SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 2003.
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 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter periods that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
As of October 31, 2003, there were 32,732,291 shares outstanding of the
Registrant's common stock, $0.01 par value.
-1-
NBT BANCORP INC.
FORM 10-Q -- Quarter Ended September 30, 2003
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 2003, December 31,
2002, and September 30, 2002.
Consolidated Statements of Income for the three and nine month
periods ended September 30, 2003 and 2002.
Consolidated Statements of Stockholders' Equity for the nine month
periods ended September 30, 2003 and 2002.
Consolidated Statements of Cash Flows for the nine month periods
ended September 30, 2003 and 2002.
Consolidated Statements of Comprehensive Income (Loss) for the three
and nine month periods ended September 30, 2003 and 2002.
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
Item 4 Controls and Procedures
PART II OTHER INFORMATION
Item 5 Other Information
Item 6 Exhibits and Reports on FORM 8-K
SIGNATURES
INDEX TO EXHIBITS
-2-
NBT BANCORP INC. AND SUBSIDIARIES SEPTEMBER 30, December 31, September 30,
CONSOLIDATED BALANCE SHEETS (UNAUDITED) 2003 2002 2002
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data)
ASSETS
Cash and due from banks $ 120,905 $ 121,824 $ 133,739
Short-term interest bearing accounts 2,098 2,799 5,671
Trading securities, at fair value 57 203 237
Securities available for sale, at fair value 1,076,053 1,007,583 993,786
Securities held to maturity (fair value - $99,020, $84,517
and $89,880) 97,499 82,514 87,272
Federal Reserve and Federal Home Loan Bank stock 35,218 23,699 22,630
Loans and leases 2,550,466 2,355,932 2,367,688
Less allowance for loan and lease losses 41,672 40,167 43,330
- -----------------------------------------------------------------------------------------------------------------------
Net loans and leases 2,508,794 2,315,765 2,324,358
Premises and equipment, net 61,857 61,261 61,193
Goodwill 47,521 46,121 46,121
Intangible assets, net 2,474 2,246 2,413
Bank owned life insurance 30,412 - -
Other assets 64,349 59,711 52,527
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,047,237 $ 3,723,726 $ 3,729,947
=======================================================================================================================
LIABILITIES, GUARANTEED PREFERRED BENEFICIAL INTERESTS
IN COMPANY'S JUNIOR SUBORDINATED DEBENTURES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 482,703 $ 449,201 $ 452,250
Savings, NOW, and money market 1,364,568 1,183,603 1,156,204
Time 1,123,778 1,289,236 1,313,511
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 2,971,049 2,922,040 2,921,965
Short-term borrowings 331,964 105,601 113,242
Long-term debt 369,721 345,475 350,603
Other liabilities 52,813 41,228 39,485
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities $ 3,725,547 $ 3,414,344 $ 3,425,295
Guaranteed Preferred Beneficial Interests
In Company's Junior Subordinated Debentures 17,000 17,000 17,000
Stockholders' equity:
Preferred stock, none issued - - -
Common stock, $0.01 par value; shares authorized-50,000,000;
shares issued 34,401,108, 34,401,171, and 34,401,212
at September 30, 2003, December 31, 2002, and $ 344 $ 344 $ 344
September 30, 2002, respectively
Additional paid-in-capital 209,268 210,443 210,425
Retained earnings 113,707 95,085 89,399
Unvested restricted stock awards (229) (127) (142)
Accumulated other comprehensive income 10,709 16,531 16,138
Treasury stock at cost 1,695,765, 1,751,724,
and 1,219,970 shares at September 30, 2003, December 31, 2002
and September 30, 2002, respectively (29,109) (29,894) (28,512)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 304,690 $ 292,382 $ 287,652
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, GUARANTEED PREFERRED
BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED DEBENTURES
AND STOCKHOLDERS' EQUITY $ 4,047,237 $ 3,723,726 $ 3,729,947
=======================================================================================================================
See notes to unaudited interim consolidated financial statements.
-3-
Three months ended Nine months ended
NBT BANCORP INC. AND SUBSIDIARIES September 30, September 30,
CONSOLIDATED STATEMENTS OF INCOME 2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (Unaudited)
INTEREST, FEE AND DIVIDEND INCOME:
Loans $ 39,881 $ 41,970 $ 119,036 $ 125,587
Securities available for sale 9,871 13,778 32,540 42,075
Securities held to maturity 840 1,010 2,586 3,309
Trading securities 1 2 4 6
Other 195 251 850 846
- --------------------------------------------------------------------------------------------------------
Total interest, fee and dividend income 50,788 57,011 155,016 171,823
- --------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 10,920 15,748 35,572 49,004
Short-term borrowings 704 417 1,363 1,052
Long-term debt 3,586 4,139 10,982 11,633
- --------------------------------------------------------------------------------------------------------
Total interest expense 15,210 20,304 47,917 61,689
- --------------------------------------------------------------------------------------------------------
Net interest income 35,578 36,707 107,099 110,134
Provision for loan and lease losses 2,436 2,424 5,789 6,527
- --------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 33,142 34,283 101,310 103,607
- --------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Trust 958 743 2,966 2,366
Service charges on deposit accounts 4,164 3,531 11,531 9,820
Broker/dealer and insurance fees 1,763 1,393 4,905 4,371
Net securities gains (losses) 18 (6) 83 (439)
Bank owned life insurance income 398 - 412 -
Other 2,672 2,380 7,757 7,136
- --------------------------------------------------------------------------------------------------------
Total noninterest income 9,973 8,041 27,654 23,254
- --------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 12,486 11,720 37,205 36,591
Office supplies and postage 1,104 1,116 3,188 3,240
Occupancy 2,143 2,032 6,851 6,297
Equipment 1,909 1,672 5,619 5,204
Professional fees and outside services 1,421 1,446 3,963 4,843
Data processing and communications 2,640 2,705 8,081 7,868
Amortization of intangible assets 158 177 475 610
Loan collection and other real estate owned 448 570 1,204 2,245
Capital securities 181 221 551 667
Other operating 3,493 3,661 10,586 9,029
- --------------------------------------------------------------------------------------------------------
Total noninterest expense 25,983 25,320 77,723 76,594
- --------------------------------------------------------------------------------------------------------
Income before income taxes 17,132 17,004 51,241 50,267
Income taxes 5,284 5,592 16,019 16,512
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 11,848 $ 11,412 $ 35,222 $ 33,755
========================================================================================================
Earnings per share:
Basic $ 0.36 $ 0.35 $ 1.08 $ 1.02
Diluted $ 0.36 $ 0.34 $ 1.07 $ 1.01
========================================================================================================
See notes to unaudited interim consolidated financial statements.
-4-
NBT BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Unvested Other
Common Paid-in- Retained Restricted Comprehensive Treasury
Stock Capital Earnings Stock Income (Loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per
share data)
BALANCE AT DECEMBER 31, 2001 $ 343 $ 209,176 $ 72,531 $ 0 $ 3,921 ($19,616) $266,355
Net Income 33,755 33,755
Cash Dividends - $0.51 per share (16,887) (16,887)
Purchase of 526,833 treasury shares (9,078) (9,078)
Issuance of 138,981 shares to
employee benefits plans and
other stock plans, including
tax benefit 1 1,277 (56) 1,222
Grant of 14,648 shares of restricted
stock awards (28) (222) 250 -
Cancellation of 800 restricted
stock awards 12 (12) -
Amortization of restricted
stock award 68 68
Other comprehensive income 12,217 12,217
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $ 344 $ 210,425 $ 89,399 ($142) $ 16,138 $ (28,512) $287,652
==============================================================================================================================
BALANCE AT DECEMBER 31, 2002 $ 344 $ 210,443 $ 95,085 ($127) $ 16,531 $ (29,894) $292,382
Net income 35,222 35,222
Cash dividends - $0.51 per share (16,600) (16,600)
Purchase of 369,313 treasury
shares (6,489) (6,489)
Issuance of 41,980 shares in
exchange
for 20,172 shares received as
consideration for the exercise of
incentive stock options (357) 357 -
Issuance of 391,618 shares to
employee benefit plans and other
stock plans, including tax benefit (818) 6,714 5,896
Grant of 11,846 shares of restricted
stock awards (203) 203 -
Amortization of restricted
stock awards 101 101
Other comprehensive (loss) (5,822) (5,822)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2003 $ 344 $ 209,268 $ 113,707 ($229) $ 10,709 ($29,109) $304,690
- ------------------------------------------------------------------------------------------------------------------------------
See notes to unaudited interim consolidated financial statements.
