SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the transition period from to .
-------- --------
COMMISSION FILE NUMBER 0-14703
NBT BANCORP INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 16-1268674
(State of Incorporation) (I.R.S. Employer Identification No.)
52 SOUTH BROAD STREET, NORWICH, NEW YORK 13815
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (607) 337-2265
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15x(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of April 30, 2002, there were 33,213,744 shares outstanding of the
Registrant's common stock, $0.01 par value.
-1-
NBT BANCORP INC.
FORM 10-Q--Quarter Ended March 31, 2002
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2002, December 31, 2001
(Audited), and March 31, 2001
Consolidated Statements of Income for the three month periods ended
March 31, 2002 and 2001
Consolidated Statements of Stockholders' Equity for the three month
periods ended March 31, 2002 and 2001
Consolidated Statements of Cash Flows for the three month periods
ended March 31, 2002 and 2001
Consolidated Statements of Comprehensive Income for the three month
periods ended March 31, 2002 and 2001
Notes to Unaudited Interim Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
-2-
NBT BANCORP INC. AND SUBSIDIARIES MARCH 31, December 31, March 31,
CONSOLIDATED BALANCE SHEETS 2002 2001 2001
- -------------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data) (UNAUDITED) (Unaudited)
ASSETS
Cash and due from banks $ 93,864 $ 123,201 $ 92,521
Short-term interest bearing accounts 7,135 6,756 11,331
Trading securities, at fair value 155 126 7,488
Securities available for sale, at fair value 921,750 909,341 938,619
Securities held to maturity (fair value - $100,250, $101,495
and $100,620) 101,099 101,604 100,627
Federal Reserve and Federal Home Loan Bank stock 21,630 21,784 22,460
Loans and leases 2,317,644 2,339,636 2,245,305
Less allowance for loan and lease losses 45,299 44,746 32,486
- -------------------------------------------------------------------------------------------------------------------------
Net loans 2,272,345 2,294,890 2,212,819
Premises and equipment, net 60,875 62,685 57,016
Goodwill 15,476 15,476 8,130
Intangible assets, net 32,807 35,212 36,806
Other assets 67,739 67,127 53,669
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,594,875 $ 3,638,202 $ 3,541,486
=========================================================================================================================
LIABILITIES, GUARANTEED PREFERRED BENEFICIAL INTERESTS
IN COMPANY'S JUNIOR SUBORDINATED DEBENTURES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 404,186 $ 431,407 $ 345,292
Savings, NOW, and money market 1,109,598 1,097,156 983,832
Time 1,352,026 1,387,049 1,475,300
- -------------------------------------------------------------------------------------------------------------------------
Total deposits 2,865,810 2,915,612 2,804,424
Short-term borrowings 81,162 122,013 147,309
Long-term debt 325,933 272,331 248,496
Other liabilities 36,950 44,891 43,678
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,309,855 3,354,847 3,243,907
Guaranteed preferred beneficial interests in
company's junior subordinated debentures 17,000 17,000 17,000
Stockholders' equity:
Preferred stock, $0.01 par value; shares authorized-2,500,000; none issued - - -
Common stock, $0.01 par value; shares authorized-50,000,000;
shares issued 34,385,192, 34,252,661, and 33,205,732 344 343 332
Additional paid-in-capital 210,595 209,176 193,953
Retained earnings 77,568 72,531 93,855
Accumulated other comprehensive (loss) income (406) 3,921 3,335
Treasury stock at cost 1,183,868, 1,147,848,
and 576,354 shares at March 31, 2002, December 31, 2001
and March 31, 2001, respectively (20,081) (19,616) (10,896)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 268,020 266,355 280,579
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, GUARANTEED PREFERRED
BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED DEBENTURES
AND STOCKHOLDERS' EQUITY $ 3,594,875 $ 3,638,202 $ 3,541,486
=========================================================================================================================
See notes to unaudited interim consolidated financial statements.
-3-
NBT BANCORP INC. AND SUBSIDIARIES Three months ended March 31,
CONSOLIDATED STATEMENTS OF INCOME 2002 2001
- -------------------------------------------------------------------------------------------------
(in thousands, except per share data) (Unaudited)
Interest, fee and dividend income:
Interest and fees on loans and leases $ 42,227 $ 48,152
Securities available for sale 13,567 15,624
Securities held to maturity 1,246 1,378
Trading securities 2 45
Other 280 701
- -------------------------------------------------------------------------------------------------
Total interest, fee and dividend income 57,322 65,900
- -------------------------------------------------------------------------------------------------
Interest expense:
Deposits 16,991 28,205
Short-term borrowings 348 2,019
Long-term debt 3,638 3,297
- -------------------------------------------------------------------------------------------------
Total interest expense 20,977 33,521
- -------------------------------------------------------------------------------------------------
Net interest income 36,345 32,379
Provision for loan and lease losses 2,011 1,211
- -------------------------------------------------------------------------------------------------
Net interest income after provision for loan and lease losses 34,334 31,168
- -------------------------------------------------------------------------------------------------
Noninterest income:
Trust 1,020 1,046
Service charges on deposit accounts 3,050 2,771
Broker/dealer and insurance fees 1,495 1,023
Net securities (losses) gains (502) 1,023
Gain on sale of a building - 1,367
Gain on sale of a branch, net 220 -
Other 2,611 2,447
- -------------------------------------------------------------------------------------------------
Total noninterest income 7,894 9,677
- -------------------------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 12,656 11,733
Office supplies and postage 897 1,079
Occupancy 2,169 2,287
Equipment 1,714 1,733
Professional fees and outside services 1,615 1,120
Data processing and communications 2,565 2,656
Amortization of intangible assets and goodwill 860 964
Capital securities 216 404
Deposit overdraft write-offs - 2,125
Loan collection and other real estate owned 944 324
Other operating 2,694 2,225
- -------------------------------------------------------------------------------------------------
Total noninterest expenses 26,330 26,650
- -------------------------------------------------------------------------------------------------
Income before income tax expense 15,898 14,195
Income tax expense 5,246 4,541
- -------------------------------------------------------------------------------------------------
NET INCOME $ 10,652 $ 9,654
=================================================================================================
Earnings per share:
Basic $ 0.32 $ 0.30
Diluted $ 0.32 $ 0.30
=================================================================================================
See notes to unaudited interim consolidated financial statements.
