UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION WASHINGTON, DC 20549
FORM
10-K
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR
THE
FISCAL YEAR ENDED DECEMBER 31, 2005
OR
o
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)
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Delaware
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16-1268674
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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52
SOUTH
BROAD STREET
NORWICH,
NEW YORK 13815
(Address
of principal executive office) (Zip Code)
(607)
337-2265 (Registrant’s telephone number, including area code)
Securities
registered pursuant to section 12(b) of the Act: None
Securities
registered pursuant to section 12(g) of the Act: Common Stock ($0. 01 par value
per share)
Stock
Purchase Rights Pursuant to Stockholders Rights Plan
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes x
No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15 (d) of the Act. Yes o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to item 405 of
Regulation S-K (Section 299.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K o.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer x
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Accelerated
filer o
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Non-accelerated
filer o
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Indicate
by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).
o
Yes
x
No
Based
upon the closing price of the registrant’s common stock as of June 30, 2005, the
aggregate market value of the voting stock, common stock, par value, $0.01
per
share, held by non-affiliates of the registrant is $765,237,485
The
number of shares of Common Stock outstanding as of February 28, 2006, was
34,454,675.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive Proxy Statement for it’s Annual Meeting of
Stockholders to be held on May 2, 2006 are incorporated by reference into Part
III, Items 10, 11, 12, 13 and 14 of this Form 10-K.
1
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I
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Description
of Business
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Average
Balance Sheets
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Net
Interest Income Analysis -Taxable Equivalent Basis
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Net
Interest Income and Volume/Rate Variance-Taxable Equivalent
Basis
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Securities
Portfolio
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Debt
Securities -Maturity Schedule
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Loans
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Maturities
and Sensitivities of Loans to Changes in Interest Rates
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Nonperforming
Assets
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Allowance
for Loan Losses
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Maturity
Distribution of Time Deposits
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Return
on Equity and Assets
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Short-Term
Borrowings
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II
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2
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III
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IV
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(a)
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(1)
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Financial
Statements (See Item 8 for Reference).
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(2)
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Financial
Statement Schedules normally required on Form 10-K are omitted since
they
are not applicable.
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(3)
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Exhibits.
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(b)
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Refer
to item 15(a)(3)above.
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(c)
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Refer
to item 15(a)(2) above.
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*
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Information
called for by Part III (Items 10 through 14) is incorporated by reference
to the Registrant’s Proxy Statement for the 2006 Annual Meeting of
Stockholders.
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BUSINESS
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NBT
Bancorp Inc. (the “Registrant” or the “Company”) is a registered financial
holding company incorporated in the state of Delaware in 1986, with its
principal headquarters located in Norwich, New York. The Company, on a
consolidated basis, at December 31, 2005 had assets of $4.4 billion and
stockholders’ equity of $334 million. The Registrant is the parent holding
company of NBT Bank, N.A. (“the Bank”), NBT Financial Services, Inc. (“NBT
Financial”), CNBF Capital Trust I, NBT Statutory Trust I, and NBT Statutory
Trust II (“the Trusts”) (see Note 12 to the Notes to Consolidated Financial
Statements). Through the Bank and NBT Financial, the Company is focused on
community banking operations. The Trusts were organized to raise additional
regulatory capital and to provide funding for certain acquisitions. The
Registrant’s primary business consists of providing commercial banking and
financial services to its customers in its market area. The principal assets
of
the Registrant are all of the outstanding shares of common stock of its direct
subsidiaries, and its principal sources of revenue are the management fees
and
dividends it receives from the Bank and NBT Financial.
The
Bank
is a full service commercial bank formed in 1856, which provides a broad range
of financial products to individuals, corporations and municipalities throughout
the central and upstate New York and northeastern Pennsylvania market area.
The
Bank conducts business through two geographic operating divisions, NBT Bank
and
Pennstar Bank.
The
NBT
Bank division has 74 divisional offices and 100 automated teller machines
(ATMs), located primarily in central and upstate New York. At December 31,
2005,
NBT Bank had total loans and leases of $2.3 billion and total deposits of $2.4
billion.
The
Pennstar Bank division has 39 divisional offices and 54 ATMs, located primarily
in northeastern Pennsylvania. At December 31, 2005, Pennstar Bank had total
loans and leases of $677.3 million and total deposits of $806.4
million.
The
Bank
has six operating subsidiaries, NBT Capital Corp., Pennstar Services Company,
Broad Street Property Associates, Inc., NBT Services, Inc., Pennstar Realty
Trust, and CNB Realty Trust. NBT Capital Corp., formed in 1998, is a venture
capital corporation formed to assist young businesses develop and grow in the
markets we serve. Broad Street Property Associates, Inc. formed in 2004, is
a
property management company. NBT Services, Inc. formed in 2004, is the holding
company of and has an 80% ownership interest in NBT Settlement Services, LLC.
NBT Settlement Services, formed in 2004, provides title insurance products
to
individuals and corporations. Pennstar Realty Trust, formed in 2000, and CNB
Realty Trust formed in 1998, are real estate investment trusts. Pennstar
Services Company, formed in 2002, provides services to the Pennstar Bank
division of the Bank.
NBT
Financial, formed in 1999, is the parent company of EPIC Advisors, Inc.
(“EPIC”). EPIC, acquired in January 2005, is a full service 401(k) plan
recordkeeping firm. During March 2005, NBT Financial sold M. Griffith, Inc.,
a
registered securities broker-dealer offering financial and retirement planning
as well as life, accident and health insurance.
CNBF
Capital Trust I (“Trust I”), a Delaware statutory business trust formed in 1999
and NBT Statutory Trust I, a Delaware statutory business trust formed in 2005,
for the purpose of issuing trust preferred securities and lending the proceeds
to the Company. In connection with the acquisition of CNB Bancorp, Inc.
mentioned below, the Company formed NBT Statutory Trust II (“Trust II”) in
February 2006 to fund the cash portion of the acquisition as well as to provide
regulatory capital. The Company raised $51.5 million through Trust II in
February 2006. The Company guarantees, on a limited basis, payments of
distributions on the trust preferred securities and payments on redemption
of
the trust preferred securities. The Trusts are variable interest entities (VIEs)
for which the Company is not the primary beneficiary, as defined in Financial
Accounting Standards Board Interpretation (“FIN”) No. 46 “Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51 (Revised December 2003) (FIN 46R).” In accordance with FIN 46R, the
accounts of the Trusts are not included in the Company’s consolidated financial
statements. See the Company’s accounting policy related to consolidation in Note
1 — Summary of Significant Accounting Policies in the notes to consolidated
financial statements included in Item 8 Financial Statements and Supplementary
Data, which is located elsewhere in this report.
Recent
Developments - Acquisition of CNB Bancorp, Inc.
On
February 10, 2006, the Company acquired CNB Bancorp, Inc. (“CNB”), a bank
holding company headquartered in Gloversville, New York. The acquisition was
accomplished by merging CNB with and into the Company. By virtue of this
acquisition, CNB’s banking subsidiary, City National Bank and Trust Company, was
merged with and into NBT Bank. City National Bank and Trust Company operated
9
full-service community banking offices - located in Fulton, Hamilton, Montgomery
and Saratoga counties, with approximately $400 million in assets. The Merger
increases the Company’s assets to approximately $4.9 billion.
In
connection with the Merger, the Company issued an aggregate of 2.1 million
shares of Company common stock and $39 million in cash to the former holders
of
CNB common stock.
CNB
nonqualified stock options, entitling holders to purchase CNB common stock
outstanding, were cancelled on the closing date and such option holders received
an option payment subject to the terms of the Merger Agreement. The total number
of CNB nonqualified stock options that were canceled was 103,545, which resulted
in a cash payment to option holders before any applicable federal or state
withholding tax, of approximately $1.3 million. In accordance with the terms
of
the Merger Agreement, all outstanding CNB incentive stock options as of the
effective date were assumed by the Company. At that time, there were 144,686
CNB
incentive stock options that were exchanged for 237,278 replacement incentive
stock options of the Company.
Based
on
the $22.42 per share closing price of the Company’s common stock on February 10,
2006, the transaction is valued at approximately $88 million.
COMPETITION
The
banking and financial services industry in New York and Pennsylvania generally,
and in the Company’s market areas specifically, is highly competitive. The
increasingly competitive environment is primarily a result of changes in
regulation, changes in technology and product delivery systems, additional
financial service providers, and the accelerating pace of consolidation among
financial services providers. The Company competes for loans and leases,
deposits, and customers with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies, insurance
companies, finance companies, money market funds, credit unions, and other
nonbank financial service providers. Many of these competitors are much larger
in total assets and capitalization, have greater access to capital markets
and
offer a broader range of financial services than the Company. In order to
compete with other financial services providers, the Company stresses the
community nature of its banking operations and principally relies upon local
promotional activities, personal relationships established by officers,
directors, and employees with their customers, and specialized services tailored
to meet the needs of the communities served.
SUPERVISION
AND REGULATION
As
a bank
holding company, the Company is subject to extensive regulation, supervision,
and examination by the Board of Governors of the Federal Reserve System (“FRS”)
as its primary federal regulator. The Company also has elected to be registered
with the FRS as a financial holding company. The Bank, as a nationally chartered
bank, is subject to extensive regulation, supervision and examination by the
Office of the Comptroller of the Currency (“OCC”) as its primary federal
regulator and, as to certain matters, by the FRS and the Federal Deposit
Insurance Corporation (“FDIC”).
The
Company is subject to capital adequacy guidelines of the FRS. The guidelines
apply on a consolidated basis and require bank holding companies to maintain
a
minimum ratio of Tier 1 capital to total average assets (or “leverage ratio”) of
4%. For the most highly rated bank holding companies, the minimum ratio is
3%.
The FRS capital adequacy guidelines also require bank holding companies to
maintain a minimum ratio of Tier 1 capital to risk-weighted assets of 4% and
a
minimum ratio of qualifying total capital to risk-weighted assets of 8%. As
of
December 31, 2005, the Company’s leverage ratio was 7.16%, its ratio of Tier 1
capital to risk-weighted assets was 9.80%, and its ratio of qualifying total
capital to risk-weighted assets was 11.05%. The FRS may set higher minimum
capital requirements for bank holding companies whose circumstances warrant
it,
such as companies anticipating significant growth or facing unusual risks.
The
FRS has not advised the Company of any special capital requirement applicable
to
it.
Any
holding company whose capital does not meet the minimum capital adequacy
guidelines is considered to be undercapitalized and is required to submit an
acceptable plan to the FRS for achieving capital adequacy. Such a company’s
ability to pay dividends to its shareholders and expand its lines of business
through the acquisition of new banking or nonbanking subsidiaries also could
be
restricted.
The
Bank
is subject to leverage and risk-based capital requirements and minimum capital
guidelines of the OCC that are similar to those applicable to the Company.
As of
December 31, 2005, the Bank was in compliance with all minimum capital
requirements. The Bank’s leverage ratio was 6.89%, its ratio of Tier 1 capital
to risk-weighted assets was 9.40%, and its ratio of qualifying total capital
to
risk-weighted assets was 10.65%.
Under
FDIC regulations, no FDIC-insured bank can accept brokered deposits unless
it is
well capitalized, or is adequately capitalized and receives a waiver from the
FDIC. In addition, these regulations prohibit any bank that is not well
capitalized from paying an interest rate on brokered deposits in excess of
three-quarters of one percentage point over certain prevailing market rates.
As
of December 31, 2005, the Bank’s total brokered deposits were $209.3
million.
The
Bank
also is subject to substantial regulatory restrictions on its ability to pay
dividends to the Company. Under OCC regulations, the Bank may not pay a
dividend, without prior OCC approval, if the total amount of all dividends
declared during the calendar year, including the proposed dividend, exceed
the
sum of its retained net income to date during the calendar year and its retained
net income over the preceding two years. As of December 31, 2005, approximately
$58.5 million was available for the payment of dividends without prior OCC
approval. The Bank’s ability to pay dividends also is subject to the Bank being
in compliance with regulatory capital requirements. As indicated above, the
Bank
is currently in compliance with these requirements.
The
OCC
generally prohibits a depository institution from making any capital
distributions (including payment of a dividend) or paying any management fee
to
its parent holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized institutions are subject to growth
limitations and are required to submit a capital restoration plan. If a
depository institution fails to submit an acceptable capital restoration plan,
it is treated as if it is “significantly undercapitalized.” Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become “adequately capitalized,” requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks. “Critically
undercapitalized” institutions are subject to the appointment of a receiver or
conservator.
The
deposits of the Bank are insured up to regulatory limits by the FDIC and,
accordingly, are subject to deposit insurance assessments to maintain the
insurance funds administered by the FDIC. The deposits of the Bank historically
have been subject to deposit insurance assessments to maintain the Bank
Insurance Fund (“BIF”). Due to certain branch deposit acquisitions by the Bank
and its predecessors, some of the deposits of the Bank are subject to deposit
insurance assessments to maintain the Savings Association Insurance Fund
(“SAIF”).
The
FDIC
has adopted regulations establishing a risk-related deposit insurance assessment
system. Under this system, the FDIC has placed each insured bank in one of
nine
risk categories based on the bank’s capitalization and supervisory evaluations
provided to the FDIC by the institution’s primary federal regulator. Each
insured bank’s insurance assessment rate has been determined by the risk
category in which it is classified by the FDIC.
In
light
of the favorable financial situation of the federal deposit insurance funds
and
the low number of depository institution failures, since January 1, 1997, the
annual insurance premiums on bank deposits insured by the BIF or the SAIF have
varied between $0.00 per $100 of deposits for banks classified in the highest
capital and supervisory evaluation categories to $0.27 per $100 of deposits
for
banks classified in the lowest capital and supervisory evaluation categories.
BIF and SAIF assessment rates have been subject to semi-annual adjustment by
the
FDIC within a range of up to five basis points without public comment. The
FDIC
also has possessed authority to impose special assessments from time to
time.
The
Federal Deposit Insurance Reform Act of 2005, was signed into law on February
8,
2006, and gives the FDIC increased flexibility in assessing premiums on banks
and savings associations, including the Bank, to pay for deposit insurance
and
in managing its deposit insurance reserves. The reform legislation provides
a
credit to all insured institutions, based on the amount of their insured
deposits at year-end 1996, to offset the premiums that they may be assessed;
combines the BIF and SAIF to form a single Deposit Insurance Fund; increases
deposit insurance to $250,000 for Individual Retirement Accounts; and authorizes
inflation-based increases in deposit insurance on other accounts every 5 years,
beginning in 2011. The FDIC also is directed to conduct studies regarding
further deposit insurance reform.
The
Federal Deposit Insurance Act provides for additional assessments to be imposed
on insured depository institutions to pay for the cost of Financing Corporation
(“FICO”) funding. The FICO assessments are adjusted quarterly to reflect changes
in the assessment bases of the FDIC insurance funds and do not vary depending
upon a depository institution’s capitalization or supervisory evaluation. During
2005, FDIC-insured banks paid an average rate of approximately $0.017 per $100
for purposes of funding FICO bond obligations.
Transactions
between the Bank and any of its affiliates, including the Company, are governed
by sections 23A and 23B of the Federal Reserve Act and FRS regulations
thereunder. An “affiliate” of a bank is any company or entity that controls, is
controlled by, or is under common control with the bank. A subsidiary of a
bank
that is not also a depository institution is not treated as an affiliate of
the
bank for purposes of sections 23A and 23B, unless the subsidiary is also
controlled through a non-bank chain of ownership by affiliates or controlling
shareholders of the bank or the subsidiary engages in activities that are not
permissible for a bank to engage in directly (except insurance agency
subsidiaries). Generally, sections 23A and 23B are intended to protect insured
depository institutions from suffering losses arising from transactions with
non-insured affiliates, by limiting the extent to which a bank or its
subsidiaries may engage in covered transactions with any one affiliate and
with
all affiliates of the bank in the aggregate, and requiring that such
transactions be on terms that are consistent with safe and sound banking
practices. Sections 23A and 23B also regulate transactions by a bank with its
financial subsidiaries that it may operate as a result of the expanded authority
granted to national banks under the Gramm-Leach-Bliley Act (“GLB
Act”).