-5-
NBT BANCORP INC. AND SUBSIDIARIES Nine Months Ended September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS 2003 2002
- ------------------------------------------------------------------------------------------------
(in thousands) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 35,222 $ 33,755
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 5,789 6,527
Depreciation of premises and equipment 4,886 5,075
Net amortization (accretion) on securities 3,899 (811)
Amortization of intangible assets 475 610
Amortization of restricted stock awards 101 68
Proceeds from sale of loans held for sale 7,678 6,026
Origination of loans held for sale (2,572) (5,524)
Net losses on sales of loans - 77
Net (gain) on sale of other real estate owned (762) (80)
Net security (gains) losses (83) 439
Proceeds from sales of trading securities 184 -
Purchases of trading securities (62) (166)
Writedown of nonmarketable equity securities 620 -
Gain on sale of a branch, net - (220)
Purchase of Bank Owned Life Insurance (30,000) -
Net (increase) decrease in other assets (2,229) 8,338
Net increase (decrease) in other liabilities 10,672 (5,052)
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 33,818 49,062
- ------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net cash and cash equivalents provided by acquisitions 10,594 -
Net cash paid in conjunction with branch sale - (29,171)
Securities available for sale:
Proceeds from maturities 368,217 254,991
Proceeds from sales 207,218 216,609
Purchases (657,585) (535,222)
Securities held to maturity:
Proceeds from maturities 41,964 40,600
Purchases (57,003) (26,344)
Purchases of FRB and FHLB stock (11,519) (846)
Net increase in loans (203,974) (42,217)
Purchase of premises and equipment, net (5,454) (4,490)
Proceeds from sales of other real estate owned 2,979 1,113
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (304,563) (124,977)
- ------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 35,709 40,611
Net increase (decrease) in short-term borrowings 226,363 (8,772)
Proceeds from issuance of long-term debt 125,000 80,000
Repayments of long-term debt (100,754) (1,728)
Proceeds from issuance of treasury shares to
employee benefit plans and other stock plans,
including tax benefit 5,896 1,222
Purchase of treasury stock (6,489) (9,078)
Cash dividends (16,600) (16,887)
- ------------------------------------------------------------------------------------------------
Net cash provided by financing activities 269,125 85,368
- ------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,620) 9,453
Cash and cash equivalents at beginning of period 124,623 129,957
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 123,003 $ 139,410
================================================================================================
( Continued )
-6-
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: NINE MONTHS ENDED SEPTEMBER 30,
2003 2002
- --------------------------------------------------------------------------------------
Cash paid during the period for:
Interest $ 50,270 $ 66,100
Income taxes 7,900 8,800
Loans transferred to OREO 1,177 2,560
BRANCH DIVESTITURE:
======================================================================================
Assets sold - $ 3,323
Liabilities sold - 34,263
BRANCH ACQUISITIONS:
- --------------------------------------------------------------------------------------
Fair value of assets acquired $ 1,155 -
Fair value of liabilities assumed 13,311 -
See notes to unaudited interim consolidated financial statements.
-7-
Three months ended Nine months ended
NBT BANCORP INC. AND SUBSIDIARIES September 30, September 30,
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------
(in thousands) (Unaudited) (Unaudited)
Net Income $ 11,848 $ 11,412 $ 35,222 $ 33,755
Other comprehensive (loss) income, net of tax
Unrealized holding (losses) gains arising during
period [pre-tax amounts of ($6,408), $11,516,
($9,239) and $19,893] (3,853) 6,924 (5,555) 11,961
Minimum Pension Liability Adjustment - - (217) -
Less: Reclassification adjustment for net (gains) losses
included in net income [pre-tax amounts of
($18), -, ($83) and $426] (11) - (50) 256
- -------------------------------------------------------------------------------------------------------------
Total other comprehensive (loss) income (3,864) 6,924 (5,822) 12,217
- -------------------------------------------------------------------------------------------------------------
Comprehensive income $ 7,984 $ 18,336 $ 29,400 $ 45,972
=============================================================================================================
See notes to unaudited interim consolidated financial statements.
-8-
NBT BANCORP INC. AND SUBSIDIARY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements include the
accounts of NBT Bancorp Inc. (the Registrant) and its 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, 2002 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 nine months ended September 30, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. 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, 2002 and notes thereto referred to above.
NOTE 2. 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
and lease losses, fair values of financial instruments and status of
contingencies are particularly susceptible to material change in the near term.
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, nonperforming 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
-9-
impairment if those costs are expected to reduce the cash flows available to
repay or otherwise satisfy the loans.
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 judgments about information available to them at the time of their
examination which may not be currently available to management.
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 and lease 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.
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.
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 September 30,
2003 and 2002. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
NOTE 3. 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 September 30, 2003 and December 31, 2002, commitments to extend credit
and unused lines of credit totaled $472.1 million and $409.1 million. Since
commitments to extend credit and unused lines of credit may expire without being
fully drawn upon, this amount does not necessarily represent future cash
commitments. Collateral obtained upon exercise of the commitment is determined
using management's credit evaluation of the borrower and may include accounts
receivable, inventory, property, land and other items.
-10-
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. Typically, these
instruments have terms of five years or less and expire unused; therefore, the
total amounts do not necessarily represent future cash requirements. Standby
letters of credit totaled $25.1 million at September 30, 2003, and $24.7 million
at December 31, 2002. As of September 30, 2003, the fair value of standby
letters of credit was not material to the Company's consolidated financial
statements.
NOTE 4. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity (such as the
Company's dilutive stock options and restricted stock).
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 September 30, 2003 2002
- ---------------------------------------------------------------------------------
(in thousands, except per share data)
Basic EPS:
Weighted average common shares outstanding 32,534 33,016
Net income available to common shareholders $11,848 $11,412
- ---------------------------------------------------------------------------------
Basic EPS $ 0.36 $ 0.35
=================================================================================
Diluted EPS:
Weighted average common shares outstanding 32,534 33,016
Dilutive effect of common stock options and restricted stock 331 279
- ---------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 32,865 33,295
Net income available to common shareholders $11,848 $11,412
- ---------------------------------------------------------------------------------
Diluted EPS $ 0.36 $ 0.34
=================================================================================
- ---------------------------------------------------------------------------------
Nine months ended September 30, 2003 2002
- ---------------------------------------------------------------------------------
(in thousands, except per share data)
Basic EPS:
Weighted average common shares outstanding 32,474 33,088
Net income available to common shareholders $35,222 $33,755
- ---------------------------------------------------------------------------------
Basic EPS $ 1.08 $ 1.02
=================================================================================
Diluted EPS:
Weighted average common shares outstanding 32,474 33,088
Dilutive effect of common stock options and restricted stock 293 242
- ---------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 32,767 33,330
Net income available to common shareholders $35,222 $33,755
- ---------------------------------------------------------------------------------
Diluted EPS $ 1.07 $ 1.01
=================================================================================
-11-
There were 197,400 average outstanding stock options for the quarter ended
September 30, 2003 and 387,272 average outstanding stock options for the quarter
ended September 30, 2002 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. There were 229,515 outstanding
average stock options for the nine month period ended September 30, 2003 and
420,743 average outstanding stock options for the nine month period ended
September 30, 2002 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.
NOTE 5. STOCK-BASED COMPENSATION
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" which provides guidance on
how to transition from the intrinsic value method of accounting for stock-based
employee compensation under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees" to SFAS No. 123 "Accounting for
Stock-Based Compensation," which accounts for stock-based compensation using the
fair value method of accounting, if a company so elects. The Company currently
accounts for stock-based employee compensation under APB No. 25. As such,
compensation expense would be recorded only if the market price of the
underlying stock on the date of grant exceeded the exercise price. Because the
fair value on the date of grant of the underlying stock of all stock options
granted by the Company is equal to the exercise price of the options granted, no
compensation cost has been recognized for stock options in the accompanying
consolidated statements of income. Compensation expense for restricted stock
awards is based on the market price of the stock on the date of grant and is
recognized ratably over the vesting period of the award.
Had the Company determined compensation cost based on the fair value at the date
of grant for its stock options and employee stock purchase plan under SFAS No.
123, the Company's net income and net income per share would have been reduced
to the pro forma amounts indicated below:
============================================================
THREE MONTHS ENDED
- ------------------------------------------------------------
SEPTEMBER 30,
- ------------------------------------------------------------
2003 2002
----------- -----------
Net income, as reported $ 11,848 $ 11,412
Add:Stock-based compensation
expense included in reported net
income, net of related tax effects 19 20
Less:Stock-based compensation
expense determined under fair
value method for all awards, net
of related tax effects (260) (268)
----------- -----------
Pro forma net income $ 11,607 $ 11,164
=========== ===========
Net income per share:
Basic - as reported $ 0.36 $ 0.35
Basic - Pro forma $ 0.36 $ 0.34
Diluted - as reported $ 0.36 $ 0.34
Diluted - Pro forma $ 0.35 $ 0.34
============================================================
-12-
======================================================
NINE MONTHS ENDED
- ------------------------------------------------------
SEPTEMBER 30,
- ------------------------------------------------------
2003 2002
---------- -----------
Net income, as reported $ 35,222 $ 33,755
Add: Stock-based
compensation expense
included in reported net
income, net of related tax
effects 61 41
Less: Stock-based
compensation expense
determined under fair value
method for all awards, net of
related tax effects (790) (752)
---------- -----------
Pro forma net income $ 34,493 $ 33,044
========== ===========
Net income per share:
Basic - as reported $ 1.08 $ 1.02
Basic - Pro forma $ 1.06 $ 1.00
Diluted - as reported $ 1.07 $ 1.01
Diluted - Pro forma $ 1.05 $ 0.99
======================================================
The Company granted 394,482 stock options during the nine months ended September
30, 2003 with a weighted average exercise price of $17.69 per share compared to
497,670 stock options granted during the nine months ended September 30, 2002
with a weighted average exercise price of $14.40 per share. The per share
weighted average fair value of the stock options granted for the nine months
ended September 30, 2003 and 2002 was $4.02 and $2.41. The assumptions used for
the grants noted above were as follows:
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
==================================================================
DIVIDEND YIELD 3.41% - 3.97% 4.07%
EXPECTED VOLATILITY 31.34% - 31.42% 19.13%
RISK -FREE INTEREST RATE 2.98% - 3.98% 3.48% - 4.74%
EXPECTED LIFE 7 years 7 years
The fair value of stock options granted was estimated at the date of grant using
the Black-Scholes option-pricing model. This model was developed for use in
estimating fair value of publicly traded options that have no vesting
restrictions and are fully transferable. Additionally, the model requires the
input of highly subjective assumptions. Because the Company's employee and
director stock options have characteristics significantly different from those
of publicly traded stock options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the Black-Scholes option-pricing model does not necessarily provide a
reliable single measure of the fair value of the Company's employee and director
stock options.
