NBTB has incurred or
to which NBTB may become subject, insofar as such losses, claims, suits,
damages, expenses, liabilities, costs, or fees arise out of or are based upon
any failure of any representation or warranty of Executive in section 6(a)
hereof to be true and correct when made.
7. Notices. All notices, consents, waivers, or other communications
-------
which are required or permitted hereunder shall be in writing and deemed to have
been duly given if delivered personally or by messenger, transmitted by telex or
telegram, by express courier, or sent by registered or certified mail, return
receipt requested, postage prepaid. All communications shall be addressed to
the appropriate address of each party as follows:
II-45
If to NBTB:
NBT Bancorp Inc.
52 South Broad Street
Norwich, New York 13815
Attention: Mr. Daryl R. Forsythe
President and Chief Executive Officer
With a required copy to:
NBT BANCORP INC. CORPORATE COUNSEL
If to Executive:
Mr. Martin A. Dietrich
155 Serenity Drive
Norwich, New York 13815
All such notices shall be deemed to have been given on the date delivered,
transmitted, or mailed in the manner provided above.
8. Assignment. Neither party may assign this Agreement or any rights
----------
or obligations hereunder without the consent of the other party.
9. Governing Law. This Agreement shall be governed by, construed, and
-------------
enforced in accordance with the laws of the State of New York, without giving
effect to the principles of conflict of law thereof. The parties hereby
designate Chenango County, New York to be the proper jurisdiction and venue for
any suit or action arising out of this Agreement. Each of the parties consents
to personal jurisdiction in such venue for such a proceeding and agrees that it
may be served with process in any action with respect to this Agreement or the
transactions contemplated thereby by certified or registered mail, return
receipt requested, or to its registered agent for service of process in the
State of New York. Each of the parties irrevocably and unconditionally waives
and agrees, to the fullest extent permitted by law, not to plead any objection
that it may now or hereafter have to the laying of venue or the convenience of
the forum of any action or claim with respect to this Agreement or the
transactions contemplated thereby brought in the courts aforesaid.
10. Entire Agreement. This Agreement constitutes the entire
----------------
understanding among NBTB and Executive relating to the subject matter hereof.
Any previous agreements or understandings between the parties hereto or between
Executive and NBT Bank or any of its affiliates regarding the subject matter
hereof, including without limitation the terms and conditions of employment,
compensation, benefits, retirement, competition following employment, and the
like, are merged into and superseded by this Agreement. Neither this Agreement
nor any provisions hereof can be modified, changed, discharged, or terminated
except by an instrument in writing signed by the party against whom any waiver,
change, discharge, or termination is sought.
11. Illegality; Severability.
------------------------
(a) Anything in this Agreement to the contrary notwithstanding,
this Agreement is not intended and shall not be construed to require any payment
to Executive which would violate any federal or state statute or regulation,
including without limitation the "golden parachute payment regulations" of the
Federal Deposit Insurance Corporation codified to Part 359 of title 12, Code of
Federal Regulations.
(b) If any provision or provisions of this Agreement shall be held
to be invalid, illegal, or unenforceable for any reason whatsoever:
(i) the validity, legality, and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal, or unenforceable) shall not in any way be affected or
impaired thereby; and
II-46
(ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provisions held to be invalid, illegal, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
12. Arbitration. Subject to the right of each party to seek specific
-----------
performance (which right shall not be subject to arbitration), if a dispute
arises out of or related to this Agreement, or the breach thereof, such dispute
shall be referred to arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). A dispute subject to the
provisions of this section will exist if either party notifies the other party
in writing that a dispute subject to arbitration exists and states, with
reasonable specificity, the issue subject to arbitration (the "Arbitration
Notice"). The parties agree that, after the issuance of the Arbitration Notice,
the parties will try in good faith to resolve the dispute by mediation in
accordance with the Commercial Rules of Arbitration of AAA between the date of
the issuance of the Arbitration Notice and the date the dispute is set for
arbitration. If the dispute is not settled by the date set for arbitration,
then any controversy or claim arising out of this Agreement or the breach hereof
shall be resolved by binding arbitration and judgment upon any award rendered by
arbitrator(s) may be entered in a court having jurisdiction. Any person serving
as a mediator or arbitrator must have at least ten years' experience in
resolving commercial disputes through arbitration. In the event any claim or
dispute involves an amount in excess of $100,000, either party may request that
the matter be heard by a panel of three arbitrators; otherwise all matters
subject to arbitration shall be heard and resolved by a single arbitrator. The
arbitrator shall have the same power to compel the attendance of witnesses and
to order the production of documents or other materials and to enforce discovery
as could be exercised by a United States District Court judge sitting in the
Northern District of New York. In the event of any arbitration, each party
shall have a reasonable right to conduct discovery to the same extent permitted
by the Federal Rules of Civil Procedure, provided that such discovery shall be
concluded within ninety days after the date the matter is set for arbitration.
In the event of any arbitration, the arbitrator or arbitrators shall have the
power to award reasonable attorney's fees to the prevailing party. Any
provision in this Agreement to the contrary notwithstanding, this section shall
be governed by the Federal Arbitration Act and the parties have entered into
this Agreement pursuant to such Act.
13. Costs of Litigation. In the event litigation is commenced to
-------------------
enforce any of the provisions hereof, or to obtain declaratory relief in
connection with any of the provisions hereof, the prevailing party shall be
entitled to recover reasonable attorney's fees. In the event this Agreement is
asserted in any litigation as a defense to any liability, claim, demand, action,
cause of action, or right asserted in such litigation, the party prevailing on
the issue of that defense shall be entitled to recovery of reasonable attorney's
fees.
14. Affiliation. A company will be deemed to be "affiliated" with NBTB
-----------
or NBT Bank according to the definition of "Affiliate" set forth in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
15. Headings. The section and subsection headings herein have been
--------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
II-47
IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to
be executed as of the day and year first above written.
NBT BANCORP INC.
By: /s/ Daryl R. Forsythe
DARYL R. FORSYTHE
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
MARTIN A. DIETRICH
/s/ Martin A. Dietrich
II-48
Exhibit 10.24
Form of Employment Agreement between NBT Bancorp Inc. and Michael J. Chewens
made as of January 1, 2002.
II-49
EMPLOYMENT AGREEMENT (REVISED)
This EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of the
first day of June, 2000 and revised on January 1, 2002, by and between MICHAEL
J. CHEWENS ("Executive") and NBT BANCORP INC., a Delaware corporation having its
principal office in Norwich, New York ("NBTB")
W I T N E S S E T H T H A T :
WHEREAS, Executive is an senior executive vice president and the chief
financial officer of NBTB and NBT Bank, National Association, a national banking
association which is a wholly-owned subsidiary of NBTB ("NBT Bank");
WHEREAS, NBTB desires to secure the continued employment of Executive,
subject to the provisions of this Agreement; and
WHEREAS, Executive is desirous of entering into the Agreement for such
periods and upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, intending to be legally bound, the parties
agree as follows:
1. Employment; Responsibilities and Duties.
---------------------------------------
(a) NBTB hereby agrees to employ Executive and to cause NBT Bank
and any successor organization to NBT Bank to employ Executive, and Executive
hereby agrees to serve as a senior executive vice president and the chief
financial officer of NBTB and NBT Bank, and of any successor organization to
NBTB or NBT Bank, as applicable, during the Term of Employment. Executive shall
have such executive duties, responsibilities, and authority as shall be set
forth in the bylaws of NBTB and NBT Bank or as may otherwise be determined by
NBTB. During the Term of Employment, Executive shall report directly to the
chief executive officer of NBTB.
(b) Executive shall devote his full working time and best efforts
to the performance of his responsibilities and duties hereunder. During the Term
of Employment, Executive shall not, without the prior written consent of the
chief executive officer of NBTB, render services as an employee, independent
contractor, or otherwise, whether or not compensated, to any person or entity
other than NBTB or its affiliates; provided that Executive may, where
involvement in such activities does not individually or in the aggregate
significantly interfere with the performance by Executive of his duties or
violate the provisions of section 4 hereof, (i) render services to charitable
organizations, (ii) manage his personal investments, and (iii) with the prior
permission of the chief executive officer of NBTB, hold such other directorships
or part-time academic appointments or have such other business affiliations as
would otherwise be prohibited under this section 1.
2. Term of Employment.
------------------
(a) The term of this Agreement ("Term of Employment") shall be the
period commencing on the date of this Agreement (the "Commencement Date") and
continuing until the Termination Date, which shall mean the earliest to occur
of:
(i) January 1, 2005, provided, however, that on January 1,
2003, and on each January 1 thereafter, the Term of Employment shall
automatically extend itself by one additional year;
(ii) the death of Executive;
(iii) Executive's inability to perform his duties hereunder,
as a result of physical or mental disability as reasonably determined by the
personal physician of Executive, for a period of at least 180 consecutive days
or for at least 180 days during any period of twelve consecutive months during
the Term of Employment; or
(iv) the discharge of Executive by NBTB "for cause," which
shall mean one or more of the following:
II-50
(A) any willful or gross misconduct by Executive with
respect to the business and affairs of NBTB or NBT Bank, or with respect to any
of its affiliates for which Executive is assigned material responsibilities or
duties;
(B) the conviction of Executive of a felony (after the
earlier of the expiration of any applicable appeal period without perfection of
an appeal by Executive or the denial of any appeal as to which no further appeal
or review is available to Executive) whether or not committed in the course of
his employment by NBTB;
(C) Executive's willful neglect, failure, or refusal to
carry out his duties hereunder in a reasonable manner (other than any such
failure resulting from disability or death or from termination by Executive for
Good Reason, as hereinafter defined) after a written demand for substantial
performance is delivered to Executive that specifically identifies the manner in
which NBTB believes that Executive has not substantially performed his duties
and Executive has not resumed substantial performance of his duties on a
continuous basis within thirty days of receiving such demand; or
(D) the breach by Executive of any representation or
warranty in section 6(a) hereof or of any agreement contained in section 1, 4,
5, or 6(b) hereof, which breach is material and adverse to NBTB or any of its
affiliates for which Executive is assigned material responsibilities or duties;
or
(v) Executive's resignation from his position as executive
vice president and chief financial officer of NBTB or NBT Bank other than for
"Good Reason," as hereinafter defined; or
(vi) the termination of Executive's employment by NBTB
"without cause," which shall be for any reason other than those set forth in
subsections (i), (ii), (iii), (iv), or (v) of this section 2(a), at any time,
upon the thirtieth day following notice to Executive; or
(vii) Executive's resignation for "Good Reason."
"Good Reason" shall mean, without Executive's express written consent,
reassignment of Executive to a position other than executive vice president and
chief financial officer of NBTB or NBT Bank other than for "Cause," or a
decrease in the amount or level of Executive's salary or benefits from the
amount or level established in section 3 hereof.
(b) In the event that the Term of Employment shall be terminated
for any reason other than that set forth in section 2(a)(vi) or 2(a)(vii)
hereof, Executive shall be entitled to receive, upon the occurrence of any such
event:
(i) any salary (as hereinafter defined) payable pursuant to
section 3(a)(i) hereof which shall have accrued as of the Termination Date; and
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(g)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof,
and
(c) In the event that the Term of Employment shall be terminated
for the reason set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive
shall be entitled to receive:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date, and, for the period
commencing on the date immediately following the Termination Date and ending
upon and including the latest of January 1, 2005, the date to which the Term of
Employment shall (as of the Termination Date) have automatically extended itself
under section 2(a)(i) hereof, or the second anniversary of the Termination Date,
salary payable at the rate established pursuant to section 3(a)(i) hereof, in a
manner consistent with the normal payroll practices of NBTB with respect to
executive personnel as presently in effect or as they may be modified by NBTB
from time to time;
(ii) such rights as Executive may have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(g)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof;
and
II-51
(iii) if, within eighteen (18) months following the
Termination Date, Executive should sell his principal residence in the
Binghamton Ranally Metropolitan Area as determined by Rand McNally & Company
(the "Binghamton RMA") and relocate to a place outside of the Binghamton RMA,
(A) reimbursement for any shortfall between the net proceeds on the sale of his
principal residence and the purchase price, including direct, necessary and
reasonable transaction costs incurred in connection with such purchase, as
determined by the controller's division of NBT Bank, for such residence, and
including direct, necessary and reasonable expenses, as determined by the
finance division of NBT Bank, incurred to prepare the residence for sale, (B)
reimbursement for direct, necessary and reasonable expenses, as determined by
the finance division of NBT Bank, incurred in connection with the sale of such
residence not already included as part of the reimbursement under (A) above, and
(C) an amount necessary to pay all federal, state and local income taxes
resulting from any reimbursement made pursuant to (A) and (B) (including any
additional federal, state and local income taxes resulting from the payment
hereunder of such taxes), the intent being that Executive shall be paid an
additional amount (the "Gross-Up") such that the net amount retained by the
Executive, after deduction of such federal, state and local income taxes
resulting from the reimbursement under (A) and (B) shall be equal to the amount
of the reimbursement under (A) and (B) before payment of such taxes; for
purposes of determining the amount of the Gross-Up, Executive shall be deemed to
pay federal, state and local income taxes at the highest marginal rate of
taxation in effect in the calendar year in which the reimbursement is made.
Amounts due under this subsection shall be paid as soon as administratively
practicable, but in no event later than ninety (90) days after the date of the
sale of Executive's principal residence.
Notwithstanding the foregoing, in the event the Executive is reimbursed,
entitled to reimbursement, or is paid any amounts by an entity or entities other
than NBTB or NBT Bank of any affiliate or successor thereof (the "Third Party"),
for any amounts for which Executive has received, or is entitled to receive,
reimbursement under (A) or (B) above with respect to the sale of his principal
residence or any Gross-Up under (C) above, the Executive agrees:
(1) with regard to amounts already paid by NBTB or NBT Bank or any
affiliate or successor thereof (hereinafter referred to collectively as the
"Company"), the Executive shall notify the Company of all amounts received
or due from the Third Party, and shall reimburse the Company in an amount
equal to the amount so received or due from the Third Party up to the
amount the Company paid to the Executive under (A), (B), and (C) above; and
(2) with regard to amounts due but not yet paid by the Company to the
Executive, the Executive shall notify the Company of any amounts received
or due from the Third Party, and the Executive agrees that the Company
shall reduce the amount due under (A), (B), and (C) above by the amount the
Executive has been paid or is entitled to be paid by the Third Party up to
the amount due the Executive from the Company.
(d) Any provision of this section 2 to the contrary
notwithstanding, in the event that the employment of Executive with NBTB is
terminated in any situation described in section 3 of the change-in-control
letter agreement dated January 1, 2000 between NBTB and Executive (the
"Change-in-Control Agreement") so as to entitle Executive to a severance payment
and other benefits described in section 3 of the Change-in-Control Agreement,
then Executive shall be entitled to receive the following, and no more, under
this section 2:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date;
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(g)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof;
(iii) the severance payment and other benefits provided in
the Change- in-Control Agreement; and
(iv) if, within eighteen (18) months following the
Termination Date, Executive should sell his principal residence in the
Binghamton RMA and relocate to a place outside of the Binghamton RMA, (A)
reimbursement for any shortfall between the net proceeds on the sale of his
principal residence and the purchase price, including direct, necessary and
II-52
reasonable transaction costs incurred in connection with such purchase, as
determined by the finance division of NBT Bank, for such residence, and
including direct, necessary and reasonable expenses, as determined by the
controller's division of NBT Bank, incurred to prepare the residence for sale,
(B) reimbursement for direct, necessary and reasonable expenses, as determined
by the finance division of NBT Bank, incurred in connection with the sale of
such residence not already included as part of the reimbursement under (A)
above, and (C) the Gross-Up, the intent being that the net amount retained by
the Executive, after deduction of such federal, state and local income taxes
resulting from the reimbursement under (A) and (B) shall be equal to the amount
of the reimbursement under (A) and (B) before payment of such taxes; for
purposes of determining the amount of the Gross-Up, Executive shall be deemed to
pay federal, state and local income taxes at the highest marginal rate of
taxation in effect in the calendar year in which the reimbursement is made.
Amounts due under this subsection shall be paid as soon as administratively
practicable, but in no event later than ninety (90) days after the date of the
sale of Executive's principal residence.
Notwithstanding the foregoing, in the event the Executive is reimbursed,
entitled to reimbursement, or is paid any amounts by a Third Party, for any
amounts for which Executive has received, or is entitled to receive,
reimbursement under (A) or (B) above with respect to the sale of his principal
residence or any Gross-Up under (C) above, the Executive agrees:
(1) with regard to amounts already paid by the Company, the Executive shall
notify the Company of all amounts received or due from the Third Party, and
shall reimburse the Company in an amount equal to the amount so received or
due from the Third Party up to the amount the Company paid to the Executive
under (A), (B), and (C) above; and
(2) with regard to amounts due but not yet paid by the Company to the
Executive, the Executive shall notify the Company of any amounts received
or due from the Third Party, and the Executive agrees that the Company
shall reduce the amount due under (A), (B), and (C) above by the amount the
Executive has been paid or is entitled to be paid by the Third Party up to
the amount due the Executive from the Company.