Under
the
GLB Act, a qualifying bank holding company, known as a financial holding
company, may engage in certain financial activities that a bank holding company
may not otherwise engage in under the Bank Holding Company Act (“BHC Act”). In
addition to engaging in banking and activities closely related to banking as
determined by the FRS by regulation or order prior to November 11, 1999, a
financial holding company may engage in activities that are financial in nature
or incidental to financial activities, or activities that are complementary
to a
financial activity and do not pose a substantial risk to the safety and
soundness of depository institutions or the financial system
generally.
The
GLB
Act requires all financial institutions, including the Company and the Bank,
to
adopt privacy policies, restrict the sharing of nonpublic customer data with
nonaffiliated parties at the customer’s request, and establish procedures and
practices to protect customer data from unauthorized access. In addition, the
Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”) includes many
provisions concerning national credit reporting standards, and permits
consumers, including customers of the Company, to opt out of information sharing
among affiliated companies for marketing purposes. The FACT Act also requires
banks and other financial institutions to notify their customers if they report
negative information about them to a credit bureau or if they are granted credit
on terms less favorable than those generally available. The Company has
developed policies and procedures for itself and its subsidiaries, including
the
Bank, and believes it is in compliance with all privacy, information sharing,
and notification provisions of the GLB Act and the FACT Act.
Under
Title III of the USA PATRIOT Act, also known as the International Money
Laundering Abatement and Anti-Terrorism Financing Act of 2001, all financial
institutions, including the Company and the Bank, are required in general to
identify their customers, adopt formal and comprehensive anti-money laundering
programs, scrutinize or prohibit altogether certain transactions of special
concern, and be prepared to respond to inquiries from U.S. law enforcement
agencies concerning their customers and their transactions. The USA PATRIOT
Act
also encourages information-sharing
among financial institutions, regulators, and law enforcement authorities by
providing an exemption from the privacy provisions of the GLB Act for financial
institutions that comply with this provision. The effectiveness of a financial
institution in combating money laundering activities is a factor to be
considered in any application submitted by the financial institution under
the
Bank Merger Act, which applies to the Bank, or the BHC Act, which applies to
the
Company. Failure of a financial institution to maintain and implement adequate
programs to combat money laundering and terrorist financing, or to comply with
all of the relevant laws or regulations, could have serious legal, financial
and
reputational consequences for the institution.
As of
December 31, 2005, the Company and the Bank believe they are in compliance
with
the USA PATRIOT Act and regulations thereunder.
The
Sarbanes-Oxley Act of 2002 implemented a broad range of measures to increase
corporate responsibility, enhance penalties for accounting and auditing
improprieties at publicly traded companies, and protect investors by improving
the accuracy and reliability of corporate disclosures for companies that have
securities registered under the Exchange Act, including publicly-held bank
holding companies such as the Company. It includes very specific additional
disclosure requirements and new corporate governance rules, requires the SEC
and
securities exchanges to adopt extensive additional disclosure, corporate
governance and other related rules, and mandates further studies of certain
issues by the SEC and the Comptroller General. The Act represents significant
federal involvement in matters traditionally left to state regulatory systems,
such as the regulation of the accounting profession, and to state corporate
law,
such as the relationship between a board of directors and management and between
a board of directors and its committees. In addition, the federal banking
regulators have adopted generally similar requirements concerning the
certification of financial statements by bank officials.
Beginning
in March 2005, home mortgage lenders, including banks, were required under
the
Home Mortgage Disclosure Act to make available to the public expanded
information regarding the pricing of home mortgage loans, including the “rate
spread” between the interest rate on loans and certain Treasury securities and
other benchmarks. The availability of this information has led to increased
scrutiny of higher-priced loans at all financial institutions to detect illegal
discriminatory practices and to the initiation of a limited number of
investigations by federal banking agencies and the U.S. Department of Justice.
The Company has no information that it or its affiliates is the subject of
any
investigation.
The
Bankruptcy Abuse Prevention and Consumer Protection Act amended the U.S.
Bankruptcy Code, effective October 17, 2005. Under the new law, the ability
of
consumers to discharge their debts in bankruptcy is limited by a needs-based
test, and more debtors than in the past are expected to enter into repayment
programs with their creditors. The law also provides for pre-bankruptcy credit
counseling, limits certain homestead exemptions, limits the discharge of debt
incurred for the purchase of certain luxury items, and extends from 6 years
to 8
years the minimum time between successive bankruptcy discharges.
Periodic
disclosures by companies in various industries of the loss or theft of
computer-based nonpublic customer information has led to the introduction in
Congress of several bills to establish national standards for the safeguarding
of such information and the disclosure of security breaches. Several committees
of both houses of Congress have announced plans to conduct hearings on data
security and related issues.
EMPLOYEES
At
December 31, 2005, the Company had 1,184 full-time equivalent employees. The
Company’s employees are not presently represented by any collective bargaining
group. The Company considers its employee relations to be good.
AVAILABLE
INFORMATION
The
Company’s website is http://www.nbtbancorp.com.
The
Company makes available free of charge through its website, its annual reports
on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K;
and
any amendments to those reports led or furnished pursuant to the Securities
Exchange Act of 1934 as soon as reasonably practicable after such material
is
electronically filed with, or furnished to the SEC. The reference to our website
does not constitute incorporation by reference of the information contained
in
the website and should not be considered part of this document.
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RISK
FACTORS
|
There
are
risks inherent to the Company’s business. The material risks and uncertainties
that management believes affect the Company are described below. The risks
and
uncertainties described below are not the only ones facing the Company.
Additional risks and uncertainties that management is not aware of or focused
on
or that management currently deems immaterial may also impair the Company’s
business operations. This report is qualified in its entirety by these risk
factors. If any of the following risks actually occur, the Company’s financial
condition and results of operations could be materially and adversely affected.
The
Company is Subject to Interest Rate Risk
The
Company’s earnings and cash flows are largely dependent upon its net interest
income. Net interest income is the difference between interest income earned
on
interest-earning assets such as loans and securities and interest expense paid
on interest-bearing liabilities such as deposits and borrowed funds. Interest
rates are highly sensitive to many factors that are beyond the Company’s
control, including general economic conditions and policies of various
governmental and regulatory agencies and, in particular, the Board of Governors
of the Federal Reserve System. Changes in monetary policy, including changes
in
interest rates, could influence not only the interest the Company receives
on
loans and securities and the amount of interest it pays on deposits and
borrowings, but such changes could also affect (i) the Company’s ability to
originate loans and obtain deposits, (ii) the fair value of the Company’s
financial assets and liabilities, and (iii) the average duration of the
Company’s mortgage-backed securities portfolio. If the interest rates paid on
deposits and other borrowings increase at a faster rate than the interest rates
received on loans and other investments, the Company’s net interest income, and
therefore earnings, could be adversely affected. Earnings could also be
adversely affected if the interest rates received on loans and other investments
fall more quickly than the interest rates paid on deposits and other
borrowings.
Although
management believes it has implemented effective asset and liability management
strategies to reduce the potential effects of changes in interest rates on
the
Company’s results of operations, any substantial, unexpected, prolonged change
in market interest rates could have a material adverse effect on the Company’s
financial condition and results of operations. See the section captioned “Net
Interest Income” in Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the section captioned “Impact of
Inflation and Changing Prices” in Item 7A. Quantitative and Qualitative
Disclosure About Market Risk located elsewhere in this report for further
discussion related to the Company’s management of interest rate
risk.
The
Company is Subject to Lending Risk
There
are
inherent risks associated with the Company’s lending activities. These risks
include, among other things, the impact of changes in interest rates and changes
in the economic conditions in the markets where the Company operates as well
as
those across the States of New York and Pennsylvania, as well as the entire
United States. Increases in interest rates and/or weakening economic conditions
could adversely impact the ability of borrowers to repay outstanding loans
or
the value of the collateral securing these loans. The Company is also subject
to
various laws and regulations that affect its lending activities. Failure to
comply with applicable laws and regulations could subject the Company to
regulatory enforcement action that could result in the assessment of significant
civil money penalties against the Company.
As
of
December 31, 2005, approximately 43% of the Company’s loan and lease portfolio
consisted of commercial, construction and commercial real estate loans. These
types of loans are generally viewed as having more risk of default than
residential real estate loans or consumer loans. These types of loans are also
typically larger than residential real estate loans and consumer loans. Because
the Company’s loan portfolio contains a significant number of commercial and
industrial, construction and commercial real estate loans with relatively large
balances, the deterioration of one or a few of these loans could cause a
significant increase in non-performing loans. An increase in nonperforming
loans
could result in a net loss of earnings from these loans, an increase in the
provision for loan losses and an increase in loan charge-offs, all of which
could have a material adverse effect on the Company’s financial condition and
results of operations. See the section captioned “Loans and Leases and
Corresponding Interest and Fees on Loans” in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations located elsewhere
in
this report for further discussion related to commercial and industrial,
construction and commercial real estate loans.
The
Company’s Allowance For Loan and Lease Losses May Be
Insufficient
The
Company maintains an allowance for loan and lease losses, which is an allowance
established through a provision for loan and lease losses charged to expense,
that represents management’s best estimate of probable losses that have been
incurred within the existing portfolio of loans and leases. The allowance,
in
the judgment of management, is necessary to reserve for estimated loan and
lease
losses and risks inherent in the loan and lease portfolio. The level of the
allowance reflects management’s continuing evaluation of industry
concentrations; specific credit risks; loan loss experience; current loan and
lease portfolio quality; present economic, political and regulatory conditions
and unidentified losses inherent in the current loan portfolio. The
determination of the appropriate level of the allowance for loan and lease
losses inherently involves a high degree of subjectivity and requires the
Company to make significant estimates of current credit risks and future trends,
all of which may undergo material changes. Changes in economic conditions
affecting borrowers, new information regarding existing loans, identification
of
additional problem loans and other factors, both within and outside of the
Company’s control, may require an increase in the allowance for loan losses. In
addition, bank regulatory agencies periodically review the Company’s allowance
for loan losses and may require an increase in the provision for loan losses
or
the recognition of further loan charge-offs, based on judgments different than
those of management. In addition, if charge-offs in future periods exceed the
allowance for loan and lease losses, the Company will need additional provisions
to increase the allowance for loan and lease losses. These increases in the
allowance for loan and lease losses will result in a decrease in net income
and,
possibly, capital, and may have a material adverse effect on the Company’s
financial condition and results of operations. See the section captioned “Risk
Management - Credit Risk” in Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations located elsewhere in this report
for further discussion related to the Company’s process for determining the
appropriate level of the allowance for loan and losses.
The
Company’s Profitability Depends Significantly on Economic Conditions in Upstate
New York and Northeastern Pennsylvania
The
Company’s success depends primarily on the general economic conditions of
upstate New York and northeastern Pennsylvania and the specific local markets
in
which the Company operates. Unlike larger national or other regional banks
that
are more geographically diversified, the Company provides banking and financial
services to customers primarily in the upstate New York areas of Norwich,
Oneonta, Amsterdam-Gloversville, Albany, Binghamton, Utica-Rome, Plattsburg,
and
Ogdensburg-Massena and northeastern Pennsylvania areas of Scranton, Wilkes-Barre
and East Stroudsburg. The local economic conditions in these areas have a
significant impact on the demand for the Company’s products and services as well
as the ability of the Company’s customers to repay loans, the value of the
collateral securing loans and the stability of the Company’s deposit funding
sources. A significant decline in general economic conditions, caused by
inflation, recession, acts of terrorism, outbreak of hostilities or other
international or domestic occurrences, unemployment, changes in securities
markets or other factors could impact these local economic conditions and,
in
turn, have a material adverse effect on the Company’s financial condition and
results of operations.
The
Company Operates In A Highly Competitive Industry and Market
Area
The
Company faces substantial competition in all areas of its operations from a
variety of different competitors, many of which are larger and may have more
financial resources. Such competitors primarily include national, regional,
and
community banks within the various markets the Company operates. Additionally,
various out-of-state banks continue to enter or have announced plans to enter
the market areas in which the Company currently operates. The Company also
faces
competition from many other types of financial institutions, including, without
limitation, savings and loans, credit unions, finance companies, brokerage
firms, insurance companies, factoring companies and other financial
intermediaries. The financial services industry could become even more
competitive as a result of legislative, regulatory and technological changes
and
continued consolidation. Banks, securities firms and insurance companies can
merge under the umbrella of a financial holding company, which can offer
virtually any type of financial service, including banking, securities
underwriting, insurance (both agency and underwriting) and merchant banking.
Also, technology has lowered barriers to entry and made it possible for
non-banks to offer products and services traditionally provided by banks, such
as automatic transfer and automatic payment systems. Many of the Company’s
competitors have fewer regulatory constraints and may have lower cost
structures. Additionally, due to their size, many competitors may be able to
achieve economies of scale and, as a result, may offer a broader range of
products and services as well as better pricing for those products and services
than the Company can. The Company’s ability to compete successfully depends on a
number of factors, including, among other things:
•
The
ability to develop, maintain and build upon long-term customer relationships
based on top quality service, high ethical standards and safe, sound
assets.
•
The
ability to expand the Company’s market position.
•
The
scope, relevance and pricing of products and services offered to meet customer
needs and demands.
•
The
rate
at which the Company introduces new products and services relative to its
competitors.
•
Customer
satisfaction with the Company’s level of service.
•
Industry
and general economic trends.
Failure
to perform in any of these areas could significantly weaken the Company’s
competitive position, which could adversely affect the Company’s growth and
profitability, which, in turn, could have a material adverse effect on the
Company’s financial condition and results of operations.
The
Company Is Subject To Extensive Government Regulation and
Supervision
The
Company, primarily through NBT Bank and certain non-bank subsidiaries, is
subject to extensive federal regulation and supervision. Banking regulations
are
primarily intended to protect depositors’ funds, federal deposit insurance funds
and the banking system as a whole, not shareholders. These regulations affect
the Company’s lending practices, capital structure, investment practices,
dividend policy and growth, among other things. Congress and federal regulatory
agencies continually review banking laws, regulations and policies for possible
changes. Changes to statutes, regulations or regulatory policies, including
changes in interpretation or implementation of statutes, regulations or
policies, could affect the Company in substantial and unpredictable ways. Such
changes could subject the Company to additional costs, limit the types of
financial services and products the Company may offer and/or increase the
ability of non-banks to offer competing financial services and products, among
other things. Failure to comply with laws, regulations or policies could result
in sanctions by regulatory agencies, civil money penalties and/or reputation
damage, which could have a material adverse effect on the Company’s business,
financial condition and results of operations. While the Company has policies
and procedures designed to prevent any such violations, there can be no
assurance that such violations will not occur. See the section captioned
“Supervision and Regulation” in Item 1., which is located elsewhere in this
report.
The
Company’s Controls and Procedures May Fail or Be
Circumvented
Management
regularly reviews and updates the Company’s internal controls, disclosure
controls and procedures, and corporate governance policies and procedures.
Any
system of controls, however well designed and operated, is based in part on
certain assumptions and can provide only reasonable, not absolute, assurances
that the objectives of the system are met. Any failure or circumvention of
the
Company’s controls and procedures or failure to comply with regulations related
to controls and procedures could have a material adverse effect on the Company’s
business, results of operations and financial condition.