-13-
NOTE 6. GOODWILL AND INTANGIBLE ASSETS
A summary of goodwill by subsidiaries follows:
JANUARY 1, GOODWILL SEPTEMBER 30,
(In thousands) 2002 DISPOSED 2002
---------------------------------------
NBT Bank, N.A. $ 44,667 $ (1,547) $ 43,120
NBT Financial Services, Inc. 3,001 - 3,001
---------------------------------------
Total $ 47,668 $ (1,547) $ 46,121
=======================================
JANUARY 1, GOODWILL SEPTEMBER 30,
(In thousands) 2003 ACQUIRED 2003
---------------------------------------
NBT Bank, N.A. $ 43,120 $ 1,400 $ 44,520
NBT Financial Services, Inc. 3,001 - 3,001
---------------------------------------
Total $ 46,121 $ 1,400 $ 47,521
=======================================
The Company acquired $1.4 million in goodwill in connection with the acquisition
of a branch from Alliance Bank in June of 2003. In connection with the sale of a
branch during the three months ended March 31, 2002, $1.5 million in goodwill
was included in the carrying amount of the branch in determining the gain on
disposal.
The Company has finite-lived intangible assets capitalized on its consolidated
balance sheet in the form of core deposit and other intangible assets. These
intangible assets continue to be amortized over their estimated useful lives,
which range from one to twenty-five years.
A summary of core deposit and other intangible assets follows:
SEPTEMBER 30,
2003 2002
-----------------
(in thousands)
Core deposit intangibles:
Gross carrying amount $ 5,585 $ 5,433
Less: accumulated amortization 4,367 3,777
-----------------
Net Carrying amount 1,218 1,656
-----------------
Other intangibles:
Gross carrying amount 1,031 1,031
Less: accumulated amortization 326 274
-----------------
Net Carrying amount 705 757
-----------------
Other intangibles not subject to
amortization: Pension Asset
551 -
Total intangibles with definite
useful lives:
Gross carrying amount 7,167 6,464
Less: accumulated amortization 4,693 4,051
-----------------
Net Carrying amount $ 2,474 $ 2,413
=================
Amortization expense on finite-lived intangible assets is expected to total $0.2
million for the remainder of 2003 and $0.3 million for each of 2004, 2005, 2006
and 2007.
-14-
NOTE 7. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S JUNIOR
SUBORDINATED DEBENTURES
On June 14, 1999, CNB Financial Corp. ("CNBF") which was acquired by the Company
on November 8, 2001, 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. 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 (3.85% and 4.61% for the
September 30, 2003 and 2002 quarterly payments, respectively). The capital
securities are the sole asset of the Trust. The obligations of the Trust are
guaranteed by the Company. Capital securities totaling $1.0 million were issued
to the Company. These capital securities were retired upon the merger of the
Company and CNBF. 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.
In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
established standards for how entities classify and measure certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS No. 150 are effective for financial instruments entered into or modified
after May 31, 2003, and otherwise are effective at the beginning of the first
interim period beginning after June 15, 2003. In the Company's earnings release
issued October 27, 2003, the guaranteed preferred beneficial interests in
Company's junior subordinated debentures were reported as a liability in the
Company's balance sheet, and the distributions ("capital securities") on these
capital securities on and after July 1, 2003 were included as interest expense
in accordance with the provisions of SFAS No. 150. Subsequent to the earnings
release, but prior to the filing of these financial statements, the FASB issued
FASB Staff Position No. 150-3, which deferred indefinitely the classification
and measurement provisions of SFAS No. 150 for the Company's capital securities.
Accordingly $181,000 of trust preferred distributions for the three months ended
September 30, 2003 which were classified as interest expense in the October 27,
2003 earnings release have been reported in these consolidated financial
statements as distributions on capital securities. Also these capital securities
are reported in the same manner as minority interest in the accompanying
consolidated interim balance sheet as of September 30, 2003. This reporting is
consistent with the Company's previous quarterly and annual financial reporting.
SFAS No. 150 has no other impact on the Company's consolidated financial
statements.
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Financial Accounting Standards Board Interpretation (FIN) No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others - an Interpretation of
FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34."
FIN No. 45 elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of FIN No. 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN No. 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002, and were adopted in the Company's
consolidated financial statements for the year ended December 31, 2002.
Implementation of the remaining provisions of FIN No. 45 during the first
quarter of 2003 did not have any impact on the Company's financial statements.
-15-
The FASB issued FAS 149, "Amendment of Statement No. 133 on Derivative
Instruments and Hedging Activities". The statement is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. This statement amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contacts and for hedging activities.
This statement amends Statement 133 for decisions made as part of the
Derivatives Implementation Group process that effectively required amendments to
Statement 133, in connection with other Board projects dealing with financial
instruments and in connection with implementation issues raised in relation to
the application of the definition of a derivative. The adoption of this
Statement is not expected to have a significant impact on the Company's
consolidated financial statements.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities". FIN No. 46 addresses consolidation by business enterprises of
variable interest entities. FIN No. 46 applies to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains interest after that date. The effective date of FIN No. 46
had been July 1, 2003. The FASB postponed the effective date to December 31,
2003 for all variable interest entities that existed prior to February 1, 2003.
The Company is evaluating the effects of FIN No. 46 but currently expects it
will not have a significant impact on the Company's consolidated financial
statements.
In its current form, FIN No. 46 may require the Company to deconsolidate its
investment in its guaranteed preferred beneficial interests in junior
subordinated debentures in future financial statements. Presently the beneficial
interests in the Company's junior subordinated debentures qualify as Tier I
capital of the Company. In July 2003, the Board of Governors of the Federal
Reserve System issued a supervisory letter instructing bank and financial
holding companies to continue to include beneficial interests in junior
subordinated debentures in Tier I capital for regulatory purposes until notice
is given to the contrary. The Federal Reserve intends to review the regulatory
implications of any accounting treatment changes and, if necessary or warranted,
provide further appropriate guidance. There can be no assurance that the Federal
Reserve will continue to allow institutions to include beneficial interests in
junior subordinated debentures in Tier I capital for regulatory capital
purposes. As of September 30, 2003, if the Company was not allowed to include
its $17.0 million in beneficial interests in the Company's junior subordinated
debentures within Tier I capital, it would still exceed the regulatory required
minimums for capital adequacy purposes.
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 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 2002 Form 10-K for an
understanding of the following discussion and analysis.
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, 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
-16-
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 effect 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 or
tax laws, may adversely affect the businesses in which the Company is engaged;
(6) competitors may have greater financial resources and develop products that
enable such competitors to compete more successfully than the Company; (7)
adverse changes may occur in the securities markets or with respect to
inflation; (8) acts of war or terrorism; (9) the costs and effects of litigation
and of unexpected or adverse outcomes in such litigation; and (10) the Company's
success in managing the risks involved in the foregoing.
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.
CRITICAL ACCOUNTING POLICIES
Management of the Company considers the accounting policy relating to the
allowance for loan and lease losses to be a critical accounting policy given the
uncertainty in evaluating the level of the allowance required to cover credit
losses inherent in the loan and lease portfolio and the material effect that
such judgments can have on the results of operations. While management's current
evaluation of the allowance for loan and lease losses indicates that the
allowance is adequate, under adversely different conditions or assumptions, the
allowance would need to be increased. For example, if historical loan and lease
loss experience significantly worsened or if current economic conditions
significantly deteriorated, additional provisions for loan and lease losses
would be required to increase the allowance. In addition, the assumptions and
estimates used in the internal reviews of the Company's non-performing loans and
potential problem loans has a significant impact on the overall analysis of the
adequacy of the allowance for loan and lease losses. While management has
concluded that the current evaluation of collateral values is reasonable under
the circumstances, if collateral evaluations were significantly lowered, the
Company's allowance for loan and lease policy would also require additional
provisions for loan and lease losses.
OVERVIEW
The Company earned net income of $11.8 million ($0.36 diluted earnings per
share) for the three months ended September 30, 2003 compared to net income of
$11.4 million ($0.34 diluted earnings per share) for the three months ended
September 30, 2002. The quarter to quarter increase in net income from 2002 to
2003 was primarily the result of an increase in total noninterest income of $1.9
million offset by a decrease in net interest income of $1.1 million. The
increase in noninterest income was driven primarily by increases in services
charges on deposit accounts of $0.6 million, broker/dealer and insurance revenue
of $0.4 million, Bank Owned Life Insurance income of $0.4 million, trust income
of $0.2 million and other income of $0.3 million. The decline in net interest
income resulted primarily from a decline in the Company's net interest margin
from 4.35% for the three months ended September 30, 2002 to 4.02% for the same
period in 2003.
-17-
The Company earned net income of $35.2 million ($1.07 diluted earnings per
share) for the nine months ended September 30, 2003 compared to net income of
$33.8 million ($1.01 diluted earnings per share) for the nine months ended
September 30, 2002. The increase in net income from 2002 to 2003 was primarily
the result of an increase in total noninterest income of $4.4 million and a $0.7
million decrease in the provision for loan and lease losses offset by a decrease
in net interest income of $3.0 million and an increase in total noninterest
expense of $1.1 million. The increase in noninterest income was driven primarily
by increases in services charges on deposit accounts of $1.7 million, other
income of $0.6 million, trust income of $0.6 million, broker/dealer and
insurance revenue of $0.5 million, Bank Owned Life Insurance income of $0.4
million, as well as a $0.1 million net gain on securities transactions for the
nine months ended September 30, 2003 compared to $0.4 million in net losses on
securities transactions for the same period in 2002. The decline in the
provision for loan and lease losses reflects lower net charge-offs for the nine
months ended September 30, 2003 compared to the same period in 2002 as well as a
decrease in nonperforming loans. The decline in net interest income resulted
primarily from a decline in the Company's net interest margin from 4.47% for the
nine months ended September 30, 2002 to 4.19% for the same period in 2003. The
increase in total noninterest expense resulted primarily from increases in other
operating expense of $1.6 million, salaries and employee benefits of $0.6
million and occupancy expense of $0.6 million offset by declines in loan
collection and other real estate owned costs of $1.0 million and professional
fees and outside services of $0.9 million.