3. Compensation. For the services to be performed by Executive for
------------
NBTB and its affiliates under this Agreement, Executive shall be compensated in
the following manner:
(a) Salary. During the Term of Employment:
------
(i) NBTB shall pay Executive a salary which, commencing on
January 1, 2002, on an annual basis, shall not be less than $214,500 during the
Term of Employment. Salary shall be payable in accordance with the normal
payroll practices of NBTB with respect to executive personnel as presently in
effect or as they may be modified by NBTB from time to time.
(ii) Executive shall be entitled to annual salary increases
of 8 percent during the Term of Employment, beginning in January 2003, and shall
be eligible to be considered for further salary increases, upon review, in
accordance with the compensation policies of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time.
(iii) Executive shall be eligible to be considered for
performance bonuses commensurate with the Executive's title and salary grade in
accordance with the compensation policies of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time.
(b) Employee Benefit Plans or Arrangements. During the Term of
--------------------------------------
Employment, Executive shall be entitled to participate in all employee benefit
plans of NBTB, as presently in effect or as they may be modified by NBTB from
time to time, under such terms as may be applicable to officers of Executive's
rank employed by NBTB or its affiliates, including, without limitation, plans
providing retirement benefits, stock options, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, provided
that there be no duplication of such benefits as are provided under any other
provision of this Agreement.
(c) Stock Options. Each January or February annually during the
-------------
Term of Employment, NBTB will cause Executive to be granted a non-statutory
("non-qualified") stock option (each an "Option") to purchase the number of
shares of the common stock of NBTB, $0.01 par value (the "NBTB Common Stock"),
pursuant to the NBT Bancorp Inc. 1993 Stock Option Plan, as amended, or any
appropriate successor plan (the "Stock Option Plan"), computed by using a
formula approved by NBTB that is commensurate with the Executive's title and
salary grade. The option exercise price per share of the shares subject to each
Option shall be such Fair Market Value, and the terms, conditions of exercise,
and vesting schedule of such Option shall be as set forth in section 8 of the
Stock Option Plan.
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(d) Vacation and Sick Leave. During the Term of Employment, Executive
-----------------------
shall be entitled to paid annual vacation periods and sick leave in accordance
with the policies of NBTB as in effect as of the Commencement Date or as may be
modified by NBTB from time to time as may be applicable to officers of
Executive's rank employed by NBTB or its affiliates, but in no event less than
four weeks of paid vacation per year.
(e) Automobile. During the Term of Employment, Executive shall be
----------
entitled to the use of an automobile (whose value shall not exceed $40,000),
owned by NBTB or an affiliate of NBTB, the make, model, and year of which
automobile shall be appropriate to an officer of Executive's rank and which will
be replaced every three years (or earlier if the accumulated mileage exceeds
50,000 miles) with new automobile whose value shall not exceed the sum of
$40,000 escalated by an amount calculated by the finance division of NBTB to
adjust for the effect of inflation upon the $40,000 (an "Inflation Adjustment").
Executive shall be responsible for all expenses of ownership and use of any such
automobile, subject to reimbursement of expenses for business use in accordance
with section 3(h).
(f) Country Club Dues. During the Term of Employment, Executive
-----------------
shall be reimbursed for dues and assessments incurred in relation to Executive's
membership at a country club mutually agreed upon by the chief executive officer
of NBTB and the Executive.
(g) Withholding. All compensation to be paid to Executive hereunder
-----------
shall be subject to required withholding and other taxes.
(h) Expenses. During the Term of Employment, Executive shall be
--------
reimbursed for reasonable travel and other expenses incurred or paid by
Executive in connection with the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as may from time to time be requested, in accordance with
such policies of NBTB as are in effect as of the Commencement Date and as may be
modified by NBTB from time to time, under such terms as may be applicable to
officers of Executive's rank employed by NBTB or its affiliates.
4. Confidential Business Information; Non-Competition.
-----------------------------------------------------
(a) Executive acknowledges that certain business methods, creative
techniques, and technical data of NBTB and its affiliates and the like are
deemed by NBTB to be and are in fact confidential business information of NBTB
or its affiliates or are entrusted to third parties. Such confidential
information includes but is not limited to procedures, methods, sales
relationships developed while in the service of NBTB or its affiliates,
knowledge of customers and their requirements, marketing plans, marketing
information, studies, forecasts, and surveys, competitive analyses, mailing and
marketing lists, new business proposals, lists of vendors, consultants, and
other persons who render service or provide material to NBTB or NBT Bank or
their affiliates, and compositions, ideas, plans, and methods belonging to or
related to the affairs of NBTB or NBT Bank or their affiliates. In this regard,
NBTB asserts proprietary rights in all of its business information and that of
its affiliates except for such information as is clearly in the public domain.
Notwithstanding the foregoing, information that would be generally known or
available to persons skilled in Executive's fields shall be considered to be
"clearly in the public domain" for the purposes of the preceding sentence.
Executive agrees that he will not disclose or divulge to any third party, except
as may be required by his duties hereunder, by law, regulation, or order of a
court or government authority, or as directed by NBTB, nor shall he use to the
detriment of NBTB or its affiliates or use in any business or on behalf of any
business competitive with or substantially similar to any business of NBTB or
NBT Bank or their affiliates, any confidential business information obtained
during the course of his employment by NBTB. The foregoing shall not be
construed as restricting Executive from disclosing such information to the
employees of NBTB or NBT Bank or their affiliates. On or before the Termination
Date, Executive shall promptly deliver to NBTB any and all tangible,
confidential information in his possession.
(b) Executive hereby agrees that from the Commencement Date until
the first anniversary of the Termination Date, Executive will not (i) interfere
with the relationship of NBTB or NBT Bank or their affiliates with any of their
employees, suppliers, agents, or representatives (including, without limitation,
causing or helping another business to hire any employee of NBTB or NBT Bank or
their affiliates), or (ii) directly or indirectly divert or attempt to divert
from NBTB, NBT Bank or their affiliates any business in which any of them has
been actively engaged during the Term of Employment, nor interfere with the
relationship of NBTB, NBT Bank or their affiliates with any of their customers
or prospective customers. This paragraph 4(b) shall not, in and of itself,
prohibit Executive from engaging in the banking, trust, or financial services
business in any capacity, including that of an owner or employee.
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(c) Executive acknowledges and agrees that irreparable injury will
result to NBTB in the event of a breach of any of the provisions of this section
4 (the "Designated Provisions") and that NBTB will have no adequate remedy at
law with respect thereto. Accordingly, in the event of a material breach of any
Designated Provision, and in addition to any other legal or equitable remedy
NBTB may have, NBTB shall be entitled to the entry of a preliminary and
permanent injunction (including, without limitation, specific performance) by a
court of competent jurisdiction in Chenango County, New York, or elsewhere, to
restrain the violation or breach thereof by Executive, and Executive submits to
the jurisdiction of such court in any such action.
(d) It is the desire and intent of the parties that the provisions
of this section 4 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this section 4 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, should any court determine that the provisions of this section 4 shall
be unenforceable with respect to scope, duration, or geographic area, such court
shall be empowered to substitute, to the extent enforceable, provisions similar
hereto or other provisions so as to provide to NBTB, to the fullest extent
permitted by applicable law, the benefits intended by this section 4.
5. Life Insurance. In light of the unusual abilities and experience of
---------------
Executive, NBTB in its discretion may apply for and procure as owner and for its
own benefit insurance on the life of Executive, in such amount and in such form
as NBTB may choose. NBTB shall make all payments for such insurance and shall
receive all benefits from it. Executive shall have no interest whatsoever in
any such policy or policies but, at the request of NBTB, shall submit to medical
examinations and supply such information and execute such documents as may
reasonably be required by the insurance company or companies to which NBTB has
applied for insurance.
6. Representations and Warranties.
--------------------------------
(a) Executive represents and warrants to NBTB that his execution,
delivery, and performance of this Agreement will not result in or constitute a
breach of or conflict with any term, covenant, condition, or provision of any
commitment, contract, or other agreement or instrument, including, without
limitation, any other employment agreement, to which Executive is or has been a
party.
(b) Executive shall indemnify, defend, and hold harmless NBTB for,
from, and against any and all losses, claims, suits, damages, expenses, or
liabilities, including court costs and counsel fees, which NBTB has incurred or
to which NBTB may become subject, insofar as such losses, claims, suits,
damages, expenses, liabilities, costs, or fees arise out of or are based upon
any failure of any representation or warranty of Executive in section 6(a)
hereof to be true and correct when made.
7. Notices. All notices, consents, waivers, or other communications
-------
which are required or permitted hereunder shall be in writing and deemed to have
been duly given if delivered personally or by messenger, transmitted by telex or
telegram, by express courier, or sent by registered or certified mail, return
receipt requested, postage prepaid. All communications shall be addressed to
the appropriate address of each party as follows:
If to NBTB:
NBT Bancorp Inc.
52 South Broad Street
Norwich, New York 13815
Attention: Mr. Daryl R. Forsythe
President and Chief Executive Officer
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With a required copy to:
NBT Bancorp Inc. Corporate Counsel
If to Executive:
Mr. Michael J. Chewens
2613 Pine Bluff Drive
Vestal, New York 13850-2909
All such notices shall be deemed to have been given on the date delivered,
transmitted, or mailed in the manner provided above.
8. Assignment. Neither party may assign this Agreement or any rights
---------
or obligations hereunder without the consent of the other party.
9. Governing Law. This Agreement shall be governed by, construed, and
-------------
enforced in accordance with the laws of the State of New York, without giving
effect to the principles of conflict of law thereof. The parties hereby
designate Chenango County, New York to be the proper jurisdiction and venue for
any suit or action arising out of this Agreement. Each of the parties consents
to personal jurisdiction in such venue for such a proceeding and agrees that it
may be served with process in any action with respect to this Agreement or the
transactions contemplated thereby by certified or registered mail, return
receipt requested, or to its registered agent for service of process in the
State of New York. Each of the parties irrevocably and unconditionally waives
and agrees, to the fullest extent permitted by law, not to plead any objection
that it may now or hereafter have to the laying of venue or the convenience of
the forum of any action or claim with respect to this Agreement or the
transactions contemplated thereby brought in the courts aforesaid.
10. Entire Agreement. This Agreement constitutes the entire
----------------
understanding among NBTB and Executive relating to the subject matter hereof.
Any previous agreements or understandings between the parties hereto or between
Executive and NBT Bank or any of its affiliates regarding the subject matter
hereof, including without limitation the terms and conditions of employment,
compensation, benefits, retirement, competition following employment, and the
like, are merged into and superseded by this Agreement. Neither this Agreement
nor any provisions hereof can be modified, changed, discharged, or terminated
except by an instrument in writing signed by the party against whom any waiver,
change, discharge, or termination is sought.
11. Illegality; Severability.
------------------------
(a) Anything in this Agreement to the contrary notwithstanding,
this Agreement is not intended and shall not be construed to require any payment
to Executive which would violate any federal or state statute or regulation,
including without limitation the "golden parachute payment regulations" of the
Federal Deposit Insurance Corporation codified to Part 359 of title 12, Code of
Federal Regulations.
(b) If any provision or provisions of this Agreement shall be held
to be invalid, illegal, or unenforceable for any reason whatsoever:
(i) the validity, legality, and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal, or unenforceable) shall not in any way be affected or
impaired thereby; and
(ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provisions held to be invalid, illegal, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
12. Arbitration. Subject to the right of each party to seek specific
-----------
performance (which right shall not be subject to arbitration), if a dispute
arises out of or related to this Agreement, or the breach thereof, such dispute
shall be referred to arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). A dispute subject to the
provisions of this section will exist if either party notifies the other party
in writing that a dispute subject to arbitration exists and states, with
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reasonable specificity, the issue subject to arbitration (the "Arbitration
Notice"). The parties agree that, after the issuance of the Arbitration Notice,
the parties will try in good faith to resolve the dispute by mediation in
accordance with the Commercial Rules of Arbitration of AAA between the date of
the issuance of the Arbitration Notice and the date the dispute is set for
arbitration. If the dispute is not settled by the date set for arbitration,
then any controversy or claim arising out of this Agreement or the breach hereof
shall be resolved by binding arbitration and judgment upon any award rendered by
arbitrator(s) may be entered in a court having jurisdiction. Any person serving
as a mediator or arbitrator must have at least ten years' experience in
resolving commercial disputes through arbitration. In the event any claim or
dispute involves an amount in excess of $100,000, either party may request that
the matter be heard by a panel of three arbitrators; otherwise all matters
subject to arbitration shall be heard and resolved by a single arbitrator. The
arbitrator shall have the same power to compel the attendance of witnesses and
to order the production of documents or other materials and to enforce discovery
as could be exercised by a United States District Court judge sitting in the
Northern District of New York. In the event of any arbitration, each party
shall have a reasonable right to conduct discovery to the same extent permitted
by the Federal Rules of Civil Procedure, provided that such discovery shall be
concluded within ninety days after the date the matter is set for arbitration.
In the event of any arbitration, the arbitrator or arbitrators shall have the
power to award reasonable attorney's fees to the prevailing party. Any
provision in this Agreement to the contrary notwithstanding, this section shall
be governed by the Federal Arbitration Act and the parties have entered into
this Agreement pursuant to such Act.
13. Costs of Litigation. In the event litigation is commenced to
---------------------
enforce any of the provisions hereof, or to obtain declaratory relief in
connection with any of the provisions hereof, the prevailing party shall be
entitled to recover reasonable attorney's fees. In the event this Agreement is
asserted in any litigation as a defense to any liability, claim, demand, action,
cause of action, or right asserted in such litigation, the party prevailing on
the issue of that defense shall be entitled to recovery of reasonable attorney's
fees.
14. Affiliation. A company will be deemed to be "affiliated" with NBTB
-----------
or NBT Bank according to the definition of "Affiliate" set forth in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
15. Headings. The section and subsection headings herein have been
--------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to
be executed as of the day and year first above written.
NBT BANCORP INC.
By: /s/ Daryl R. Forsythe
Daryl R. Forsythe
Chairman, President and
Chief Executive Officer
MICHAEL J. CHEWENS
/s/ Michael J. Chewens
II-58
Exhibit 10.27
Form of Employment Agreement between NBT Bancorp Inc. and David E. Raven
made as of January 1, 2002.
II-59
EMPLOYMENT AGREEMENT (REVISED)
This EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of
this first day of August, 2001 and amended on January 1, 2002, by and between
DAVID E. RAVEN ("Executive") and NBT BANCORP INC., a Delaware corporation having
its principal office in Norwich, New York ("NBTB")
W I T N E S S E T H T H A T :
WHEREAS, Executive is an executive vice president of NBTB and president and
chief operating officer of Pennstar Bank, a Division of NBT Bank, National
Association, a national banking association which is a wholly-owned subsidiary
of NBTB ("NBT Bank");
WHEREAS, NBTB desires to secure the continued employment of Executive,
subject to the provisions of this Agreement; and
WHEREAS, Executive is desirous of entering into the Agreement for such
periods and upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, intending to be legally bound, the parties
agree as follows:
1. Employment; Responsibilities and Duties.
------------------------------------------
(a) NBTB and NBT Bank hereby agrees to employ Executive and to
cause Pennstar Bank and any successor organization to Pennstar Bank to employ
Executive, and Executive hereby agrees to serve as an executive vice president
of NBTB and president and chief operating officer of Pennstar Bank, during the
Term of Employment. Executive shall have such executive duties,
responsibilities, and authority as shall be set forth in the bylaws of NBTB and
NBT Bank or as may otherwise be determined by NBTB or NBT Bank. During the Term
of Employment, Executive shall report directly to the chief executive officer of
NBT Bank and dotted line to the Chairman of the Board of Pennstar Bank.
(b) Executive shall devote his full working time and best efforts
to the performance of his responsibilities and duties hereunder. During the
Term of Employment, Executive shall not, without the prior written consent of
the chief executive officer of NBT Bank, render services as an employee,
independent contractor, or otherwise, whether or not compensated, to any person
or entity other than NBTB or its affiliates; provided that Executive may, where
involvement in such activities does not individually or in the aggregate
significantly interfere with the performance by Executive of his duties or
violate the provisions of section 4 hereof, (i) render services to charitable
organizations, (ii) manage his personal investments, and (iii) with the prior
permission of the chief executive officer of NBT Bank, hold such other
directorships or part-time academic appointments or have such other business
affiliations as would otherwise be prohibited under this section 1.