New
Lines of Business or New Products and Services May Subject The Company to
Additional Risks
From
time
to time, the Company may implement new lines of business or offer new products
and services within existing lines of business. There are substantial risks
and
uncertainties associated with these efforts, particularly in instances where
the
markets are not fully developed. In developing and marketing new lines of
business and/or new products and services the Company may invest significant
time and resources. Initial timetables for the introduction and development
of
new lines of business and/or new products or services may not be achieved and
price and profitability targets may not prove feasible. External factors, such
as compliance with regulations, competitive alternatives, and shifting market
preferences, may also impact the successful implementation of a new line of
business or a new product or service. Furthermore, any new line of business
and/or new product or service could have a significant impact on the
effectiveness of the Company’s system of internal controls. Failure to
successfully manage these risks in the development and implementation of new
lines of business or new products or services could have a material adverse
effect on the Company’s business, results of operations and financial
condition.
The
Company Relies on Dividends From Its Subsidiaries For Most Of Its
Revenue
The
Company is a separate and distinct legal entity from its subsidiaries. It
receives substantially all of its revenue from dividends from its subsidiaries.
These dividends are the principal source of funds to pay dividends on the
Company’s common stock and interest and principal on the Company’s debt. Various
federal and/or state laws and regulations limit the amount of dividends that
NBT
Bank may pay to the Company. Also, the Company’s right to participate in a
distribution of assets upon a subsidiary’s liquidation or reorganization is
subject to the prior claims of the subsidiary’s creditors. In the event NBT Bank
is unable to pay dividends to the Company, the Comapny may not be able to
service debt, pay obligations or pay dividends on the Company’s common
stock.
The
inability to receive dividends from NBT Bank could have a material adverse
effect on the Company’s business, financial condition and results of operations.
See the section captioned “Supervision and Regulation” in Item 1. Business and
Note 14 — Stockholders’ Equity in the notes to consolidated financial statements
included in Item 8. Financial Statements and Supplementary Data, which are
located elsewhere in this report.
The
Company May Not Be Able To Attract and Retain Skilled
People
The
Company’s success depends, in large part, on its ability to attract and retain
key people. Competition for the best people in most activities engaged in by
the
Company can be intense and the Company may not be able to hire people or to
retain them. The unexpected loss of services of one or more of the Company’s key
personnel could have a material adverse impact on the Company’s business because
of their skills, knowledge of the Company’s market, years of industry experience
and the difficulty of promptly finding qualified replacement personnel.
The
Company’s Information Systems May Experience An Interruption Or Breach In
Security
The
Company relies heavily on communications and information systems to conduct
its
business. Any failure, interruption or breach in security of these systems
could
result in failures or disruptions in the Company’s customer relationship
management, general ledger, deposit, loan and other systems. While the Company
has policies and procedures designed to prevent or limit the effect of the
failure, interruption or security breach of its information systems, there
can
be no assurance that any such failures, interruptions or security breaches
will
not occur or, if they do occur, that they will be adequately addressed. The
occurrence of any failures, interruptions or security breaches of the Company’s
information systems could damage the Company’s reputation, result in a loss of
customer business, subject the Company to additional regulatory scrutiny, or
expose the Company to civil litigation and possible financial liability, any
of
which could have a material adverse effect on the Company’s financial condition
and results of operations.
The
Company Continually Encounters Technological Change
The
financial services industry is continually undergoing rapid technological change
with frequent introductions of new technology-driven products and services.
The
effective use of technology increases efficiency and enables financial
institutions to better serve customers and to reduce costs. The Company’s future
success depends, in part, upon its ability to address the needs of its customers
by using technology to provide products and services that will satisfy customer
demands, as well as to create additional efficiencies in the Company’s
operations. Many of the Company’s competitors have substantially greater
resources to invest in technological improvements. The Company may not be able
to effectively implement new technology-driven products and services or be
successful in marketing these products and services to its customers. Failure
to
successfully keep pace with technological change affecting the financial
services industry could have a material adverse impact on the Company’s business
and, in turn, the Company’s financial condition and results of
operations.
Severe
Weather, Natural Disasters, Acts Of War Or Terrorism and Other External Events
Could Significantly Impact The Company’s Business
Severe
weather, natural disasters, acts of war or terrorism and other adverse external
events could have a significant impact on the Company’s ability to conduct
business. Such events could affect the stability of the Company’s deposit base,
impair the ability of borrowers to repay outstanding loans, impair the value
of
collateral securing loans, cause significant property damage, result in loss
of
revenue and/or cause the Company to incur additional expenses. Although
management has established disaster recovery policies and procedures, the
occurrence of any such event could have a material adverse effect on the
Company’s business, which, in turn, could have a material adverse effect on the
Company’s financial condition and results of operations.
The
Company’s Articles Of Incorporation, By-Laws and Stockholder Rights Plan As Well
As Certain Banking Laws May Have An Anti-Takeover
Effect
Provisions
of the Company’s articles of incorporation and by-laws, federal banking laws,
including regulatory approval requirements, and the Company’s stock purchase
rights plan could make it more difficult for a third party to acquire the
Company, even if doing so would be perceived to be beneficial to the Company’s
stockholders. The combination of these provisions effectively inhibits a
non-negotiated merger or other business combination, which, in turn, could
adversely affect the market price of the Company’s common stock.
|
UNRESOLVED
STAFF COMMENTS
|
None.
|
PROPERTIES
|
The
Company’s headquarters are located at 52 South Broad Street, Norwich, New York
13815. The Company operated the following number of community banking branches
and automated teller machines (ATMs) as of December 31, 2005:
|
County
|
Branches
|
ATMs
|
County
|
Branches
|
ATMs
|
|
|
NBT
Bank Division
|
Pennstar
Bank Division
|
|||||
|
New
York
|
New
York
|
|||||
|
Albany
County
|
3
|
3
|
Orange
County
|
1
|
1
|
|
|
Broome
County
|
7
|
12
|
||||
|
Chenango
County
|
11
|
12
|
Pennsylvania
|
|||
|
Clinton
County
|
3
|
2
|
Lackawanna
County
|
18
|
24
|
|
|
Delaware
County
|
5
|
11
|
Luzerne
County
|
4
|
8
|
|
|
Essex
County
|
3
|
6
|
Monroe
County
|
4
|
5
|
|
|
Franklin
County
|
1
|
1
|
Pike
County
|
3
|
4
|
|
|
Fulton
County
|
4
|
5
|
Susquehanna
County
|
6
|
8
|
|
|
Greene
County
|
—
|
2
|
Wayne
County
|
3
|
4
|
|
|
Herkimer
County
|
2
|
1
|
||||
|
Montgomery
County
|
6
|
4
|
||||
|
Oneida
County
|
6
|
11
|
||||
|
Otsego
County
|
9
|
16
|
||||
|
Saratoga
County
|
3
|
3
|
||||
|
Schenectady
County
|
1
|
1
|
||||
|
Schoharie
County
|
4
|
2
|
||||
|
St.
Lawrence County
|
5
|
5
|
||||
|
Sullivan
County
|
—
|
1
|
||||
|
Tioga
County
|
1
|
1
|
||||
|
Ulster
County
|
—
|
1
|
The
Company leases fifty one of the above listed branches from third parties under
terms and conditions considered by management to be equitable to the Company.
The Company owns all other banking premises. All automated teller machines
are
owned.
|
LEGAL
PROCEEDINGS
|
There
are
no material pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Company or any of its subsidiaries
is a
party or of which their property is the subject.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
|
MARKET
FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS, AND ISSUER
REPURCHASES OF EQUITY
SECURITIES
|
The
common stock of NBT Bancorp Inc. (“Common Stock”) is quoted on the Nasdaq Stock
Market National Market Tier under the symbol “NBTB.” The following table sets
forth the market prices and dividends declared for the Common Stock for the
periods indicated:
|
High
|
Low
|
Dividend
|
||||||||
|
2004
|
||||||||||
|
1st
quarter
|
|
$23.00
|
|
$21.21
|
|
$0.17
|
||||
|
2nd
quarter
|
23.18
|
19.92
|
0.19
|
|||||||
|
3rd
quarter
|
24.34
|
21.02
|
0.19
|
|||||||
|
4th
quarter
|
26.84
|
21.94
|
0.19
|
|||||||
|
2005
|
||||||||||
|
1st
quarter
|
|
$23.79
|
|
$20.75
|
|
$0.19
|
||||
|
2nd
quarter
|
25.50
|
22.79
|
0.19
|
|||||||
|
3rd
quarter
|
24.15
|
20.10
|
0.19
|
|||||||
|
4th
quarter
|
25.66
|
21.48
|
0.19
|
|||||||
The
closing price of the Common Stock on February 28, 2006 was $22.88.
As
of
February 28, 2006, there were 7,471 shareholders of record of Company common
stock.
Dividends
We
depend
primarily upon dividends from our subsidiaries for a substantial part of our
revenue. Accordingly, our ability to pay dividends depends primarily upon the
receipt of dividends or other capital distributions from our subsidiaries.
Payment of dividends to the Company from the Bank is subject to certain
regulatory and other restrictions. Under OCC regulations, the Bank may pay
dividends to the Company without prior regulatory approval so long as it meets
its applicable regulatory capital requirements before and after payment of
such
dividends and its total dividends do not exceed its net income to date over
the
calendar year plus retained net income over the preceding two years. At
December 31, 2005, the Bank was in compliance with all applicable minimum
capital requirements and had the ability to pay dividends of $58.5 million
to the Company without the prior approval of the OCC.
If
the
capital of the Company is diminished by depreciation in the value of its
property or by losses, or otherwise, to an amount less than the aggregate amount
of the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets, no dividends may be paid
out of net profits until the deficiency in the amount of capital represented
by
the issued and outstanding stock of all classes having a preference upon the
distribution of assets has been repaired. See the section captioned “Supervision
and Regulation” in Item 1 and Note 14 - Stockholders Equity in the notes to
consolidated financial statements is included in Item 8. Financial
Statements and Supplementary Data, which are located elsewhere in this
report.
|
SELECTED
FINANCIAL DATA
|
The
following summary of financial and other information about the Company is
derived from the Company’s audited consolidated financial statements for each of
the five fiscal years ended December 31, 2005 and should be read in conjunction
with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the Company’s consolidated financial statements and accompanying
notes, included elsewhere in this report:
|
Year
ended December 31,
|
||||||||||||||||
|
(In
thousands, except per share data)
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
Interest,
fee and dividend income
|
$
|
236,367
|
$
|
210,179
|
$
|
207,298
|
$
|
227,222
|
$
|
255,434
|
||||||
|
Interest
expense
|
78,256
|
59,692
|
62,874
|
80,402
|
117,502
|
|||||||||||
|
Net
interest income
|
158,111
|
150,487
|
144,424
|
146,820
|
137,932
|
|||||||||||
|
Provision
for loan and lease losses
|
9,464
|
9,615
|
9,111
|
9,073
|
31,929
|
|||||||||||
|
Noninterest
income excluding securities (losses) gains
|
43,785
|
40,673
|
37,603
|
31,934
|
31,826
|
|||||||||||
|
Securities
(losses) gains, net
|
(1,236
|
)
|
216
|
175
|
(413
|
)
|
(7,692
|
)
|
||||||||
|
Merger,
acquisition and reorganization costs
|
-
|
-
|
-
|
-
|
15,322
|
|||||||||||
|
Other
noninterest expense
|
115,305
|
109,777
|
104,517
|
102,455
|
110,536
|
|||||||||||
|
Income
before income taxes
|
75,891
|
71,984
|
68,574
|
66,813
|
4,279
|
|||||||||||
|
Net
income
|
52,438
|
50,047
|
47,104
|
44,999
|
3,737
|
|||||||||||
|
Per
common share
|
||||||||||||||||
|
Basic
earnings
|
$
|
1.62
|
$
|
1.53
|
$
|
1.45
|
$
|
1.36
|
$
|
0.11
|
||||||
|
Diluted
earnings
|
1.60
|
1.51
|
1.43
|
1.35
|
0.11
|
|||||||||||
|
Cash
dividends paid
|
0.76
|
0.74
|
0.68
|
0.68
|
0.68
|
|||||||||||
|
Book
value at year-end
|
10.34
|
10.11
|
9.46
|
8.96
|
8.05
|
|||||||||||
|
Tangible
book value at year-end
|
8.75
|
8.66
|
7.94
|
7.47
|
6.51
|
|||||||||||
|
Average
diluted common shares outstanding
|
32,710
|
33,087
|
32,844
|
33,235
|
33,085
|
|||||||||||
|
At
December 31,
|
||||||||||||||||
|
Securities
available for sale, at fair value
|
$
|
954,474
|
$
|
952,542
|
$
|
980,961
|
$
|
1,007,583
|
$
|
909,341
|
||||||
|
Securities
held to maturity, at amortized cost
|
93,709
|
81,782
|
97,204
|
82,514
|
101,604
|
|||||||||||
|
Loans
and leases
|
3,022,657
|
2,869,921
|
2,639,976
|
2,355,932
|
2,339,636
|
|||||||||||
|
Allowance
for loan and lease losses
|
47,455
|
44,932
|
42,651
|
40,167
|
44,746
|
|||||||||||
|
Assets
|
4,426,773
|
4,212,304
|
4,046,885
|
3,723,726
|
3,638,202
|
|||||||||||
|
Deposits
|
3,160,196
|
3,073,838
|
3,001,351
|
2,922,040
|
2,915,612
|
|||||||||||
|
Borrowings
|
883,182
|
752,066
|
672,631
|
451,076
|
394,344
|
|||||||||||
|
Stockholders’
equity
|
333,943
|
332,233
|
310,034
|
292,382
|
266,355
|
|||||||||||
|
Key
ratios
|
||||||||||||||||
|
Return
on average assets
|
1.21
|
%
|
1.21
|
%
|
1.22
|
%
|
1.23
|
%
|
0.10
|
%
|
||||||
|
Return
on average equity
|
15.86
|
15.69
|
15.90
|
16.13
|
1.32
|
|||||||||||
|
Average
equity to average assets
|
7.64
|
7.74
|
7.69
|
7.64
|
7.82
|
|||||||||||
|
Net
interest margin
|
4.01
|
4.03
|
4.16
|
4.43
|
4.19
|
|||||||||||
|
Dividend
payout ratio
|
47.50
|
49.01
|
47.55
|
50.37
|
618.18
|
|||||||||||
|
Tier
1 leverage
|
7.16
|
7.13
|
6.76
|
6.73
|
6.34
|
|||||||||||
|
Tier
1 risk-based capital
|
9.80
|
9.78
|
9.96
|
9.93
|
9.43
|
|||||||||||
|
Total
risk-based capital
|
11.05
|
11.04
|
11.21
|
11.18
|
10.69
|
|||||||||||
|
Selected
Quarterly Financial Data
|
|||||||||||||||||||||||||
|
2005
|
2004
|
||||||||||||||||||||||||
|
(Dollars
in thousands, except per share data)
|
First
|
Second
|
Third
|
Fourth
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||||
|
Interest,
fee and dividend income
|
$
|
55,461
|
$
|
57,866
|
$
|
60,282
|
$
|
62,758
|
$
|
51,727
|
$
|
50,938
|
$
|
53,093
|
$
|
54,421
|
|||||||||
|
Interest
expense
|
16,647
|
18,542
|
20,331
|
22,736
|
14,633
|
14,258
|
15,041
|
15,760
|
|||||||||||||||||
|
Net
interest income
|
38,814
|
39,324
|
39,951
|
40,022
|
37,094
|
36,680
|
38,052
|
38,661
|
|||||||||||||||||
|
Provision
for loan and lease losses
|
1,796
|
2,320
|
2,752
|
2,596
|
2,124
|
2,428
|
2,313
|
2,750
|
|||||||||||||||||
|
Noninterest
income excluding net securities (losses) gains
|
10,715
|
11,004
|
11,088
|
10,978
|
10,434
|
9,960
|
10,099
|
10,180
|
|||||||||||||||||
|
Net
securities (losses) gains
|
(4
|
)
|
51
|
(737
|
)
|
(546
|
)
|
|
9
|
29
|
18
|
160
|
|||||||||||||
|
Noninterest
expense
|
28,881
|
28,696
|
28,579
|
29,149
|
27,202
|
25,863
|
27,305
|
29,407
|
|||||||||||||||||
|
Net
income
|
$
|
12,789
|
$
|
13,128
|
$
|
13,526
|
$
|
12,995
|
$
|
12,371
|
$
|
12,568
|
$
|
12,617
|
$
|
12,491
|
|||||||||
|
Basic
earnings per share
|
$
|
0.39
|
$
|
0.41
|
$
|
0.42
|
$
|
0.40
|
$
|
0.38
|
$
|
0.38
|
$
|
0.38
|
$
|
0.38
|
|||||||||
|
Diluted
earnings per share
|
$
|
0.39
|
$
|
0.40
|
$
|
0.41
|
$
|
0.40
|
$
|
0.37
|
$
|
0.38
|
$
|
0.38
|
$
|
0.38
|
|||||||||
|
Net
interest margin
|
4.09
|
%
|
4.02
|
%
|
3.99
|
%
|
3.97
|
%
|
4.10
|
%
|
3.99
|
%
|
3.99
|
%
|
4.03
|
%
|
|||||||||
|
Return
on average assets
|
1.23
|
%
|
1.22
|
%
|
1.23
|
%
|
1.17
|
%
|
1.23
|
%
|
1.24
|
%
|
1.20
|
%
|
1.18
|
%
|
|||||||||
|
Return
on average equity
|
15.74
|
%
|
16.21
|
%
|
16.06
|
%
|
15.47
|
%
|
15.73
|
%
|
16.05
|
%
|
15.94
|
%
|
15.08
|
%
|
|||||||||
|
Average
diluted common shares outstanding
|
32,977
|
32,584
|
32,729
|
32,556
|
33,174
|
33,084
|
32,936
|
33,155
|
|||||||||||||||||
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
GENERAL
The
financial review which follows focuses on the factors affecting the consolidated
financial condition and results of operations of NBT Bancorp Inc. (the
“Registrant”) and its wholly owned subsidiaries, NBT Bank, N.A. (“the Bank”) and
NBT Financial Services, Inc. (“NBT Financial”), during 2005 and, in summary
form, the preceding two years. Collectively, the Registrant and its subsidiaries
are referred to herein as “the Company.” Net interest margin is presented in
this discussion on a fully taxable equivalent (FTE) basis. Average balances
discussed are daily averages unless otherwise described. The audited
consolidated financial statements and related notes as of December 31, 2005
and
2004 and for each of the years in the three-year period ended December 31,
2005
should be read in conjunction with this review. Amounts in prior period
consolidated financial statements are reclassified whenever necessary to conform
to the 2005 presentation.