Table 1 depicts annualized measurements of performance using GAAP net income.
Returns on average assets and equity measure how effectively an entity utilizes
its total resources and capital, respectively. Net interest margin, which is the
net federal taxable equivalent (FTE) interest income divided by average earning
assets, is a measure of an entity's ability to utilize its earning assets in
relation to the cost of funding. Interest income for tax-exempt securities and
loans is adjusted to a taxable equivalent basis using the statutory Federal
income tax rate of 35%.
TABLE 1
PERFORMANCE MEASUREMENTS
- ----------------------------------------------------------------------
First Second THIRD NINE
Quarter Quarter QUARTER MONTHS
- ----------------------------------------------------------------------
2003
Return on average assets (ROAA) 1.27% 1.25% 1.21% 1.24%
Return on average equity (ROAE) 16.05% 16.07% 16.06% 16.09%
Net interest margin 4.38% 4.18% 4.02% 4.19%
======================================================================
2002
ROAA 1.25% 1.24% 1.23% 1.24%
ROAE 16.62% 16.50% 15.95% 16.37%
Net interest margin 4.54% 4.48% 4.35% 4.47%
======================================================================
-18-
TABLE 2
AVERAGE BALANCES AND NET INTEREST INCOME
Table 2 presents the Company's 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.
Three months ended September 30,
2003 2002
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST RATES Balance Interest Rates
- --------------------------------------------------------------------------------------------------------
ASSETS
Short-term interest bearing accounts $ 1,573 $ 16 4.04% $ 15,374 $ 109 2.81%
Trading securities 69 1 5.75% 260 2 3.05%
Securities available for sale (2) 966,254 10,481 4.31% 965,055 14,300 5.88%
Securities held to maturity (2) 99,812 1,170 4.65% 86,840 1,333 6.09%
Investment in FRB and FHLB Banks 29,469 179 2.41% 22,718 142 2.48%
Loans and leases (1) 2,527,099 40,065 6.29% 2,350,015 42,149 7.12%
----------- ----------- ---------- ---------
Total interest earning assets 3,624,276 51,912 5.69% 3,440,262 58,035 6.69%
----------- ---------
Other assets 278,333 242,947
----------- ----------
TOTAL ASSETS $3,902,609 $3,683,209
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Money market deposit accounts $ 376,700 982 1.03% $ 271,049 1,145 1.68%
NOW deposit accounts 414,057 461 0.44% 376,641 905 0.95%
Savings deposits 542,344 1,043 0.76% 494,304 1,841 1.48%
Time deposits 1,158,366 8,434 2.89% 1,315,059 11,857 3.58%
----------- ----------- ---------- ---------
Total interest bearing deposits 2,491,467 10,920 1.74% 2,457,053 15,748 2.54%
Short-term borrowings 212,568 704 1.31% 106,018 417 1.56%
Long-term debt 369,843 3,586 3.85% 350,650 4,139 4.68%
----------- ----------- ---------- ---------
Total interest bearing liabilities 3,073,878 15,210 1.96% 2,913,721 20,304 2.76%
----------- ---------
Demand deposits 469,432 426,733
Other liabilities (3) 66,413 58,945
Stockholders' equity 292,886 283,810
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,902,609 $3,683,209
----------- ----------
NET INTEREST INCOME (FTE BASIS) 36,702 37,731
----------- ---------
INTEREST RATE SPREAD 3.73% 3.93%
NET INTEREST MARGIN 4.02% 4.35%
Taxable equivalent adjustment 1,124 1,024
----------- ----------
NET INTEREST INCOME $ 35,578 $ 36,707
=========== ==========
(1) For purposes of these computations, nonaccrual loans are included in the
average loan and lease balances outstanding.
(2) Securities are shown at average amortized cost.
(3) Included in other liabilities for the three months ended September 30, 2003
and 2002 are $17.0 million in the Company's guaranteed preferred beneficial
interests in Company's junior subordinated debentures.
-19-
Nine months ended September 30,
2003 2002
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST RATES Balance Interest Rates
- --------------------------------------------------------------------------------------------------------
ASSETS
Short-term interest bearing accounts $ 3,549 $ 57 2.15% $ 13,584 $ 302 2.97%
Trading securities 157 4 3.41% 198 6 4.05%
Securities available for sale (2) 973,318 34,381 4.73% 939,634 43,666 6.21%
Securities held to maturity (2) 88,923 3,517 5.30% 96,009 4,373 6.09%
Investment in FRB and FHLB Banks 25,668 793 4.14% 21,582 544 3.37%
Loans and leases (1) 2,433,665 119,601 6.59% 2,330,096 126,127 7.24%
----------- ----------- ---------- ---------
Total interest earning assets 3,525,280 158,353 6.02% 3,401,103 175,018 6.88%
----------- ---------
Other assets 266,675 235,743
----------- ----------
TOTAL ASSETS $3,791,955 $3,636,846
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Money market deposit accounts $ 348,082 3,219 1.24% $ 272,078 3,266 1.60%
NOW deposit accounts 401,625 1,786 0.60% 380,524 2,733 0.96%
Savings deposits 518,819 3,510 0.91% 478,122 5,383 1.51%
Time deposits 1,213,669 27,057 2.99% 1,339,836 37,622 3.75%
----------- ----------- ---------- ---------
Total interest bearing deposits 2,482,195 35,572 1.92% 2,470,560 49,004 2.65%
Short-term borrowings 145,038 1,363 1.26% 89,521 1,052 1.57%
Long-term debt 357,967 10,982 4.11% 329,623 11,633 4.72%
----------- ----------- ---------- ---------
Total interest bearing liabilities 2,985,200 47,917 2.15% 2,889,704 61,689 2.85%
----------- ---------
Demand deposits 449,520 415,033
Other liabilities (3) 63,871 55,804
Stockholders' equity 293,364 276,305
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,791,955 $3,636,846
----------- ----------
NET INTEREST INCOME (FTE BASIS) 110,436 113,329
----------- ----------
INTEREST RATE SPREAD 3.87% 4.03%
NET INTEREST MARGIN 4.19% 4.47%
TAXABLE EQUIVALENT ADJUSTMENT 3,337 3,195
----------- ----------
NET INTEREST INCOME $ 107,099 $ 110,134
=========== ==========
(1) For purposes of these computations, nonaccrual loans are included in the
average loan and lease 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
for the nine months ended September 30, 2003 and 2002.
-20-
Table 3 presents the changes in interest income, interest expense and net
interest income due to changes in volume and changes in rate. 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 September 30,
- ---------------------------------------------------------------------
INCREASE (DECREASE)
2003 OVER 2002
- ---------------------------------------------------------------------
(in thousands) VOLUME RATE TOTAL
- ---------------------------------------------------------------------
Short-term interest bearing accounts $ (127) $ 34 $ (93)
Trading securities (2) 1 (1)
Securities available for sale 18 (3,837) (3,819)
Securities held to maturity 181 (344) (163)
Investment in FRB and FHLB Banks 41 (4) 37
Loans and leases 3,031 (5,115) (2,084)
- ---------------------------------------------------------------------
Total interest income 2,982 (9,105) (6,123)
- ---------------------------------------------------------------------
Money market deposit accounts 360 (523) (163)
NOW deposit accounts 82 (526) (444)
Savings deposits 164 (962) (798)
Time deposits (1,309) (2,114) (3,423)
Short-term borrowings 362 (75) 287
Long-term debt 217 (770) (553)
- ---------------------------------------------------------------------
Total interest expense 992 (6,086) (5,094)
- ---------------------------------------------------------------------
CHANGE IN FTE NET INTEREST INCOME $ 1,990 $ (3,019) $ (1,029)
=====================================================================
Nine months ended September 30,
- ---------------------------------------------------------------------
INCREASE (DECREASE)
2003 OVER 2002
- ---------------------------------------------------------------------
(in thousands) VOLUME RATE TOTAL
- ---------------------------------------------------------------------
Short-term interest bearing accounts $ (178) $ (67) $ (245)
Trading securities 1,517 (10,802) (9,285)
Securities available for sale (307) (549) (856)
Securities held to maturity (1) (1) (2)
Investment in FRB and FHLB Banks 114 135 249
Loans and leases 5,438 (11,964) (6,526)
- ---------------------------------------------------------------------
Total interest income 6,209 (22,874) (16,665)
- ---------------------------------------------------------------------
Money market deposit accounts 797 (844) (47)
NOW deposit accounts 144 (1,091) (947)
Savings deposits 426 (2,299) (1,873)
Time deposits (3,314) (7,251) (10,565)
Short-term borrowings 554 (243) 311
Long-term debt 948 (1,599) (651)
- ---------------------------------------------------------------------
Total interest expense 1,911 (15,683) (13,772)
- ---------------------------------------------------------------------
CHANGE IN FTE NET INTEREST INCOME $ 4,298 $ (7,191) $ (2,893)
=====================================================================
-21-
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2002
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 decreased $1.0 million
during the three months ended September 30, 2003 compared to the same period of
2002. The decrease in FTE net interest income resulted primarily from interest
earning assets repricing downward at a faster rate than interest-bearing
liabilities. The yield on earning assets decreased 100 basis points ("bp"), to
5.69% for the three months ended September 30, 2003, from 6.69% for the same
period in 2002. Meanwhile, the rate paid on interest-bearing liabilities
decreased 80 bp, to 1.96% for the three months ended September 30, 2003, from
2.76% for the same period in 2002.