2. Term of Employment.
--------------------
(a) The term of this Agreement ("Term of Employment") shall be the
period commencing on the date of this Agreement (the "Commencement Date") and
continuing until the Termination Date, which shall mean the earliest to occur
of:
(i) January 1, 2005 provided, however that on January 1,
2003, and on each January 1 thereafter, the Term of Employment shall
automatically extend itself by one additional year;
(ii) the death of Executive;
(iii) Executive's inability to perform his duties hereunder,
as a result of physical or mental disability as reasonably determined by the
personal physician of Executive, for a period of at least 180 consecutive days
or for at least 180 days during any period of twelve consecutive months during
the Term of Employment; or
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(iv) the discharge of Executive by NBTB "for cause," which
shall mean one or more of the following:
(A) any willful or gross misconduct by Executive with
respect to the business and affairs of NBTB or Pennstar Bank, or with respect to
any of its affiliates for which Executive is assigned material responsibilities
or duties;
(B) the conviction of Executive of a felony (after the
earlier of the expiration of any applicable appeal period without perfection of
an appeal by Executive or the denial of any appeal as to which no further appeal
or review is available to Executive) whether or not committed in the course of
his employment by NBTB;
(C) Executive's willful neglect, failure, or refusal to
carry out his duties hereunder in a reasonable manner (other than any such
failure resulting from disability or death or from termination by Executive for
Good Reason, as hereinafter defined) after a written demand for substantial
performance is delivered to Executive that specifically identifies the manner in
which NBTB believes that Executive has not substantially performed his duties
and Executive has not resumed substantial performance of his duties on a
continuous basis within thirty days of receiving such demand; or
(D) the breach by Executive of any representation or
warranty in section 6(a) hereof or of any agreement contained in section 1, 4,
5, or 6(b) hereof, which breach is material and adverse to NBTB or any of its
affiliates for which Executive is assigned material responsibilities or duties;
or
(v) Executive's resignation from his position as executive
vice president of NBTB or as president and chief operating officer of Pennstar
Bank other than for "Good Reason," as hereinafter defined; or
(vi) the termination of Executive's employment by NBTB
"without cause," which shall be for any reason other than those set forth in
subsections (i), (ii), (iii), (iv), or (v) of this section 2(a), at any time,
upon the thirtieth day following notice to Executive; or
(vii) Executive's resignation for "Good Reason."
"Good Reason" shall mean, without Executive's express written consent,
reassignment of Executive to a position other than executive vice president of
NBTB or as president and chief operating officer of Pennstar Bank other than
for "Cause," or a decrease in the amount or level of Executive's salary or
benefits from the amount or level established in section 3 hereof.
(b) In the event that the Term of Employment shall be terminated
for any reason other than that set forth in section 2(a)(vi) or 2(a)(vii)
hereof, Executive shall be entitled to receive, upon the occurrence of any such
event:
(i) any salary (as hereinafter defined) payable pursuant to
section 3(a)(i) hereof which shall have accrued as of the Termination Date; and
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof.
(c) In the event that the Term of Employment shall be terminated
for the reason set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive
shall be entitled to receive:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date, and, for the period
commencing on the date immediately following the Termination Date and ending
upon and including the latest of January 1, 2005, the date to which the Term of
Employment shall (as of the Termination Date) have automatically extended itself
under section 2(a)(i) hereof, or the second anniversary of the Termination Date,
salary payable at the rate established pursuant to section 3(a)(i) hereof, in a
manner consistent with the normal payroll practices of NBTB with respect to
executive personnel as presently in effect or as they may be modified by NBTB
from time to time; and
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(ii) such rights as Executive may have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof;
and
(iii) if, within eighteen (18) months following the
Termination Date, Executive should sell his principal residence in the Scranton
Rand McNally Metropolitan Area as determined by Rand McNally & Company (the
"Scranton RMA") and relocate to a place outside of the Scranton RMA, (A)
reimbursement for any shortfall between the net proceeds on the sale of his
principal residence and the purchase prince, including direct, necessary and
reasonable transaction costs incurred in connection with such purchase, as
determined by the finance division of NBTB, for such residence, and including
direct, necessary and reasonable expenses, as determined by the finance division
of NBTB, incurred to prepare the residence for sale, (B) reimbursement for
direct, necessary and reasonable expenses, as determined by the finance division
of NBTB, incurred in connection with the sale of such residence not already
included as part of the reimbursement under (A) above, and (C) an amount
necessary to pay all federal, state and local income taxes resulting from any
reimbursement made pursuant to (A) and (B) (including any additional federal
state and local income taxes resulting from the payment hereunder of such
taxes), the intent being that Executive shall be paid an additional amount (the
"Gross-Up") such that the net amount retained by the Executive, after deduction
of such federal, state and local income taxes resulting from the reimbursement
under (A) and (B) shall be equal to the amount of the reimbursement under (A)
and (B) before payment of such taxes; for purposes of determining the amount of
the Gross-Up, Executive shall be deemed to pay federal, state and local income
taxes at the highest marginal rate of taxation in effect in the calendar year in
which the reimbursement is made. Amounts due under this subsection shall be
paid as soon as administratively practicable, but in no event later than ninety
(90) days after the date of the sale of Executive's principal residence.
Notwithstanding the foregoing, in the event the Executive is reimbursed,
entitled to reimbursement, or is paid any amounts by an entity or entities other
than NBTB or Pennstar Bank or any affiliate or successor thereof (the "Third
Party"), for any amounts for which Executive has received, or is entitled to
receive, reimbursement under (A) or (B) above with respect to the sale of his
principal residence or any Gross-Up under (C) above, the Executive agrees:
(1) with regard to amounts already paid by NBTB or Pennstar Bank or any
affiliate or successor thereof (hereinafter referred to collectively as the
"Company"), the Executive shall notify the Company of all amounts received
or due from the Third Party, and shall reimburse the Company in an amount
equal to the amount so received or due from the Third Party up to the
amount the Company paid to the Executive under (A), (B), and (C) above; and
(2) with regard to amounts due but not yet paid by the Company to the
Executive, the Executive shall notify the Company of any amounts received
or due from the Third Party, and the Executive agrees that the Company
shall reduce the amount due under (A), (B), and (C) above by the amount the
Executive has been paid or is entitled to be paid by the Third Party up to
the amount due the Executive from the Company.
(d) Any provision of this section 2 to the contrary
notwithstanding, in the event that the employment of Executive with NBTB is
terminated in any situation described in section 3 of the change-in-control
letter agreement dated July 23, 2001 between NBTB and Executive (the
"Change-in-Control Agreement") so as to entitle Executive to a severance payment
and other benefits described in section 3 of the Change-in-Control Agreement,
then Executive shall be entitled to receive the following, and no more, under
this section 2:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date;
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof;
and
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(iii) the severance payment and other benefits provided in
the Change-in-Control Agreement; and
(iv) if, within eighteen (18) months following
the Termination Date, Executive should sell his principal residence in the
Scranton RMA and relocate to a place outside of the Scranton RMA, (A)
reimbursement for any shortfall between the net proceeds on the sale of his
principal residence and the purchase price, including direct, necessary and
reasonable transaction costs incurred in connection with such purchase, as
determined by the finance division of NBT Bank, for such residence, and
including direct, necessary and reasonable expenses, as determined by the
finance division of NBT Bank, incurred to prepare the residence for sale, (B)
reimbursement for direct, necessary and reasonable expenses, as determined by
the finance division of NBT Bank, incurred in connection with the sale of such
residence not already included as part of the reimbursement under (A) above, and
(C) the Gross-Up, the intent being that the net amount retained by the
Executive, after deduction of such federal, state and local income taxes
resulting from the reimbursement under (A) and (B) shall be equal to the amount
of the reimbursement under (A) and (B) before payment of such taxes; for
purposes of determining the amount of the Gross-Up, Executive shall be deemed to
pay federal, state and local income taxes at the highest marginal rate of
taxation in effect in the calendar year in which the reimbursement is made.
Amounts due under this subsection shall be paid as soon as administratively
practicable, but in no event later than ninety (90) days after the date of the
sale of Executive's principal residence.
Notwithstanding the foregoing, in the event the Executive is reimbursed,
entitled to reimbursement, or is paid any amounts by a Third Party, for any
amounts for which Executive has received, or is entitled to receive,
reimbursement under (A) or (B) above with respect to the sale of his principal
residence or any Gross-Up under (C) above, the Executive agrees:
(3) with regard to amounts already paid by the Company, the Executive shall
notify the Company of all amounts received or due from the Third Party, and
shall reimburse the Company in an amount equal to the amount so received or
due from the Third Party up to the amount the Company paid to the Executive
under (A), (B), and (C) above; and
(4) with regard to amounts due but not yet paid by the Company to the
Executive, the Executive shall notify the Company of any amounts received
or due from the Third Party, and the Executive agrees that the Company
shall reduce the amount due under (A), (B), and (C) above by the amount the
Executive has been paid or is entitled to be paid by the Third Party up to
the amount due the Executive from the Company.
3. Compensation. For the services to be performed by Executive for
------------
NBTB and its affiliates under this Agreement, Executive shall be compensated in
the following manner:
(a) Salary. During the Term of Employment:
------
(i) NBTB shall pay Executive a salary which, on an annual
basis, shall not be less than $200,000 during the Term of Employment, assuming
Executive performs competently. Salary shall be payable in accordance with the
normal payroll practices of NBTB with respect to executive personnel as
presently in effect or as they may be modified by NBTB from time to time.
(ii) Commencing on January 1, 2003, Executive shall be
entitled to annual salary increases of 8 percent each subsequent January during
the Term of Employment, and shall be eligible to be considered for further
salary increases, upon review, in accordance with the compensation policies of
NBTB with respect to executive personnel as presently in effect or as they may
be modified by NBTB from time to time.
(iii) Executive shall be eligible for performance bonuses commensurate
with the Executive's title and salary grade, in accordance with the
compensation policies of NBTB with respect to executive personnel as
presently in effect or as they may be modified by NBTB from time to time.
(b) Employee Benefit Plans or Arrangements. During the Term of
------------------------------------------
Employment, Executive shall be entitled to participate in all employee benefit
plans of NBTB, as presently in effect or as they may be modified by NBTB from
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time to time, under such terms as may be applicable to officers of Executive's
rank employed by NBTB or its affiliates, including, without limitation, plans
providing retirement benefits, stock options, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, provided
that there be no duplication of such benefits as are provided under any other
provision of this Agreement.
(c) Stock Options. Each January or February annually during the
-------------
Term of Employment, NBTB will cause Executive to be granted a non-statutory
("non-qualified") stock option (each an "Option") to purchase the number of
shares of the common stock of NBTB, $0.01 par value (the "NBTB Common Stock"),
pursuant to the NBT Bancorp Inc. 1993 Stock Option Plan, as amended, or any
appropriate successor plan (the "Stock Option Plan"), computed by using a
formula approved by NBTB that is commensurate with the Executive's title and
salary grade. The option exercise price per share of the shares subject to
each Option shall be such Fair Market Value, and the terms, conditions of
exercise, and vesting schedule of such Option shall be as set forth in section 8
of the Stock Option Plan.
(d) Vacation and Sick Leave. During the Term of Employment,
-----------------------
Executive shall be entitled to paid annual vacation periods and sick leave in
accordance with the policies of NBTB as in effect as of the Commencement Date or
as may be modified by NBTB from time to time as may be applicable to officers of
Executive's rank employed by NBTB or its affiliates, but in no event less than
four weeks of paid vacation per year.
(e) Automobile. During the Term of Employment, Executive shall be
----------
entitled to the use of an automobile (whose value shall not exceed $40,000),
owned by NBTB or an affiliate of NBTB, the make, model, and year of which
automobile shall be appropriate to an officer of Executive's rank and which will
be replaced every three years (or earlier if the accumulated mileage exceeds
50,000 miles) with new automobile whose value shall not exceed the sum of
$40,000 escalated by an amount calculated by the finance division of NBTB to
adjust for the effect of inflation upon the $40,000 (an "Inflation Adjustment").
Executive shall be responsible for all expenses of ownership and use of any such
automobile, subject to reimbursement of expenses for business use in accordance
with section 3(h).
(f) Country Club Dues. During the Term of Employment, Executive
-------------------
shall be reimbursed for dues and assessments incurred in relation to Executive's
membership at a country club mutually agreed upon by the chief executive officer
of NBT Bank and the Executive.
(g) Withholding. All compensation to be paid to Executive
-----------
hereunder shall be subject to required withholding and other taxes.
(h) Expenses. During the Term of Employment, Executive shall be
--------
reimbursed for reasonable travel and other expenses incurred or paid by
Executive in connection with the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as may from time to time be requested, in accordance with
such policies of NBTB as are in effect as of the Commencement Date and as may be
modified by NBTB from time to time, under such terms as may be applicable to
officers of Executive's rank employed by NBTB or its affiliates.
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4. Confidential Business Information; Non-Competition.
--------------------------------------------------
(a) Executive acknowledges that certain business methods, creative
techniques, and technical data of NBTB and its affiliates and the like are
deemed by NBTB to be and are in fact confidential business information of NBTB
or its affiliates or are entrusted to third parties. Such confidential
information includes but is not limited to procedures, methods, sales
relationships developed while in the service of NBTB or its affiliates,
knowledge of customers and their requirements, marketing plans, marketing
information, studies, forecasts, and surveys, competitive analyses, mailing and
marketing lists, new business proposals, lists of vendors, consultants, and
other persons who render service or provide material to NBTB or Pennstar Bank or
their affiliates, and compositions, ideas, plans, and methods belonging to or
related to the affairs of NBTB or Pennstar Bank or their affiliates. In this
regard, NBTB asserts proprietary rights in all of its business information and
that of its affiliates except for such information as is clearly in the public
domain. Notwithstanding the foregoing, information that would be generally
known or available to persons skilled in Executive's fields shall be considered
to be "clearly in the public domain" for the purposes of the preceding sentence.
Executive agrees that he will not disclose or divulge to any third party, except
as may be required by his duties hereunder, by law, regulation, or order of a
court or government authority, or as directed by NBTB, nor shall he use to the
detriment of NBTB or its affiliates or use in any business or on behalf of any
business competitive with or substantially similar to any business of NBTB or
Pennstar Bank or their affiliates, any confidential business information
obtained during the course of his employment by NBTB. The foregoing shall not
be construed as restricting Executive from disclosing such information to the
employees of NBTB or Pennstar Bank or their affiliates. On or before the
Termination Date, Executive shall promptly deliver to NBTB any and all tangible,
confidential information in his possession.
(b) Executive hereby agrees that from the Commencement Date until
the first anniversary of the Termination Date, Executive will not (i) interfere
with the relationship of NBTB or Pennstar Bank or their affiliates with any of
their employees, suppliers, agents, or representatives (including without
limitation, causing or helping another business to hire any employee of NBTB or
Pennstar Bank or their affiliates), or (ii) directly or indirectly divert or
attempt to divert from NBTB, Pennstar Bank or their affiliates any business in
which any of them has been actively engaged during the Term of Employment, nor
interfere with the relationship of NBTB, Pennstar Bank or their affiliates with
any of their customers or prospective customers. This paragraph 4(b) shall not,
in and of itself, prohibit Executive from engaging in the banking, trust, or
financial services business in any capacity, including that of an owner or
employee.
(c) Executive acknowledges and agrees that irreparable injury will
result to NBTB in the event of a breach of any of the provisions of this section
4 (the "Designated Provisions") and that NBTB will have no adequate remedy at
law with respect thereto. Accordingly, in the event of a material breach of any
Designated Provision, and in addition to any other legal or equitable remedy
NBTB may have, NBTB shall be entitled to the entry of a preliminary and
permanent injunction (including, without limitation, specific performance) by a
court of competent jurisdiction in Chenango County, New York, or elsewhere, to
restrain the violation or breach thereof by Executive, and Executive submits to
the jurisdiction of such court in any such action.
(d) It is the desire and intent of the parties that the provisions
of this section 4 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this section 4 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, should any court determine that the provisions of this section 4 shall
be unenforceable with respect to scope, duration, or geographic area, such court
shall be empowered to substitute, to the extent enforceable, provisions similar
hereto or other provisions so as to provide to NBTB, to the fullest extent
permitted by applicable law, the benefits intended by this section 4.
5. Life Insurance. In light of the unusual abilities and experience of
---------------
Executive, NBTB in its discretion may apply for and procure as owner and for its
own benefit insurance on the life of Executive, in such amount and in such form
as NBTB may choose. NBTB shall make all payments for such insurance and shall
receive all benefits from it. Executive shall have no interest whatsoever in
any such policy or policies but, at the request of NBTB, shall submit to medical
examinations and supply such information and execute such documents as may
reasonably be required by the insurance company or companies to which NBTB has
applied for insurance.
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6. Representations and Warranties.
--------------------------------
(a) Executive represents and warrants to NBTB that his execution,
delivery, and performance of this Agreement will not result in or constitute a
breach of or conflict with any term, covenant, condition, or provision of any
commitment, contract, or other agreement or instrument, including, without
limitation, any other employment agreement, to which Executive is or has been a
party.
(b) Executive shall indemnify, defend, and hold harmless NBTB for,
from, and against any and all losses, claims, suits, damages, expenses, or
liabilities, including court costs and counsel fees, which NBTB has incurred or
to which NBTB may become subject, insofar as such losses, claims, suits,
damages, expenses, liabilities, costs, or fees arise out of or are based upon
any failure of any representation or warranty of Executive in section 6(a)
hereof to be true and correct when made.