The
preparation of the consolidated financial statements requires management to
make
estimates and assumptions, in the application of certain accounting policies,
about the effect of matters that are inherently uncertain. Those estimates
and
assumptions affect the reported amounts of certain assets, liabilities, revenues
and expenses. Different amounts could be reported under different conditions,
or
if different assumptions were used in the application of these accounting
policies.
The
business of the Company is providing commercial banking and financial services
through its subsidiaries. The Company’s primary market area is central and
upstate New York and northeastern Pennsylvania. The Company has been, and
intends to continue to be, a community-oriented
financial institution offering a variety of financial services. The Company’s
principal business is attracting deposits from customers within its market
area
and investing those funds primarily in loans and leases, and, to a lesser
extent, in marketable securities. The financial condition and operating results
of the Company are dependent on its net interest income which is the difference
between the interest and dividend income earned on its earning assets and the
interest expense paid on its interest bearing liabilities, primarily consisting
of deposits and borrowings. Net income is also affected by provisions for loan
and lease losses and noninterest income, such as service charges on deposit
accounts, broker/dealer fees, trust fees, and gains/losses on securities sales;
it is also impacted by noninterest expense, such as salaries and employee
benefits, data processing, communications, occupancy, and
equipment.
The
Company’s results of operations are significantly affected by general economic
and competitive conditions (particularly changes in market interest rates),
government policies, changes in accounting standards, and actions of regulatory
agencies. Future changes in applicable laws, regulations, or government policies
may have a material impact on the Company. Lending activities are substantially
influenced by the demand for and supply of housing, competition among lenders,
the level of interest rates, the state of the local and regional economy, and
the availability of funds. The ability to gather deposits and the cost of funds
are influenced by prevailing market interest rates, fees and terms on deposit
products, as well as the availability of alternative investments including
mutual funds and stocks.
CRITICAL
ACCOUNTING POLICIES
The
Company has identified several policies as being critical because they require
management to make particularly difficult, subjective and/or complex judgments
about matters that are inherently uncertain and because of the likelihood that
materially different amounts would be reported under different conditions or
using different assumptions. These policies relate to the allowance for loan
losses and pension accounting.
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 nonperforming 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 values were significantly lowered, the
Company’s allowance for loan and lease policy would also require additional
provisions for loan and lease losses.
Management
is required to make various assumptions in valuing its pension assets and
liabilities. These assumptions include the expected rate of return on plan
assets, the discount rate, and the rate of increase in future compensation
levels. Changes to these assumptions could impact earnings in future periods.
The Company takes into account the plan asset mix, funding obligations, and
expert opinions in determining the various rates used to estimate pension
expense. The Company also considers the Moody’s AA corporate bond yields and
other market interest rates in setting the appropriate discount rate. In
addition, the Company reviews expected inflationary and merit increases to
compensation in determining the rate of increase in future compensation
levels.
The
Company’s policy on the allowance for loan and lease losses and pension
accounting is disclosed in note 1 to the consolidated financial statements.
A
more detailed description of the allowance for loan and lease losses is included
in the “Risk Management” section of this Form 10-K. All significant pension
accounting assumptions and detail is disclosed in note 16 to the consolidated
financial statements. All accounting policies are important, and as such, the
Company encourages the reader to review each of the policies included in note
1
to obtain a better understanding on how the Company’s financial performance is
reported.
FORWARD
LOOKING STATEMENTS
Certain
statements in this filing and future filings by the Company with the Securities
and Exchange Commission, in the Company’s press releases or other public or
shareholder communications, or in oral statements made with the approval of
an
authorized executive officer, contain forward-looking statements, as defined
in
the Private Securities Litigation Reform Act. These statements may be identified
by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,”
“projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar
terms. There are a number of factors, many of which are beyond the Company’s
control that could cause actual results to differ materially from those
contemplated by the forward looking statements. Factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include, among others, the following possibilities:
•
Local,
regional, national and international economic conditions and the impact they
may
have on the Company and its customers and the Company’s assessment of that
impact.
•
Changes
in the level of non-performing assets and charge-offs.
•
Changes
in estimates of future reserve requirements based upon the periodic review
thereof under relevant regulatory and accounting requirements.
•
The
effects of and changes in trade and monetary and fiscal policies and laws,
including the interest rate policies of the Federal Reserve Board.
•
Inflation,
interest rate, securities market and monetary fluctuations.
•
Political
instability.
•
Acts
of
war or terrorism.
•
The
timely development and acceptance of new products and services and perceived
overall value of these products and services by users.
•
Changes
in consumer spending, borrowings and savings habits.
•
Changes
in the financial performance and/or condition of the Company’s
borrowers.
•
Technological
changes.
•
Acquisitions
and integration of acquired businesses.
•
The
ability to increase market share and control expenses.
•
Costs
or
difficulties related to the integration of the businesses of the Company and
CNB
may be greater than expected.
•
Changes
in the competitive environment among financial holding companies.
•
The
effect of changes in laws and regulations (including laws and regulations
concerning taxes, banking, securities and insurance) with which the Company
and
its subsidiaries must comply.
•
The
effect of changes in accounting policies and practices, as may be adopted by
the
regulatory agencies, as well as the Public Company Accounting Oversight Board,
the Financial Accounting Standards Board and other accounting standard
setters.
•
Changes
in the Company’s organization, compensation and benefit plans.
•
The
costs
and effects of legal and regulatory developments including the resolution of
legal proceedings or regulatory or other governmental inquiries and the results
of regulatory examinations or reviews.
•
Greater
than expected costs or difficulties related to the integration of new products
and lines of business.
•
The
Company’s success at managing the risks involved in the foregoing
items.
The
Company cautions readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made, and to advise readers that
various factors, including but not limited to those described above, could
affect the Company’s financial performance and could cause the Company’s actual
results or circumstances for future periods to differ materially from those
anticipated or projected.
Except
as
required by law, the Company does not undertake, and specifically disclaims
any
obligations to, publicly release any revisions that may be made to any
forward-looking statements to reflect statements to the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
OVERVIEW
The
Company had net income of $52.4 million or $1.60 per diluted share for 2005,
compared to net income of $50.0 million or $1.51 per diluted share for 2004.
Results were driven by several factors. Net interest income increased $7.6
million or 5% in 2005 compared to 2004. The increase in net interest income
resulted mainly from an increase in average earning assets of 5%, driven by
an
8% increase in average loans and leases for the period. Noninterest income
increased $1.7 million or 4% compared to 2004. Included in noninterest income
for 2005 was net securities losses totaling $1.2 million compared to net
securities gains of $0.2 million in 2004. Excluding net security gains and
losses, total noninterest income increased 8% in 2005 compared with 2004. This
increase resulted from increases in retirement plan administration fees of
$4.4
million (from the Acquisition of EPIC in January 2005), other income, service
charges on deposit accounts, ATM and debit card fees and trust revenue offset
by
a decline in broker/dealer and insurance revenue of $3.6 million (from the
sale
of M. Griffith Inc. in March 2005). Offsetting the increases in net interest
income and noninterest income was an increase in noninterest expense of $5.5
million in 2005 compared to 2004. The increase in noninterest expense resulted
mainly from increases in salaries and employee benefits, occupancy expense,
equipment and other operating expense offset by a goodwill impairment charge
in
2004 and a decrease in data processing and communications expense. The provision
for loan and lease losses decreased slightly in 2005 compared to 2004, as credit
quality was stable, net charge-offs as a percentage of total loans and leases
decreased, and the Company experienced a decline in the rate of loan growth
in
2005, which was 5% at December 31, 2005 compared to a growth rate of 9% for
2004.
The
Company had net income of $50.0 million or $1.51 per diluted share for 2004,
compared to net income of $47.1 million or $1.43 per diluted share for 2003.
Results were driven by several factors. Net interest income increased $6.1
million or 4% in 2004 compared to 2003. The increase in net interest income
resulted mainly from an increase in average earning assets of 7%, driven by
an
11% increase in average loans and leases for the period. Noninterest income
increased $3.1 million or 8% compared to 2003. This increase resulted from
increases in other income, Bank Owned Life Insurance (BOLI) income, service
charges on deposit accounts and trust revenue. Offsetting the increases in
net
interest income and noninterest income was an increase in noninterest expense
of
$5.3 million in 2004 compared to 2003. The increase in noninterest expense
resulted mainly from increases in salaries and employee benefits, occupancy
expense, professional fees and outside services and a goodwill impairment charge
offset by decreases in other operating expense and loan collection and other
real estate owned expense. The provision for loan and lease losses increased
slightly in 2004 compared to 2003, as credit quality was stable, net charge-offs
as a percentage of total loans and leases remained unchanged, and loan growth
was solid, increasing 9% at December 31, 2004 when compared to total loans
and
leases at December 31, 2003.
ASSET/LIABILITY
MANAGEMENT
The
Company attempts to maximize net interest income, and net income, while actively
managing its liquidity and interest rate sensitivity through the mix of various
core deposit products and other sources of funds, which in turn fund an
appropriate mix of earning assets. The changes in the Company’s asset mix and
sources of funds, and the resultant impact on net interest income, on a fully
tax equivalent basis, are discussed below.
The
following table includes the condensed consolidated average balance sheet,
an
analysis of interest income/ expense and average yield/rate for each major
category of earning assets and interest bearing liabilities on a taxable
equivalent basis. Interest income for tax-exempt securities and loans and leases
has been adjusted to a taxable-equivalent basis using the statutory Federal
income tax rate of 35%.
|
Table
1. Average Balances and Net Interest Income
|
||||||||||||||||||||||||||||
|
2005
|
2004
|
2003
|
||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
Average
Balance
|
Interest
|
Yield/
Rate
|
Average
Balance
|
Interest
|
Yield/
Rate
|
Average
Balance
|
Interest
|
Yield/
Rate
|
|||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||
|
Short-term
interest bearing accounts
|
$
|
7,298
|
$
|
229
|
3.14
|
%
|
$
|
7,583
|
$
|
222
|
2.93
|
%
|
$
|
3,358
|
$
|
84
|
2.50
|
%
|
||||||||||
|
Securities
available for sale 1
|
954,461
|
43,113
|
4.52
|
970,024
|
44,633
|
4.60
|
984,620
|
46,313
|
4.70
|
|||||||||||||||||||
|
Securities
held to maturity 1
|
88,244
|
5,035
|
5.71
|
85,771
|
4,385
|
5.11
|
90,601
|
4,657
|
5.14
|
|||||||||||||||||||
|
Investment
in FRB and FHLB Banks
|
37,607
|
1,898
|
5.05
|
34,813
|
854
|
2.45
|
28,117
|
854
|
3.04
|
|||||||||||||||||||
|
Loans
and leases 2
|
2,959,256
|
190,331
|
6.43
|
2,743,753
|
164,285
|
5.99
|
2,474,899
|
159,827
|
6.46
|
|||||||||||||||||||
|
Total
earning assets
|
4,046,866
|
240,606
|
5.95
|
3,841,944
|
214,379
|
5.58
|
3,581,595
|
211,735
|
5.91
|
|||||||||||||||||||
|
Other
non-interest earning assets
|
279,289
|
278,603
|
270,928
|
|||||||||||||||||||||||||
|
Total
assets
|
$
|
4,326,155
|
$
|
4,120,547
|
$
|
3,852,523
|
||||||||||||||||||||||
|
Liabilities
and stockholders’ equity
|
||||||||||||||||||||||||||||
|
Money
market deposit accounts
|
$
|
399,056
|
7,312
|
1.83
|
%
|
$
|
438,819
|
5,327
|
1.21
|
%
|
$
|
359,722
|
4,332
|
1.20
|
%
|
|||||||||||||
|
NOW
deposit accounts
|
439,751
|
2,305
|
0.52
|
462,509
|
2,230
|
0.48
|
411,236
|
2,340
|
0.57
|
|||||||||||||||||||
|
Savings
deposits
|
559,584
|
3,985
|
0.71
|
574,386
|
3,846
|
0.67
|
523,571
|
4,542
|
0.87
|
|||||||||||||||||||
|
Time
deposits
|
1,217,442
|
36,330
|
2.98
|
1,079,670
|
28,358
|
2.63
|
1,188,497
|
34,727
|
2.92
|
|||||||||||||||||||
|
Total
interest-bearing deposits
|
2,615,833
|
49,932
|
1.91
|
2,555,384
|
39,761
|
1.56
|
2,483,026
|
45,941
|
1.85
|
|||||||||||||||||||
|
Short-term
borrowings
|
353,644
|
10,983
|
3.11
|
302,276
|
4,086
|
1.35
|
190,332
|
2,171
|
1.14
|
|||||||||||||||||||
|
Trust
preferred debentures
|
19,596
|
1,227
|
6.26
|
18,297
|
823
|
4.50
|
-
|
-
|
-
|
|||||||||||||||||||
|
Long-term
debt
|
410,891
|
16,114
|
3.92
|
381,756
|
15,022
|
3.93
|
360,928
|
14,762
|
4.09
|
|||||||||||||||||||
|
Total
interest-bearing liabilities
|
3,399,964
|
78,256
|
2.30
|
3,257,713
|
59,692
|
1.83
|
3,034,286
|
62,874
|
2.07
|
|||||||||||||||||||
|
Demand
deposits
|
543,077
|
492,746
|
457,238
|
|||||||||||||||||||||||||
|
Other
non-interest-bearing liabilities
|
52,438
|
51,187
|
64,723
|
|||||||||||||||||||||||||
|
Stockholders’
equity
|
330,676
|
318,901
|
296,276
|
|||||||||||||||||||||||||
|
Total
liabilities and stockholders’ equity
|
$
|
4,326,155
|
$
|
4,120,547
|
$
|
3,852,523
|
||||||||||||||||||||||
|
Interest
rate spread
|
3.64
|
%
|
3.75
|
%
|
3.84
|
%
|
||||||||||||||||||||||
|
Net
interest income-FTE
|
162,350
|
154,687
|
148,861
|
|||||||||||||||||||||||||
|
Net
interest margin
|
4.01
|
%
|
4.03
|
%
|
4.16
|
%
|
||||||||||||||||||||||
|
Taxable
equivalent adjustment
|
4,239
|
4,200
|
4,437
|
|||||||||||||||||||||||||
|
Net
interest income
|
$
|
158,111
|
$
|
150,487
|
$
|
144,424
|
||||||||||||||||||||||
1.