Total FTE interest income for the three months ended September 30, 2003
decreased $6.1 million compared to the same period in 2002, 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 low rate environment
prevalent for the last several quarters. Additionally, the low rate environment
resulted in an acceleration of prepayments of mortgage related assets, which led
to a high level of amortization of investment securities premiums. The high
level of amortization experienced during the three months ended September 30,
2003 was a factor in the 157 basis point decrease in yield on securities
available for sale when compared to the same period in 2002. Another factor
driving the decrease in yield on investment securities is the Company's decision
to invest in shorter-term securities which have lower yields, while providing
greater flexibility to deploy funds in a rising rate environment (for more
information about the Company's investment securities and asset/liability
position see the sections under the captions "Securities" and "Market Risk"
further in this discussion).
During the same time period, total interest expense decreased $5.1 million,
primarily the result of the low 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 37.7% of interest-bearing liabilities for the three months ended
September 30, 2003 from 45.1% for the same period in 2002. Offsetting this
decrease in the interest-bearing liabilities mix, was an increase in lower cost
NOW, MMDA, and Savings deposits, to 43.4% of interest-bearing liabilities for
the three months ended September 30, 2003 from 39.2% for the same period in
2002. Total borrowings increased to 18.9% for the three months ended September
30, 2003 from 15.7% for the same period in 2002.
Another important performance measurement of net interest income is the net
interest margin. Net interest margin decreased to 4.02% for the three months
ended September 30, 2003, down from 4.35% for the comparable period in 2002. The
decrease in the net interest margin can be primarily attributed to the
previously mentioned decrease in the interest rate spread driven by the decrease
in yield on earning assets exceeding the decrease in the cost of
interest-bearing liabilities.
-22-
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 periods
indicated:
THREE MONTHS ENDED SEPTEMBER 30,
2003 2002
------------------ -----------------
(in thousands)
Service charges on deposit accounts $ 4,164 $ 3,531
Broker/dealer and insurance fees 1,763 1,393
Trust 958 743
Bank owned life insurance income 398 -
Net securities gains (losses) 18 (6)
Other 2,672 2,380
- ---------------------------------------------------------------------------
Total $ 9,973 $ 8,041
===========================================================================
Noninterest income for the quarter ended September 30, 2003 was $10.0 million,
up $1.9 million or 24% from $8.0 million for the same period in 2002. Service
charges on deposit accounts for the quarter ended September 30, 2003 increased
$0.6 million or 18% over the same period in 2002. The increase in service
charges on deposit accounts resulted primarily from overdraft fees from deposit
accounts. The increase in overdraft fees was driven primarily by the combination
of several pricing adjustments implemented during 2002 and 2003 as well as
continued growth in core deposit products. Revenue from trust services increased
$0.2 million or 29% for the quarter ended September 30, 2003 over the same
period in 2002, due in part to an increase in estate management services.
Broker/dealer and insurance revenue increased $0.4 million or 27% for the
quarter ended September 30, 2003 over the same period in 2002, due primarily to
the Company's initiative in delivering financial service related products
through its 111-branch network, which was implemented at the end of 2002. Bank
Owned Life Insurance ("BOLI") income increased $0.4 million for the quarter
ended September 30, 2003 when compared to the same period in 2002, resulting
from the $30.0 million BOLI purchase in June 2003.
-23-
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 periods indicated:
THREE MONTHS ENDED SEPTEMBER 30,
(in thousands) 2003 2002
----------------- -----------------
Salaries and employee benefits $ 12,486 $ 11,720
Occupancy 2,143 2,032
Equipment 1,909 1,672
Data processing and communications 2,640 2,705
Professional fees and outside services 1,421 1,446
Office supplies and postage 1,104 1,116
Amortization of intangible assets 158 177
Loan collection and other real estate owned 448 570
Capital securities 181 221
Other 3,493 3,661
----------------- -----------------
Total noninterest expense $ 25,983 $ 25,320
================= =================
Noninterest expense for the quarter ended September 30, 2003 was $26.0 million,
up $0.7 million or 3% from $25.3 million for the same period in 2002. The
increase in noninterest expense resulted primarily from an increase in salaries
and employee benefits of $0.8 million or 7%. This increase resulted primarily
from an increase in salaries resulting from increases in merit adjustments and
full time equivalent employees.
Income Taxes
- -------------
Income tax expense for the three months ended September 30, 2003 was $5.3
million for an effective tax rate of 30.8%, compared to $5.6 million, or 32.9%,
for the same period in 2002. The lower effective tax rate in the 2003 period
resulted primarily from an increase in tax exempt income when compared to the
same period in 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002
Net Interest Income
- ---------------------
Net interest income on a federal taxable equivalent basis (FTE) decreased $2.9
million to $110.4 million for 2003 compared to $113.3 million for 2002. The net
interest margin declined 28 bp from 4.47% to 4.19%. The decrease in FTE net
interest income resulted primarily from earning assets re-pricing downward at a
faster rate than interest-bearing liabilities. The yield on earning assets
decreased 86 bp, to 6.02% for 2003, from 6.88% for 2002. Meanwhile, the rate
paid on interest-bearing liabilities decreased 70 bp, to 2.15% for 2003, from
2.85% for 2002.
-24-
Total FTE interest income for 2003 decreased $16.7 million compared to 2002, a
result of the previously mentioned decrease in yield on earning assets. The
decline in yield on earning assets resulted primarily from an increase in
prepayment activity from mortgage-related securities and loans. The prepayments
from mortgage-related securities and loans were subsequently reinvested at lower
rates. Furthermore, prepayments on mortgage-related securities resulted in an
accelerated level of amortization of securities premiums, leading to a decrease
in interest income. The yield on securities available for sale declined 148 bp
from 6.21% for the nine months ended September 30, 2002 to 4.73% for the same
period in 2003. During the same time period, total interest expense decreased
$13.6 million, primarily the result of the low rate environment mentioned above,
as well as an improvement in the mix of the Company's interest-bearing
liabilities.
Noninterest Income
- -------------------
The following table sets forth information by category of noninterest income for
the periods indicated:
(in thousands)
NINE MONTHS ENDED SEPTEMBER 30,
2003 2002
---------------- ------------------
Service charges on deposit accounts $ 11,531 $ 9,820
Broker/dealer and insurance fees 4,905 4,371
Trust 2,966 2,366
Bank Owned Life Insurance income 412 -
Net securities gains (losses) 83 (439)
Other 7,757 7,136
---------------- ------------------
Total $ 27,654 $ 23,254
================ ==================
Noninterest income for the nine months ended September 30, 2003 was $27.7
million, up $4.4 million or 19% from $23.3 million for the same period in 2002.
Service charges on deposit accounts for the nine months ended September 30, 2003
increased $1.7 million or 17% over the same period in 2002. The increase in
service charges on deposit accounts resulted primarily from higher overdraft
fees resulting from recent pricing changes and continued growth from core
deposits. Other income for the nine months ended September 30, 2003 increased
$0.6 million or 9% over the same period in 2002. The increase in other income
was driven primarily by strong growth in ATM fees. Securities transactions
resulted in a $0.1 million net gain for the nine months ended September 30, 2003
and a $0.4 million net loss resulting from a write-down of an impaired security
for the same period in 2002. Revenue from trust services increased $0.6 million
or 25% for the nine months ended September 30, 2003 over the same period in
2002, due in part to higher fees collected for estate management services as
well as an increase in assets under management resulting from improved stock
market conditions and an increase in managed trust accounts. Broker/dealer and
insurance revenue increased $0.5 million or 12% for the nine months ended
September 30, 2003 over the same period in 2002, due primarily to the Company's
initiative in delivering financial service related products through its
111-branch network, which was implemented at the end of 2002. Bank Owned Life
Insurance ("BOLI") income increased $0.4 million for the nine months ended
September 30, 2003 when compared to the same period in 2002, resulting from the
$30.0 million BOLI purchase in June 2003.
-25-
Noninterest Expense
- --------------------
The following table sets forth information by category of noninterest expense
for the periods indicated:
NINE MONTHS ENDED SEPTEMBER 30,
(in thousands) 2003 2002
----------------- ----------------
Salaries and employee benefits $ 37,205 $ 36,591
Occupancy 6,851 6,297
Equipment 5,619 5,204
Data processing and communications 8,081 7,868
Professional fees and outside services 3,963 4,843
Office supplies and postage 3,188 3,240
Amortization of intangible assets 475 610
Loan collection and other real estate owned 1,204 2,245
Capital securities 551 667
Other 10,586 9,029
----------------- ----------------
Total noninterest expense $ 77,723 $ 76,594
================= ================
Noninterest expense for the nine months ended September 30, 2003 was $77.7
million, up $1.1 million or 1% from $76.6 million for the same period in 2002.
The increase in noninterest expense was due primarily to increases in other
operating expense, salaries and employee benefits and occupancy expense
partially offset by decreases in loan collection and OREO expenses and
professional fees and outside services. Other operating expense increased $1.6
million, primarily from a $0.6 million charge for the writedown of venture
capital investments (during the second quarter of 2003) and other miscellaneous
charges. Salaries and employee benefits increased $0.6 million, due primarily to
increased incentive compensation costs. The $0.6 million increase in occupancy
expense was driven primarily by the opening of a new operations facility located
at the Company's headquarters in Norwich, New York during the first quarter of
2003 and higher maintenance costs associated with several severe winter storms.
Loan collection and OREO expenses decreased $1.0 million from gains on the sale
of OREO and a decrease in nonperforming loans. Professional fees and outside
services decreased $0.9 million primarily from a $0.4 million charge related to
an adverse judgement against the Company in 2002 as well as legal fees incurred
during 2002 for the recovery of deposit overdraft writeoffs.