-4-
NBT BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-in- Retained Comprehensive Treasury
Stock Capital Earning (Loss)/Income Stock Total
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data)
BALANCE AT DECEMBER 31, 2000 $ 332 $ 195,422 $ 88,921 $ (1,934) $ (13,100) $269,641
Net income 9,654 9,654
Cash dividends - $0.17 per share (4,720)(1) (4,720)
Purchase of 20,100 treasury shares (303) (303)
Issuance of 116,519 shares to
employee benefits plans and
other stock plans, including
tax benefit (1,469) 2,507 1,038
Other comprehensive income 5,269 5,269
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2001 $ 332 $ 193,953 $ 93,855 $ 3,335 $ (10,896) $280,579
=================================================================================================================================
BALANCE AT DECEMBER 31, 2001 $ 343 $ 209,176 $ 72,531 $ 3,921 $ (19,616) $266,355
Net income 10,652 10,652
Cash dividends - $0.170 per share (5,615) (5,615)
Purchase of 50,687 treasury shares (715) (715)
Issuance of 147,198 shares to
employee benefit plans and other
stock plans, including tax benefit 1 1,419 250 1,670
Other comprehensive (loss) (4,327) (4,327)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2002 $ 344 $ 210,595 $ 77,568 $ (406) $ (20,081) $268,020
=================================================================================================================================
See notes to unaudited interim consolidated financial statements.
Note:
(1) For the period ended March 31, 2001, dividend per share data represents
historical dividends per share of NBT Bancorp Inc. stand-alone and the cash
dividends paid represents NBT Bancorp Inc. and CNB Financial Corp combined
as all unaudited interim consolidated financial statements have been
restated to give effect to the merger with CNB Financial Corp., which
closed on November 8, 2001.
-5-
NBT BANCORP INC. AND SUBSIDIARIES Three Months Ended March 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS 2002 2001
- --------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 10,652 $ 9,654
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 2,011 1,211
Depreciation of premises and equipment 1,724 1,453
Net accretion on securities (434) (481)
Amortization of intangible assets 860 964
Proceeds from sale of loans held for sale 1,416 3,885
Origination of loans held for sale (2,722) (3,234)
Net losses (gains) on sales of loans 32 (67)
Net gain on sale of other real estate owned (17) (12)
Net security transactions 502 (1,023)
Proceeds from sale of trading securities - 20,467
Purchases of trading securities (28) (3,112)
Gain on sale of a building - (1,367)
Gain on sale of a branch, net (220) -
Net decrease in other assets 2,631 2,798
Net decrease in other liabilities (7,255) (6,086)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,152 25,050
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities 74,611 70,862
Proceeds from sales 20,095 24,885
Purchases (114,390) (91,617)
Securities held to maturity:
Proceeds from maturities 8,219 13,432
Purchases (7,738) (3,653)
Proceeds from FRB and FHLB stock 154 9,226
Net decrease (increase) in loans 17,960 (276)
Net cash paid in conjunction with sale of a branch (29,171) -
Purchase of premises and equipment, net (765) (2,353)
Proceeds from sales of other real estate owned 367 710
- --------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (30,658) 21,216
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) in deposits (15,543) (39,444)
Net (decrease) in short-term borrowings (40,851) (37,395)
Proceeds from issuance of long-term debt 55,000 20,000
Repayments of long-term debt (1,398) (12,033)
Proceeds from issuance of shares to employee benefit
plans and other stock plans 1,090 1,038
Purchase of treasury stock (135) (303)
Cash dividends and payment for fractional shares (5,615) (4,720)
- --------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (7,452) (72,857)
- --------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (28,958) (26,591)
Cash and cash equivalents at beginning of period 129,957 130,443
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 100,999 $ 103,852
========================================================================================================
(Continued)
-6-
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: THREE MONTHS ENDED
MARCH 31, March 31,
2002 2001
Cash paid during the period for:
Interest $ 23,202 $ 35,325
Income taxes - 173
========================================================================================================
Loans transferred to OREO $ 733 $ 835
Transfer of securities available for sale to trading securities - 3,804
BRANCH DIVESTITURE:
Asstes sold $ 3,323 -
Liabilities sold 34,263 -
See notes to unaudited interim consolidated financial statements.
- --------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NBT BANCORP INC. AND SUBSIDIARIES Three Months Ended March 31,
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 2002 2001
- -----------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
Net Income $ 10,652 $ 9,654
- -----------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income, net of tax
Unrealized holding (losses) gains arising during
period [pre-tax amounts of $(7,733) and $9,500] (4,629) 5,712
Less: Reclassification adjustment for net losses (gains) included
in net income [pre-tax amounts of $502 and $(736)] 302 (443)
- -----------------------------------------------------------------------------------------------------------
Total other comprehensive (loss) income (4,327) 5,269
- -----------------------------------------------------------------------------------------------------------
Comprehensive income $ 6,325 $ 14,923
===========================================================================================================
See notes to unaudited interim consolidated financial statements.
-7-
NBT BANCORP INC. AND SUBSIDIARY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements include the
accounts of NBT Bancorp Inc. (the Registrant) and its wholly-owned subsidiaries,
NBT Bank, N.A. (NBT or Bank), NBT Financial Services, Inc., and CNBF Capital
Trust I. Collectively, the Registrant and its subsidiaries are referred to
herein as "the Company". All intercompany transactions have been eliminated in
consolidation. Amounts in the prior period financial statements are reclassified
whenever necessary to conform to current period presentation.
The consolidated balance sheet at December 31, 2001 has been derived from
audited consolidated financial statements at that date. The accompanying
unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2002 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002. For
further information, refer to the consolidated financial statements included in
the Registrant's annual report on Form 10-K for the year ended December 31, 2001
and notes thereto referred to above. The Company's unaudited interim
consolidated financial statements as of and for the three months ended March 31,
2001 have been restated to give effect to the merger with CNB Financial Corp.,
which closed on November 8, 2001 and was accounted for as a
pooling-of-interests.
USE OF ESTIMATES
Preparing financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilites at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period, as well as the disclosures provided. Actual results could
differ from those estimates. Estimates associated with the allowance for loan
losses, fair values of financial instruments and status of contingencies are
particularly susceptible to material change in the near term.
COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments in the normal course of business
to meet financing needs of its customers and to reduce its own exposure to
fluctuating interest rates. These financial instruments include commitments to
extend credit, unused lines of credit, and standby letters of credit. Exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans and standby letters of credit
is represented by the contractual amount of those instruments. The Company uses
the same credit policy to make such commitments as it uses for on-balance-sheet
items.
At March 31, 2002 and December 31, 2001, commitments to extend credit and unused
lines of credit totaled $744.2 million and $704.7 million, and standby letters
of credit totaled $21.2 million and $21.1 million. Since commitments to extend
credit and unused lines of credit may expire without being used, this amount
does not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using managements credit evaluation of
the borrower and may include accounts receivable, inventory, property, land and
other items.
EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity (such as the
Company's dilutive stock options).
-8-
The following is a reconciliation of basic and diluted earnings per share
for the periods presented in the consolidated statements of income.
----------------------------------------------------------------
Three months ended March 31, 2002 2001
----------------------------------------------------------------
(in thousands, except per share data)
Basic EPS:
Weighted average common shares outstanding 33,092 32,459
Net income available to common shareholders $10,652 $ 9,654
----------------------------------------------------------------
Basic EPS $ 0.32 $ 0.30
================================================================
Diluted EPS:
Weighted average common shares outstanding 33,092 32,459
Dilutive potential common stock 203 243
----------------------------------------------------------------
Weighted average common shares and common
share equivalents 33,295 32,702
Net income available to common shareholders $10,652 $ 9,654
----------------------------------------------------------------
Diluted EPS $ 0.32 $ 0.30
================================================================
There were 1,742,003 stock options for the quarter ended March 31, 2002 and
558,172 stock options for the quarter ended March 31, 2001 that were not
considered in the calculation of diluted earnings per share since the stock
options' exercise price was greater than the average market price during these
periods.