Securities
are shown at average amortized cost.
2.
For
purposes of these computations, nonaccrual loans are included in the average
loan balances outstanding. The interest collected thereon is included in
interest income based upon the characteristics of the related loans.
NET
INTEREST INCOME
On
a tax
equivalent basis, the Company’s net interest income for 2005 was $162.4 million,
up from $154.7 million for 2004. The Company’s net interest margin declined
slightly to 4.01% for 2005 from 4.03% for 2004. The decline in the net interest
margin resulted primarily from interest-bearing liabilities repricing up faster
than earning assets, offset somewhat by the increase in average demand deposits,
which increased $50.3 million or 10% during the period. The yield on earning
assets increased 37 basis points (bp), from 5.58% for 2004 to 5.95% for 2005.
Meanwhile, the rate paid on interest bearing liabilities increased 47 bp, from
1.83% for 2004 to 2.30% for 2005. Additionally, offsetting the decline in net
interest margin was an increase in average earning assets of $204.9 million
or
5%, driven primarily by a $215.5 million increase in average loans and leases.
The following table presents changes in interest income, on a FTE basis, and
interest expense attributable to changes in volume (change in average balance
multiplied by prior year rate), changes in rate (change in rate multiplied
by
prior year volume), and the net change in net interest income. The net change
attributable to the combined impact of volume and rate has been allocated to
each in proportion to the absolute dollar amounts of change.
|
Table
2. Analysis of Changes in Taxable Equivalent Net Interest Income
|
|||||||||||||||||||
|
Increase
(Decrease)
2005
over 2004
|
Increase
(Decrease)
2004
over 2003
|
||||||||||||||||||
|
(In
thousands)
|
Volume
|
Rate
|
Total
|
Volume
|
Rate
|
Total
|
|||||||||||||
|
Short-term
interest-bearing accounts
|
$
|
(9
|
)
|
$
|
16
|
$
|
7
|
$
|
122
|
$
|
16
|
$
|
138
|
||||||
|
Securities
available for sale
|
(710
|
)
|
(810
|
)
|
(1,520
|
)
|
(680
|
)
|
(1,000
|
)
|
(1,680
|
)
|
|||||||
|
Securities
held to maturity
|
129
|
521
|
650
|
(247
|
)
|
(25
|
)
|
(272
|
)
|
||||||||||
|
Investment
in FRB and FHLB Banks
|
74
|
970
|
1,044
|
182
|
(182
|
)
|
-
|
||||||||||||
|
Loans
and leases
|
13,396
|
12,650
|
26,046
|
16,605
|
(12,147
|
)
|
4,458
|
||||||||||||
|
Total
interest income
|
11,771
|
14,456
|
26,227
|
14,904
|
(12,260
|
)
|
2,644
|
||||||||||||
|
Money
market deposit accounts
|
(520
|
)
|
2,505
|
1,985
|
960
|
35
|
995
|
||||||||||||
|
NOW
deposit accounts
|
(113
|
)
|
188
|
75
|
272
|
(382
|
)
|
(110
|
)
|
||||||||||
|
Savings
deposits
|
(101
|
)
|
240
|
139
|
411
|
(1,107
|
)
|
(696
|
)
|
||||||||||
|
Time
deposits
|
3,857
|
4,115
|
7,972
|
(3,027
|
)
|
(3,342
|
)
|
(6,369
|
)
|
||||||||||
|
Short-term
borrowings
|
799
|
6,098
|
6,897
|
1,457
|
458
|
1,915
|
|||||||||||||
|
Trust
preferred debentures
|
62
|
342
|
404
|
-
|
-
|
-
|
|||||||||||||
|
Long-term
debt
|
1,143
|
(51
|
)
|
1,092
|
832
|
(572
|
)
|
260
|
|||||||||||
|
Total
interest expense
|
2,704
|
15,860
|
18,564
|
4,421
|
(7,603
|
)
|
(3,182
|
)
|
|||||||||||
|
Change
in FTE net interest income
|
$
|
9,067
|
$
|
(1,404
|
)
|
$
|
7,663
|
$
|
10,483
|
$
|
(4,657
|
)
|
$
|
5,826
|
|||||
LOANS
AND LEASES AND CORRESPONDING INTEREST AND FEES ON LOANS
The
average balance of loans and leases increased 8%, totaling $3.0 billion in
2005
compared to $2.7 billion in 2004. The yield on average loans and leases
increased from 5.99% in 2004 to 6.43% in 2005, as loans, particularly loans
indexed to Prime and other short-term variable rate indices, benefited from
the
rising rate environment in 2005. Interest income from loans and leases on a
FTE
basis increased 16%, from $164.3 million in 2004 to $190.3 million in 2005.
The
increase in interest income from loans and leases was due primarily to the
increase in the average balance of loans and leases as well as the increase
in
yield on loans and leases in 2005 compared to 2004 noted above.
Total
loans and leases increased 5% at December 31, 2005, totaling $3.0 billion from
$2.9 billion at December 31, 2004. The increase in loans and leases was driven
by strong growth in home equity loans, consumer loans, and real estate
construction and development (primarily comprised of commercial real estate.)
Home equity loans increased $72.0 million or 18% from $391.8 million at December
31, 2004 to $463.8 million at December 31, 2005. The increase in home equity
loans was due to strong product demand and successful marketing of home equity
products in newer markets. Consumer loans increased $51.8 million or 13%, from
$412.1 million at December 31, 2004 to $464.0 million at December 31, 2005.
The
increase in consumer loans was driven primarily by strong growth in indirect
auto lending from an expanded presence in Pennsylvania and newer markets in
New
York. Real estate construction and development loans increased $26.9 million
or
20% from $136.9 million at December 31, 2004 to $163.9 million at December
31,
2005, as the Bank originated several large commercial construction development
loans in 2005 in its newer markets. Commercial and commercial real estate
remained relatively unchanged at December 31, 2005 when compared to December
31,
2004, as new loan originations were offset by prepayments as competition for
these loan types was particularly strong across all of the Company’s markets in
2005. Residential real estate mortgages declined $19.9 million or 3% at December
31, 2005 compared to December 31, 2004 as the Company began selling real estate
mortgages in the secondary market during the second half of 2005 as a means
of
limiting its exposure to long-term interest rate risk.
The
following table reflects the loan and lease portfolio by major categories as
of
December 31 for the years indicated:
|
Table
3. Composition of Loan and Lease Portfolio
|
||||||||||||||||
|
December
31,
|
||||||||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
Residential
real estate mortgages
|
$
|
701,734
|
$
|
721,615
|
$
|
703,906
|
$
|
579,638
|
$
|
525,411
|
||||||
|
Commercial
and commercial real estate
|
1,032,977
|
1,018,548
|
954,024
|
920,330
|
958,075
|
|||||||||||
|
Real
estate construction and development
|
163,863
|
136,934
|
86,046
|
64,025
|
60,513
|
|||||||||||
|
Agricultural
and agricultural real estate
|
114,043
|
108,181
|
106,310
|
104,078
|
103,884
|
|||||||||||
|
Consumer
|
463,955
|
412,139
|
390,413
|
357,214
|
387,081
|
|||||||||||
|
Home
equity
|
463,848
|
391,807
|
336,547
|
269,553
|
232,624
|
|||||||||||
|
Lease
financing
|
82,237
|
80,697
|
62,730
|
61,094
|
72,048
|
|||||||||||
|
Total
loans and leases
|
$
|
3,022,657
|
$
|
2,869,921
|
$
|
2,639,976
|
$
|
2,355,932
|
$
|
2,339,636
|
||||||
Real
estate mortgages consist primarily of loans secured by first or second deeds
of
trust on primary residences. Loans in the commercial and agricultural category,
as well as commercial and agricultural real estate mortgages, consist primarily
of short-term and/or floating rate loans made to small to medium-sized entities.
Consumer loans consist primarily of installment credit to individuals secured
by
automobiles and other personal property including manufactured housing at
December 31, 2005, real estate construction and development loans include $146.5
million in commercial construction and development and $17.4 million in
residential construction loans. Commercial construction loans are for small
and
medium sized office buildings and other commercial properties and residential
construction loans are primarily for projects located in upstate New York and
northeastern Pennsylvania.
The
Company’s automobile lease financing portfolio totaled $82.2 million at December
31, 2005 and $80.7 million at December 31, 2004. 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 had been a decline in the estimated fair value of the residual that
is
judged by management to be other-than-temporary, including consideration of
residual value insurance, a loss would be recognized.
Adjustments
related to such other-than-temporary declines in estimated fair value are
recorded with other noninterest expenses in the consolidated statements of
income. One of the most significant risks associated with leasing operations
is
the recovery of the residual value of the leased vehicles at the termination
of
the lease. A lease receivable asset includes the estimated residual value of
the
leased vehicle at the termination of the lease. At termination, the lessor
has
the option to purchase the vehicle or may turn the vehicle over to the Company.
The residual values included in lease financing receivables totaled $55.5
million and $50.2 million at December 31, 2005 and 2004,
respectively.
The
Company has acquired residual value insurance protection in order to reduce
the
risk related to residual values. Based on analysis performed by management,
the
Company has concluded that no other-than-temporary impairment exists which
would
warrant a charge to earnings during the years ended December 31, 2005 and
2004.
The
following table, Maturities and Sensitivities of Certain Loans to Changes in
Interest Rates, are the maturities of the commercial and agricultural and real
estate and construction development loan portfolios and the sensitivity of
loans
to interest rate fluctuations at December 31, 2005. Scheduled repayments are
reported in the maturity category in which the contractual payment is
due.
|
Table
4. Maturities and Sensitivities of Certain Loans to Changes in
Interest Rates
|
|||||||||||||
|
Remaining
maturity at December 31, 2005
|
|||||||||||||
|
(In
thousands)
|
Within
One Year
|
After
One Year But
Within
Five Years
|
After
Five Years
|
Total
|
|||||||||
|
Floating/adjustable
rate
|
|||||||||||||
|
Commercial,
commercial real estate, agricultural, and agricultural real
estate
|
$
|
457,393
|
$
|
92,361
|
$
|
97
|
$
|
549,851
|
|||||
|
Real
estate construction and development
|
36,060
|
10,970
|
2,060
|
49,090
|
|||||||||
|
Total
floating rate loans
|
493,453
|
103,331
|
2,157
|
598,941
|
|||||||||
|
Fixed
rate
|
|||||||||||||
|
Commercial,
commercial real estate, agricultural, and agricultural real
estate
|
229,330
|
298,542
|
69,297
|
597,169
|
|||||||||
|
Real
estate construction and development
|
3,491
|
7,281
|
104,001
|
114,773
|
|||||||||
|
Total
fixed rate loans
|
232,821
|
305,823
|
173,298
|
711,942
|
|||||||||
|
Total
|
$
|
726,274
|
$
|
409,154
|
$
|
175,455
|
$
|
1,310,883
|
|||||
SECURITIES
AND CORRESPONDING INTEREST AND DIVIDEND INCOME
The
average balance of the amortized cost for securities available for sale in
2005
was $954.5 million, a decrease of $15.6 million, or 2%, from $970.0 million
in
2004. The yield on average securities available for sale was 4.52% for 2005
compared to 4.60% in 2004. The slight decrease in yield on securities available
for sale resulted from continued efforts to shorten the duration and weighted
average life of the securities available for sale portfolio in 2005. At December
31, 2005, approximately 53% of total securities were comprised of fifteen/ten
year mortgage-backed securities and collateralized mortgage obligations (CMOs),
22% were comprised of US Agency notes and bonds and 5% were comprised of
thirty/twenty year mortgaged-backed securities. At December 31, 2004, the mix
was 67% fifteen/ten year mortgage-backed securities and CMOs, 11% US Agency
notes and bonds and 9% of thirty/twenty year mortgaged-backed securities.
Furthermore, the Company shortened the estimated weighted average life of the
total securities portfolio from 4.6 years at December 31, 2004 to 4.1 years
at
December 31, 2005. In the event of a rising rate environment, the Company should
be positioned to reinvest cash flows at a faster rate from shortening the
expected life of the portfolio.
The
average balance of securities held to maturity increased from $85.8 million
in
2004 to $88.2 million in 2005. At December 31, 2005, securities held to maturity
were comprised primarily of tax-exempt municipal securities. The yield on
securities held to maturity increased from 5.11% in 2004 to 5.71% in 2005 from
higher yields for tax-exempt securities purchased during 2005. Investments
in
FRB and Federal Home Loan Bank (FHLB) stock increased to $37.7 million in 2005
from $34.8 million in 2004. This increase was driven primarily by an increase
in
the investment in FHLB resulting from an increase in the Company’s borrowing
capacity at FHLB. The yield from investments in FRB and FHLB Banks increased
from 2.45% in 2004 to 5.05% in 2005. In 2003, the FHLB disclosed it had capital
concerns and credit issues in their investment security portfolio. As a result
of these issues, the FHLB reduced their dividend rate in 2004.
The
Company classifies its securities at date of purchase as either available for
sale, held to maturity or trading. Held to maturity debt securities are those
that the Company has the ability and intent to hold until maturity. Available
for sale securities are recorded at fair value. Unrealized holding gains and
losses, net of the related tax effect, on available for sale securities are
excluded from earnings and are reported in stockholders’ equity as a component
of accumulated other comprehensive income or loss. Held to maturity securities
are recorded at amortized cost. Trading securities are recorded at fair value,
with net unrealized gains and losses recognized currently in income. Transfers
of securities between categories are recorded at fair value at the date of
transfer. A decline in the fair value of any available for sale or held to
maturity security below cost that is deemed other-than-temporary is charged
to
earnings resulting in the establishment of a new cost basis for the security.
Securities with an other-than- temporary impairment are generally placed on
non-accrual status.
Non-marketable
equity securities are carried at cost, with the exception of small business
investment company (SBIC) investments, which are carried at fair value in
accordance with SBIC rules.
Premiums
and discounts are amortized or accreted over the life of the related security
as
an adjustment to yield using the interest method. Dividend and interest income
are recognized when earned. Realized gains and losses on securities sold are
derived using the specific identification method for determining the cost of
securities sold.
|
Table
5. Securities Portfolio
|
|||||||||||||||||||
|
As
of December 31,
|
|||||||||||||||||||
|
2005
|
2004
|
2003
|
|||||||||||||||||
|
(In
thousands)
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
|||||||||||||
|
Securities
available for sale
|
|||||||||||||||||||
|
U.S.