7. Notices. All notices, consents, waivers, or other communications
-------
which are required or permitted hereunder shall be in writing and deemed to have
been duly given if delivered personally or by messenger, transmitted by telex or
telegram, by express courier, or sent by registered or certified mail, return
receipt requested, postage prepaid. All communications shall be addressed to
the appropriate address of each party as follows:
If to NBTB:
NBT Bancorp Inc.
52 South Broad Street
Norwich, New York 13815
Attention: Mr. Daryl R. Forsythe
Chairman, President and
Chief Executive Officer
With a required copy to:
NBT BANCORP INC. CORPORATE COUNSEL
If to Executive:
Mr. David E. Raven
913 Parkview Road
Moscow, PA 18444
All such notices shall be deemed to have been given on the date delivered,
transmitted, or mailed in the manner provided above.
8. Assignment. Neither party may assign this Agreement or any rights
----------
or obligations hereunder without the consent of the other party.
9. Governing Law. This Agreement shall be governed by, construed, and
--------------
enforced in accordance with the laws of the State of New York, without giving
effect to the principles of conflict of law thereof. The parties hereby
designate Chenango County, New York to be the proper jurisdiction and venue for
any suit or action arising out of this Agreement. Each of the parties consents
to personal jurisdiction in such venue for such a proceeding and agrees that it
may be served with process in any action with respect to this Agreement or the
transactions contemplated thereby by certified or registered mail, return
receipt requested, or to its registered agent for service of process in the
State of New York. Each of the parties irrevocably and unconditionally waives
and agrees, to the fullest extent permitted by law, not to plead any objection
that it may now or hereafter have to the laying of venue or the convenience of
the forum of any action or claim with respect to this Agreement or the
transactions contemplated thereby brought in the courts aforesaid.
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10. Entire Agreement. This Agreement constitutes the entire
----------------
understanding among NBTB and Executive relating to the subject matter hereof.
Any previous agreements or understandings between the parties hereto or between
Executive and Pennstar Bank or any of its affiliates regarding the subject
matter hereof, including without limitation the terms and conditions of
employment, compensation, benefits, retirement, competition following
employment, and the like, are merged into and superseded by this Agreement.
Neither this Agreement nor any provisions hereof can be modified, changed,
discharged, or terminated except by an instrument in writing signed by the party
against whom any waiver, change, discharge, or termination is sought.
11. Illegality; Severability.
-------------------------
(a) Anything in this Agreement to the contrary notwithstanding,
this Agreement is not intended and shall not be construed to require any payment
to Executive which would violate any federal or state statute or regulation,
including without limitation the "golden parachute payment regulations" of the
Federal Deposit Insurance Corporation codified to Part 359 of title 12, Code of
Federal Regulations.
(b) If any provision or provisions of this Agreement shall be held
to be invalid, illegal, or unenforceable for any reason whatsoever:
(i) the validity, legality, and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal, or unenforceable) shall not in any way be affected or
impaired thereby; and
(ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provisions held to be invalid, illegal, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
12. Arbitration. Subject to the right of each party to seek specific
-----------
performance (which right shall not be subject to arbitration), if a dispute
arises out of or related to this Agreement, or the breach thereof, such dispute
shall be referred to arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). A dispute subject to the
provisions of this section will exist if either party notifies the other party
in writing that a dispute subject to arbitration exists and states, with
reasonable specificity, the issue subject to arbitration (the "Arbitration
Notice"). The parties agree that, after the issuance of the Arbitration Notice,
the parties will try in good faith to resolve the dispute by mediation in
accordance with the Commercial Rules of Arbitration of AAA between the date of
the issuance of the Arbitration Notice and the date the dispute is set for
arbitration. If the dispute is not settled by the date set for arbitration,
then any controversy or claim arising out of this Agreement or the breach hereof
shall be resolved by binding arbitration and judgment upon any award rendered by
arbitrator(s) may be entered in a court having jurisdiction. Any person serving
as a mediator or arbitrator must have at least ten years' experience in
resolving commercial disputes through arbitration. In the event any claim or
dispute involves an amount in excess of $100,000, either party may request that
the matter be heard by a panel of three arbitrators; otherwise all matters
subject to arbitration shall be heard and resolved by a single arbitrator. The
arbitrator shall have the same power to compel the attendance of witnesses and
to order the production of documents or other materials and to enforce discovery
as could be exercised by a United States District Court judge sitting in the
Northern District of New York. In the event of any arbitration, each party
shall have a reasonable right to conduct discovery to the same extent permitted
by the Federal Rules of Civil Procedure, provided that such discovery shall be
concluded within ninety days after the date the matter is set for arbitration.
In the event of any arbitration, the arbitrator or arbitrators shall have the
power to award reasonable attorney's fees to the prevailing party. Any
provision in this Agreement to the contrary notwithstanding, this section shall
be governed by the Federal Arbitration Act and the parties have entered into
this Agreement pursuant to such Act.
13. Costs of Litigation. In the event litigation is commenced to
-------------------
enforce any of the provisions hereof, or to obtain declaratory relief in
connection with any of the provisions hereof, the prevailing party shall be
entitled to recover reasonable attorney's fees. In the event this Agreement is
asserted in any litigation as a defense to any liability, claim, demand, action,
cause of action, or right asserted in such litigation, the party prevailing on
the issue of that defense shall be entitled to recovery of reasonable attorney's
fees.
14. Affiliation. A company will be deemed to be "affiliated" with NBTB
-----------
or Pennstar Bank according to the definition of "Affiliate" set forth in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended.
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15. Headings. The section and subsection headings herein have been
--------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to
be executed as of the day and year first above written.
NBT BANCORP INC.
By: /s/ Daryl R. Forsythe
Daryl R. Forsythe
Chairman, President and
Chief Executive Officer
DAVID E. RAVEN
/s/ David E. Raven
II-68
Exhibit 10.29
Form of Employment Agreement between NBT Bancorp Inc. and Lance D. Mattingly
made as of January 1, 2002.
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EMPLOYMENT AGREEMENT (REVISED)
This EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this
first day of May, 2001 and revised on January 1, 2002, by and between LANCE D.
MATTINGLY ("Executive") and NBT BANCORP INC., a Delaware corporation having its
principal office in Norwich, New York ("NBTB")
W I T N E S S E T H T H A T :
WHEREAS, Executive is the executive vice president and chief information
officer of NBTB and National Bank, National Association, a national banking
association which is a wholly-owned subsidiary of NBTB ("NBT Bank");
WHEREAS, NBTB DESIRES TO SECURE THE CONTINUED EMPLOYMENT OF EXECUTIVE,
SUBJECT TO THE PROVISIONS OF THIS AGREEMENT; AND
WHEREAS, Executive is desirous of entering into the Agreement for such
periods and upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, intending to be legally bound, the parties
agree as follows:
1. EMPLOYMENT; RESPONSIBILITIES AND DUTIES.
------------------------------------------
(a) NBTB hereby agrees to employ Executive and to cause NBT Bank
and any successor organization to NBT Bank to employ Executive, and Executive
hereby agrees to serve as the executive vice president and chief information
officer of NBTB and NBT Bank and any successor organization to NBTB or NBT Bank,
as applicable during the Term of Employment. Executive shall have such
executive duties, responsibilities, and authority as shall be set forth in the
bylaws of NBTB or NBT Bank or as may otherwise be determined by NBTB or by NBT
Bank. During the Term of Employment, Executive shall report directly to the
chief executive officer of NBTB.
(b) Executive shall devote his full working time and best efforts
to the performance of his responsibilities and duties hereunder. During the Term
of Employment, Executive shall not, without the prior written consent of the
chief executive officer of NBTB, render services as an employee, independent
contractor, or otherwise, whether or not compensated, to any person or entity
other than NBTB or its affiliates; provided that Executive may, where
involvement in such activities does not individually or in the aggregate
significantly interfere with the performance by Executive of his duties or
violate the provisions of section 4 hereof, (i) render services to charitable
organizations, (ii) manage his personal investments, and (iii) with the prior
permission of the chief executive officer of NBTB, hold such other directorships
or part-time academic appointments or have such other business affiliations as
would otherwise be prohibited under this section 1.
2. TERM OF EMPLOYMENT.
--------------------
(a) The term of this Agreement ("Term of Employment") shall be the
period commencing on the date of this Agreement (the "Commencement Date") and
continuing until the Termination Date, which shall mean the earliest to occur
of:
(i) the second anniversary of the Commencement Date;
(ii) the death of Executive;
(iii) Executive's inability to perform his duties hereunder,
as a result of physical or mental disability as reasonably determined by the
personal physician of Executive, for a period of at least 180 consecutive days
or for at least 180 days during any period of twelve consecutive months during
the Term of Employment; or
(iv) the discharge of Executive by NBTB "for cause," which
shall mean one or more of the following:
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(A) any willful or gross misconduct by Executive with
respect to the business and affairs of NBTB or NBT Bank, or with respect to any
of its affiliates for which Executive is assigned material responsibilities or
duties;
(B) the conviction of Executive of a felony (after the
earlier of the expiration of any applicable appeal period without perfection of
an appeal by Executive or the denial of any appeal as to which no further appeal
or review is available to Executive) whether or not committed in the course of
his employment by NBTB;
(C) Executive's willful neglect, failure, or refusal to
carry out his duties hereunder in a reasonable manner (other than any such
failure resulting from disability or death or from termination by Executive for
Good Reason, as hereinafter defined) after a written demand for substantial
performance is delivered to Executive that specifically identifies the manner in
which NBTB believes that Executive has not substantially performed his duties
and Executive has not resumed substantial performance of his duties on a
continuous basis within thirty days of receiving such demand; or
(D) the breach by Executive of any representation or
warranty in section 6(a) hereof or of any agreement contained in section 1, 4,
5, or 6(b) hereof, which breach is material and adverse to NBTB or any of its
affiliates for which Executive is assigned material responsibilities or duties;
or
(v) Executive's resignation from his position as president
and chief operating officer of NBT Bank other than for "Good Reason," as
hereinafter defined; or
(vi) the termination of Executive's employment by NBTB
"without cause," which shall be for any reason other than those set forth in
subsections (i), (ii), (iii), (iv), or (v) of this section 2(a), at any time,
upon the thirtieth day following notice to Executive; or
(vii) Executive's resignation for "Good Reason."
"Good Reason" shall mean, without Executive's express written consent,
reassignment of Executive to a position other than as president and chief
operating officer of NBT Bank other than for "Cause," or a decrease in the
amount or level of Executive's salary or benefits from the amount or level
established in section 3 hereof.
(b) In the event that the Term of Employment shall be terminated
for any reason other than that set forth in section 2(a)(vi) or 2(a)(vii)
hereof, Executive shall be entitled to receive, upon the occurrence of any such
event:
(i) any salary (as hereinafter defined) payable pursuant to
section 3(a)(i) hereof which shall have accrued as of the Termination Date; and
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof.
(c) In the event that the Term of Employment shall be terminated
for the reason set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive
shall be entitled to receive:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date, and, for the 24 month
period commencing on the date immediately following the Termination Date, salary
payable at the rate established pursuant to section 3(a)(i) hereof, in a manner
consistent with the normal payroll practices of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time; and
(ii) such rights as Executive may have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(h)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(d) hereof.
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(iii) if, within eighteen (18) months following the
Termination Date, Executive should sell his principal residence in the Syracuse
Rand McNally Metropolitan Area as determined by Rand McNally & Company (the
"Syracuse RMA") and relocate to a place outside of the Syracuse RMA, (A)
reimbursement for any shortfall between the net proceeds on the sale of his
principal residence and the purchase prince, including direct, necessary and
reasonable transaction costs incurred in connection with such purchase, as
determined by the finance division of NBTB, for such residence, and including
direct, necessary and reasonable expenses, as determined by the finance division
of NBTB, incurred to prepare the residence for sale, (B) reimbursement for
direct, necessary and reasonable expenses, as determined by the finance division
of NBTB, incurred in connection with the sale of such residence not already
included as part of the reimbursement under (A) above, and (C) an amount
necessary to pay all federal, state and local income taxes resulting from any
reimbursement made pursuant to (A) and (B) (including any additional federal
state and local income taxes resulting from the payment hereunder of such
taxes), the intent being that Executive shall be paid an additional amount (the
"Gross-Up") such that the net amount retained by the Executive, after deduction
of such federal, state and local income taxes resulting from the reimbursement
under (A) and (B) shall be equal to the amount of the reimbursement under (A)
and (B) before payment of such taxes; for purposes of determining the amount of
the Gross-Up, Executive shall be deemed to pay federal, state and local income
taxes at the highest marginal rate of taxation in effect in the calendar year in
which the reimbursement is made. Amounts due under this subsection shall be
paid as soon as administratively practicable, but in no event later than ninety
(90) days after the date of the sale of Executive's principal residence.
Notwithstanding the foregoing, in the event the Executive is reimbursed,
entitled to reimbursement, or is paid any amounts by an entity or entities other
than NBTB or NBT Bank or any affiliate or successor thereof (the "Third Party"),
for any amounts for which Executive has received, or is entitled to receive,
reimbursement under (A) or (B) above with respect to the sale of his principal
residence or any Gross-Up under (C) above, the Executive agrees:
(3) with regard to amounts already paid by NBTB or NBT Bank or any affiliate
or successor thereof (hereinafter referred to collectively as the
"Company"), the Executive shall notify the Company of all amounts received
or due from the Third Party, and shall reimburse the Company in an amount
equal to the amount so received or due from the Third Party up to the
amount the Company paid to the Executive under (A), (B), and (C) above; and
(2) with regard to amounts due but not yet paid by the Company to the
Executive, the Executive shall notify the Company of any amounts received
or due from the Third Party, and the Executive agrees that the Company
shall reduce the amount due under (A), (B), and (C) above by the amount the
Executive has been paid or is entitled to be paid by the Third Party up to
the amount due the Executive from the Company.
(d) Any provision of this section 2 to the contrary notwithstanding, in the
event that the employment of Executive with NBTB is terminated in any situation
described in section 3 of the change-in-control letter agreement dated July 23,
2001 between NBTB and Executive (the "Change-in-Control Agreement") so as to
entitle Executive to a severance payment and other benefits described in section
3 of the Change-in-Control Agreement, then Executive shall be entitled to
receive the following, and no more, under this section 2:
(i) any salary payable pursuant to section 3(a)(i) hereof which shall
have accrued as of the Termination Date;
(ii) SUCH RIGHTS AS EXECUTIVE SHALL HAVE ACCRUED AS OF THE
TERMINATION DATE UNDER THE TERMS OF ANY PLANS OR ARRANGEMENTS IN WHICH
HE PARTICIPATES PURSUANT TO SECTION 3(B) HEREOF, ANY RIGHT TO
REIMBURSEMENT FOR EXPENSES ACCRUED AS OF THE TERMINATION DATE PAYABLE
PURSUANT TO SECTION 3(H) HEREOF, AND THE RIGHT TO RECEIVE THE CASH
EQUIVALENT OF PAID ANNUAL LEAVE AND SICK LEAVE ACCRUED AS OF THE
TERMINATION DATE PURSUANT TO SECTION 3(D) HEREOF; AND
(iii) the severance payment and other benefits provided in the
Change-in-Control Agreement; and
(iv) if, within eighteen (18) months following
the Termination Date, Executive should sell his principal residence in the
Syracuse RMA and relocate to a place outside of the Syracuse RMA, (A)
reimbursement for any shortfall between the net proceeds on the sale of his
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principal residence and the purchase price, including direct, necessary and
reasonable transaction costs incurred in connection with such purchase, as
determined by the finance division of NBT Bank, for such residence, and
including direct, necessary and reasonable expenses, as determined by the
finance division of NBT Bank, incurred to prepare the residence for sale, (B)
reimbursement for direct, necessary and reasonable expenses, as determined by
the finance division of NBT Bank, incurred in connection with the sale of such
residence not already included as part of the reimbursement under (A) above, and
(C) the Gross-Up, the intent being that the net amount retained by the
Executive, after deduction of such federal, state and local income taxes
resulting from the reimbursement under (A) and (B) shall be equal to the amount
of the reimbursement under (A) and (B) before payment of such taxes; for
purposes of determining the amount of the Gross-Up, Executive shall be deemed to
pay federal, state and local income taxes at the highest marginal rate of
taxation in effect in the calendar year in which the reimbursement is made.
Amounts due under this subsection shall be paid as soon as administratively
practicable, but in no event later than ninety (90) days after the date of the
sale of Executive's principal residence.