Income Taxes
- -------------
Income tax expense for 2003 was $16.0 million for an effective tax rate of
31.3%, compared to $16.5 million, or 32.8%, for 2002. The lower tax rate in the
2003 period resulted primarily from an increase in tax exempt income when
compared to the same period in 2002.
-26-
ANALYSIS OF FINANCIAL CONDITION
Loans and Leases
- ------------------
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.
A summary of loans and leases, net of deferred fees and origination costs, by
category for the periods indicated follows:
September 30, December 31, September 30,
(in thousands) 2003 2002 2002
---------------------------------------------
Commercial and commercial mortgages* $ 1,095,463 $ 1,057,815 $ 1,056,201
Residential real estate mortgages 677,540 610,256 626,838
Consumer 717,216 626,767 621,040
Leases 60,247 61,094 63,609
---------------------------------------------
Total loans and leases $ 2,550,466 $ 2,355,932 $ 2,367,688
=============================================
*Includes agricultural loans
Total loans and leases were $2.6 billion, or 63.0% of assets, at September 30,
2003, compared to $2.4 billion, or 63.3%, at December 31, 2002, and $2.4
billion, or 63.5%, at September 30, 2002. Total loans and leases increased
$194.5 million at September 30, 2003 when compared to December 31, 2002.
Consumer loans increased $90.4 million, from December 31, 2002 or 14.4%. The
increase in consumer loans was due primarily to strong growth from home equity
and indirect loan products. Residential real estate mortgages increased $67.3
million, from December 31, 2002 or 14.7%. Additionally, commercial loans and
commercial mortgages increased $37.7 million, from December 31, 2002, or 4.7%.
The increase in these loan categories resulted from continued growth within
existing markets combined with an expanded presence in newer markets now served
by the Company.
-27-
Securities
- ----------
The Company classifies its securities at date of purchase as 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.
Average total securities increased $26.6 million for the nine months ended
September 30, 2003 when compared to the same period in 2002. The average balance
of securities available for sale increased $33.7 million for the nine months
ended September 30, 2003 when compared to the same period in 2002. The average
balance of securities held to maturity decreased $7.1 million for the nine
months ended September 30, 2003, when compared to the same period in 2002. The
net increase in securities resulted from pre-investing expected fourth quarter
investment securities cash flows. The average total securities portfolio
represented 28% of total average earning assets for the nine months ended
September 30, 2003 and 2002.
At September 30, 2003, approximately 64.6% of the Company's investment
securities were comprised of either mortgage-backed securities ("MBS") or
collateralized mortgage obligations ("CMO") compared to 67.7% at September 30,
2002. During the period between September 30, 2002 and September 30, 2003, the
Company's MBS and CMO experienced increases in prepayments resulting from the
low interest rate environment. As the Company received the cash flows from
accelerated prepayments from MBS and CMO, the Company reinvested these funds
primarily into short-term MBS, which generally contain a stated maturity of
10/15 years and a expected duration ranging from 3 to 5 years as opposed to
20/30 year MBS which generally have an expected duration ranging from 5 to 7
years. As such, the Company is positioned to take advantage of deploying funds
in a rising rate environment, as sufficient cash flow should be generated by
10/15-year MBS securities. At September 30, 2003, approximately 79.7% of MBS and
CMO were comprised of securities containing 10/15-year term as compared to 59.4%
at September 30, 2002.
There is one security with the other-than-temporary impairment charge at
September 30, 2003 and 2002, which had a remaining carrying value of $0.6
million and $1.1 million, respectively, and is classified as a security
available for sale on nonaccrual status. The Company recorded a $0.7 million
pre-tax charge during the three months ended March 31, 2002, related to the
other-than-temporarily impaired security classified as available for sale. The
charge was recorded in net security (losses) gains on the consolidated
statements of income.
Included in the securities available for sale portfolio at September 30, 2002
and December 31, 2002 were certain securities (private issue CMO, asset-backed
securities, and private issue MBS) previously held by CNB. These securities
contained a higher level of credit risk when compared to other securities held
in the Company's investment portfolio because they were not guaranteed by a
governmental agency or a government sponsored enterprise (GSE). The Company's
general practice is to purchase CMO and MBS that are guaranteed by a
governmental agency or a GSE coupled with a strong credit rating, typically AAA,
issued by Moody's or Standard and Poors.
-28-
At December 31, 2002, the amortized cost and fair value of these high-risk
securities amounted to $12.0 million and $10.7 million, respectively, down from
$27.5 million and $26.8 million, respectively, at September 30, 2002. The
decrease at December 31, 2002, when compared to September 30, 2002, resulted
primarily from sales and to a lesser extent principal paydowns. During 2002, the
Company sold $22.4 million of these securities due to both a rapid deterioration
in the financial condition of the underlying collateral in 2002 related to a
certain number of these securities as well as the Company's goal of reducing
exposure to these types of securities in general. The net loss realized from the
sale of these securities was $7.4 million. Offsetting these net losses were net
gains of $7.3 million, resulting from the sale of approximately $187.0 million
in other securities available for sale during 2002. At September 30, 2003, the
Company had no exposure to these high-risk securities, as the remaining $12.0
million at December 31, 2002 were sold during the three months ended March 31,
2003 at a net loss of $3.9 million. Offsetting these net losses, were net gains
of $3.9 million from the sale of approximately $157.4 million in other
securities available for sale during the first quarter of 2003.
Bank Owned Life Insurance ("BOLI")
- --------------------------------------
The Company purchased $30 million in BOLI in June 2003. BOLI represents life
insurance on the lives of certain employees who are deemed to be significant
contributors to the Company. All employees in the policy are aware of and have
consented to the coverage. Increases in the cash value of the policies, as well
as insurance proceeds that may be received, are recorded in other noninterest
income, and are not subject to income taxes. The Company reviewed the financial
strength of the insurance carriers prior to the purchase of BOLI and will do so
annually thereafter.
Allowance for Loan and Lease Losses, Nonperforming Assets and the Provision for
- --------------------------------------------------------------------------------
Loan and Lease Losses
- ------------------------
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 of the loans and leases; 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
-29-
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 September 30, 2003 was 1.63%
compared to 1.83% at September 30, 2002. Management considers the allowance for
loan and lease losses to be adequate based on evaluation and analysis of the
loan portfolio.
Table 4 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 chargeoffs. Chargeoffs are made when the
collectability of loan principal within a reasonable time is unlikely. Any
recoveries of previously charged-off loans are credited directly to the
allowance for loan losses.
TABLE 4
ALLOWANCE FOR LOAN AND LEASE LOSSES
- --------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------
Balance, beginning of period $40,858 $ 43,719 $40,167 $44,746
Recoveries 1,369 1,014 4,286 3,314
Chargeoffs (2,991) (3,827) (8,570) (11,257)
- --------------------------------------------------------------------------------------------------------
Net chargeoffs (1,622) (2,813) (4,284) (7,943)
Provision for loan losses 2,436 2,424 5,789 6,527
- --------------------------------------------------------------------------------------------------------
Balance, end of period $41,672 $43,330 $41,672 $43,330
========================================================================================================
COMPOSITION OF NET CHARGEOFFS
- --------------------------------------------------------------------------------------------------------
Commercial and agricultural $ (603) 37% ($1,895) 67% $(1,453) 33% ($4,212) 53%
Real estate mortgage (2) 1% (204) 7% 76 0% (575) 7%
Consumer (1,017) 62% (714) 26% (2,907) 67% (3,156) 40%
- --------------------------------------------------------------------------------------------------------
Net chargeoffs $(1,622) 100% ($2,813) 100% $(4,284) 100% ($7,943) 100%
- --------------------------------------------------------------------------------------------------------
Annualized net chargeoffs
to average loans 0.25% 0.48% 0.24% 0.46%
========================================================================================================
Nonperforming assets consist of nonaccrual loans, loans 90 days or more past
due, trouble debt 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 $19.0 million at September 30, 2003, compared to
$30.5 million at December 31, 2002, and $35.1 million at September 30, 2002. The
decrease in nonperforming assets resulted primarily from the Company's focus on
reducing nonperforming loans. Nonperforming loans totaled $16.5 million at
September 30, 2003, down from the $26.4 million outstanding at December 31,
-30-
2002. The $9.9 million decrease in nonperforming loans from December 31, 2002 to
September 30, 2003 was due primarily to the Company's successful efforts in
selling certain large problematic commercial loans as well as a group of
nonperforming real estate mortgages at approximately their book value.
Nonaccrual commercial and agricultural loans decreased $6.1 million, from $17.0
million at December 31, 2002, to $10.8 million at September 30, 2003. Nonaccrual
real estate mortgages decreased $3.7 million, from $5.5 million at December 31,
2002, to $1.9 million at September 30, 2003.
In addition to the nonperforming loans discussed above, the Company has also
identified approximately $56.5 million in potential problem loans at September
30, 2003 as compared to $48.5 million at December 31, 2002. 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
nonperforming 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" or lower. At September 30, 2003,
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.
Net charge-offs totaled $1.6 million for the three months ended September 30,
2003, down $1.2 million from the $2.8 million charged-off during the same period
in 2002. Despite improvements in nonperforming loans and lower net charge-offs,
the provision for loan and leases loss remained relatively unchanged, totaling
$2.4 million for the three months ended September 30, 2003 and 2002. The amount
of provision for the three months ended September 30, 2003 was driven primarily
by strong loan growth during the period (11% annualized growth rate from
December 31, 2002) and weak local economic conditions, offset by the decrease in
net charge-offs and nonperforming loans.
Net charge-offs totaled $4.3 million for the nine months ended September 30,
2003, down $3.7 million from the $7.9 million charged-off during the same period
in 2002. The provision for loan and lease losses totaled $5.8 million for the
nine months ended September 30, 2003, down from the $6.5 million provided during
the same period in 2002.