Treasury
|
$
|
10,005
|
$
|
10,005
|
$
|
10,037
|
$
|
9,977
|
$
|
58
|
$
|
59
|
|||||||
|
Federal
Agency and mortgage-backed
|
684,907
|
672,602
|
694,928
|
696,835
|
843,777
|
849,686
|
|||||||||||||
|
State
& Municipal, collateralized mortgage obligations and other
securities
|
269,826
|
271,867
|
238,770
|
245,730
|
123,570
|
131,216
|
|||||||||||||
|
Total
securities available for sale
|
$
|
964,738
|
$
|
954,474
|
$
|
943,735
|
$
|
952,542
|
$
|
967,405
|
$
|
980,961
|
|||||||
|
Securities
held to maturity
|
|||||||||||||||||||
|
Federal
Agency and mortgage-backed
|
$
|
4,354
|
$
|
4,482
|
$
|
6,412
|
$
|
6,706
|
$
|
11,363
|
$
|
11,867
|
|||||||
|
State
& Municipal
|
87,582
|
87,446
|
75,128
|
75,764
|
85,437
|
86,305
|
|||||||||||||
|
Other
securities
|
1,773
|
1,773
|
242
|
242
|
404
|
404
|
|||||||||||||
|
Total
securities held to maturity
|
$
|
93,709
|
$
|
93,701
|
$
|
81,782
|
$
|
82,712
|
$
|
97,204
|
$
|
98,576
|
|||||||
In
the
available for sale category at December 31, 2005, federal agency securities
were
comprised of Government-Sponsored Enterprise (“GSE”) securities;
Mortgaged-backed securities were comprised of GSEs with an amortized cost of
$395.5 million and a fair value of $386.0 million and US Government Agency
securities with an amortized cost of $53.0 million and a fair value of $53.2
million; Collateralized mortgage obligations were comprised of GSEs with an
amortized cost of $102.6 million and a fair value of $100.2 million and US
Government Agency securities with an amortized cost of $75.7 million and a
fair
value of $73.8 million. At December 31, 2005, all of the mortgaged-backed
securities held to maturity were comprised of US Government Agency
securities.
The
following tables set forth information with regard to contractual maturities
of
debt securities at December 31, 2005:
|
(In
thousands)
|
Amortized
cost
|
Estimated
fair
value
|
Weighted
Average
Yield
|
|||||||
|
Debt
securities classified as available for sale
|
||||||||||
|
Within
one year
|
$
|
45,264
|
$
|
44,914
|
2.76
|
%
|
||||
|
From
one to five years
|
217,765
|
215,440
|
4.41
|
%
|
||||||
|
From
five to ten years
|
89,812
|
89,840
|
4.82
|
%
|
||||||
|
After
ten years
|
598,091
|
587,117
|
4.78
|
%
|
||||||
|
$
|
950,932
|
$
|
937,311
|
|||||||
|
Debt
securities classified as held to maturity
|
||||||||||
|
Within
one year
|
$
|
26,451
|
$
|
26,452
|
3.45
|
%
|
||||
|
From
one to five years
|
31,724
|
31,526
|
3.92
|
%
|
||||||
|
From
five to ten years
|
19,360
|
19,169
|
4.18
|
%
|
||||||
|
After
ten years
|
16,174
|
16,554
|
5.12
|
%
|
||||||
|
$
|
93,709
|
$
|
93,701
|
|||||||
FUNDING
SOURCES AND CORRESPONDING INTEREST EXPENSE
The
Company utilizes traditional deposit products such as time, savings, NOW, money
market, and demand deposits as its primary source for funding. Other sources,
such as short-term FHLB advances, federal funds purchased, securities sold
under
agreements to repurchase, brokered time deposits, and long-term FHLB borrowings
are utilized as necessary to support the Company’s growth in assets and to
achieve interest rate sensitivity objectives. The average balance of
interest-bearing liabilities increased $142.3 million, totaling $3.4 billion
in
2005 from $3.3 billion in 2004. The rate paid on interest-bearing liabilities
increased from 1.83% in 2004 to 2.30% in 2005. Increases in the rate paid on
and
the average balance of interest bearing liabilities caused an increase in
interest expense of $18.6 million, or 31%, from $59.7 million in 2004 to $78.3
million in 2005.
DEPOSITS
Average
interest bearing deposits increased $60.4 million during 2005 compared to 2004.
The increase resulted primarily from increases in time deposits offset by
declines in money market, savings and NOW accounts. Average time deposits
increased $137.8 million or 13% during 2005 when compared to 2004. The increase
in average time deposits resulted primarily from increases in municipal, jumbo
and brokered time deposits. The average balance of money market, savings and
NOW
accounts decreased collectively $77.3 million or 5% during 2005 when compared
to
2004. The decrease in money market and NOW accounts was driven primarily from
municipal customers shifting their funds into higher paying time deposits in
2005. The decrease in savings was driven primarily from retail customers
shifting funds into higher paying money market accounts and time deposits.
The
average balance of demand deposits increased $50.3 million, or 10%, from $492.7
million in 2004 to $543.1 million in 2005. Solid growth in demand deposits
was
driven principally by increases in accounts from retail and business customers
in newer markets. The ratio of average demand deposits to total average deposits
increased from 16.2% in 2004 to 17.2% in 2005.
The
rate
paid on average interest-bearing deposits increased 35 bp from 1.56% during
2004
to 1.91% in 2005. The increase in rate on interest-bearing deposits was driven
primarily by pricing increases from money market accounts and time deposits.
These deposit products are more sensitive to interest rate changes. The pricing
increases for these products resulted from several increases in short-term
rates
by the FRB during 2005 combined with competitive pricing for market competitors.
The Company expects this trend to continue for money market accounts and time
deposits in 2006. The rates paid for NOW and savings accounts remained
relatively unchanged for 2005 compared to 2004. These product types are not
as
sensitive to rate changes and pricing pressure from competitors was low. If
short-term rates continue to rise as projected in 2006, the Company expects
that
pricing pressures will increase from competition, as a result, rates paid for
savings and NOW accounts will likely increase. Additionally, if the difference
in pricing for savings accounts compared to money market accounts and short-term
time deposits widens, the Company expects to experience a shift from lower
cost
savings accounts to higher cost money market accounts and short-term time
deposits in 2006. The Company anticipates these events will likely have an
adverse impact on the Company’s net interest margin in 2006.
The
following table presents the maturity distribution of time deposits of $100,000
or more at December 31, 2005:
|
Table
6. Maturity Distribution of Time Deposits of $100,000
or More
|
||||
|
(In
thousands)
|
December
31, 2005
|
|||
|
Within
three months
|
$
|
203,985
|
||
|
After
three but within twelve months
|
189,090
|
|||
|
After
one but within three years
|
180,928
|
|||
|
Over
three years
|
17,749
|
|||
|
Total
|
$
|
591,752
|
||
BORROWINGS
Average
short-term borrowings increased $51.4 million to $353.6 million in 2005. The
average rate paid on short-term borrowings increased from 1.35% in 2004 to
3.11%
in 2005, as the Federal Reserve Bank increased the discount rate (which directly
impacts short-term borrowing rates) 200 bp in 2005. The increases in the average
balance and the average rate paid caused interest expense on short-term
borrowings to increase $6.9 million from $4.1 million in 2004 to $11.0 million
in 2005. Average long-term debt increased $29.1 million from $381.8 million
in
2004 to $410.9 million in 2005. The increases in long-term debt and short-term
borrowings resulted primarily from loan growth exceeding deposit growth in
2005.
The
average balance of trust preferred debentures increased $1.3 million in 2005
compared to 2004. The average rate paid for trust preferred debentures in 2005
was 6.26%, up 176 bp from 4.50% in 2004. The increase in rate on the trust
preferred debentures is due primarily to the previously mentioned increase
in
short-term rates during 2005, as $18.7 million in trust preferred debentures
are
tied to 3-month LIBOR plus 275 bp (see footnote 12 “Trust Preferred Debentures”
under Item 8 “Notes to Consolidated Financial Statements” for more information
about these debentures). The increase in the average balance of trust preferred
debentures is due primarily to the issuance of $5.2 million of trust preferred
debentures in November 2005 at a fixed rate of 6.30% for five years convertible
to floating rate tied to 3-month LIBOR plus 140 bp for 25 years thereafter
(callable after five years).
Short-term
borrowings consist of Federal funds purchased and securities sold under
repurchase agreements, which generally represent overnight borrowing
transactions, and other short-term borrowings, primarily FHLB advances, with
original maturities of one year or less. The Company has unused lines of credit
and access to brokered deposits available for short-term financing of
approximately $594 million and $545 million at December 31, 2005 and 2004,
respectively. Securities collateralizing repurchase agreements are held in
safekeeping by non-affiliated financial institutions and are under the Company’s
control. Long-term debt, which is comprised primarily of FHLB advances, are
collateralized by the FHLB stock owned by the Company, certain of its
mortgage-backed securities and a blanket lien on its residential real estate
mortgage loans.
RISK
MANAGEMENT-CREDIT RISK
Credit
risk is managed through a network of loan officers, credit committees, loan
policies, and oversight from the senior credit officers and Board of Directors.
Management follows a policy of continually identifying, analyzing, and grading
credit risk inherent in each loan portfolio. An ongoing independent review,
subsequent to management’s review, of individual credits in the commercial loan
portfolio is performed by the independent loan review function. These components
of the Company’s underwriting and monitoring functions are critical to the
timely identification, classification, and resolution of problem
credits.
NONPERFORMING
ASSETS
|
Table
7. Nonperforming Assets
|
||||||||||||||||
|
As
of December 31,
|
||||||||||||||||
|
(Dollars
in thousands)
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
Nonaccrual
loans
|
||||||||||||||||
|
Commercial
and agricultural loans and real estate
|
$
|
9,373
|
$
|
10,550
|
$
|
8,693
|
$
|
16,980
|
$
|
31,372
|
||||||
|
Real
estate mortgages
|
2,009
|
2,553
|
2,483
|
5,522
|
5,119
|
|||||||||||
|
Consumer
|
2,037
|
1,888
|
2,685
|
1,507
|
3,719
|
|||||||||||
|
Total
nonaccrual loans
|
13,419
|
14,991
|
13,861
|
24,009
|
40,210
|
|||||||||||
|
Loans
90 days or more past due and still accruing
|
||||||||||||||||
|
Commercial
and agricultural loans and real estate
|
-
|
-
|
242
|
237
|
198
|
|||||||||||
|
Real
estate mortgages
|
465
|
737
|
244
|
1,325
|
1,844
|
|||||||||||
|
Consumer
|
413
|
449
|
482
|
414
|
933
|
|||||||||||
|
Total
loans 90 days or more past due and still accruing
|
878
|
1,186
|
968
|
1,976
|
2,975
|
|||||||||||
|
Restructured
loans
|
-
|
-
|
-
|
409
|
603
|
|||||||||||
|
Total
nonperforming loans
|
14,297
|
16,177
|
14,829
|
26,394
|
43,788
|
|||||||||||
|
Other
real estate owned
|
265
|
428
|
1,157
|
2,947
|
1,577
|
|||||||||||
|
Total
nonperforming loans and other real estate owned
|
14,562
|
16,605
|
15,986
|
29,341
|
45,365
|
|||||||||||
|
Nonperforming
securities
|
-
|
-
|
395
|
1,122
|
4,500
|
|||||||||||
|
Total
nonperforming loans, securities, and other real estate
owned
|
$
|
14,562
|
$
|
16,605
|
$
|
16,381
|
$
|
30,463
|
$
|
49,865
|
||||||
|
Total
nonperforming loans to loans and leases
|
0.47
|
%
|
0.56
|
%
|
0.56
|
%
|
1.12
|
%
|
1.87
|
%
|
||||||
|
Total
nonperforming loans and other real estate owned to total
assets
|
0.33
|
%
|
0.39
|
%
|
0.40
|
%
|
0.79
|
%
|
1.25
|
%
|
||||||
|
Total
nonperforming loans, securities, and other real estate owned to total
assets
|
0.33
|
%
|
0.39
|
%
|
0.40
|
%
|
0.82
|
%
|
1.37
|
%
|
||||||
|
Total
allowance for loan and lease losses to nonperforming loans
|
331.92
|
%
|
277.75
|
%
|
287.62
|
%
|
152.18
|
%
|
102.19
|
%
|
||||||
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 and lease portfolio’s risk profile. It is evaluated to ensure that it
is sufficient to absorb all reasonably estimable credit losses inherent in
the
current loan and lease portfolio.
Management
considers the accounting policy relating to the allowance for loan and lease
losses to be a critical accounting policy given the inherent uncertainty in
evaluating the levels of the allowance required to cover credit losses in the
portfolio and the material effect that such judgements can have on the
consolidated results of operations.
For
purposes of evaluating the adequacy of the allowance, the Company considers
a
number of significant factors that affect the collectibility of the portfolio.
For individually analyzed loans, these include estimates of loss exposure,
which
reflect the facts and circumstances that affect the likelihood of repayment
of
such loans as of the evaluation date. For homogeneous pools of loans and leases,
estimates of the Company’s exposure to credit loss reflect a current assessment
of a number of factors, which could affect collectibility. These factors
include: past loss experience; size, trend, composition, and nature of loans;
changes in lending policies and procedures, including underwriting standards
and
collection, charge-offs and recoveries; trends experienced in nonperforming
and
delinquent loans; current economic conditions in the Company’s market; portfolio
concentrations that may affect loss experienced across one or more components
of
the portfolio; the effect of external factors such as competition, legal and
regulatory requirements; and the experience, ability, and depth of lending
management and staff. In addition, various regulatory agencies as an integral
component of their examination process, periodically review the Company’s
allowance for loan and lease losses. Such agencies may require the Company
to
recognize additions to the allowance based on their examination.
After
a
thorough consideration of the factors discussed above, any required additions
to
the allowance for loan and lease losses are made periodically by charges to
the
provision for loan and lease losses. These charges are necessary to maintain
the
allowance at a level which management believes is reasonably reflective of
overall inherent risk of probable loss in the portfolio. While management uses
available information to recognize losses on loans and leases, additions to
the
allowance may fluctuate from one reporting period to another. These fluctuations
are reflective of changes in risk associated with portfolio content and/or
changes in management’s assessment of any or all of the determining factors
discussed above.
Total
nonperforming assets were $14.6 million at December 31, 2005, compared to $16.6
million at December 31, 2004. Credit quality remained stable in 2005, as
nonperforming loans totaled $14.3 million at December 31, 2005, down from the
$16.2 million outstanding at December 31, 2004. Nonperforming loans as a
percentage of total loans and leases decreased to 0.47% for December 31, 2005
from 0.56% at December 31, 2004. The total allowance for loan and lease losses
is 331.92% of non-performing loans at December 31, 2005 as compared to 277.75%
at December 31, 2004.
Impaired
loans, which primarily consist of nonaccruing commercial type loans decreased
slightly, totaling $9.4 million at December 31, 2005 as compared to $10.5
million at December 31, 2004. At December 31, 2005, $2.9 million of the total
impaired loans had a specific reserve allocation of $0.0 million or 0% compared
to $0.5 million of total impaired loans at December 31, 2004 which had a
specific reserve allocation of $0.2 million or 30%.
Total
net
charge-offs for 2005 totaled $6.9 million as compared to $7.3 million for 2004.