MERGERS AND ACQUISITIONS
On 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 "Accounting for Certain Acquisitions of Banking or
Thrift Institutions" 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 the Bank, and CNB Bank was merged with and into NBT 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 was 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.
-9-
At March 31, 2002, after payments of certain merger, acquisition and
reorganization costs, the Company had a remaining accrued liability for merger,
acquisition and reorganization costs as follows:
Professional fees $ 424
Data processing 14
Severance 1,625
Branch closings 1,601
Advertising and supplies 133
Miscellaneous 42
--------------------------------
Total $3,839
--------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective January 1, 2001. At that time,
the Company had certain embedded derivative instruments from the recently
acquired CNB Bank investment portfolio related to a deposit product and two debt
securities that had costs and returns linked to the performance of the NASDAQ
100 index. Management determined that these debt securities and the deposit
product did not qualify for hedge accounting under SFAS No. 133. The embedded
derivatives were 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 on the consolidated statement of income for the three months ended
March 31, 2001 but is instead recorded in net securities (losses) gains. During
the year ended December 31, 2001, and before the closing of the CNB merger, the
Company recorded a $640,000 net loss related to the adjustment of the embedded
derivatives to fair value. As of December 31, 2001, the embedded derivatives
referred to above were completely written off as these derivatives had no value.
During the first quarter of 2002, the two debt securities with embedded
derivative instruments from the recently acquired CNB Bank investment portfolio
were sold at approximately their carrying value, as the securities did not meet
the risk profile of the Company's security portfolio.
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.
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
-10-
include more disposal transactions. This Statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company adopted the provisions of SFAS No. 144 effective January 1, 2002 and the
adoption did not have a material impact on its consolidated financial
statements.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001. SFAS No. 141 also specifies criteria intangible
assets acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill. SFAS No. 142 requires 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 No. 142. SFAS No. 142 also requires 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. 144.
The Company adopted the provisions of SFAS No. 141 effective July 1, 2001 and
adopted the provisions of SFAS No. 142 effective January 1, 2002. SFAS No. 141
requires that 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 is 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 asset is identified as having an indefinite useful life, the
Company is required to test the intangible asset for impairment in accordance
with the provisions of Statement 142 within the first interim period. Goodwill
is required to be tested for impairment as of the beginning of the fiscal year
in which the Statement is adopted. An entity has six months from the date it
adopted SFAS No. 142 to complete the first step of the transitional goodwill
impairment test, which is determining whether or not goodwill is impaired. If
it is determined that goodwill is impaired, the entity has until the end of the
year of adoption to complete step two, which is to measure the impairment. Any
impairment loss for either goodwill or intangible assets with indefinite useful
lives is to be measured as of the date of adoption and recognized as the
cumulative effect of a change in accounting principle in the first interim
period.
During the first quarter of 2002, upon the implementation of SFAS No. 142, the
Company performed a reevaluation of the remaining useful lives of all previously
recognized intangible assets and found no adjustment necessary. 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. The Company
has not identified any intangible assets with indefinite useful lives.
Approximately $1.5 million of unidentified intangible assets from branch
acquisitions was written off and recorded as a component of the net gain on the
sale of a branch during the three months ended March 31, 2002.
-11-
Pro forma net income and net income per share for the three months ended March
31, 2001, adjusted to eliminate historical amortization of goodwill and related
tax effects, are as follows:
Three months
ended March 31, 2001
--------------------------------------
(in thousands, except per share data)
Reported net income $ 9,654
Add: goodwill amortization, net of tax 113
--------------------------------------
Pro forma net income $ 9,767
======================================
Reported net income per share:
Basic $ 0.30
Diluted $ 0.30
Pro forma net income per share:
Basic $ 0.30
Diluted $ 0.30
The Company's intangible assets consist of the following:
March 31, December 31, March 31,
2002 2001 2001
----------- ------------- ----------
Core deposit intangibles $ 5,433 5,433 5,314
Unidentified intangible assets from branch acquisitions 37,953 37,952 37,103
Accumulated amortization (10,579) (8,173) (5,611)
----------- ------------- ----------
Intangible assets, net $ 32,807 35,212 36,806
=========== ============= ==========
Estimated annual amortization expense of intangible assets, absent any
impairment or change in estimated useful lives is summarized as follows for each
of the next five years:
For the years ending December 31,
2002 (remaining nine months) $2,417
2003 3,095
2004 2,752
2005 2,752
2006 2,752
2007 2,752
-12-
NBT BANCORP INC. AND SUBSIDIARIES
Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to provide the reader with a
concise description of the financial condition and results of operations of NBT
Bancorp Inc. (Bancorp) and its wholly owned subsidiaries, NBT Bank, N.A. (NBT),
NBT Financial Services, Inc., and CNBF Capital Trust I (collectively referred to
herein as the Company.) This discussion will focus on Results of Operations,
Financial Position, Capital Resources and Asset/Liability Management. Reference
should be made to the Company's consolidated financial statements and footnotes
thereto included in this Form 10-Q as well as to the Company's 2001 Form 10-K
for an understanding of the following discussion and analysis.
On April 22, 2002, NBT Bancorp Inc. announced the declaration of a regular
quarterly cash dividend of $0.17 per share. The cash dividend will be paid on
June 15, 2002 to stockholders of record as of June 1, 2002.
FORWARD LOOKING STATEMENTS
Certain statements in this filing and future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, contain forward-looking statements,
as defined in the Private Securities Litigation Reform Act. These statements may
be identified by the use of phrases such as "anticipate," "believe," "expect,"
"forecasts," "projects," or other similar terms. There are a number of
factors, many of which are beyond the Company's control that could cause actual
results to differ materially from those contemplated by the forward looking
statements. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others, the
following possibilities: (1) competitive pressures among depository and other
financial institutions may increase significantly; (2) revenues may be lower
than expected; (3) changes in the interest rate environment may reduce interest
margins; (4) general economic conditions, either nationally or regionally, may
be less favorable than expected, resulting in, among other things, a
deterioration in credit quality and/or a reduced demand for credit; (5)
legislative or regulatory changes, including changes in accounting standards,
may adversely affect the businesses in which the Company is engaged; (6) costs
or difficulties related to the integration of the businesses of the Company and
its merger partners may be greater than expected; (7) expected cost savings
associated with recent mergers and acquisitions may not be fully realized or
realized within the expected time frames; (8) deposit attrition, customer loss,
or revenue loss following recent mergers and acquisitions may be greater than
expected; (9) competitors may have greater financial resources and develop
products that enable such competitors to compete more successfully than the
Company; and (10) adverse changes may occur in the securities markets or with
respect to inflation.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including those described above, could affect the
Company's financial performance and could cause the Company's actual results or
circumstances for future periods to differ materially from those anticipated or
projected.