NOTWITHSTANDING THE FOREGOING, IN THE EVENT THE EXECUTIVE IS REIMBURSED,
ENTITLED TO REIMBURSEMENT, OR IS PAID ANY AMOUNTS BY A THIRD PARTY, FOR ANY
AMOUNTS FOR WHICH EXECUTIVE HAS RECEIVED, OR IS ENTITLED TO RECEIVE,
REIMBURSEMENT UNDER (A) OR (B) ABOVE WITH RESPECT TO THE SALE OF HIS PRINCIPAL
RESIDENCE OR ANY GROSS-UP UNDER (C) ABOVE, THE EXECUTIVE AGREES:
(5) with regard to amounts already paid by the Company, the Executive shall
notify the Company of all amounts received or due from the Third Party, and
shall reimburse the Company in an amount equal to the amount so received or
due from the Third Party up to the amount the Company paid to the Executive
under (A), (B), and (C) above; and
(6) with regard to amounts due but not yet paid by the Company to the
Executive, the Executive shall notify the Company of any amounts received
or due from the Third Party, and the Executive agrees that the Company
shall reduce the amount due under (A), (B), and (C) above by the amount the
Executive has been paid or is entitled to be paid by the Third Party up to
the amount due the Executive from the Company.
3. COMPENSATION. For the services to be performed by Executive for
-------------
NBTB and its affiliates under this Agreement, Executive shall be compensated in
the following manner:
(a) Salary. During the Term of Employment:
(i) NBTB shall pay Executive a salary which, on an annual
basis, shall not be less than $197,600 during the Term of Employment. Salary
shall be payable in accordance with the normal payroll practices of NBTB with
respect to executive personnel as presently in effect or as they may be modified
by NBTB from time to time.
(ii) Executive shall be entitled to annual salary increases
of 8 percent during the Term of Employment, beginning in January of 2003 and
shall be eligible to be considered for further salary increases, upon review, in
accordance with the compensation policies of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time.
(iii) Executive shall be eligible for performance bonuses
commensurate with the Executive's title and salary grade, in accordance with the
compensation policies of NBTB with respect to executive personnel as presently
in effect or as they may be modified by NBTB from time to time.
(b) Employee Benefit Plans or Arrangements. During the Term of
Employment, Executive shall be entitled to participate in all employee benefit
plans of NBTB, as presently in effect or as they may be modified by NBTB from
time to time, under such terms as may be applicable to officers of Executive's
rank employed by NBTB or its affiliates, including, without limitation, plans
providing retirement benefits, stock options, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, provided
that there be no duplication of such benefits as are provided under any other
provision of this Agreement.
IN ADDITION, EXECUTIVE WILL BE ELIGIBLE TO RECEIVE UP TO $25,000 IN
TEMPORARY LIVING EXPENSES FOR A PERIOD UP TO EIGHTEEN (18) MONTHS FROM
EXECUTIVES DATE OF HIRE. PAYMENT OF SUCH EXPENSES WILL BE PROMPTLY MADE BY NBTB
TO EXECUTIVE UPON APPROVAL OF SUBMITTED EXPENSE FORMS.
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(c) Stock Options. Each January or February annually during the
Term of Employment, NBTB will cause Executive to be granted a non-statutory
("non-qualified") stock option (each an "Option") to purchase the number of
shares of the common stock of NBTB, $0.01 par value, (the "NBTB Common Stock"),
pursuant to the NBT Bancorp Inc. 1993 Stock Option Plan, as amended, or any
appropriate successor plan (the "Stock Option Plan"), computed by using a
formula approved by NBTB that is commensurate with the Executive's title and
salary grade. The option exercise price per share of the shares subject to each
Option shall be such Fair Market Value, and the terms, conditions of exercise,
and vesting schedule of such Option shall be as set forth in section 8 of the
Stock Option Plan.
(d) Vacation and Sick Leave. During the Term of Employment,
Executive shall be entitled to paid annual vacation periods and sick leave in
accordance with the policies of NBTB as in effect as of the Commencement Date or
as may be modified by NBTB from time to time as may be applicable to officers of
Executive's rank employed by NBTB or its affiliates, but in no event less than
four weeks of paid vacation per year.
(e) Country Club Dues. During the Term of Employment, Executive
shall be reimbursed for dues and assessments incurred in relation to Executive's
membership at a country club mutually agreed upon by the chief executive officer
of NBTB and the Executive.
(f) WITHHOLDING. ALL COMPENSATION TO BE PAID TO
EXECUTIVE HEREUNDER SHALL BE SUBJECT TO REQUIRED WITHHOLDING
AND OTHER TAXES.
(g) Expenses. During the Term of Employment, Executive shall be
reimbursed for reasonable travel and other expenses incurred or paid by
Executive in connection with the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as may from time to time be requested, in accordance with
such policies of NBTB as are in effect as of the Commencement Date and as may be
modified by NBTB from time to time, under such terms as may be applicable to
officers of Executive's rank employed by NBTB or its affiliates.
(h) Moving Expenses: NBTB agreed to reimburse Executive up to $30,000
for moving expenses if Executive were to relocate his family from their
principal residence in Franklin, TN to within the state of New York. Upon
Executives explanation of having the need to have access to such monies in
advance of relocation, to satisfy personal debts, the Company, in good faith,
has advanced Executive said $30,000 grossed-up for applicable payroll taxes. In
doing so, Executive agrees that if he and his family do not relocate within
eighteen (18) months from the date employment commenced, Executive will repay
the Company the $30,000 (grossed-up for taxes) in its entirety. Executive also
agrees to pay any necessary collection cost the Company may incur in enforcing
its right of repayment of said amount.
4. CONFIDENTIAL BUSINESS INFORMATION; NON-COMPETITION.
-----------------------------------------------------
(a) Executive acknowledges that certain business methods, creative
techniques, and technical data of NBTB and its affiliates and the like are
deemed by NBTB to be and are in fact confidential business information of NBTB
or its affiliates or are entrusted to third parties. Such confidential
information includes but is not limited to procedures, methods, sales
relationships developed while in the service of NBTB or its affiliates,
knowledge of customers and their requirements, marketing plans, marketing
information, studies, forecasts, and surveys, competitive analyses, mailing and
marketing lists, new business proposals, lists of vendors, consultants, and
other persons who render service or provide material to NBTB or NBT Bank or
their affiliates, and compositions, ideas, plans, and methods belonging to or
related to the affairs of NBTB or NBT Bank or their affiliates. In this regard,
NBTB asserts proprietary rights in all of its business information and that of
its affiliates except for such information as is clearly in the public domain.
Notwithstanding the foregoing, information that would be generally known or
available to persons skilled in Executive's fields shall be considered to be
"clearly in the public domain" for the purposes of the preceding sentence.
Executive agrees that he will not disclose or divulge to any third party, except
as may be required by his duties hereunder, by law, regulation, or order of a
court or government authority, or as directed by NBTB, nor shall he use to the
detriment of NBTB or its affiliates or use in any business or on behalf of any
business competitive with or substantially similar to any business of NBTB or
NBT Bank or their affiliates, any confidential business information obtained
during the course of his employment by NBTB. The foregoing shall not be
construed as restricting Executive from disclosing such information to the
employees of NBTB or NBT Bank or their affiliates. On or before the Termination
Date, Executive shall promptly deliver to NBTB any and all tangible,
confidential information in his possession.
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(b) Executive hereby agrees that from the Commencement Date until the
first anniversary of the Termination Date, Executive will not (i) interfere with
the relationship of NBTB or NBT Bank or their affiliates with any of their
employees, suppliers, agents, or representatives (including, without limitation,
causing or helping another business to hire any employee of NBTB or NBT Bank or
their affiliates), or (ii) directly or indirectly divert or attempt to divert
from NBTB, NBT Bank or their affiliates any business in which any of them has
been actively engaged during the Term of Employment, nor interfere with the
relationship of NBTB, NBT Bank or their affiliates with any of their customers
or prospective customers. This paragraph 4(b) shall not, in and of itself,
prohibit Executive from engaging in the banking, trust, or financial services
business in any capacity, including that of an owner or employee.
(c) EXECUTIVE ACKNOWLEDGES AND AGREES THAT IRREPARABLE INJURY WILL
RESULT TO NBTB IN THE EVENT OF A BREACH OF ANY OF THE PROVISIONS OF THIS SECTION
4 (THE "DESIGNATED PROVISIONS") AND THAT NBTB WILL HAVE NO ADEQUATE REMEDY AT
LAW WITH RESPECT THERETO. ACCORDINGLY, IN THE EVENT OF A MATERIAL BREACH OF ANY
DESIGNATED PROVISION, AND IN ADDITION TO ANY OTHER LEGAL OR EQUITABLE REMEDY
NBTB MAY HAVE, NBTB SHALL BE ENTITLED TO THE ENTRY OF A PRELIMINARY AND
PERMANENT INJUNCTION (INCLUDING, WITHOUT LIMITATION, SPECIFIC PERFORMANCE) BY A
COURT OF COMPETENT JURISDICTION IN CHENANGO COUNTY, NEW YORK, OR ELSEWHERE, TO
RESTRAIN THE VIOLATION OR BREACH THEREOF BY EXECUTIVE, AND EXECUTIVE SUBMITS TO
THE JURISDICTION OF SUCH COURT IN ANY SUCH ACTION.
(d) IT IS THE DESIRE AND INTENT OF THE PARTIES THAT THE PROVISIONS
OF THIS SECTION 4 SHALL BE ENFORCED TO THE FULLEST EXTENT PERMISSIBLE UNDER THE
LAWS AND PUBLIC POLICIES APPLIED IN EACH JURISDICTION IN WHICH ENFORCEMENT IS
SOUGHT. ACCORDINGLY, IF ANY PARTICULAR PROVISION OF THIS SECTION 4 SHALL BE
ADJUDICATED TO BE INVALID OR UNENFORCEABLE, SUCH PROVISION SHALL BE DEEMED
AMENDED TO DELETE THEREFROM THE PORTION THUS ADJUDICATED TO BE INVALID OR
UNENFORCEABLE, SUCH DELETION TO APPLY ONLY WITH RESPECT TO THE OPERATION OF SUCH
PROVISION IN THE PARTICULAR JURISDICTION IN WHICH SUCH ADJUDICATION IS MADE. IN
ADDITION, SHOULD ANY COURT DETERMINE THAT THE PROVISIONS OF THIS SECTION 4 SHALL
BE UNENFORCEABLE WITH RESPECT TO SCOPE, DURATION, OR GEOGRAPHIC AREA, SUCH COURT
SHALL BE EMPOWERED TO SUBSTITUTE, TO THE EXTENT ENFORCEABLE, PROVISIONS SIMILAR
HERETO OR OTHER PROVISIONS SO AS TO PROVIDE TO NBTB, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, THE BENEFITS INTENDED BY THIS SECTION 4.
5. LIFE INSURANCE. In light of the unusual abilities and experience of
---------------
Executive, NBTB in its discretion may apply for and procure as owner and for its
own benefit insurance on the life of Executive, in such amount and in such form
as NBTB may choose. NBTB shall make all payments for such insurance and shall
receive all benefits from it. Executive shall have no interest whatsoever in
any such policy or policies but, at the request of NBTB, shall submit to medical
examinations and supply such information and execute such documents as may
reasonably be required by the insurance company or companies to which NBTB has
applied for insurance.
6. REPRESENTATIONS AND WARRANTIES.
--------------------------------
(a) Executive represents and warrants to NBTB that his execution,
delivery, and performance of this Agreement will not result in or constitute a
breach of or conflict with any term, covenant, condition, or provision of any
commitment, contract, or other agreement or instrument, including, without
limitation, any other employment agreement, to which Executive is or has been a
party.
(b) Executive shall indemnify, defend, and hold harmless NBTB for,
from, and against any and all losses, claims, suits, damages, expenses, or
liabilities, including court costs and counsel fees, which NBTB has incurred or
to which NBTB may become subject, insofar as such losses, claims, suits,
damages, expenses, liabilities, costs, or fees arise out of or are based upon
any failure of any representation or warranty of Executive in section 6(a)
hereof to be true and correct when made.
7. NOTICES. All notices, consents, waivers, or other communications
--------
which are required or permitted hereunder shall be in writing and deemed to have
been duly given if delivered personally or by messenger, transmitted by telex or
telegram, by express courier, or sent by registered or certified mail, return
receipt requested, postage prepaid. All communications shall be addressed to
the appropriate address of each party as follows:
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If to NBTB:
NBT Bancorp Inc.
52 South Broad Street
Norwich, New York 13815
Attention: Mr. Daryl R. Forsythe
Chairman, President and Chief Executive Officer
With a required copy to:
NBT BANCORP INC. CORPORATE COUNSEL
If to Executive:
Mr. Lance D. Mattingly
187 Carronbridge Way
Franklin, TN 37067
All such notices shall be deemed to have been given on the date delivered,
transmitted, or mailed in the manner provided above.
8. ASSIGNMENT. Neither party may assign this Agreement or any rights
-----------
or obligations hereunder without the consent of the other party.
9. GOVERNING LAW. This Agreement shall be governed by, construed, and
--------------
enforced in accordance with the laws of the State of New York, without giving
effect to the principles of conflict of law thereof. The parties hereby
designate Chenango County, New York to be the proper jurisdiction and venue for
any suit or action arising out of this Agreement. Each of the parties consents
to personal jurisdiction in such venue for such a proceeding and agrees that it
may be served with process in any action with respect to this Agreement or the
transactions contemplated thereby by certified or registered mail, return
receipt requested, or to its registered agent for service of process in the
State of New York. Each of the parties irrevocably and unconditionally waives
and agrees, to the fullest extent permitted by law, not to plead any objection
that it may now or hereafter have to the laying of venue or the convenience of
the forum of any action or claim with respect to this Agreement or the
transactions contemplated thereby brought in the courts aforesaid.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
-----------------
understanding among NBTB and Executive relating to the subject matter hereof.
Any previous agreements or underings between the parties hereto or between
Executive and NBT Bank or any of its affiliates regarding the subject matter
hereof, including without limitation the terms and conditions of employment,
compensation, benefits, retirement, competition following employment, and the
like, are merged into and superseded by this Agreement. Neither this Agreement
nor any provisions hereof can be modified, changed, discharged, or terminated
except by an instrument in writing signed by the party against whom any waiver,
change, discharge, or termination is sought.
11. ILLEGALITY; SEVERABILITY.
-------------------------
(a) Anything in this Agreement to the contrary notwithstanding,
this Agreement is not intended and shall not be construed to require any payment
to Executive which would violate any federal or state statute or regulation,
including without limitation the "golden parachute payment regulations" of the
Federal Deposit Insurance Corporation codified to Part 359 of title 12, Code of
Federal Regulations.
(b) If any provision or provisions of this Agreement shall be held
to be invalid, illegal, or unenforceable for any reason whatsoever:
(i) the validity, legality, and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal, or unenforceable) shall not in any way be affected or
impaired thereby; and
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(ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provisions held to be invalid, illegal, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
12. ARBITRATION. Subject to the right of each party to seek specific
------------
performance (which right shall not be subject to arbitration), if a dispute
arises out of or related to this Agreement, or the breach thereof, such dispute
shall be referred to arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). A dispute subject to the
provisions of this section will exist if either party notifies the other party
in writing that a dispute subject to arbitration exists and states, with
reasonable specificity, the issue subject to arbitration (the "Arbitration
Notice"). The parties agree that, after the issuance of the Arbitration Notice,
the parties will try in good faith to resolve the dispute by mediation in
accordance with the Commercial Rules of Arbitration of AAA between the date of
the issuance of the Arbitration Notice and the date the dispute is set for
arbitration. If the dispute is not settled by the date set for arbitration,
then any controversy or claim arising out of this Agreement or the breach hereof
shall be resolved by binding arbitration and judgment upon any award rendered by
arbitrator(s) may be entered in a court having jurisdiction. Any person serving
as a mediator or arbitrator must have at least ten years' experience in
resolving commercial disputes through arbitration. In the event any claim or
dispute involves an amount in excess of $100,000, either party may request that
the matter be heard by a panel of three arbitrators; otherwise all matters
subject to arbitration shall be heard and resolved by a single arbitrator. The
arbitrator shall have the same power to compel the attendance of witnesses and
to order the production of documents or other materials and to enforce discovery
as could be exercised by a United States District Court judge sitting in the
Northern District of New York. In the event of any arbitration, each party
shall have a reasonable right to conduct discovery to the same extent permitted
by the Federal Rules of Civil Procedure, provided that such discovery shall be
concluded within ninety days after the date the matter is set for arbitration.
In the event of any arbitration, the arbitrator or arbitrators shall have the
power to award reasonable attorney's fees to the prevailing party. Any
provision in this Agreement to the contrary notwithstanding, this section shall
be governed by the Federal Arbitration Act and the parties have entered into
this Agreement pursuant to such Act.
13. COSTS OF LITIGATION. In the event litigation is commenced to enforce
--------------------
any of the provisions hereof, or to obtain declaratory relief in connection with
any of the provisions hereof, the prevailing party shall be entitled to recover
reasonable attorney's fees. In the event this Agreement is asserted in any
litigation as a defense to any liability, claim, demand, action, cause of
action, or right asserted in such litigation, the party prevailing on the issue
of that defense shall be entitled to recovery of reasonable attorney's fees.