The ratio of net charge-offs to average loans and leases was 0.23% for 2005
compared to 0.27% for 2004. Gross charge-offs decreased $0.6 million, totaling
$11.0 million for 2005 compared to $11.6 million for 2004. Recoveries decreased
slightly, from $4.3 million in 2004 to $4.1 million in 2005. The provision
for
loan and lease losses decreased slightly to $9.5 million in 2005 from $9.6
million in 2004. The allowance for loan and lease losses as a percentage of
total loans and leases was 1.57% at December 31, 2005 and 2004. The slight
decrease in the provision for loan and lease losses in 2005 compared to 2004
resulted mainly from loan growth and an increase in potential problem loans
discussed below, offset by decreases in net charge-offs and nonperforming
loans.
|
Table
8. Allowance for Loan and Lease Losses
|
||||||||||||||||
|
(Dollars
in thousands)
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
Balance
at January 1
|
$
|
44,932
|
$
|
42,651
|
$
|
40,167
|
$
|
44,746
|
$
|
32,494
|
||||||
|
Loans
and leases charged-off
|
||||||||||||||||
|
Commercial
and agricultural
|
3,403
|
4,595
|
5,619
|
9,970
|
17,097
|
|||||||||||
|
Real
estate mortgages
|
741
|
772
|
362
|
2,547
|
783
|
|||||||||||
|
Consumer*
|
6,875
|
6,239
|
5,862
|
5,805
|
4,491
|
|||||||||||
|
Total
loans and leases charged-off
|
11,019
|
11,606
|
11,843
|
18,322
|
22,371
|
|||||||||||
|
Recoveries
|
||||||||||||||||
|
Commercial
and agricultural
|
1,695
|
2,547
|
3,185
|
3,394
|
1,063
|
|||||||||||
|
Real
estate mortgages
|
438
|
215
|
430
|
104
|
122
|
|||||||||||
|
Consumer*
|
1,945
|
1,510
|
1,601
|
1,172
|
1,004
|
|||||||||||
|
Total
recoveries
|
4,078
|
4,272
|
5,216
|
4,670
|
2,189
|
|||||||||||
|
Net
loans and leases charged-off
|
6,941
|
7,334
|
6,627
|
13,652
|
20,182
|
|||||||||||
|
Allowance
related to purchase acquisitions
|
-
|
-
|
-
|
-
|
505
|
|||||||||||
|
Provision
for loan and lease losses
|
9,464
|
9,615
|
9,111
|
9,073
|
31,929
|
|||||||||||
|
Balance
at December 31
|
$
|
47,455
|
$
|
44,932
|
$
|
42,651
|
$
|
40,167
|
$
|
44,746
|
||||||
|
Allowance
for loan and lease losses to loans and leases outstanding at end
of
year
|
1.57
|
%
|
1.57
|
%
|
1.62
|
%
|
1.70
|
%
|
1.91
|
%
|
||||||
|
Net
charge-offs to average loans and leases outstanding
|
0.23
|
%
|
0.27
|
%
|
0.27
|
%
|
0.58
|
%
|
0.87
|
%
|
||||||
*
Consumer charge-off and recoveries include consumer, home equity, and lease
financing.
Total
nonperforming assets were $16.6 million at December 31, 2004, compared to $16.4
million at December 31, 2003. Credit quality remained stable in 2004, as
nonperforming loans totaled $16.2 million at December 31, 2004, up slightly
from
the $14.8 million outstanding at December 31, 2003. Nonperforming loans as
a
percentage of total loans and leases remained unchanged at 0.56% for December
31, 2004 and 2003. The total allowance for loan and lease losses is 277.75%
of
non-performing loans at December 31, 2004 as compared to 287.62% at December
31,
2003.
Total
net
charge-offs for 2004 totaled $7.3 million as compared to $6.6 million for 2003.
The ratio of net charge-offs to average loans and leases was 0.27% for 2004
and
2003. Gross charge-offs decreased slightly totaling $11.6 million for 2004
compared to $11.8 million for 2003. Recoveries decreased $0.9 million from
$5.2
million in 2003 to $4.3 million in 2004, due to a decrease in commercial and
agricultural recoveries in 2004 (due in part to several large commercial loan
workouts in 2003). The provision for loan and lease losses increased to $9.6
million in 2004 from $9.1 million in 2003. The allowance for loan and lease
losses as a percentage of total loans and leases was 1.57% at December 31,
2004
compared to 1.62% at December 31, 2003. The slight increase in the provision
for
loan and lease losses in 2004 compared to 2003 resulted mainly from strong
loan
growth, a slight increase in net charge-offs; and stable credit quality as
the
Company’s credit quality measures remained relatively unchanged in 2004 compared
to 2003.
In
addition to the nonperforming loans discussed above, the Company has also
identified approximately $69.5 million in potential problem loans at December
31, 2005 as compared to $48.0 million at December 31, 2004. 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
doubts as to the ability of such borrowers to comply with the present loan
repayment terms and which may result in disclosure of such loans as
non-performing at some time in the future. At the Company, potential problem
loans are typically loans that are performing but are classified by the
Company’s loan rating system as “substandard.” At December 31, 2005 and 2004,
potential problem loans primarily consisted of commercial and agricultural
real
estate and commercial and agricultural loans. The increase in potential problem
loans at December 31, 2005 compared to December 31, 2004 resulted mainly from
the downgrade of several large commercial credit relationships. At December
31,
2005, there were fifteen potential problem loans that exceeded $1.0 million,
totaling $38.3 million in aggregate compared to seven potential problem loans
exceeding $1.0 million, totaling $16.3 million at December 31, 2004. 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 nonaccrual, become restructured, or require increased
allowance coverage and provision for loan losses.
The
following table sets forth the allocation of the allowance for loan losses
by
category, as well as the percentage of loans and leases in each category to
total loans and leases, as prepared by the Company. This allocation is based
on
management’s assessment of the risk characteristics of each of the component
parts of the total loan portfolio as of a given point in time and is subject
to
changes as and when the risk factors of each such component part change. The
allocation is not indicative of either the specific amounts of the loan
categories in which future charge-offs may be taken, nor should it be taken
as
an indicator of future loss trends. The allocation of the allowance to each
category does not restrict the use of the allowance to absorb losses in any
category. The following table sets forth the allocation of the allowance for
loan losses by loan category:
|
Table
9. Allocation of the Allowance for Loan and Lease Losses
|
|||||||||||||||||||||||||||||||
|
December
31,
|
|||||||||||||||||||||||||||||||
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
Allowance
|
Category
Percent
of
Loans
|
Allowance
|
Category
Percent
of
Loans
|
Allowance
|
Category
Percent
of
of
Loans
|
Allowance
|
Category
Percent
of
of
Loans
|
Allowance
|
Category
Percent
of
Loans
|
|||||||||||||||||||||
|
Commercial
and agricultural
|
$
|
30,257
|
43
|
%
|
$
|
28,158
|
44
|
%
|
$
|
25,502
|
43
|
%
|
$
|
25,589
|
46
|
%
|
$
|
34,682
|
48
|
%
|
|||||||||||
|
Real
estate mortgages
|
3,148
|
23
|
%
|
4,029
|
25
|
%
|
4,699
|
27
|
%
|
3,884
|
25
|
%
|
1,611
|
22
|
%
|
||||||||||||||||
|
Consumer
|
12,402
|
34
|
%
|
10,887
|
31
|
%
|
9,357
|
30
|
%
|
7,654
|
29
|
%
|
4,626
|
30
|
%
|
||||||||||||||||
|
Unallocated
|
1,648
|
0
|
%
|
1,858
|
0
|
%
|
3,093
|
0
|
%
|
3,040
|
0
|
%
|
3,827
|
0
|
%
|
||||||||||||||||
|
Total
|
$
|
47,455
|
100
|
%
|
$
|
44,932
|
100
|
%
|
$
|
42,651
|
100
|
%
|
$
|
40,167
|
100
|
%
|
$
|
44,746
|
100
|
%
|
|||||||||||
For
2005,
the reserve allocation for commercial and agricultural loans increased as a
decrease in net charge-off experience was offset by an increase in potential
problem loans. The reserve allocation for real estate mortgages decreased,
consistent with the decline in real estate mortgages and continued low
charge-off experience. The reserve allocation for consumer loans increased
from
increases in net charge-offs and strong loan growth. The unallocated reserve
decreased slightly to $1.6 million for 2005 from $1.9 million for
2004.
The
unallocated reserve decreased from $3.1 million in 2003 to $1.9 million in
2004.
The unallocated reserved ranged from $3.9 million to $3.1 million for the
periods 2000 through 2003. This level of unallocated reserve for this period
was
primarily in response to the integration of three acquired banks during 2000
and
2001. These acquired banks appeared to have used generally less conservative
underwriting and monitoring standards for their commercial related loans, which
increased the inherent risk of loss in the loan and lease portfolio. This
situation was exacerbated by the economic downturn in 2001 (recession and the
terrorist attacks of September 11, 2001), which helped create a higher risk
environment for the loan and lease portfolio. The Company responded to this
higher risk environment by increasing unallocated reserves based on risk factors
thought to increase with the slowing economy and inherent risk of recently
acquired loans underwritten with less conservative underwriting standards.
During 2002 and 2003, the Company successfully integrated the credit functions
of the acquired banks noted above and for the period of 2002 through 2004,
worked out a majority of the nonaccrual loans and potential problem loans
associated with these acquired banks. During 2004, economic conditions continued
to improve and the Company continued to experience positive trends in several
credit quality measures. As a result of improved economic conditions and the
reduction of risk from loans from acquired banks noted above, the level of
unallocated reserve was decreased in 2004. Offsetting the decrease in
unallocated reserve was an increase in reserve for commercial and agricultural
loans as well as consumer loans in 2004. The increase in reserve allocations
for
these segments of the loan and lease portfolio was the result of portfolio
growth and increases in historical loan loss experience for similar loans with
similar characteristics and trends.
At
December 31, 2005, approximately 62.4% of the Company’s loans are secured by
real estate located in central and northern New York and northeastern
Pennsylvania. Accordingly, the ultimate collectibility of a substantial portion
of the Company’s portfolio is susceptible to changes in market conditions of
those areas. Management is not aware of any material concentrations of credit
to
any industry or individual borrowers.
LIQUIDITY
RISK
Liquidity
involves the ability to meet the cash flow requirements of customers who may
be
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. The Asset
Liability Committee (ALCO) is responsible for liquidity management and has
developed guidelines which cover all assets and liabilities, as well as off
balance sheet items that are potential sources or uses of liquidity. Liquidity
policies must also provide the flexibility to implement appropriate strategies
and tactical actions. Requirements change as loans and leases grow, deposits
and
securities mature, and payments on borrowings are made. Liquidity management
includes a focus on interest rate sensitivity management with a goal of avoiding
widely fluctuating net interest margins through periods of changing economic
conditions.
The
primary liquidity measurement the Company utilizes is called Basic Surplus
which
captures the adequacy of its access to reliable sources of cash relative to
the
stability of its funding mix of average liabilities. This approach recognizes
the importance of balancing levels of cash flow liquidity from short- and
long-term securities with the availability of dependable borrowing sources
which
can be accessed when necessary. At December 31, 2005, the Company’s Basic
Surplus measurement was 5.2% of total assets or $228 million, which was above
the Company’s minimum of 5% (calculated at $221 million of period end total
assets at December 31, 2005) 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 December 31, 2005, the
Company considered its Basic Surplus position as tightening. The Company
anticipates the merger with CNB will improve its Basic Surplus measurement,
in
the range of 6% to 7% in the first quarter of 2006. Despite this expected
improvement in liquidity, certain events may adversely impact the Company’s
liquidity position in 2006. Continued improvement in the economy may increase
demand for equity related products or increase competitive pressure on deposit
pricing, which in turn, could result in a decrease in the Company’s deposit base
or increase funding costs. Additionally, liquidity will come under additional
pressure if loan growth continues to exceed deposit growth in 2006. Lastly,
unexpected run-off of deposits from the CNB merger will adversely impact
liquidity. These scenarios could lead to a decrease in the Company’s basic
surplus measure below the minimum policy level of 5%. To manage this risk,
the
Company has the ability to purchase brokered time deposits, established
borrowing facilities with other banks (Federal funds), and has the ability
to
enter into repurchase agreements with investment companies. The additional
liquidity that could be provided by these measures amounted to $594 million
at
December 31, 2005.
At
December 31, 2005, a portion of the Company’s loans and securities were pledged
as collateral on borrowings. Therefore, future growth of earning assets will
depend upon the Company’s ability to obtain additional funding, through growth
of core deposits and collateral management, and may require further use of
brokered time deposits, or other higher cost borrowing
arrangements.
Net
cash
flows provided by operating activities totaled $65.1 million in 2005 and $96.6
million in 2004. The critical elements of net operating cash flows include
net
income, after adding back provision for loan and lease losses, and depreciation
and amortization. The decrease in cash provided by operating activities in
2005
compared to 2004 resulted primarily from the net increase in proceeds from
the
sale of loans, which totaled of $16.9 million in 2004 as compared to a $3.0
million decrease in 2005 as originations exceeded sales.
Net
cash
used in investing activities totaled $206.1 million in 2005 and $224.7 million
in 2004. Critical elements of investing activities are loan and investment
securities transactions. The decrease in investing activities in 2004 was due
primarily to the net increase in loans which totaled $255.0 million in 2004
compared to $157.0 million in 2005 offset by purchases of securities available
for sale and held to maturity exceeding proceeds from sales, maturities, calls
and pay downs which totaled $30.5 million in 2005 compared with proceeds from
sales, maturities, calls and pay downs of securities available for sale and
held
to maturity exceeding purchases which totaled $37.9 million for
2004.
Net
cash
flows provided by financing activities totaled $176.8 million in 2005 and $106.8
million in 2004. The critical elements of financing activities are proceeds
from
deposits, long-term debt, short-term borrowings, and stock issuances. In
addition, financing activities are impacted by dividends and treasury stock
transactions.
In
connection with its financing and operating activities, the Company has entered
into certain contractual obligations. The Company’s future minimum cash
payments, excluding interest, associated with its contractual obligations
pursuant to its borrowing agreements and operating leases at December 31, 2005
are as follows:
|
Contractual
Obligations
|
||||||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||
|
Payments
Due by Period
|
||||||||||||||||||||||
|
2006
|
2007
|
2008
|
2009
|
2010
|
Thereafter
|
Total
|
||||||||||||||||
|
Long-term
debt obligations
|
$ |
85,000
|
$ |
65,000
|
$ |
115,261
|
$ |
75,000
|
$ |
25,000
|
$ |
49,069
|
$ |
414,330
|
||||||||
|
Trust
preferred debentures
|
-
|
-
|
-
|
-
|
-
|
23,875
|
23,875
|
|||||||||||||||
|
Operating
lease obligations
|
2,590
|
2,341
|
1,804
|
1,384
|
1,031
|
6,620
|
15,770
|
|||||||||||||||
|
Total
contractual obligations
|
$
|
87,590
|
$
|
67,341
|
$
|
117,065
|
$
|
76,384
|
$
|
26,031
|
$
|
79,564
|
$
|
453,975
|
||||||||
OFF-BALANCE
SHEET RISK COMMITMENTS TO EXTEND CREDIT
The
Company makes contractual commitments to extend credit, which include unused
lines of credit, which are subject to the Company’s credit approval and
monitoring procedures. At December 31, 2005 and 2004, commitments to extend
credit in the form of loans, including unused lines of credit, amounted to
$497.1 million and $507.4 million, respectively. In the opinion of management,
there are no material commitments to extend credit, including unused lines
of
credit, that represent unusual risks. All commitments to extend credit in the
form of loans, including unused lines of credit, expire within one
year.
STAND-BY
LETTERS OF CREDIT
In
November 2002, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 45 (FIN No. 45), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of
Others; an Interpretation of FASB Statements Nos. 5, 57, and 107 and rescission
of FASB Interpretation No. 34.” FIN No. 45 requires certain new disclosures and
potential liability-recognition for the fair value at issuance of guarantees
that fall within its scope. Under FIN No. 45, the Company does not issue any
guarantees that would require liability-recognition or disclosure, other than
its stand-by letters of credit.