Unless required by law, the Company does not undertake, and specifically
disclaims any obligations to publicly release the result of any revisions that
may be made to any forward-looking statements to reflect statements to the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
OVERVIEW
The following table summarizes net income, net income per share and key
financial ratios for the periods indicated in accordance with accounting
principles generally accepted in the United States of America (GAAP) as well as
on an operating basis. Operating income excludes items that the Company
considers nonoperating in nature and include net securities losses and gains,
gain on sale of a branch, gain on sale of a building, certain deposit overdraft
write-offs, and mark-to-market adjustments on loans held for sale:
-13-
QUARTER ENDED MARCH 31, 2002 (DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS)
Estimated Diluted
Pre-Tax Tax Effect After Tax EPS
GAAP Net Income $ 15,898 $ 5,246 $ 10,652 $ 0.32
--------- ------------ ----------- --------
Net Securities Losses 502 200 302 0.01
Gain on sale of a branch, net (220) (88) (132) -
Loan Valuation Losses 32 13 19 -
--------- ------------ ----------- --------
314 125 189 0.01
--------- ------------ ----------- --------
Operating Net Income $ 16,212 $ 5,371 $ 10,841 $ 0.33
========= ============ =========== ========
QUARTER ENDED MARCH 31, 2001 (DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS)
Estimated Diluted
Pre-Tax Tax Effect After Tax EPS
GAAP Net Income $ 14,195 $ 4,541 $ 9,654 $ 0.30
--------- ------------ ----------- ---------
Net Securities Gains (1,023) (408) (615) (0.02)
Deposit Overdraft Write-offs 2,125 847 1,278 0.04
Gain on Sale of a Building (1,367) (545) (822) (0.03)
Loan Valuation Gains (20) (8) (12) -
--------- ------------ ----------- ---------
(285) (114) (171) (0.01)
--------- ------------ ----------- ---------
Operating Net Income $ 13,910 $ 4,427 $ 9,483 $ 0.29
========= ============ =========== =========
The Company earned net income of $10.7 million ($0.32 diluted earnings per
share) for the three months ended March 31, 2002 compared to net income of $9.7
million ($0.30 diluted earnings per share) for the three months ended March 31,
2001. Operating net income was $10.8 million ($0.33 diluted earnings per share)
for the first quarter of 2002 compared to $9.5 million ($0.29 diluted earnings
per share) of operating net income for the first quarter of 2001.
The quarter to quarter increase in operating net income from 2001 to 2002 was
primarily the result of increases in net interest income of $4.0 million and
operating noninterest income of $0.9 million, offset by increases in operating
noninterest expense of $1.8 million and provision for loan and lease losses of
$0.8 million. The increase in net interest income resulted primarily from the
continued re-pricing downward of interest-bearing liabilities (primarily time
deposits) at a much faster rate than earning assets. The Company's net interest
margin improved to 4.54% for the first quarter of 2002 from 4.39% for the fourth
quarter of 2001 and 4.06% for the first quarter of 2001. The increase in
operating noninterest income resulted primarily from increases in broker/dealer
and insurance fees and service charges on deposit accounts. The increase in
operating noninterest expense resulted primarily from increases in salaries and
employee benefits, professional fees and outside services and expenses
associated with loan collection and other real estate owned. The increase in the
provision for loan and lease losses resulted primarily from an increase in
charge-offs related to consumer loans during the first quarter of 2002 when
compared to the same period in 2001.
Table 1 depicts several annualized measurements of performance using both
GAAP net income and operating net income. Returns on average assets and equity
measure how effectively an entity utilizes its total resources and capital,
respectively. Both the return on average assets and the return on average equity
ratios increased for the quarter compared to the same period in the previous
year.
Net interest margin, net federal taxable equivalent (FTE) interest income
divided by average interest-earning assets, is a measure of an entity's ability
to utilize its earning assets in relation to the cost of funding. Interest
income for tax-exempt securities and loans is adjusted to a taxable equivalent
basis using the statutory Federal income tax rate of 35%.
-14-
TABLE 1
PERFORMANCE MEASUREMENTS
- -------------------------------------------------------
FIRST First
QUARTER Quarter
2002 2001
- -------------------------------------------------------
Return on average assets (ROAA) 1.21% 1.10%
ROAA based on operating net income 1.23% 1.08%
Return on average equity (ROE) 15.98% 14.42%
ROE based on operating net income 16.26% 14.16%
Net interest margin (FTE) 4.54% 4.06%
=======================================================
NET INTEREST INCOME
Net interest income is the difference between interest income on earning assets,
primarily loans and securities, and interest expense on interest-bearing
liabilities, primarily deposits and borrowings. Net interest income is affected
by the interest rate spread, the difference between the yield on earning assets
and cost of interest-bearing liabilities, as well as the volumes of such assets
and liabilities. Net interest income is one of the major determining factors in
a financial institution's performance as it is the principal source of earnings.
Table 2 represents an analysis of net interest income on a federal taxable
equivalent basis.
Federal taxable equivalent (FTE) net interest income increased $4.1 million
during the first quarter of 2002 compared to the same period of 2001. The
increase in FTE net interest income resulted primarily from interest-bearing
liabilities re-pricing downward at a faster rate than earning assets. The rate
paid on interest-bearing liabilities decreased 178 basis points ("bp"), to 2.98%
for the first quarter of 2002 from 4.76% for the same period in 2001. The yield
on earning assets decreased 108 bp, to 7.08% for the first quarter of 2002 from
8.16% for the same period in 2001.
Total FTE interest income decreased $8.4 million compared to first quarter
2001, a result of the previously mentioned decrease in yield on earning assets.
The decrease in the yield on earning assets can be primarily attributed to the
falling rate environment in 2001. During the same time period, total interest
expense decreased $12.5 million, primarily the result of the falling rate
environment mentioned above, as well as an improvement in the mix of the
Company's interest-bearing liabilities. Time deposits, the most significant
component of interest-bearing liabilities, decreased to 47.2% of
interest-bearing liabilities for the first quarter of 2002 from 52.1% for the
same period in 2001. Offsetting this decrease in the interest-bearing
liabilities mix, was an increase in lower cost NOW, MMDA, and Savings deposits,
to 39.0% of interest-bearing liabilities for the first quarter of 2002 from
34.3% for the same period in 2001. Total short-term and long-term borrowings
remained relatively unchanged, comprising 13.8% and 13.6% of interest-bearing
liabilities for the first quarters of 2002 and 2001, respectively.
Another important performance measurement of net interest income is the net
interest margin. Net interest margin increased to 4.54% for first quarter 2002,
up from 4.06% for the comparable period in 2001. The increase in the net
interest margin can be primarily attributed to the previously mentioned increase
in the interest rate spread driven by the decrease in the cost of interest
bearing liabilities exceeding the decrease in yields on earning assets.