-31-
TABLE 5
NONPERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
(dollars in thousands) 2003 2002 2002
- ----------------------------------------------------------------------------------------------------------
Commercial and agricultural $ 10,841 $ 16,980 $ 19,457
Real estate mortgage 1,857 5,522 8,024
Consumer 2,576 1,507 2,000
- ----------------------------------------------------------------------------------------------------------
Total nonaccrual loans 15,274 24,009 29,481
- ----------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 71 237 88
Real estate mortgage 721 1,325 625
Consumer 402 414 125
- ----------------------------------------------------------------------------------------------------------
Total loans 90 days or more past due and still accruing 1,194 1,976 838
- ----------------------------------------------------------------------------------------------------------
Restructured loans in compliance with modified terms - 409 412
- ----------------------------------------------------------------------------------------------------------
Total nonperforming loans 16,468 26,394 30,731
- ----------------------------------------------------------------------------------------------------------
Other real estate owned (OREO) 1,871 2,947 3,092
- ----------------------------------------------------------------------------------------------------------
Total nonperforming loans and OREO 18,339 29,341 33,823
==========================================================================================================
Nonperforming securities 619 1,122 1,312
- ----------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 18,958 $ 30,463 $ 35,135
==========================================================================================================
Total nonperforming loans to loans and leases 0.65% 1.12% 1.30%
Total nonperforming assets to assets 0.47% 0.82% 0.94%
Total allowance for loan and lease losses
to nonperforming loans 253.05% 152.18% 141.00%
==========================================================================================================
Deposits
- --------
Total deposits were $3.0 billion at September 30, 2003, an increase of $49.0
million, or 2%, from December 31, 2002, and an increase of $49.1 million, or 2%,
from the same period in the prior year. Total average deposits increased $34.4
million, or 1%, from the three months ended September 30, 2002 to the same
period in 2003. The Company experienced a decline in time deposits, as average
time deposits declined $156.7 million or 12%, from the three months ended
September 30, 2002 to the same period in 2003. Meanwhile, the total of average
demand deposits, money market deposits, NOW, and savings increased $233.8
million or 15%, from the three months ended September 30, 2002 to the same
period in 2003. 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 municipal and jumbo time
deposits. The Company may price municipal and jumbo time deposits more
aggressively if liquidity needs increase. At September 30, 2003, total checking,
savings and money market accounts represented 62% of total deposits compared to
55% at September 30, 2002.
Borrowings
- ----------
The Company's borrowed funds consist of short-term borrowings and long-term
debt. Short-term borrowings totaled $332.0 million at September 30, 2003
compared to $105.6 million and $113.3 million at December 31, and September 30,
2002, respectively. The increase in short-term borrowings resulted from strong
loan growth during the year and pre-investment of expected fourth quarter
investment securities cash flows at the end of September 2003. Long-term debt
was $369.7 million at September 30, 2003, compared to $345.5 million and $350.6
million at December 31, and September 30, 2002, respectively.
-32-
CAPITAL RESOURCES
Stockholders' equity of $304.7 million represents 7.5% of total assets at
September 30, 2003, compared with $287.6 million, or 7.7% in the comparable
period of the prior year, and $292.4 million, or 7.9% at December 31, 2002. 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
- -----------------------------------------------------------------------------------
As of and for the quarter ended
March 31 June 30 September 30
- -----------------------------------------------------------------------------------
2003
Tier 1 leverage ratio 6.71% 6.72% 6.77%
Tier 1 capital ratio 9.77% 9.44% 9.78%
Total risk-based capital ratio 11.02% 10.70% 11.03%
Cash dividends as a percentage of net income 47.87% 46.68% 47.13%
Per common share:
Book value $ 9.00 $ 9.19 $ 9.32
Tangible book value $ 7.50 $ 7.64 $ 7.79
===================================================================================
2002
Tier 1 leverage ratio 6.70% 6.78% 6.60%
Tier 1 capital ratio 9.97% 10.04% 9.74%
Total risk-based capital ratio 11.23% 11.30% 10.98%
Cash dividends as a percentage of net income 50.69% 50.12% 50.03%
Per common share:
Book value $ 8.09 $ 8.52 $ 8.79
Tangible book value $ 6.61 $ 7.05 $ 7.31
===================================================================================
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 2.17 at September 30,
2003 and 1.96 a year ago. The per share market price was 14.19 times annualized
earnings at September 30, 2003 and 12.82 times annualized earnings at September
30, 2002.
TABLE 7
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------------
Cash
Dividends
Quarter Ending High Low Close Declared
- --------------------------------------------------------------------------------------
2002
- --------------------------------------------------------------------------------------
March 31 $ 15.15 $13.15 $14.74 $ 0.170
June 30 19.32 14.00 18.07 0.170
September 30 18.50 16.36 17.27 0.170
December 31 18.60 14.76 17.07 0.170
======================================================================================
2003
- --------------------------------------------------------------------------------------
MARCH 31 $ 18.60 $16.76 $17.43 $ 0.170
JUNE 30 19.94 17.37 19.36 0.170
SEPTEMBER 30 21.76 19.24 20.25 0.170
======================================================================================
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STOCK REPURCHASE PLAN
- -----------------------
On July 22, 2002, the Company announced that it intended to repurchase up to one
million shares (approximately 3%) of its outstanding common stock from time to
time in open market and privately negotiated transactions. Since the
announcement of the Stock Repurchase Plan, the Company repurchased a total of
844,946 shares at an average price of $17.54 per share. Total cash allocated for
these repurchases during this period was $14.8 million. For the nine months
ended September 30, 2003, the Company repurchased 369,313 shares at an average
price of $17.57 per share.
On April 28, 2003, the Company announced that it intended to repurchase up to an
additional one million shares (approximately 3%) of its outstanding common stock
from time to time in open market and privately negotiated transactions.
Currently there are 155,054 shares remaining under the previous authorization
that will be repurchased prior to the commencement of the new program.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
MARKET RISK
Interest rate risk is among 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.
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.
-34-
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. Three additional models are run with static balance sheets; (1) a
gradual increase of 200 bp, (2) a gradual increase of 200 bp where the long end
of the yield curve remains flat (the long end of the yield curve is defined as 5
years and longer) and (3) a gradual decrease of 75 bp takes place over a 12
month period with a static balance sheet. 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 scenario, net interest income is projected to decrease
slightly when compared to the forecasted net interest income in the flat rate
scenario through the simulation period. The decrease in net interest income is a
result of interest-bearing liabilities repricing downward at a slower rate than
earning assets. The inability to effectively lower deposit rates will likely
reduce or eliminate the benefit of lower interest rates. In the rising rate
scenarios of rates rising gradually 200 bp and the long end of the yield curve
remains flat and the short end of the curve increases 200 bp gradually, net
interest income is also projected to experience declines 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 the + 200/+ 200 flat/- 75 bp
scenarios, as described above, is within the internal policy risk limits of not
more than a 7.5% 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 September 30, 2003 balance sheet position:
TABLE 10
INTEREST RATE SENSITIVITY ANALYSIS
------------------------------------------------------------
CHANGE IN INTEREST RATES PERCENT CHANGE IN
(IN BASIS POINTS) NET INTEREST INCOME
------------------------------------------------------------
+ 200 FLAT (2.04%)
+ 200 (1.11%)
- 75 (0.06%)
------------------------------------------------------------
Currently, the Company is holding fixed rate residential real estate mortgages
in its loan portfolio and mortgage related securities in its investment
portfolio. Two major factors the Company considers in holding residential real
estate mortgages is its level of core deposits and the duration of its
mortgage-related securities and loans. Current core deposit levels combined with
a shortening of duration of mortgage-related securities and loans have enabled
the Company to hold fixed rate residential real estate mortgages without having
a significant negative impact on interest rate risk, as the Company is well
matched at September 30, 2003. The Company's net interest income is projected to
decrease by 1.11% if interest rates gradually rise 200 basis points. The
Company's exposure to 30-year fixed rate mortgage related securities and loans
have decreased approximately $91.8 million from September 30, 2002 to September
30, 2003. From December 31, 2002, we have reduced our exposure to 30-year fixed
rate mortgage related securities and loans by $54.4 million. Approximately 11.5%
of earning assets were comprised of 30-year fixed rate mortgage related
securities and loans at September 30, 2003, down from a ratio of 15.1% at
September 30, 2002. The Company closely monitors its matching of earning assets
to funding sources. If core deposit levels decrease or the rate of growth in
core deposit levels does not equal or exceed the rate in growth of 30-year fixed
rate real estate mortgage related securities or loans, the Company will
reevaluate its strategy and may sell new originations of fixed rate mortgages in
-35-
the secondary market or may sell certain mortgage related securities in order to
limit the Company's exposure to long-term earning assets.
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 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 September 30, 2003,
the Company's Basic Surplus measurement was 9.0% of total assets or $366
million, which was above the Company's minimum of 5% or $202 million set forth
in its liquidity policies.
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 September 30, 2003, the
Company considered its Basic Surplus adequate to meet liquidity needs.
The Company's primary source of funds is from its subsidiary, NBT Bank. Certain
restrictions exist regarding the ability of the Company's 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). At September 30, 2003, approximately $22.5 million of the total
stockholders' equity of NBT Bank was available for payment of dividends to the
Company without approval by the OCC. NBT Bank's ability to pay dividends also is
subject to the Bank being in compliance with regulatory capital requirements.
NBT 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.
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.
-36-
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer evaluated the effectiveness of the design and operation
of the Company's disclosure controls and procedures (as defined in Rule
13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this report. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, the
Company's disclosure controls and procedures were effective in ensuring that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions
rules and forms.