14. AFFILIATION. A company will be deemed to be "affiliated" with NBTB or
------------
NBT Bank according to the definition of "Affiliate" set forth in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended.
15. HEADINGS. The section and subsection headings herein have been
---------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to be
executed as of the day and year first above written.
NBT BANCORP INC.
By: /s/ Daryl R. Forsythe
Daryl R. Forsythe, Chairman
President and Chief Executive Officer
/s/ Lance D. Mattingly
Lance D. Mattingly
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Exhibit 10.31
Form of Employment Agreement between NBT Bancorp Inc. and Peter Corso made as of
January 1, 2002.
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EMPLOYMENT AGREEMENT (REVISED)
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 18, 2001 and revised on January 1, 2002, by and between PETER J. CORSO
("Executive") and NBT BANCORP INC., a Delaware corporation having its principal
office in Norwich, New York ("NBTB") and NBT Bank, National Association ("NBT
Bank");
W I T N E S S E T H T H A T :
WHEREAS, the Executive is president and chief operating officer of Central
National Bank, a Division of NBT Bank ("CNB");
WHEREAS, NBTB desires to secure the continued employment of Executive,
subject to the provisions of this Agreement;
WHEREAS, because of Executive's abilities and his knowledge of, and
reputation in, markets where CNB conducts its business, NBTB and NBT Bank have
determined that it is essential to obtain a commitment from Executive to provide
consulting services to NBT Bank and not to compete against NBTB or any of its
affiliates or to solicit to employ certain of their officers in accordance with
the terms hereof; and
WHEREAS, Executive is desirous of entering into the Agreement upon the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, intending to be legally bound, the parties
agree as follows:
1. Employment; Responsibilities and Duties.
------------------------------------------
(a) NBT Bank hereby agrees to employ, and NBTB hereby agrees to
cause NBT Bank to employ, Executive as president and chief operating officer of
CNB and any successor during the Term of Employment (as hereinafter defined) and
Executive hereby agrees to serve as the president and chief operating officer of
CNB during the Term of Employment. Executive shall report directly to the chief
executive officer of NBT Bank and indirectly to the chairman of the board of CNB
and shall have such executive duties, responsibilities, and authority as
determined by the chief executive officer of NBT Bank.
(b) Executive shall devote his full working time and best efforts
to the performance of his responsibilities and duties hereunder. During the
Term of Employment, Executive shall not, without the prior written consent of
the chief executive officer of NBT Bank, render services as an employee,
independent contractor, or otherwise, whether or not compensated, to any person
or entity other than NBTB or its affiliates; provided that Executive may, where
involvement in such activities does not individually or in the aggregate
significantly interfere with the performance by Executive of his duties or
violate the provisions of sections 4, 5 and 6 hereof, (i) render services to
charitable organizations, (ii) manage his personal investments, and (iii) with
the prior permission of the chief executive officer of NBT Bank, hold such other
directorships or part-time academic appointments or have such other business
affiliations as would otherwise be prohibited under this section 1.
2. Term of Employment.
--------------------
(a) The term of Executive's employment under this Agreement ("Term
of Employment") shall be the period commencing on November 9, 2001 (the
"Commencement Date") and continuing until the Termination Date, which shall mean
the earliest to occur of:
(i) the third anniversary of the Commencement Date, unless
the Term of Employment shall be extended by the mutual agreement of the parties
hereto;
(ii) the death of Executive;
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(iii) Executive's inability to perform his duties hereunder,
as a result of physical or mental disability as reasonably determined by the
personal physician of Executive, for a period of at least 180 consecutive days
or for at least 180 days during any period of twelve consecutive months during
the Term of Employment;
(iv) the discharge of Executive by NBT Bank "for cause,"
which shall mean one or more of the following:
(A) any willful or gross misconduct by Executive with
respect to the business and affairs of NBT Bank, or with respect to any of its
affiliates for which Executive is assigned material responsibilities or duties;
(B) the conviction of Executive of a felony (after the
earlier of the expiration of any applicable appeal period without perfection of
an appeal by Executive or the denial of any appeal as to which no further appeal
or review is available to Executive) whether or not committed in the course of
his employment by NBT Bank;
(C) Executive's willful neglect, failure, or refusal to
carry out his duties hereunder in a reasonable manner (other than any such
failure resulting from disability or death or from termination by Executive for
Good Reason, as hereinafter defined) after a written demand for substantial
performance is delivered to Executive that specifically identifies the manner in
which NBTB believes that Executive has not substantially performed his duties
and Executive has not resumed substantial performance of his duties on a
continuous basis within thirty days of receiving such demand; or
(D) the breach by Executive of any representation or
warranty in section 6(a) hereof or of any agreement contained in section 1, 6,
or 7 hereof, which breach is material and adverse to NBTB or any of its
affiliates for which Executive is assigned material responsibilities or duties;
(v) Executive's resignation from his position as president
and chief operating officer of CNB for any reason; or
(vi) the termination of Executive's employment by NBT Bank
"without cause," which shall mean the termination of Executive's employment by
NBT Bank for any reason other than those set forth in subsections (i), (ii),
(iii) or (iv) of this section 2(a), upon the thirtieth day following notice to
Executive.
(b) In the event that the Term of Employment shall be terminated
by reason of an event described in section 2(a)(i) - 2(a)(iv) hereof, Executive
shall be entitled to, upon the occurrence of any such event:
(i) receive any salary (as hereinafter defined) payable
pursuant to section 3(a)(i) hereof which shall have accrued as of the
Termination Date; and
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(b)(vi)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(b)(ii)
hereof.
(c) In the event that the Term of Employment shall be terminated
by reason of an event other than an event described in section 2(a)(i) -
2(a)(iv) hereof, Executive shall be entitled to:
(i) receive any salary payable pursuant to section 3(a)(i)
hereof which shall have accrued as of the Termination Date;
(ii) such rights as Executive may have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(b)(vi)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(b)(ii)
hereof;
(iii) if the Termination Date occurs during the first year of
the Term of Employment, then in consideration of Executive's past services,
Executive's agreement to provide consulting services under section 4 hereof, and
Executive's covenants under sections 5 and 6 hereof, Executive shall be entitled
to a lump-sum cash payment equal to $525,000;
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(iv) if the Termination Date occurs during the second year of
the Term of Employment, then in consideration of Executive's past services,
Executive's agreement to provide consulting services under section 4 hereof, and
Executive's covenants under sections 5 and 6 hereof, Executive shall be entitled
to receive a lump sum cash payment equal to the sum of (A) the undiscounted
remainder of his base annual compensation during the second year of the Term of
Employment (assuming Executive remained employed by NBT Bank for the entirety of
such second year) and (B) an undiscounted amount equal to eighteen months of
additional annual base compensation at the then current rate; and
(v) if the Termination Date occurs after the second year of
the Term of Employment, then in consideration of Executive's past services and
his covenants under sections 5 and 6 hereof, Executive shall be entitled to
receive a lump sum cash payment equal to the undiscounted amount of Executive's
annual base compensation (at the rate in effect immediately prior to the
Termination Date) that would have been payable to Executive assuming Executive
remained employed by NBT Bank for the greater of (i) one year after the
Termination Date or (ii) the date after the third anniversary of the
Commencement Date, if any, agreed to by the parties hereto.
(d) In the event that the employment of Executive with NBT Bank is
terminated in any situation described in section 3 of the change-in-control
letter agreement dated as of OCTOBER 18, 2001 between NBTB and Executive (the
"Change-in-Control Agreement") so as to entitle Executive to a severance payment
and other benefits described in section 3 of the Change-In-Control Agreement,
then notwithstanding the provisions of section 2 (c) hereof, Executive shall be
entitled to the following, and no more, under this section 2:
(i) any salary payable pursuant to section 3(a)(i) hereof
which shall have accrued as of the Termination Date;
(ii) such rights as Executive shall have accrued as of the
Termination Date under the terms of any plans or arrangements in which he
participates pursuant to section 3(b) hereof, any right to reimbursement for
expenses accrued as of the Termination Date payable pursuant to section 3(b)(vi)
hereof, and the right to receive the cash equivalent of paid annual leave and
sick leave accrued as of the Termination Date pursuant to section 3(b)(ii)
hereof; and
(iii) the severance payment and other benefits provided in
the Change-in-Control Agreement.
Notwithstanding the foregoing provisions of this section 2(d), the Executive may
at any time prior to the payment of any severance or other benefits under
section 3 of the Change-In-Control Agreement elect in writing to waive his
rights under the Change-in-Control Agreement, in which case this Agreement shall
apply to Executive without regard to the foregoing provisions of this section
2(d). In the event that Executive becomes entitled to the severance and other
benefits under section 3 of the Change-in-Control Agreement, NBTB shall promptly
(and in all events within three business days) notify Executive in writing of
Executive's right to waive his rights under the Change-in-Control Agreement and,
unless otherwise directed by the Executive in writing, no severance payments or
other benefits under section 3 of the Change in Control Agreement shall be paid
to Executive until ten business days after the providing of written notice by
NBTB to Executive. If Executive does not waive his rights under the
Change-in-Control Agreement and receives severance or other benefits under
section 3 of the Change-in-Control Agreement, sections 4 and 5 of this Agreement
shall cease to apply and Executive shall have no obligation thereunder.
3. Compensation. For the services to be performed by Executive
------------
for NBT Bank under this Agreement, Executive shall be compensated in the
following manner:
(a) Salary. During the Term of Employment:
------
(i) NBT Bank shall pay Executive a salary, which, on an
annual basis, shall not be less than $175,000 during the Term of Employment.
Salary shall be payable in accordance with the normal payroll practices of NBTB
with respect to executive personnel as presently in effect or as they may be
modified by NBTB from time to time.
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(ii) Executive shall be entitled to minimum annual salary
increases of 7 percent during the Term of Employment, beginning in January of
2003, and in addition, if the term of this agreement is extended as per Section
2(a)(i), shall be eligible to be considered for further salary increases, upon
review, in accordance with the compensation policies of NBTB with respect to
executive personnel as presently in effect or as they may be modified by NBTB
from time to time.
(iii) Executive shall be eligible to be considered for
performance bonuses commensurate with the Executive's title and salary grade, in
accordance with the compensation policies of NBTB with respect to executive
personnel as presently in effect or as they may be modified by NBTB from time to
time.
(b) Employee Benefit Plans or Arrangements. During the Term of
------------------------------------------
Employment, Executive shall be entitled to participate in all employee benefit
plans of NBTB and its affiliates, as presently in effect or as they may be
modified from time to time, under such terms as may be applicable to officers of
Executive's rank employed by NBTB or its affiliates, including, without
limitation, plans providing retirement benefits, stock options, medical
insurance, life insurance, disability insurance, and accidental death or
dismemberment insurance, provided that there be no duplication of such benefits
as are provided under any other provision of this Agreement.
(i) Stock Options. Each January or February annually during the
--------------
Term of Employment, NBTB will cause Executive to be granted a non-statutory
("non-qualified") stock option (each an "Option") to purchase the number of
shares of the common stock of NBTB, $0.01 par value (the "NBTB Common Stock"),
pursuant to the NBT Bancorp Inc. 1993 Stock Option Plan, as amended, or any
appropriate successor plan (the "Stock Option Plan"), computed by using a
formula approved by NBTB that is commensurate with the Executive's title and
salary grade. The option exercise price per share of the shares subject to each
Option shall be Fair Market Value, and the terms, conditions of exercise, and
vesting schedule of such Option shall be as set forth in section 8 of the Stock
Option Plan.
(ii) Vacation and Sick Leave. During the Term of Employment,
--------------------------
Executive shall be entitled to paid annual vacation periods and sick leave in
accordance with the policies of NBTB as in effect as of the Commencement Date or
as may be modified by NBTB from time to time as may be applicable to officers of
Executive's rank employed by NBTB or its affiliates, but in no event less than
four weeks of paid vacation each year during the Term of Employment.
(iii) Automobile. During the Term of Employment, Executive shall
----------
be entitled to the use of an automobile (whose value shall not exceed $40,000),
owned by NBTB or an affiliate of NBTB, the make, model and year of which
automobile shall be appropriate to an officer of Executive's rank, and which
will be replaced every three years (or earlier if the accumulated mileage
exceeds 50,000 miles) with a new automobile whose value shall not exceed the sum
of $40,000 escalated by an amount calculated by the controller's division of
NBTB to adjust for the effect of inflation upon the $40,000 (an "Inflation
Adjustment"). Executive shall be responsible for all expenses of ownership and
use of such automobile, subject to reimbursement of expenses for business use in
accordance with section 3(b)(vi).
(iv) Country Club Dues. During the Term of Employment, Executive
------------------
shall be reimbursed for dues and assessments incurred in relation to Executive's
membership at a country club mutually agreed upon by Executive and the chief
executive officer of NBT Bank.
(v) Withholding. All compensation to be paid to Executive
-----------
hereunder shall be subject to required withholding and other taxes.
(vi) Expenses. During the Term of Employment, Executive shall
--------
be reimbursed for reasonable travel and other expenses incurred or paid by
Executive in connection with the performance of his services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as may from time to time be requested, in accordance with
such policies of NBTB as are in effect as of the Commencement Date and as may be
modified by NBTB from time to time, under such terms as may be applicable to
officers of Executive's rank employed by NBTB or its affiliates.
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4. Consulting Services
-------------------
(a) In the event that Executive's employment terminates hereunder during
the first two years of the Term of Employment and Executive becomes entitled to
a payment under either section 2(c)(iii) or 2(c)(iv) hereof, Executive shall,
during the Consulting Period (as hereinafter defined), be available to render
such consulting services to NBTB or NBT Bank as they may reasonably request of
Executive from time-to-time relating to their business and operations. The
services requested of Executive by NBTB and NBT Bank during the Consulting
Period shall be scheduled in consultation with Executive and shall be of a scope
so as to not materially interfere with Executive's engaging in full-time
employment after the Employment Term. NBTB or NBT Bank shall promptly reimburse
Executive for all expenses incurred by Executive in the performance of
Executive's consulting duties, including travel and subsistence expenses,
recognizing that Executive's home may not be in the geographic area where NBTB
and NBT Bank conduct business. Executive shall perform his duties under this
section 4(a) as an independent contractor to NBTB and NBT Bank.
(b) For purposes of this Agreement, the term "Consulting Period" shall mean
(i) if Executive's employment terminates hereunder during the first year of the
Employment Term and Executive becomes entitled to the payment described in
section 2(c)(iii) hereof, the period beginning on the date of Executive's
termination of employment with NBT Bank and ending on the second anniversary of
such termination of employment, and (ii) if Executive's employment terminates
hereunder during the second year of the Employment Term and Executive becomes
entitled to the payment described in section 2(c)(iv) hereof, the period
beginning on the date of Executive's termination of employment with NBT Bank and
ending on the second anniversary of the Merger.
(c) In consideration for Executive's covenants under this section 4 and
under sections 5 and 6 hereof, NBTB or NBT Bank shall, in addition to any lump
sum payment provided for by Section 2(c)(iii) and 2(c)(iv), as applicable,
provide to Executive for a three year period following the date of Executive's
termination of employment with NBT Bank, at no cost to Executive, life insurance
and health insurance (collectively, "Welfare Benefits") that are not less
favorable in all respects to those that Executive was receiving immediately
prior to the Termination Date; provided, however, that the medical coverage
provided shall be family medical coverage that also covers Executive's spouse
and any dependents. Executive will be entitled to elect to change his level of
coverage and/or his choice of coverage options with respect to the Welfare
Benefits provided by NBTB or NBT Bank to Executive to the same extent that
actively employed senior executives of NBTB and NBT Bank are permitted to make
such changes.
5. Covenant Not to Compete.
--------------------------
(a) The parties acknowledge: (i) that as a result of the Merger, NBT
Bank and NBTB will be engaged in the business of banking in those markets where
CNB currently conducts its banking business; (ii) that Executive has developed
special expertise and a recognized reputation in CNB's markets and business; and
(iii) that if Executive were to undertake efforts in competition with NBT Bank
and NBTB in CNB's current market areas or solicit for employment officers of CNB
the result would be substantial and irreparable damage to NBT Bank and NBTB.
(b) During the Restricted Period, Executive shall not solicit any business
(other than business in an area outside of twenty miles in which NBTB or any of
its subsidiaries is competitively engaged), customers or prospective customers
of NBTB or any of its subsidiaries whom Executive has served or solicited during
the course of his employment by CNB.
(c) During the Restricted Period, Executive shall not, directly or
indirectly, either for Executive's own benefit or purpose or for the benefit or
purpose of any person or entity other than NBTB or any of its subsidiaries,
employ or offer to employ, call on, or actively interfere with NBTB's or any of
its subsidiaries' relationship with, or attempt to divert or entice away, any
officer of NBTB or any of its subsidiaries who was an officer of CNB or any of
its subsidiaries immediately prior to the Merger.