Additionally, the net interest margin improved from the increase in average
noninterest-bearing demand deposits, which increased 15.0% from an average of
$352.4 million for the first quarter of 2001 to $405.4 million for the same
period in 2002.
-15-
TABLE 2
AVERAGE BALANCES AND NET INTEREST INCOME
The following table includes the condensed consolidated average balance sheet,
an analysis of interest income/expense and average yield/rate for each major
category of earning assets and interest bearing liabilities on a taxable
equivalent basis. Interest income for tax-exempt securities and loans has been
adjusted to a taxable-equivalent basis using the statutory Federal income tax
rate of 35%.
Three months ended March 31,
2002 2001
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST RATES Balance Interest Rates
- -----------------------------------------------------------------------------------------------------------
ASSETS
===========================================================================================================
Short-term interest bearing accounts $ 13,050 $ 104 3.23% $ 15,403 $ 210 5.53%
Trading Securities 128 2 6.34 4,484 45 4.07
Securities available for sale (2) 888,450 14,107 6.44 923,110 15,959 7.01
Securities held to maturity (2) 103,328 1,626 6.38 104,072 1,724 6.72
Investment in FRB and FHLB Banks 21,045 176 3.39 29,793 491 6.68
Loans (1) 2,322,129 42,403 7.41 2,245,401 48,386 8.74
---------- --------- ---------- ---------
Total earning assets 3,348,130 58,418 7.08 3,322,263 66,815 8.16
--------- ---------
Other assets 233,755 233,063
---------- ----------
TOTAL ASSETS $3,581,885 $3,555,326
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Money market deposit accounts $ 273,451 1,029 1.53 $ 249,649 2,311 3.75
NOW deposit accounts 378,706 919 0.98 331,771 1,539 1.88
Savings deposits 459,872 1,735 1.53 399,636 2,510 2.55
Time deposits 1,347,752 13,308 4.00 1,488,818 21,845 5.95
---------- --------- ---------- ---------
Total interest bearing deposits 2,459,781 16,991 2.80 2,469,874 28,205 4.63
Short-term borrowings 86,661 348 1.63 147,603 2,019 5.55
Long-term debt 308,378 3,638 4.78 240,316 3,297 5.56
---------- --------- ---------- ---------
Total interest bearing liabilities 2,854,820 20,977 2.98% 2,857,793 33,521 4.76%
--------- ---------
Demand deposits 405,401 352,394
Other liabilities (3) 51,288 73,565
Stockholders' equity 270,376 271,574
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,581,885 $3,555,326
---------- ----------
NET INTEREST INCOME $ 37,441 $ 33,294
--------- ---------
INTEREST RATE SPREAD 4.10% 3.40%
------- -------
NET INTEREST MARGIN 4.54% 4.06%
------- -------
Taxable equivalent adjustment $ 1,096 $ 915
--------- ---------
(1) For purposes of these computations, nonaccrual loans are included in the average loan
balances outstanding.
(2) Securities are shown at average amortized cost.
(3) Included in other liabilities is $17.0 million in the Company's guaranteed preferred beneficial
interests in Company's junior subordinated debentures.
-16-
The following table presents changes in interest income and interest expense
attributable to changes in volume (change in average balance multiplied by prior
year rate), changes in rate (change in rate multiplied by prior year volume),
and the net change in net interest income. The net change attributable to the
combined impact of volume and rate has been allocated to each in proportion to
the absolute dollar amounts of change.
TABLE 3
ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
Three months ended March 31,
- ---------------------------------------------------------------------
INCREASE (DECREASE)
2002 OVER 2001
- ---------------------------------------------------------------------
(in thousands) VOLUME RATE TOTAL
- ---------------------------------------------------------------------
Short-term interest bearing accounts $ (28) $ (78) $ (106)
Trading securities (59) 16 (43)
Securities available for sale (584) (1,268) (1,852)
Securities held to maturity (12) (86) (98)
Investment in FRB and FHLB Banks (118) (197) (315)
Loans 1,607 (7,590) (5,983)
- ---------------------------------------------------------------------
Total interest income 516 (8,913) (8,397)
- ---------------------------------------------------------------------
Money market deposit accounts 194 (814) (620)
NOW deposit accounts 202 (1,484) (1,282)
Savings deposits 337 (1,112) (775)
Time deposits (1,918) (6,619) (8,537)
Short-term borrowings (616) (1,055) (1,671)
Long-term debt 846 (505) 341
- ---------------------------------------------------------------------
Total interest expense (35) (12,509) (12,544)
- ---------------------------------------------------------------------
CHANGE IN FTE NET INTEREST INCOME $ 551 $ 3,596 $ 4,147
=====================================================================
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:
THREE MONTHS ENDED MARCH 31,
2002 2001
---------------- ---------------
(in thousands)
Service charges on deposit accounts $ 3,050 $ 2,771
Broker/dealer and insurance fees 1,495 1,023
Trust 1,020 1,046
Other 2,611 2,447
---------------- ---------------
Total operating 8,176 7,287
Net securities (losses) gains (502) 1,023
Gain on sale of a branch, net 220 -
Gain on sale of a building - 1,367
---------------- ---------------
Total $ 7,894 $ 9,677
================ ===============
-17-
Operating noninterest income, which excludes net securities gains and losses, a
gain on the sale of a branch (first quarter 2002 event), and a gain on the sale
of a building (first quarter 2001 event), increased 12.2% to $8.2 million for
the first quarter 2002 from $7.3 million for the same period in 2001.
Broker/dealer and insurance fees increased $0.5 million or 46.1% to $1.5 million
for the first quarter of 2002 from $1.0 million for the same period in 2001. The
increase in broker/dealer and insurance fees is primarily the result of a full
quarter of revenue amounting to $0.4 million in the first quarter of 2002 from
Colonial Financial Services, Inc., which began operations in June 2001. Service
charges on deposit accounts in the first quarter of 2002 increased $0.3 million
or 10.1% over the same period a year earlier; as a result of the Company's
expanded branch network.
Other income increased $0.2 million in the first quarter of 2002 when compared
to the same period in 2001, due mainly to an increase in other banking fees.
Trust income decreased slightly in the first quarter of 2002 when compared to
the same period in 2001. The decrease in trust income resulted primarily from a
decrease in market value of assets held by the Company in a fiduciary capacity,
which primarily resulted from the decline in most major stock indexes during
2001.
Included in noninterest income were net securities losses totaling $0.5 million
for the first quarter of 2002 compared to net securities gains of $1.0 million
for the same period in 2001. The net securities losses totaling $0.5 million
($0.3 million after-tax or $0.01 per diluted share) in the first quarter of 2002
resulted from a $0.7 million ($0.4 million after-tax or $0.01 per diluted share)
charge taken for the other-than-temporary impairment on a nonaccruing investment
security which was offset by $0.2 million in net securities gains.