There were no changes made in the Company's internal controls over financial
reporting that occurred during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 5 -- Other Information
On October 27, 2003, NBT Bancorp Inc. announced the declaration of a regular
quarterly cash dividend of $0.17 per share. The cash dividend will be paid on
December 15, 2003 to stockholders of record as of December 1, 2003.
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Form of Employment Agreement between NBT Bancorp Inc. and Daryl
R. Forsythe made as of August 2, 2003.
10.2 Form of Employment Agreement between NBT Bancorp Inc. and Martin
A. Dietrich made as of August 2, 2003.
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Written Statement of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Written Statement of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) During the quarter ended September 30, 2003, the Company filed the
following Current Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated July 29, 2003,
which contained a press release announcing financial results for the quarter and
six months ended June 30, 2003 and a dividend declaration to be paid on
September 15, 2003 to stockholders of record as of September 1, 2003.
-37-
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 12th day of November 2003.
NBT BANCORP INC.
By: /s/ MICHAEL J. CHEWENS
------------------------
Michael J. Chewens, CPA
Senior Executive Vice President
Chief Financial Officer and Corporate Secretary
-38-
Index to Exhibits
10.1 Form of Employment Agreement between NBT Bancorp Inc. and Daryl
R. Forsythe made as of August 2, 2003.
10.2 Form of Employment Agreement between NBT Bancorp Inc. and Martin
A. Dietrich made as of August 2, 2003.
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Written Statement of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Written Statement of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
-39-
EXHIBIT 10.1
Form of Employment Agreement between NBT Bancorp Inc. and Daryl R. Forsythe made
as of August 2, 2003.
-40-
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of the
second day of August 2003, 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
until December 31, 2004 and chairman and chief executive officer of NBTB until
December 31, 2005 at which time the Executive shall retire as an active
employee. Commencing January 1, 2006 and continuing for as long as Executive is
a member of the NBTB Board of Directors, Executive agrees to serve as chairman
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 Agreement, 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 Agreement
-----------------
-41-
(a) The term of this Agreement ("Term of Agreement") 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 is no longer a director of NBTB;
(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;
(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
-42-
(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 Agreement shall be
terminated for any reason other than that set forth in section 2(a)(iii),
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 Agreement shall be
terminated for the reason set forth in section 2(a)(iii), 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 first 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
-43-
"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 $425,000 in 2003 and $450,000 in 2004 and
2005. 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.
(iii) Commencing on January 1, 2006, Executive, as Chairman, shall
receive all director compensation in effect as of this date
except: Executive's annual retainer shall be $50,000
(Un-Restricted Stock); Executive shall be eligible for 5000 stock
options per year based on attendance; Executive shall receive
$1000 in fees for each board and committee meeting attended.
(b) Employee Benefit Plans or Arrangements. Until December
--------------------------------------
31, 2005, 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,
-44-
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 and NBT Performance Share Plan. Each
--------------------------------------------
January or February annually until December 31, 2005, 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. In addition, until December 31,
2005, Executive shall be entitled to participate in any NBTB Performance Share
Plan (the "Performance Share Plan") as applicable to officers of Executive's
rank, and further, upon Executive's retirement as of December 31, 2005,
Executive shall be eligible to receive a payout from any Performance Share Plan
in effect as of December 31, 2005 as if Executive were employed for the duration
of any current plans. For the purpose of payout calculations, it will be
assumed that the plans in existence as of December 31, 2005 meet budget as a
minimum during those years, if any, that are subsequent to Executive's
retirement.
(d) Vacation and Sick Leave. Until December 31, 2005,
-----------------------
Executive shall be entitled to paid annual vacation periods and sick leave in
accordance with the policies of NBTB as may be applicable to officers of
Executive's rank employed by NBTB or its affiliates, or as may be modified by
NBTB from time to time but in no event less than five weeks of paid vacation
while employed as a full time employee during any year of the Term of Agreement.
(e) Automobile. Until December 31, 2005, 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 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). Commencing January 1, 2006, ownership of the automobile in use by the
Executive as of that date, shall pass without expense except for applicable
taxes to the Executive and Executive shall be responsible for all future
expenses of ownership and use of such automobile.
(f) Country Club Dues. During the Term of Agreement,
-----------------
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).
-45-
(g) Withholding. Until December 31, 2005, all compensation
-----------
to be paid to Executive hereunder shall be subject to required withholding and
other taxes.
(h) Expenses. During the Term of Agreement, 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.
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.
-46-
(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. Furthermore, unless
otherwise specified or agreed to by NBTB and the Executive, all policies on the
Executive that are in effect as of December 31, 2005 shall remain in force.
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.
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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.
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
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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
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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 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/ Andrew Kowalczyk Jr.
------------------------
Andrew Kowalczyk, Jr.
Chairman of the Compensation
and Benefits Committee of
NBT Bancorp Inc.
DARYL R. FORSYTHE
/S/ Daryl R. Forsythe
---------------------
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EXHIBIT 10.2
Form of Employment Agreement between NBT Bancorp Inc. and Martin A. Dietrich
made as of January 1, 2000 and revised on January 1, 2002 and again on August 2,
2003.
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EMPLOYMENT AGREEMENT (REVISED)
This EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this
first day of January, 2000 and revised on January 1, 2002 and again on August 2,
2003, 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 agrees to serve as president and chief operating officer
of NBT Bank, National Association, a wholly-owned subsidiary of NBTB ("NBT
Bank") until December 31, 2003, as president and chief executive officer of NBT
Bank and as president of NBTB from January 1, 2004 to December 31, 2005 and then
as president and chief executive officer of NBTB as of January 1, 2006.
Further, Executive will continue to serve as a director of NBT Bank and in
addition, as of January 1, 2005, will be appointed a director of NBTB and stand
for election at the 2005 Annual Meeting 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 in the capacities delineated above 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 chairman of the board 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 and further agrees to appoint and subsequently nominate Executive to
the board of directors of NBTB as of January 1, 2005.
(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 chairman of the board 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
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permission of the chairman of the board 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 fifth 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:
(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
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(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 third anniversary of the Commencement 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.
(iii) if, within eighteen (18) months following the
Termination Date, Executive should sell his principal residence in the Norwich
Rand McNally Metropolitan Area as determined by Rand McNally & Company (the
"Norwich RMA") and relocate to a place outside of the Norwich 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
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determined by the chief financial officer of NBTB, for such residence, and
including direct, necessary and reasonable expenses, as determined by the chief
financial officer of NBTB, incurred to prepare the residence for sale, (B)
reimbursement for direct, necessary and reasonable expenses, as determined by
the chief financial officer 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 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 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(g)
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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 Norwich
RMA and relocate to a place outside of the Norwich 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 chief
financial officer of NBTB, for such residence, and including direct, necessary
and reasonable expenses, as determined by the chief financial officer of NBTB,
incurred to prepare the residence for sale, (B) reimbursement for direct,
necessary and reasonable expenses, as determined by the chief financial officer
of NBTB, 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:
------
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(i) NBTB shall pay Executive a salary, which, on an annual
basis, shall not be less than $281,0000 during 2003, $310,000 during 2004 and
$350,000 during 2005. Salary commencing on January 1, 2006 will be negotiated
between Executive and the chairman of the board of NBTB based on recommendations
from the NBTB Compensation and Benefits Committee but in no case less than
$350,000. 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 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 and NBT Performance Share Plan. 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. In addition, Executive shall be
entitled to participate in any NBTB Performance Share Plan (the "Performance
Share Plan") as applicable to officers of Executive's rank.
(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 and model of which automobile shall be appropriate to an officer of
Executive's rank, and which shall 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 any such automobile,
subject to reimbursement of expenses for business use in accordance with section
3(h).
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(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.
(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
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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,
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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. 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.
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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 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
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
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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
MARTIN A. DIETRICH
/S/ Martin A. Dietrich
----------------------
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EXHIBIT 31.1
CERTIFICATIONS
I, Daryl R. Forsythe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NBT Bancorp Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operations of internal controls which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: November 12, 2003
By: /s/ Daryl R. Forsythe
---------------------
Chairman and Chief Executive
Officer
EXHIBIT 31.2
CERTIFICATIONS
I, Michael J. Chewens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NBT Bancorp Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operations of internal controls which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: November 12, 2003
By: /s/ Michael J. Chewens
----------------------
Senior Executive Vice President,
Chief Financial Officer and
Corporate Secretary
EXHIBIT 32.1
Written Statement of the Chief Executive Officer Pursuant to Section 906 of the
----------
Sarbanes-Oxley Act of 2002
- --------------------------
The undersigned, the Chief Executive Officer of NBT Bancorp Inc. (the
"Company"), hereby certifies that to his knowledge on the date hereof:
(a) the Form 10-Q of the Company for the Quarterly Period Ended September
30, 2003, filed on the date hereof with the Securities and Exchange
Commission (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ Daryl R. Forsythe
---------------------
Daryl R. Forsythe
Chairman and Chief Executive Officer
November 12, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to NBT Bancorp Inc. and will be
retained by NBT Bancorp Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
EXHIBIT 32.2
Written Statement of the Chief Financial Officer Pursuant to Section 906 of the
----------
Sarbanes-Oxley Act of 2002
- --------------------------
The undersigned, the Chief Financial Officer of NBT Bancorp Inc. (the
"Company"), hereby certifies that to his knowledge on the date hereof:
(a) the Form 10-Q of the Company for the Quarterly Period Ended September
30, 2003, filed on the date hereof with the Securities and Exchange
Commission (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ Michael J. Chewens
----------------------
Michael J. Chewens
Senior Executive Vice President Chief Financial
Officer and Corporate Secretary
November 12, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to NBT Bancorp Inc. and will be
retained by NBT Bancorp Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.