(d) The term "Restricted Period shall mean (a) if there is a Consulting
Period, the period beginning on the first day of the Consulting Period and
ending on the first anniversary of the last day of the Consulting Period, and
(b) if there is no Consulting Period, the period beginning on Executive's
Termination Date and ending on the date that is six months after such
Termination Date.
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(e) The parties hereto agree that the amount of the lump-sum
payment paid to Executive pursuant to Section 2(c)(ii), (c)(iii), or (c)(iv), as
applicable, that is allocable to services or consideration provided by Executive
other than pursuant to Sections 4, 5 and 6 hereof is less than $135,000.
6. Confidential Business Information; Non-Competition.
-----------------------------------------------------
(a) Executive acknowledges that certain business methods, creative
techniques, and technical data and the like of NBTB and its affiliates are
deemed by NBTB to be and are in fact confidential business information of NBTB
or its affiliates or are entrusted to third parties. Such confidential
information includes but is not limited to procedures, methods, sales
relationships developed while in the service of NBTB or its affiliates,
knowledge of customers and their requirements, marketing plans, marketing
information, studies, forecasts and surveys, competitive analyses, mailing and
marketing lists, new business proposals, lists of vendors, consultants, and
other persons who render service, or provide material to NBTB or CNB or their
affiliates, and compositions, ideas, plans, and methods belonging to or related
to the affairs of NBTB or CNB or their affiliates. In this regard, NBTB asserts
proprietary rights in all of its business information and that of its affiliates
except for such information as is clearly in the public domain. Notwithstanding
the foregoing, information that would be generally known or available to persons
skilled in Executive's fields shall be considered to be "clearly in the public
domain" for the purposes of the preceding sentence. Executive agrees that he
will not disclose or divulge to any third party, except as may be required by
his duties hereunder, by law, regulation, or order of a court or government
authority, or as directed by NBTB, nor shall he use to the detriment of NBTB or
its affiliates or use in any business or on behalf of any business competitive
with or substantially similar to any business of NBTB or CNB or their
affiliates, any confidential business information obtained during the course of
his employment by CNB or NBT Bank. The foregoing shall not be construed as
restricting Executive from disclosing such information to the employees of NBTB
or CNB or their affiliates. On or before the Termination Date, Executive shall
promptly deliver to NBTB any and all tangible, confidential information in his
possession.
(b) Executive acknowledges and agrees that irreparable injury will result
to NBTB and its affiliates in the event of a breach of any of the provisions of
section 5 hereof or this section 6 (the "Designated Provisions") and that NBTB
will have no adequate remedy at law with respect thereto. Accordingly, in the
event of a material breach of any Designated Provision, and in addition to any
other legal or equitable remedy NBTB may have, NBTB shall be entitled to the
entry of a preliminary and permanent injunction (including, without limitation,
specific performance) by a court of competent jurisdiction in Chenango County,
New York, to restrain the violation or breach thereof by Executive, and
Executive submits to the jurisdiction of such court in any such action.
(c) It is the desire and intent of the parties that the provisions of
section 5 hereof and this section 6 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of section
5 hereof or this section 6 shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made. In addition, should any court determine that
the provisions of section 5 hereof or this section 6 shall be unenforceable with
respect to scope, duration, or geographic area, such court shall be empowered to
substitute, to the extent enforceable, provisions similar hereto or other
provisions so as to provide to NBTB, to the fullest extent permitted by
applicable law, the benefits intended by section 5 hereof and this section 6.
7. Life Insurance. In light of the unusual abilities and experience of
---------------
Executive, NBTB or NBT Bank in their discretion may apply for and procure as
owner and for its own benefit insurance on the life of Executive, in such amount
and in such form as NBTB or NBT Bank may choose. NBTB or NBT Bank, as
applicable, shall make all payments for such insurance and shall receive all
benefits from it. Executive shall have no interest whatsoever in any such
policy or policies but, at the request of NBTB or NBT Bank, as applicable, shall
submit to medical examinations and supply such information and execute such
documents as may reasonably be required by the insurance company or companies to
which NBTB or NBT Bank, as applicable, has applied for insurance.
II-84
8. Representations and Warranties.
--------------------------------
(a) Executive represents and warrants to NBTB that his execution,
delivery, and performance of the Agreement will not result in or constitute a
breach of any term, covenant, condition, or provision of any commitment,
contract, or other agreement or instrument, including, without limitation, any
other employment agreement, to which Executive is or has been a party.
(b) Executive shall indemnify, defend, and hold harmless NBTB for, from,
and against any and all losses, claims, suits, damages, expenses, or
liabilities, including court costs and counsel fees, which NBTB has incurred or
to which NBTB may become subject insofar as such losses, claims, suits, damages,
expenses, liabilities, costs, or fees arise out of or are based upon any failure
of any representation or warranty of Executive in section 7(a) hereof to be true
and correct when made.
9. Notices. All notices, consents, waivers, or other communications
-------
which are required or permitted hereunder shall be in writing and deemed to have
been duly given if delivered personally or by messenger, transmitted by telex or
telegram, by express courier, or sent by registered or certified mail, return
receipt requested, postage prepaid. All communications shall be addressed to
the appropriate address of each party as follows:
If to NBTB or NBT Bank:
NBT Bancorp Inc.
52 South Broad Street
Norwich, New York 13815
Attention: Mr. Daryl R. Forsythe
Chairman, President and
Chief Executive Officer
With a required copy, in the case of a notice to NBT Bancorp Inc. or NBT Bank,
to:
NBT Bancorp Inc. Corporate Counsel
If to Executive:
Mr. Peter J. Corso
11 Kingsbury Ave.
St. Johnsville, NY 13452
All such notices shall be deemed to have been given on the date delivered,
transmitted, or mailed in the manner provided above.
10. Assignment. Neither party may assign this Agreement or any rights
----------
or obligations hereunder without the consent of the other party.
11. Governing Law. This Agreement shall be governed by, construed, and
--------------
enforced in accordance with the laws of the State of New York, without giving
effect to the principles of conflict of law thereof. The parties hereby
designate Chenango County, New York to be the proper jurisdiction and venue for
any suit or action arising out of this Agreement. Each of the parties consents
to personal jurisdiction in such venue for such a proceeding and agrees that it
may be served with process in any action with respect to this Agreement or the
transactions contemplated thereby by certified or registered mail, return
receipt requested, or to its registered agent for service of process in the
State of New York. Each of the parties irrevocably and unconditionally waives
and agrees, to the fullest extent permitted by law, not to plead any objection
that it may now or hereafter have to the laying of venue or the convenience of
the forum of any action or claim with respect to this Agreement or the
transactions contemplated thereby brought in the courts aforesaid.
12. Entire Agreement. This Agreement constitutes the entire
-----------------
understanding among NBTB, NBT Bank and Executive relating to the subject matter
hereof. Any previous agreements or understandings between the parties hereto or
between Executive and CNB or any of its affiliates regarding the subject matter
hereof, including without limitation the terms and conditions of employment,
compensation, benefits, retirement, competition following employment, and the
like, are merged into and superseded by this Agreement. Neither this Agreement
nor any provisions hereof can be modified, changed, discharged, or terminated
except by an instrument in writing signed by the party against whom any waiver,
change, discharge, or termination is sought.
II-85
13. Illegality; Severability.
-------------------------
(a) Anything in this Agreement to the contrary notwithstanding,
this Agreement is not intended and shall not be construed to require any payment
to Executive which would violate any federal or state statute or regulation,
including without limitation the "golden parachute payment regulations" of the
Federal Deposit Insurance Corporation codified to Part 359 of title 12, Code of
Federal Regulations.
(b) If any provision or provisions of this Agreement shall be held
to be invalid, illegal, or unenforceable for any reason whatsoever:
(i) the validity, legality, and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal, or unenforceable) shall not in any way be affected or
impaired thereby; and
(ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provisions held to be invalid, illegal, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
14. Arbitration. Subject to the right of each party hereto to seek
-----------
specific performance (which right shall not be subject to arbitration), if a
dispute arises out of or related to this Agreement, or the breach thereof, such
dispute shall be referred to arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). A dispute
subject to the provisions of this section will exist if either party notifies
the other party in writing that a dispute subject to arbitration exists and
states, with reasonable specificity, the issue subject to arbitration (the
"Arbitration Notice"). The parties agree that, after the issuance of the
Arbitration Notice, the parties will try in good faith to resolve the dispute by
mediation in accordance with the Commercial Rules of Arbitration of AAA between
the date of the issuance of the Arbitration Notice and the date the dispute is
set for arbitration. If the dispute is not settled by the date set for
arbitration, then any controversy or claim arising out of this Agreement or the
breach hereof shall be resolved by binding arbitration and judgment upon any
award rendered by arbitrator(s) may be entered in a court having jurisdiction.
Any person serving as a mediator or arbitrator must have at least ten years'
experience in resolving commercial disputes through arbitration. In the event
any claim or dispute involves an amount in excess of $100,000, either party may
request that the matter be heard by a panel of three arbitrators; otherwise all
matters subject to arbitration shall be heard and resolved by a single
arbitrator. The arbitrator shall have the same power to compel the attendance
of witnesses and to order the production of documents or other materials and to
enforce discovery as could be exercised by a United States District Court judge
sitting in the Northern District of New York. In the event of any arbitration,
each party shall have a reasonable right to conduct discovery to the same extent
permitted by the Federal Rules of Civil Procedure, provided that such discovery
shall be concluded within ninety days after the date the matter is set for
arbitration. In the event of any arbitration, the arbitrator or arbitrators
shall have the power to award reasonable attorney's fees to the prevailing
party. Any provision in this Agreement to the contrary notwithstanding, this
section shall be governed by the Federal Arbitration Act and the parties have
entered into this Agreement pursuant to such Act.
15. Certain Expenses. NBTB shall pay to Executive all legal fees and
-----------------
expenses (but not taxes, penalties or interest on taxes or penalties) incurred
by Executive (a) in seeking to obtain or enforce any provision of this Agreement
or (b) in connection with any tax audit or proceeding to the extent attributable
to the application of section 4999 of the Code to any payment or benefit
provided hereunder or under other plans and programs of CNB, NBTB or any of
their affiliates. Such payments shall be made within five (5) business days
after delivery of Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as NBTB reasonably may require.
II-86
16. Consent to Retirement Annuity Contribution. NBTB hereby consents,
----------------------------------------------
for purposes of the Merger Agreement, to CNB taking all necessary and
appropriate actions prior to the Merger to (i) cause an aggregate of $25,000 to
be contributed to one or both of the annuity contracts (as specified by
Executive) held under the Supplemental Retirement Annuity Agreement (the "SRAA")
between Executive and CNB, dated May 15, 2000, (ii) cause the transfer of such
annuity contracts to a "rabbi trust," the terms of which shall provide for the
payment of benefits to Executive and his beneficiaries in accordance with the
terms of the SRAA, and (iii) amend the SRAA as necessary or appropriate to
reflect such actions.
17. Affiliation. A company will be deemed to be "affiliated" with NBTB
-----------
or CNB according to the definition of "Affiliate" set forth in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended.
18. Headings. The section and subsection headings herein have been
--------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
19. Termination. This Agreement shall terminate in the event that the
-----------
Merger Agreement terminates in accordance with Section 12 thereof.
IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to
be executed as of the day and year first above written.
NBT BANCORP INC.
By:
--------------------
Daryl R. Forsythe
Chairman, President and
Chief Executive Officer
NBT BANK, NATIONAL ASSOCIATION
By: /s/ Daryl R. Forsythe
--------------------------
Daryl R. Forsythe
Chairman and Chief Executive Officer
PETER J. CORSO
/s/ Peter J. Corso
------------------
II-87
Exhibit 10.33
Change in control agreement with Tom Delduchetto
II-88
January 28, 2002
MR. THOMAS R. DELDUCHETTO
8321 White Cedar Circle
Liverpool, NY 13090
Dear Mr. Delduchetto:
NBT Bancorp Inc. (which, together with its wholly-owned subsidiary, NBT
Bank, National Association, is referred to as the "Company") considers the
stability of its key management group to be essential to the best interests of
the Company and its shareholders. The Company recognizes that, as is the case
with many publicly-held corporations, the possibility of a change in control may
arise and that the attendant uncertainty may result in the departure or
distraction of key management personnel to the detriment of the Company and its
shareholders.
Accordingly, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to encourage members of the
Company's key management group to continue as employees notwithstanding the
possibility of a change in control of the Company.
The Board also believes it important that, in the event of a proposal for
transfer of control of the Company, you be able to assess the proposal and
advise the Board without being influenced by the uncertainties of your own
situation.
In order to induce you to remain in the employ of the Company, this
Agreement, which has been approved by the Board, sets forth the severance
compensation which the Company agrees will be provided to you in the event your
employment with the Company is terminated subsequent to a "change in control" or
the Company under the circumstances described below.
1. Agreement to Provide Services; Right to Terminate.
-------------------------------------------------------
(a) Termination Prior to Certain Offers. Except as otherwise
---------------------------------------
provided in paragraph (b) below, or in any written employment agreement between
you and the Company, the Company or you may terminate your employment at any
time. If, and only if, such termination occurs after a "change in control of
the Company" (as defined in section 6), the provisions of this Agreement
regarding the payment of severance compensation and benefits shall apply.
(b) Termination Subsequent to Certain Offers. In the event a
--------------------------------------------
tender offer or exchange offer is made by a "person" (as defined in section 6)
for more than 30 percent of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors ("Voting Securities"), including shares of common stock, no par value,
of the Company (the "Company Shares"), you agree that you will not leave the
employ of the Company (other than as a result of Disability as such term is
defined in section 6) and will render services to the Company in the capacity in
which you then serve until such tender offer or exchange offer has been
abandoned or terminated or a change in control of the Company has occurred as a
result of such tender offer or exchange offer. If, during the period you are
obligated to continue in the employ of the Company pursuant to this section
1(b), the Company reduces your compensation, terminates your employment without
Cause, or you provide written notice of your decision to terminate your
employment for Good Reason, your obligations under this section 1(b) shall
thereupon terminate and you will be entitled to payments provided under Section
3(b).
2. Term of Agreement. This Agreement shall commence on the date
-------------------
hereof and shall continue in effect until December 31, 2003; provided, however,
that commencing December 31, 2001 and each December 31 thereafter, the remaining
term of this Agreement shall automatically be extended for one additional year
(to a total of three years) unless at least 90 days prior to such anniversary,
the Company or you shall have given notice that this Agreement shall not be
II-89
extended; and provided, however, that if a change in control of the Company
shall occur while this Agreement is in effect, this Agreement shall
automatically be extended for 24 months from the date the change in control of
the Company occurs. This Agreement shall terminate if you or the Company
terminates your employment prior to a change in control of the Company but
without prejudice to any remedy the Company may have for breach of your
obligations, if any, under section 1(b).
3. Severance Payment and Benefits If Termination Occurs Following
---------------------------------------------------------------------
Change in Control for Disability, Without Cause, With Good Reason or Without
- ----------------------------------------------------------------------------
Good Reason within 12 Months of the Change. If, (I) within 24 months from the
- ------------------------------------------
date of occurrence of any event constituting a change in control of the Company
(it being recognized that more than one such event may occur in which case the
24-month period shall run from the date of occurrence of each such event), your
employment with the Company is terminated (i) by the Company for Disability,
(ii) by the Company without Cause, or (iii) by you with Good Reason (as defined
in section 6), or (II) within 12 months from the date of occurrence of any event
constituting a change in control of the Company (it being recognized that more
than one such event may occur in which case the 12-month period shall run from
the date of occurrence of each such event) you terminate your employment either
with or without Good Reason, you shall be entitled to a severance payment and
other benefits as follows:
(a) Disability. If your employment with the Company is
----------
terminated for Disability, your benefits shall thereafter be determined in
accordance with the Company's long-term disability income insurance plan. If
the Company's long-term disability income insurance plan is modified or
terminated following a change in control, the Company shall substitute such a
plan with benefits applicable to you substantially similar to those provided by
such plan prior to its modification or termination. During any period that you
fail to perform your duties hereunder as a result of incapacity due to physical
or mental illness, you shall continue to receive your full base salary at the
rate then in effect until your employment is terminated by the Company for
Disability.
(b) Termination Without Cause or With Good Reason or Within 12
-----------------------------------------------------------------
Months of Change in Control. If your employment with the Company is terminated
- ---------------------------
without Cause by the Company or with Good Reason by you, or by you within 12
months of a change in control of the Company without Good Reason, then the
Company shall pay to you, upon demand, the following amounts (net of applicable
payroll taxes):
(i) Your full base salary through the Date of Termination at
the rate in effect on the date the change in control of the Company occurs plus
year-to-date accrued vacation.