NONINTEREST EXPENSE AND OPERATING EFFICIENCY
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 periods indicated:
THREE MONTHS ENDED MARCH 31,
2002 2001
--------------- ---------------
(in thousands)
Salaries and employee benefits $ 12,656 $ 11,733
Occupancy 2,169 2,287
Equipment 1,714 1,733
Data processing and communications 2,565 2,656
Professional fees and outside services 1,615 1,120
Office supplies and postage 897 1,079
Amortization of intangible assets 860 964
Capital securities 216 404
Loan collection and other real estate owned 944 324
Other 2,694 2,225
--------------- ---------------
Total operating noninterest expense 26,330 24,525
Certain deposit overdraft write-offs - 2,125
--------------- ---------------
Total noninterest expense $ 26,330 $ 26,650
=============== ===============
-18-
Operating noninterest expense, which excludes certain deposit overdraft
write-offs, increased $1.8 million or 7.4% to $26.3 million for the first
quarter of 2002 from $24.5 million for the same period in 2001. Salaries and
employee benefits increased $0.9 million or 7.9%, to $12.7 million for the first
quarter of 2002 from $11.7 million for the same period in 2001. The increase in
salaries and employee benefits was due primarily to increases in employee
medical costs of $0.3 million, retirement expense of $0.3 million and incentive
compensation of $0.3 million. Professional fees and costs of outside services
increased $0.5 million, to $1.6 million for the first quarter of 2002 from $1.1
million for the same period in 2001. The increase in professional fees and costs
of outside services resulted mainly from professional fees for legal matters.
Loan collection and other real estate owned expenses increased $0.6 million, to
$0.9 million for the first quarter of 2002 from $0.3 million for the same period
in 2001. This increase is due primarily to the increase in nonperforming loans
during 2001, which resulted in an increase in collection activity and
foreclosure costs during the first quarter of 2002. Given the increase in
nonperforming loans in 2001, the Company anticipates an increase in costs
associated with loan collection and foreclosure activity when compared to
historical amounts.
Occupancy, data processing & communications, equipment, and office supplies &
postage experienced decreases for the first quarter 2002 when compared to the
same period in 2001. These decreases resulted primarily from cost savings
realized from recent acquisitions completed during 2001 and 2000. Amortization
of intangible assets decreased $0.1 million, to $0.9 million for the first
quarter of 2002 from $1.0 million for the same period in 2001. The decrease in
amortization of intangible assets resulted from the adoption of SFAS No. 142.
Had the requirements of SFAS No. 142 been applied to the 2001 period,
amortization of intangible assets would have been $0.9 million. Capital
securities expense decreased $0.2 million, to $0.2 million for the first quarter
of 2002 from $0.4 million for the same period in 2001. The decrease in capital
securities expense is a result of the Company's guaranteed preferred beneficial
interests in Company's junior subordinated debentures, which are tied to a
variable interest rate index (3-month LIBOR plus 275 bp) that was much lower for
the first quarter 2002 than the first quarter of 2001.
At March 31, 2002, after payments of certain merger, acquisition and
reorganization costs, the Company had a remaining accrued liability for merger,
acquisition and reorganization costs as follows:
Professional fees $ 424
Data processing 14
Severance 1,625
Branch closings 1,601
Advertising and supplies 133
Miscellaneous 42
--------------------------------
Total $3,839
--------------------------------
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.
INCOME TAXES
Income tax expense was $5.2 million for the first quarter of 2002 compared to
$4.5 million for the first quarter of 2001. The effective tax rate was 33.0% for
the first quarter of 2002 and 32.0% for the same period of 2001.
-19-
ANALYSIS OF FINANCIAL CONDITION
LOANS AND LEASES
- ------------------
Total loans and leases were $2.3 billion, or 64.5% of assets, at March 31, 2002,
compared to $2.3 billion, or 64.3%, at December 31, 2001, and $2.2 billion, or
63.4%, at March 31, 2001. Total loans and leases increased $72.3 million at
March 31, 2002 when compared to March 31, 2001. The increase resulted primarily
from the acquisition of approximately $73 million in loans in connection with
the Company's acquisition of FNB in June 2001. Total loans and leases decreased
$22.0 million at March 31, 2002 when compared to December 31, 2001. The slight
decrease in total loans and leases during the quarter resulted mainly from the
Company's on going efforts to improve the credit administration functions at its
recently acquired banks and continued focus on resolving troubled loans. The
Company anticipates total loans and leases will remain at or near current levels
until there is an improvement in credit quality in the loan and lease portfolio.
At March 31, 2002, commercial loans, including commercial mortgages, represented
approximately 45% of the loan and lease portfolio, while consumer loans and
leases and residential mortgages represented 28% and 26%, respectively.
SECURITIES
- ----------
Average total securities were $39.8 million less for the first quarter of 2002
than for the same period of 2001. The majority of this decrease was in the
available for sale portfolio as the proceeds from the sales and paydowns from
the mortgage-backed securities were used to fund the maturities of volatile
jumbo time deposits. During the first quarter of 2002, the securities portfolio
represented 29.6% of average earning assets compared to 31.1% for the first
quarter of 2001. At March 31, 2002, the securities portfolio was comprised of
90% available for sale and 10% held to maturity securities.
At December 31, 2001, nonperforming securities were comprised of a private issue
collateralized mortgage obligation valued at $2.7 million and an asset backed
security valued at $1.8 million compared to a $2.0 million private issue
collateralized mortgage obligation at March 31, 2002. The decrease in
nonperforming securities during the first quarter of 2002 resulted mainly from
the sale of the asset backed security at approximately its carrying value and a
$0.7 million write-down of the collateralized mortgage obligation due to
worsening other-than-temporary impairment conditions.
Included in the securities available for sale portfolio at March 31, 2002, are
certain securities (private issue collateralized mortgage obligations, asset
backed securities, and private issue mortgaged-backed 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 March 31, 2002, the amortized cost and fair value of
these securities amounted to $32.9 million and $31.1 million, respectively, down
from $38.7 million and $38.5 million, respectively, at December 31, 2001. The
decrease at March 31, 2002 when compared to December 31, 2001, resulted
primarily from sales and principal paydowns. Management cannot 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.
At December 31, 2001, the Company had certain embedded derivative instruments
from the recently acquired CNB Bank investment portfolio related to two debt
securities that have returns linked to the performance of the NASDAQ 100 index.
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 were
classified as available for sale. 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 as these two securities did not meet the risk profile of
the Company's security portfolio.
-20-
ALLOWANCE FOR LOAN AND LEASE LOSSES, PROVISION FOR LOAN AND LEASE LOSSES, AND
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
- ---------------------
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 and
lease losses is continuously monitored. It is assessed for adequacy using a
methodology designed to ensure the level of the allowance reasonably reflects
the loan portfolio's risk profile. It is evaluated to ensure that it is
sufficient to absorb all reasonably estimable credit losses inherent in the
current loan 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; the size, trend, composition, and
nature; changes in lending policies and procedures, including underwriting
standards and collection, charge-off and recovery practices; trends experienced
in nonperforming and delinquent loans and leases; 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 judgment about information available to them at the time of their
examination, which may not be currently available to management.
After a thorough consideration and validation of the factors discussed above,
required additions to the allowance for loan 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. The allowance for loan
and lease losses to outstanding loans and leases at March 31, 2002 was 1.95%
compared to 1.45% at March 31, 2001. Management considers the allowance for
loan losses to be adequate based on evaluation and analysis of the loan
portfolio.
Table 3 reflects changes to the allowance for loan and lease losses for the
periods presented. The allowance is increased by provisions for losses charged
to operations and is reduced by net charge-offs. Charge-offs are made when the
collectability of loan principal within a reasonable time is unlikely. Any
recoveries of previously charged-off loans are credited directly to the
allowance for loan and lease losses.
The provision for loan and lease losses was $2.0 million, $14.7 million,
and $1.2 million for the three months ended March 31, 2002, December 31, 2001,
and March 31, 2001, respectively. The increase in the provision during the
fourth quarter of 2001 was primarily the result of an increase in nonperforming
loans, loan growth, primarily in the higher risk commercial and consumer type
loans, the sudden economic downturn in the Company's market area during the
second half of 2001, and an increase in net charge-offs. The increase in
nonperforming loans was primarily the result of a continuing process of
integrating newly acquired banks into the Company given the Company's more
conservative approach to identifying and resolving nonperforming loans and the
economic downturn noted above. The fourth quarter provision for loan and lease
losses reflected the loan and lease portfolio's increased inherent risk of loss
related to the significantly increased nonperforming loans at December 31, 2001.
-21-
As expected, net charge offs in the first quarter of 2002 (approximately
$1.5 million) were slightly higher than the net charge-offs in the first quarter
of 2001 (approximately $1.2 million), however they were reduced from the fourth
quarter of 2001 (approximately $7.9 million). As noted above, the net charge
offs in the first quarter of 2002 as compared to the first quarter of 2001 were
anticipated and primarily addressed in the provision for loan losses for the
fourth quarter of 2001. Nonperforming loans at March 31, 2002 totaled
approximately $39.8 million, representing a significant increase from
nonperforming loans of approximately $27.1 million at March 31, 2001. However,
as mentioned above, this increase was primarily the result of the Company's of
2001 integration efforts as well as the sudden downturn in the economy during
the second half of 2001. Nonperforming loans at December 31, 2001 were
approximately $43.8 million. The quarter-to-quarter decrease in nonperforming
loans resulted mainly from efforts to reduce the level of real estate mortgage
and consumer loans 90 days past due and still accruing. For the larger
commercial credits, the Company continues to work closely with borrowers to
monitor and improve credit classifications. The Company does not anticipate any
significant increases in nonperforming loans in 2002, as efforts will be focused
on positively resolving current problematic loans. However, should the current
economic recession be prolonged or worsen, nonperforming loans, net charge offs,
and provisions for loan and lease losses may increase.
TABLE 4
ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------------
Three months ended March 31,
(dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------------
Balance, beginning of period $44,746 $32,494
Recoveries 1,362 432
Charge-offs (2,820) (1,651)
- --------------------------------------------------------------------------------------
Net charge-offs (1,458) (1,219)
Provision for loan losses 2,011 1,211
Balance, end of period $45,299 $32,486
======================================================================================
COMPOSITION OF NET CHARGE-OFFS
Commercial and agricultural $ 103 (7)% $ (481) 39%
Real estate mortgage (220) 15% (108) 9%
Consumer (1,341) 92% (630) 52%
- --------------------------------------------------------------------------------------
Net charge-offs $(1,458) 100% $(1,219) 100%
- --------------------------------------------------------------------------------------
Annualized net charge-offs to average loans 0.25% 0.22%
======================================================================================
Net charge-offs to average loans for the year ended
December 31, 2001 0.87%
======================================================================================
Nonperforming assets consist of nonaccrual loans, loans 90 days or more past
due, restructured loans, other real estate owned (OREO), and nonperforming
securities. Loans are generally placed on nonaccrual when principal or interest
payments become ninety days past due, unless the loan is well secured and in the
process of collection. Loans may also be placed on nonaccrual when circumstances
indicate that the borrower may be unable to meet the contractual principal or
interest payments. OREO represents property acquired through foreclosure and is
valued at the lower of the carrying amount or fair market value, less any
estimated disposal costs. Nonperforming securities include securities which
management believes are other-than-temporarily impaired, carried at their
estimated fair value and are not accruing interest.
Total nonperforming assets were $43.7 million at March 31, 2002 compared to
$49.9 million at December 31, 2001 and $30.3 million at March 31, 2001. The
increase since March 31, 2001 can be primarily attributed to a $20.7 million
increase in nonaccrual loans offset by an $8.0 million decrease in loans 90 days
past due and still accruing between reporting periods. These increases were
primarily the result of integrating newly acquired banks into the Company as
well as adverse economic conditions stemming from the recession during 2001
noted above. The quarter-to-quarter decrease in nonperforming assets resulted
from a $4.0 million decrease in nonperforming loans and $2.5 million decrease in
-22-
nonperforming securities. The quarter-to-quarter decrease in nonperforming loans
resulted mainly from efforts to reduce the level of real estate mortgage and
consumer loans 90 days past due and still accruing. For the larger commercial
credits, the Company continues to work closely with borrowers to monitor and
improve credit classifications. At December 31, 2001, nonperforming securities
were comprised of a private issue collateralized mortgage obligation valued at
$2.7 million and an asset backed security valued at $1.8 million. The decrease
in nonperforming securities during the first quarter of 2002 resulted mainly
from the sale of the asset backed security at approximately its carrying value
and a $0.7 million write-down of the collateralized mortgage obligation due to
worsening other-than-temporary impairment conditions.
TABLE 5
NONPERFORMING ASSETS
- ---------------------
- --------------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(dollars in thousands) 2002 2001 2001
- --------------------------------------------------------------------------------------------------
Commercial and agricultural $ 29,237 $ 31,372 $ 14,548
Real estate mortgage 5,600 5,119 1,967
Consumer 3,938 3,719 1,518
- --------------------------------------------------------------------------------------------------
Total nonaccrual loans 38,775 40,210 18,033
- --------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 228 198 5,525
Real estate mortgage 29 1,844 1,574
Consumer 226 933 1,426
- --------------------------------------------------------------------------------------------------
Total loans 90 days or more past due and still accruing 483 2,975 8,525
- --------------------------------------------------------------------------------------------------
Restructured loans in compliance with modified terms: 531 603 509
- --------------------------------------------------------------------------------------------------
Total nonperforming loans 39,789 43,788 27,067
- --------------------------------------------------------------------------------------------------
Other real estate owned (OREO) 1,960 1,577 1,905
- --------------------------------------------------------------------------------------------------
Total nonperforming loans and OREO 41,749 45,365 28,972
==================================================================================================
Nonperforming securities 1,957 4,500 1,354
- --------------------------------------------------------------------------------------------------
Total nonperforming assets $ 43,706 $ 49,865 $ 30,326
==================================================================================================
Total nonperforming loans to loans and leases 1.72% 1.87% 1.45%
Total nonperforming assets to assets 1.22% 1.37% 1.21%
Total allowance for loan and lease losses
to nonperforming loans 113.85% 102.19% 120.02%
==================================================================================================
In addition to the nonperforming loans discussed above, the Company has also
identified approximately $47.2 million in potential problem loans at March 31,
2002 as compared to $48.6 million at December 31, 2001. 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 March 31, 2002, 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.