(ii) As severance pay, an amount equal to the product of
2.99 multiplied by the greater of (A) the sum of your annualized salary for the
calendar year in which the change in control of the Company occurs, the maximum
target bonus that could have been paid to you for such year if all applicable
targets and objectives had been achieved, or if no formal bonus program is in
effect, the largest bonus amount paid to you during any one of the three
preceding calendar years, your income from the exercise of nonqualified options
during such year, your compensation income from any disqualifying disposition
during such year of stock acquired pursuant to the exercise of incentive stock
options and other annualized amounts that constitute taxable income to you from
the Company for such year, without reduction for salary reduction amounts
excludible from income under Section 402(e)(3) or 125 of the Internal Revenue
Code of 1986, as amended (the "Code"), or (B) your average "Compensation" (as
defined below) for the three calendar years preceding the calendar year in which
the change in control of the Company occurs. As used in this subsection
3(b)(ii) your "Compensation" shall mean your base salary, bonus, income from the
exercise of nonqualified options, compensation income from any disqualifying
disposition of stock acquired pursuant to the exercise of incentive stock
options and any other amounts that constitute taxable income to you from the
Company, without reduction for salary reduction amounts excludible from income
under Section 402(e)(3) or 125 of the Code.
(c) Related Benefits. Unless you die or your employment is
-----------------
terminated by the Company for Cause or Disability, or by you other than for Good
Reason and not within 12 months after a change in control of the Company, (i)
the Company shall maintain in full force and effect, for your continued benefit
and, if applicable, for the continued benefit of your spouse and family, for
three years after the Date of Termination, or such longer period as may be
provided by the terms of the appropriate plan, all noncash employee benefit
plans, programs, or arrangements (including, without limitation, pension and
retirement plans and arrangements, stock option plans, life insurance and health
and accident plans and arrangements, medical insurance plans, disability plans,
and vacation plans) in which you were entitled to participate immediately prior
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to the Date of Termination, as in effect at the Date of Termination, or, if more
favorable to you and, if applicable, your spouse and family, as in effect
generally at any time thereafter with respect to executive employees of the
Company or any successor; provided that your continued participation is possible
after Termination under the general terms and provisions of such plans,
programs, and arrangements; provided, however, that if you become eligible to
participate in a benefit plan, program, or arrangement of another employer which
confers substantially similar benefits upon you, you shall cease to receive
benefits under this subsection in respect of such plan, program, or arrangement,
and (ii) your benefit under any supplemental retirement agreement or
supplemental retirement plan maintained by the Company in which you are a
participant shall be fully vested upon such termination of your employment, and
your benefit under such agreement or plan shall be determined as if you had
continued to be employed by the Company for three additional years (or the
period after which the maximum benefit payable is attained, if less) and if your
annual compensation for purposes of such agreement or plan during such period of
additional employment had been equal to the amount specified in Section
3(b)(ii)(A) or (B), whichever is higher. In the event that your participation
in any such plan, program, or arrangement is not possible after Termination
under the general terms and provisions of such plans, programs, and
arrangements, the Company shall arrange to provide you with benefits
substantially similar to those which you are entitled to receive under such
plans, programs and arrangements or alternatively, pay an amount equal to the
reasonable value of such substantially similar benefits. If, after termination
of employment following a change in control of the Company, you elect or, if
applicable, your spouse or family elects, COBRA continuation coverage, the
Company will pay the applicable COBRA premium for the maximum period during
which such coverage is available. If termination follows a change in control of
the Company specified in Section 6(b)(iii), then you and, if applicable, your
spouse and family may elect in lieu of COBRA continuation coverage to have the
acquiring entity obtain an individual or group health insurance coverage and the
acquiring entity will pay premiums thereunder for the maximum period during
which you and, if applicable, your spouse and family could have elected to
receive COBRA continuation coverage.
(d) Establishment of Trust. Within five days following
-----------------------
conclusion of a change in control of the Company, the Company shall establish a
trust that conforms in all regards with the model trust published in Revenue
Procedure 92-64 and deposit an amount sufficient to satisfy all liabilities of
the Company under Section 3(b) of this Agreement.
(e) Automatic Extension. Notwithstanding the prior provisions of
--------------------
this Section, if an individual is elected to the Board of Directors who has not
been nominated by the Board of Directors as constituted prior to his election,
then the term of this Agreement will automatically be extended until two years
from the date on which such individual was elected if such extended termination
date is later than the normal termination date of this Agreement, otherwise, the
termination date of this Agreement will be as provided above. This extension
will take effect only upon the first instance of an individual being elected to
the Board of Directors without having been nominated by the original Board.
(f) Alternative to Lump Sum Payout. The amount described in this
------------------------------
subsection will be paid to you in a single lump-sum unless, at least 30 days
before the conclusion of a change in control of the Company, you elect in
writing to receive the severance pay in 3 equal annual payments with the first
payment to be made within 30 days of demand and the subsequent payments to be
made by January 31st of each year subsequent to the year in which the first
payment is made, provided that under no circumstances will two payments be made
during a single tax year of the recipient.
4. Payment If Termination Occurs Following Change in Control, Because
----------------------------------------------------------------------
of Death, For Cause, or Without Good Reason and not within 12 Months of the
- ---------------------------------------------------------------------------
Change in Control. If your employment shall be terminated following any event
- -----------------
constituting a change in control of the Company because of your death, or by the
Company for Cause, or by you other than for Good Reason and not within 12 months
after a change in control of the Company, the Company shall pay you your full
base salary through the Date of Termination at the rate in effect on the date
the change in control of the Company occurs plus year-to-date accrued vacation.
The Company shall have no further obligations to you under this Agreement.
5. No Mitigation. You shall not be required to mitigate the amount of
--------------
any payment provided for in this Agreement by seeking other employment or
otherwise, nor, except as expressly set forth herein, shall the amount of any
payment provided for in this Agreement be reduced by any compensation earned by
you as the result of employment by another employer after the Date of
Termination, or otherwise.
6. Definitions of Certain Terms. For the purpose of this Agreement,
-------------------------------
the terms defined in this section 6 shall have the meanings assigned to them
herein.
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(a) Cause. Termination of your employment by the Company for
-----
"Cause" shall mean termination because, and only because, you committed an act
of fraud, embezzlement, or theft constituting a felony or an act intentionally
against the interests of the Company which causes the Company material injury.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for the purpose (after reasonable notice to you and an opportunity for you,
together with your counsel, to be heard before the Board), finding that in the
good faith opinion of the Board you were guilty of conduct constituting Cause as
defined above and specifying the particulars thereof in detail.
(b) Change in Control of the Company. A "change in control of
------------------------------------
the Company" shall mean:
(i) A change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A as in
effect on the date hereof pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred at such time as any Person hereafter becomes
the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 30 percent or more of the combined voting power of
the Company's Voting Securities; or
(ii) During any period of two consecutive years, individuals
who at the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by the Company's shareholders, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or
(iii) There shall be consummated (x) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which Voting Securities would be converted into cash,
securities, or other property, other than a merger of the Company in which the
holders of Voting Securities immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all of
the assets of the Company, provided that any such consolidation, merger, sale,
lease, exchange or other transfer consummated at the insistence of an
appropriate banking regulatory agency shall not constitute a change in control
of the Company; or
(iv) Approval by the shareholders of the Company of any plan
or proposal for the liquidation or dissolution of the Company.
(c) Date of Termination. "Date of Termination" shall mean (i) if
---------------------
your employment is terminated by the Company for Disability, 30 days after
Notice of Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such 30-day period), and
(ii) if your employment is terminated for any other reason, the date on which a
Notice of Termination is given; provided that if within 30 days after any Notice
of Termination is given the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties or by a final judgment, order, or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected). The term of this Agreement
shall be extended until the Date of Termination.
(d) Disability. Termination of your employment by the Company
----------
for "Disability" shall mean termination because of your absence from your duties
with the Company on a full-time basis for 180 consecutive days as a result of
your incapacity due to physical or mental illness and your failure to return to
the performance of your duties on a full-time basis during the 30-day period
after Notice of Termination is given.
(e) Good Reason. Termination by you of your employment for "Good
------------
Reason" shall mean termination based on any of the following:
(i) A change in your status or position(s) with the Company,
which in your reasonable judgment, does not represent a promotion from your
status or position(s) as in effect immediately prior to the change in control of
the Company, or a change in your duties or responsibilities which, in your
reasonable judgment, is inconsistent with such status or position(s), or any
removal of you from, or any failure to reappoint or reelect you to, such
position(s), except in connection with the termination of your employment for
Cause or Disability or as a result of your death or by you other than for Good
Reason.
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(ii) A reduction by the Company in your base salary as in
effect immediately prior to the change in control of the Company.
(iii) The failure by the Company to continue in effect any
Plan (as hereinafter defined) in which you are participating at the time of the
change in control of the Company (or Plans providing you with at least
substantially similar benefits) other than as a result of the normal expiration
of any such Plan in accordance with its terms as in effect at the time of the
change in control of the Company, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the case on the
date of the change in control of the Company or which would materially reduce
your benefits in the future under any of such Plans or deprive you of any
material benefit enjoyed by you at the time of the change in control of the
Company.
(iv) The failure by the Company to provide and credit you
with the number of paid vacation days to which you are then entitled in
accordance with the Company's normal vacation policy as in effect immediately
prior to the change in control of the Company.
(v) The Company's requiring you to be based anywhere other
than where your office is located immediately prior to the change in control of
the Company except for required travel on the Company's business to an extent
substantially consistent with the business travel obligations which you
undertook on behalf of the Company prior to the change in control of the
Company.
(vi) The failure by the Company to obtain from any successor
the assent to this Agreement contemplated by section 8 hereof.
(vii) Any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of this Agreement; and for purposes of this Agreement, no such
purported termination shall be effective.
(viii) Any refusal by the Company to continue to allow you
to attend to matters or engage in activities not directly related to the
business of the Company which, prior to the change in control of the Company,
you were permitted by the Board to attend to or engage in.
For purposes of this subsection, "Plan" shall mean any compensation plan such as
an incentive or stock option plan or any employee benefit plan such as a thrift,
pension, profit sharing, medical, disability, accident, life insurance plan, or
a relocation plan or policy or any other plan, program, or policy of the Company
intended to benefit employees.
(f) Notice of Termination. A "Notice of Termination" of your
-----------------------
employment given by the Company shall mean a written notice given to you of the
termination of your employment which shall indicate the specific termination
provision in this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
your employment under the provision so indicated.
(g) Person. The term "Person" shall mean and include any
------
individual, corporation, partnership, group, association, or other "person," as
such term is used in section 14(d) of the Exchange Act, other than the Company
or any employee benefit plan(s) sponsored by the Company.
7. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Chief Executive Officer of the Company with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
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8. Successors; Binding Agreement.
-------------------------------
(a) This Agreement shall inure to the benefit of, and be binding
upon, any corporate or other successor or assignee of the Company which shall
acquire, directly or indirectly, by merger, consolidation or purchase, or
otherwise, all or substantially all of the business or assets of the Company.
The Company shall require any such successor, by an agreement in form and
substance satisfactory to you, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there is no such designee, to your estate.
9. Increased Severance Payments Upon Application of Excise Tax.
------------------------------------------------------------------
(a) Adjustment of Payment. In the event any payments or benefits
-----------------------
you become entitled to pursuant to the Agreement or any other payments or
benefits received or to be received by you in connection with a change in
control or your termination of employment (whether pursuant to the terms of any
other agreement, plan, or arrangement, or otherwise, with the Company, any
person whose actions result in a change in control or any person affiliated with
the Company or such person) (collectively the "Severance Payments") will be
subject to the tax (the "Excise Tax") imposed by section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company shall pay you an
additional amount (the "Gross-Up Payment") so that the net amount retained by
you, after deduction of the Excise Tax (but before deduction for any federal,
state or local income tax) on the Severance Payments and after deduction for the
aggregate of any federal, state, or local income tax and Excise Tax upon the
Gross-Up Payment, shall be equal to the Severance Payments. For purposes of
determining whether any of the Severance Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) the entire amount of the Severance
Payments shall be treated as "parachute payments" within the meaning of section
280G(b)(2) of the Code and as subject to the Excise Tax, unless and to the
extent, in the written opinion of outside tax counsel selected by the Company's
independent accountants and reasonably acceptable to you, such payments (in
whole or in part) are not subject to the Excise Tax; and (ii) the value of any
noncash benefits or any deferred payment or benefit (constituting a part of the
Severance Payments) shall be determined by the Company's independent auditors in
accordance with the principles of sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, you shall be deemed
to pay federal income taxes at the highest marginal rate of the federal income
taxation applicable to individuals (without taking into account surtaxes or loss
or reduction of deductions) for the calendar year in which the Gross-Up Payment
is to be made and state and local income taxes at the highest marginal rates of
taxation in the state and locality of your residence on the date of Termination.
In the event that the amount of Excise Tax you are required to pay is
subsequently determined to be less than the amount taken into account hereunder,
you shall repay to the Company promptly after the time that the amount of such
reduction in Excise Tax is finally determined the amount of the reduction,
together with interest on the amount of such reduction at the rate of 6 percent
per annum from the date of the Gross-Up Payment, plus, if in the written opinion
of outside tax counsel selected by the Company's independent accountants and
reasonably acceptable to you, such payment (or a portion thereof) was not
taxable income to you when reported or is deductible by you for federal income
tax purposes, the net federal income tax benefit you actually realize as a
result of making such payment pursuant to this sentence. In the event that the
amount of Excise Tax you are required to pay is subsequently determined to
exceed the amount taken into account hereunder, the Company shall make an
additional Gross-Up Payment in the manner set forth above in respect of such
excess (plus any interest, additions to tax, or penalties payable by you with
respect to such excess) promptly after the time that the amount can be
reasonably determined.
(b) Time of Payment: Estimated Payment. The payments provided
-------------------------------------
for in subsection (a) above, shall be made not later than the fifth business day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to you on such day an estimate, as determined in good faith by the
Company, of the minimum amount of such payments, and shall pay the remainder of
such payments (together with interest at the rate of 6 percent per annum) as
soon as the amount thereof can be determined. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
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due, such excess shall constitute a loan by the Company to you, payable on the
fifth day after demand by the Company (together with interest at the rate of 6
percent per annum).
10. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived, or discharged unless such modification, waiver, or discharge is agreed
to in a writing signed by you and the Chief Executive Officer or President of
the Company. No waiver by either party hereto at any time of any breach by the
other party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same, or at any prior or
subsequent, time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by laws of the State of New York without giving effect to the
principles of conflict of laws thereof.
11. Legal Fees and Expenses. The Company shall pay or reimburse any
--------------------------
reasonable legal fees and expenses you may incur in connection with any legal
action to enforce your rights under, or to defend the validity of, this
Agreement. The Company will pay or reimburse such legal fees and expenses on a
regular, periodic basis upon presentation by you of a statement or statements
prepared by your counsel in accordance with its usual practices.
12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Payments During Controversy. Notwithstanding the pendency of any
-----------------------------
dispute or controversy, the Company will continue to pay you your full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary and installments of incentive
compensation) and continue you as a participant in all compensation, benefit,
and insurance plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with section 7(c). Amounts paid under this section are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement. You shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
14. Illegality. Anything in this Agreement to the contrary
----------
notwithstanding, this Agreement is not intended and shall not be construed to
require any payment to you which would violate any federal or state statute or
regulation, including without limitation the "golden parachute payment
regulations" of the Federal Deposit Insurance Corporation codified to Part 359
of title 12, Code of Federal Regulations.
II-95
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter,
which will then constitute our agreement on this subject.
Very truly yours,
NBT BANCORP INC.
BY: /s/ DARYL R. FORSYTHE
AGREED TO:
/s/ Thomas R. Delduchetto
Thomas R. Delduchetto
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EXHIBIT 21
List of Subsidiaries of the Registrant
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SUBSIDIARIES OF THE REGISTRANT
NBT BANCORP INC. has the following subsidiaries, which are wholly owned:
NBT Bank, National Association
52 South Broad Street
Norwich, New York 13815
Telephone: (607) 337-2265
E.I.N. 15-0395735
NBT Financial Services, Inc.
52 South Broad Street
Norwich, New York 13815
Telephone: (607) 337-2265
E.I.N. 16-1576562
CNBF Capital Trust 1
24 Church Street
Canajoharie, New York 13317
Telephone: (518) 673-3243
E.I.N. 14-1249234
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EXHIBIT 23
Consent of KPMG LLP
INDEPENDENT AUDITORS' CONSENT
- -------------------------------
The Board of Directors
NBT Bancorp Inc.:
We consent to incorporation by reference in the registration statements on Forms
S-3 (File Nos. 33-12247 and 333-40192) and Forms S-8 (File Nos. 333-67615,
333-71830, 333-32842, 333-44714, 333-72772, 333-73038, and 333-66472) of NBT
Bancorp Inc. of our report dated January 28, 2002, relating to the consolidated
balance sheets of NBT Bancorp Inc. and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of income, stockholders' equity,
cash flows and comprehensive income for each of the years in the three-year
period ended December 31, 2001, which report appears in the December 31, 2001
annual report on Form 10-K.
KPMG LLP
Albany, New York
March 27, 2002
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