-23-
DEPOSITS
- --------
Total deposits were $2.9 billion at March 31, 2002, a slight decrease of $49.8
million, or 1.7%, from year end 2001, and an increase of $61.4 million, or 2.2%,
from the same period in the prior year. Total average deposits increased $42.9
million, or 1.5%, from March 31, 2001 to March 31, 2002. The Company's
acquisition of FNB in September 2001 added approximately $108 million in
deposits offset by the sale of a branch in February 2002 which resulted in the
decrease of approximately $34.3 million in deposits. The Company has focused on
maintaining and growing its base of lower cost checking, savings and money
market accounts while allowing runoff of some of its higher cost time deposits,
particularly brokered and jumbo time deposits. At March 31, 2002, total
checking, savings and money market accounts represented 52.8% of total deposits
compared to 47.4% at March 31, 2001.
BORROWED FUNDS
- ---------------
The Company's borrowed funds consist of short-term borrowings and long-term
debt. Short-term borrowings totaled $81.2 million at March 31, 2002 compared to
$122.0 million and $147.3 million at December 31, and March 31, 2001,
respectively. Long-term debt was $325.9 million at March 31, 2002, compared to
$272.3 million and $248.5 million at December 31, and March 31, 2001,
respectively, as the Company took advantage of lower interest rates and locked
in longer term advances.
CAPITAL RESOURCES
- ------------------
Stockholders' equity of $268.0 million represents 7.5% of total assets at March
31, 2002, compared with $280.6 million, or 7.9% in the comparable period of the
prior year, and $266.4 million, or 7.3% at December 31, 2001. The Company does
not have a target dividend payout ratio, rather the Board of Directors considers
the Company's earnings position and earnings potential when making dividend
decisions.
As the capital ratios in Table 6 indicate, the Company remains well
capitalized. Capital measurements are significantly in excess of regulatory
minimum guidelines and meet the requirements to be considered well capitalized
for all periods presented. Tier 1 leverage, Tier 1 capital and Risk-based
capital ratios have regulatory minimum guidelines of 3%, 4% and 8% respectively,
with requirements to be considered well capitalized of 5%, 6% and 10%,
respectively.
TABLE 6
CAPITAL MEASUREMENTS
- ----------------------------------------------------
FIRST First
QUARTER Quarter
2002 2001
- ----------------------------------------------------
Tier 1 leverage ratio 6.71% 7.07%
Tier 1 capital ratio 9.94% 10.70%
Total risk-based capital ratio 11.20% 11.95%
Cash dividends as a percentage
of net income 52.71% 48.89%
Per common share:
Book value $ 8.07 $ 8.60
Tangible book value $ 6.62 $ 7.22
====================================================
The accompanying Table 7 presents the high, low and closing sales price for the
common stock as reported on the NASDAQ Stock Market, and cash dividends declared
per share of common stock. The Company's price to book value ratio was 1.83 at
March 31, 2002 and 1.94 in the comparable period of the prior year. The
Company's price was 11.5 times annualized earnings at March 31, 2002, compared
to 13.9 times for the same period last year.
-24-
TABLE 7
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION*
- -----------------------------------------------------
Cash
Dividends
Quarter Ending High Low Close Declared
- -----------------------------------------------------
2001
- -----------------------------------------------------
March 31 $ 17.50 $13.25 $16.69 $ 0.170
June 30 25.42** 14.30 19.30 0.170
September 30 17.30 13.50 14.30 0.170
December 31 15.99 12.55 14.49 0.170
- -----------------------------------------------------
2002
- -----------------------------------------------------
MARCH 31 $ 15.15 $13.15 $14.74 $ 0.170
=====================================================
* historical NBT Bancorp Inc. only
** 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.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
MARKET RISK
Interest rate risk is the most significant market risk affecting the Company.
Other types of market risk, such as foreign currency exchange rate risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
Interest rate risk is defined as an exposure to a movement in interest rates
that could have an adverse effect on the Company's net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than earning
assets. When interest-bearing liabilities mature or reprice more quickly than
earning assets in a given period, a significant increase in market rates of
interest could adversely affect net interest income. Similarly, when earning
assets mature or reprice more quickly than interest-bearing liabilities, falling
interest rates could result in a decrease in net interest income.
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.
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.
-25-
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. 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 increase
when compared to the flat rate scenario through the simulation period. The level
of net interest income increasing is a result of interest-bearing liabilities
repricing downward at a faster rate than earning assets. 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 March 31, 2002 balance sheet position:
TABLE 10
INTEREST RATE SENSITIVITY ANALYSIS
- -----------------------------------------------
Change in interest rates Percent change in
(in basis points) net interest income
- -----------------------------------------------
+200 (1.01%)
- -150 0.99%
- -----------------------------------------------
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 March 31, 2002, the
Company's Basic Surplus measurement was 9.75% of total assets, which was above
the Company's minimum of 5% set forth in its liquidity policies. If the
Company's liquidity position tightens and its Basic Surplus measurement
decreases, the Company has the ability to manage its liquidity through brokered
time deposits, established borrowing facilities, primarily with the Federal Home
Loan Bank, and entering into repurchase agreements with investment companies.
-26-
This Basic Surplus approach enables the Company to adequately manage liquidity
from both operational and contingency perspectives. By tempering the need for
cash flow liquidity with reliable borrowing facilities, the Company is able to
operate with a more fully invested and, therefore, higher interest income
generating, securities portfolio. The makeup and term structure of the
securities portfolio is, in part, impacted by the overall interest rate
sensitivity of the balance sheet. Investment decisions and deposit pricing
strategies are impacted by the liquidity position. At March 31, 2002, the
Company considered its Basic Surplus adequate to meet liquidity needs.
At March 31, 2002, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information called for by Item 3 is contained in the Liquidity and
Interest Rate Sensitivity Management section of the Management
Discussion and Analysis.
-27-
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, the aggregate amount involved in such
proceedings is not material to the financial condition or results of operations
of the Company.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None
Item 4 -- Submission of Matters to a Vote of Security Holders
None
Item 5 -- Other Information
Not Applicable
Item 6 -- Exhibits and Reports on Form 8-K
(a) none.
(b) During the first quarter ended March 31, 2002, the Company filed the
following Current Reports on Form 8-K:
None filed.
-28-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on FORM 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized, this 15th day of May, 2002.
NBT BANCORP INC.
By: /s/ MICHAEL J. CHEWENS
----------------------------------
Michael J. Chewens, CPA
Senior Executive Vice President
Chief Financial Officer and Corporate Secretary
-29-