The
Company guarantees the obligations or performance of customers by issuing
stand-by letters of credit to third parties. These stand-by letters of credit
are frequently issued in support of third party debt, such as corporate debt
issuances, industrial revenue bonds, and municipal securities. The risk involved
in issuing stand-by letters of credit is essentially the same as the credit
risk
involved in extending loan facilities to customers, and they are subject to
the
same credit origination, portfolio maintenance and management procedures in
effect to monitor other credit and off-balance sheet products. Typically, these
instruments have terms of five years or less and expire unused; therefore,
the
total amounts do not necessarily represent future cash requirements. At December
31, 2005 and 2004, outstanding stand-by letters of credit were approximately
$42.9 million and $31.6 million, respectively. The fair value of the Company’s
stand-by letters of credit at December 31, 2005 and 2004 was not significant.
The following table sets forth the commitment expiration period for stand-by
letters of credit at December 31, 2005:
|
Commitment
Expiration of Stand-by Letters of Credit
|
||||
|
Within
one year
|
$
|
28,104
|
||
|
After
one but within three years
|
13,422
|
|||
|
After
three but within five years
|
1,340
|
|||
|
Total
|
$
|
42,866
|
||
LOANS
SERVICED FOR OTHERS AND LOANS SOLD WITH RECOURSE
The
total
amount of loans serviced by the Company for unrelated third parties was
approximately $81.2 million and $70.8 million at December 31, 2005 and 2004,
respectively. At December 31, 2005 and 2004, the Company serviced $5.8 million
and $5.6 million, respectively, of loans sold with recourse. Due to collateral
on these loans, no reserve is considered necessary at December 31, 2005 and
2004.
CAPITAL
RESOURCES
Consistent
with its goal to operate a sound and profitable financial institution, the
Company actively seeks to maintain a “well-capitalized” institution in
accordance with regulatory standards. The principal source of capital to the
Company is earnings retention. The Company’s capital measurements are in excess
of both regulatory minimum guidelines and meet the requirements to be considered
well capitalized.
The
Company’s principal source of funds to pay interest on trust preferred
debentures and pay cash dividends to its shareholders is dividends from its
subsidiaries. Various laws and regulations restrict the ability of banks to
pay
dividends to their shareholders. Generally, the payment of dividends by the
Company in the future as well as the payment of interest on the capital
securities will require the generation of sufficient future earnings by its
subsidiaries.
The
Bank
also is subject to substantial regulatory restrictions on its ability to pay
dividends to the Company. Under OCC regulations, the Bank may not pay a
dividend, without prior OCC approval, if the total amount of all dividends
declared during the calendar year, including the proposed dividend, exceed
the
sum of its retained net income to date during the calendar year and its retained
net income over the preceding two years. At December 31, 2005, approximately
$58.5 million of the total stockholders’ equity of the Bank was available for
payment of dividends to the Company without approval by the OCC. The Bank’s
ability to pay dividends also is subject to the Bank being in compliance with
regulatory capital requirements. The Bank is currently in compliance with these
requirements.
STOCK
REPURCHASE PLAN
On
January 24, 2005, the Company’s Board of Directors adopted a new repurchase
program whereby the Company is authorized to repurchase up to 1,500,000 shares
(approximately 5%) of its outstanding common stock. At that time, there were
719,800 shares remaining under the January 26, 2004 authorization that was
superseded by the new repurchase program. During 2005, the Company repurchased
1,008,114 shares of its own common stock for $23.2 million at an average price
of $22.97 per share. At December 31, 2005, there were 503,151 shares available
for repurchase under the January 24, 2005 authorization.
On
January 23, 2006, the Company’s Board of Directors adopted a new repurchase
program whereby the Company is authorized to repurchase up to an additional
1,000,000 shares (approximately 3%) of its outstanding common stock. The shares
remaining under the 2005 authorization will be combined with the 2006
authorization, increasing the total shares available for repurchase to
1,503,151.
NONINTEREST
INCOME
Noninterest
income is a significant source of revenue for the Company and an important
factor in the Company’s results of operations. The following table sets forth
information by category of noninterest income for the years
indicated:
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Service
charges on deposit accounts
|
$
|
16,894
|
$
|
16,470
|
$
|
15,833
|
||||
|
Broker/dealer
and insurance revenue
|
3,186
|
6,782
|
6,869
|
|||||||
|
Trust
|
5,029
|
4,605
|
4,041
|
|||||||
|
Bank
owned life insurance income
|
1,347
|
1,487
|
815
|
|||||||
|
ATM/Debit
Card fees
|
6,162
|
5,530
|
5,307
|
|||||||
|
Retirement
plan administration fees
|
4,426
|
-
|
-
|
|||||||
|
Other
|
6,741
|
5,799
|
4,738
|
|||||||
|
Total
before net securities (losses) gains
|
43,785
|
40,673
|
37,603
|
|||||||
|
Net
securities (losses) gains
|
(1,236
|
)
|
216
|
175
|
||||||
|
Total
|
$
|
42,549
|
$
|
40,889
|
$
|
37,778
|
||||
Noninterest
income for the year ended December 31, 2005, was $42.5 million, up $1.6 million
from $40.9 million for the same period in 2004. Excluding net securities losses
of $1.2 million for 2005 and net securities gains of $0.2 million in 2004,
total
noninterest income increased $3.1 million or 8% from the same period in 2004.
Net securities losses of $1.2 million resulted from the sale of $47.8 million
in
securities available for sale to improve investment portfolio yield going
forward. Retirement plan administration fees were $4.4 million. This is a new
service from the acquisition of EPIC Advisors, Inc. in January 2005. ATM and
debit card fees increased $0.6 million compared with the same period a year
ago,
due to growth from transaction deposit accounts, which has led to an increase
in
the Company’s debit card base. Other income increased $0.9 million from
increases in consumer banking fees, mortgage banking income and title insurance
revenue. Offsetting these increases was a $3.6 million decrease in broker/dealer
and insurance revenue due to the sale of the Company’s broker/dealer subsidiary,
M. Griffith, Inc. in March 2005.
NONINTEREST
EXPENSE
Noninterest
expenses are also an important factor in the Company’s results of operations.
The following table sets forth the major components of noninterest expense
for
the years indicated:
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Salaries
and employee benefits
|
$
|
60,005
|
$
|
55,204
|
$
|
50,439
|
||||
|
Occupancy
|
10,452
|
9,905
|
9,328
|
|||||||
|
Equipment
|
8,118
|
7,573
|
7,627
|
|||||||
|
Data
processing and communications
|
10,349
|
10,972
|
10,752
|
|||||||
|
Professional
fees and outside services
|
6,087
|
6,175
|
5,433
|
|||||||
|
Office
supplies and postage
|
4,628
|
4,459
|
4,216
|
|||||||
|
Amortization
of intangible assets
|
544
|
284
|
620
|
|||||||
|
Capital
securities
|
-
|
-
|
732
|
|||||||
|
Loan
collection and other real estate owned
|
1,002
|
1,241
|
1,840
|
|||||||
|
Goodwill
impairment
|
-
|
1,950
|
-
|
|||||||
|
Other
|
14,120
|
12,014
|
13,530
|
|||||||
|
Total
noninterest expense
|
$
|
115,305
|
$
|
109,777
|
$
|
104,517
|
||||
Noninterest
expense for the year ended December 31, 2005, was $115.3 million, up $5.5
million or 5% from $109.8 million for the same period in 2004. The increase
in
noninterest expense was due largely to increases in salaries and employee
benefits, occupancy, equipment and other expense offset by a decrease in data
processing and communications expense. Also, 2004 included a $2.0 million
goodwill impairment charge. Salaries and employee benefits increased $4.8
million primarily from merit increases as well as an increase in retirement
costs and incentive compensation. Occupancy expense increased $0.5 million,
driven principally by branch expansion and rising energy costs. Equipment
expense increased $0.5 million from various technology upgrades. Other operating
expense increased $2.1 million, principally from the reversal of a previously
accrued $1.4 million liability that was determined in the fourth quarter of
2004
to no longer be required. The $2.0 million goodwill impairment charge in 2004
resulted from the expected sale of the Company’s broker/dealer subsidiary, M
Griffith, Inc. in the first quarter of 2005. The decrease in data processing
and
communications of $0.6 million was driven by a contract renewal with the
Company’s core data system service provider in 2005.
INCOME
TAXES
In
2005,
income tax expense was $23.5 million, as compared to $21.9 million in 2004
and
$21.5 million in 2003. The Company’s effective tax rate was 30.9%, 30.5%, and
31.3% in 2005, 2004, and 2003, respectively. The 2005 effective rate included
a
reversal of a $0.7 million accrued tax liability in the third quarter of 2005
that was determined to no longer be required and a $0.4 million permanent
difference related to a $1.1 million taxable gain for the sale of M. Griffith
Inc. The 2004 effective rate included a reversal of a $0.8 million accrued
tax
liability in the fourth quarter of 2004 that was determined to no longer be
required.
The
proposed 2006 New York State budget bill contains a provision that would
disallow the exclusion of dividends paid by a real estate investment trust
subsidiary (“REIT”). The bill, if enacted as proposed would be effective for
taxable years beginning on or after January 1, 2006, and the Company would
lose
the tax benefit associated with the REIT. Until there is resolution to this
proposal, the Company may have to increase the 2006 tax provision by
approximately $300K per quarter as compared to 2005 and may have to begin
recording the increased provision in the first quarter of 2006. Additionally,
the proposed legislation would reduce the statutory tax rate on the taxable
income base from 7.50% to 6.75%.
We
calculate our current and deferred tax provision based on estimates and
assumptions that could differ from the actual results reflected in income tax
returns filed during the subsequent year. Adjustments based on filed returns
are
recorded when identified, which is generally in the third quarter of the
subsequent year for U.S. federal and state provisions.
The
amount of income taxes we pay is subject at times to ongoing audits by federal
and state tax authorities, which often result in proposed assessments. Our
estimate for the potential outcome for any uncertain tax issue is highly
judgmental. We believe we have adequately provided for any reasonably
foreseeable outcome related to these matters. However, our future results may
include favorable or unfavorable adjustments to our estimated tax liabilities
in
the period the assessments are proposed or resolved or when statutes of
limitation on potential assessments expire. As a result, our effective tax
rate
may fluctuate significantly on a quarterly or annual basis.
2004
OPERATING RESULTS AS COMPARED TO 2003 OPERATING RESULTS
NET
INTEREST INCOME
On
a tax
equivalent basis, the Company’s net interest income for 2004 was $154.7 million,
up from $148.9 million for 2003. The Company’s net interest margin declined to
4.03% for 2004 from 4.16% for 2003. The decline in the net interest margin
resulted primarily from earning assets repricing downward faster than interest
bearing liabilities. The yield on earning assets decreased 33 basis points
(bp),
from 5.91% for 2003 to 5.58% for 2004. Meanwhile, the rate paid on interest
bearing liabilities decreased 24 bp, from 2.07% for 2003 to 1.83% for 2004.
Offsetting the decline in net interest margin was an increase in average earning
assets of $260.3 million or 7%, driven primarily by a $268.9 million increase
in
average loans and leases.
LOANS
AND LEASES AND CORRESPONDING INTEREST AND FEES ON LOANS
The
average balance of loans and leases increased 11%, totaling $2.7 billion in
2004
compared to $2.5 billion in 2003. The yield on average loans and leases
decreased from 6.46% in 2003 to 5.99% in 2004, as long-term interest rates
remained at relatively historic low levels for much of 2004. Interest income
from loans and leases on a FTE basis increased 3%, from $159.8 million in 2003
to $164.3 million in 2004. The increase in interest income from loans and leases
was due primarily to the increase the average balance of loans and leases noted
above offset somewhat by a the decline in yield on loans and leases in 2004
compared to 2003.
Total
loans and leases increased 9% at December 31, 2004, totaling $2.9 billion from
$2.6 billion at December 31, 2003. The increase in loans and leases was driven
by strong growth in home equity loans, real estate construction and development
(primarily comprised of commercial real estate), lease financing and modest
growth in commercial loans and commercial real estate. Home equity loans
increased $55.3 million or 16% from $336.5 million at December 31, 2003 to
$391.8 million at December 31, 2004. The increase in home equity loans was
due
to strong product demand as the Bank’s prime lending rate (which the home equity
line product is tied to) remained at historic lows for the first-half of 2004.
Additionally, the Bank was successful in marketing its home equity product
in
its newer markets. Real estate construction and development loans increased
$50.9 million or 59% from $86.0 million at December 31, 2003 to $136.9 million
at December 31, 2004, as the Bank originated several large commercial
construction development loans in 2004 in its newer markets. Lease financing
increased $18.0 million or 29% from $62.7 million at December 31, 2003 to $80.7
million at December 31, 2004. The increase in lease financing resulted from
the
Bank’s expanded presence in the northeastern Pennsylvania market in 2004.
Commercial loans and commercial real estate increased $64.5 million or 7% from
$954.0 million at December 31, 2003 to $1.0 billion at December 31, 2004, as
the
Bank continued to expand its commercial banking presence in Albany, Binghamton,
and northeastern Pennsylvania.
SECURITIES
AND CORRESPONDING INTEREST AND DIVIDEND INCOME
The
average balance of securities available for sale in 2004 was $970.0 million,
a
decrease of $14.6 million, or 1%, from $984.6 million in 2003. The yield on
average securities available for sale was 4.60% for 2004 compared to 4.70%
in
2003. The slight decrease in yield on securities available for sale resulted
from continued efforts to shorten the duration and weighted average life of
the
securities available for sale portfolio in 2004. At December 31, 2004,
approximately 67% of securities available for sale were comprised of fifteen/ten
year mortgage-backed securities and collateralized mortgage obligations and
9%
were comprised of thirty/twenty year mortgaged-backed securities. At December
31, 2003, the mix was 63% fifteen/ten year mortgage-backed securities and 10%
thirty/twenty year mortgaged-backed securities. Furthermore, the Company
shortened the estimated weighted average life of the total securities portfolio
from 5.0 years at December 31, 2003 to 4.6 years at December 31, 2004. In the
event of a rising rate environment, the Company should be positioned to reinvest
cash flows at a faster rate from shortening the expected life of the
portfolio.
The
average balance of securities held to maturity decreased from $90.6 million
in
2003 to $85.8 million in 2004. At December 31, 2004, securities held to maturity
were comprised primarily of tax-exempt municipal securities. The yield on
securities held to maturity decreased slightly from 5.14% in 2003 to 5.11%
in
2004. Investments in FRB and Federal Home Loan Bank (FHLB) stock increased
to
$34.8 million in 2004 from $28.1 million in 2003. This increase was driven
primarily by an increase in the investment in FHLB resulting from an increase
in
the Company’s borrowing capacity at FHLB. The yield from investments in FRB and
FHLB Banks declined from 3.04% in 2003 to 2.45% in 2004. In 2003, the FHLB
disclosed it had capital concerns and credit issues in their investment security
portfolio. As a result of these issues, the FHLB suspended a quarterly dividend
payment in 2003 and reduced their dividend rate in 2004.
BORROWINGS
Average
short-term borrowings increased $111.9 million to $302.3 million in 2004. The
average rate paid on short-term borrowings increased from 1.14% in 2003 to
1.35%
in 2004, as the Federal Reserve Bank increased the discount rate (which directly
impacts short-term borrowing rates) 125 bp in 2004. The increases in the average
balance and the average rate paid caused interest expense on short-term
borrowings to increase $1.9 million from $2.2 million in 2003 to $4.1 million
in
2004. Average long-term debt increased $20.8 million, from $360.9 million in
2003 to $381.8 million in 2004. The increases in long-term debt and short-term
borrowings resulted primarily from loan growth exceeding deposit growth in
2004.
NONINTEREST
INCOME
Noninterest
income before securities losses increased $3.1 million or 8% to $40.7 million
for 2004 from $37.6 million for 2003. Fees from service charges on deposit
accounts increased $0.6 million or 4% for 2004 when compared to 2003, primarily
from an increase in deposits pricing adjustments related to overdraft fees.
Broker/dealer and insurance fees remained relatively unchanged as the Company’s
insurance subsidiary CFS , which no longer provided insurance services in May
2003, had revenues of $0.4 million for 2003 compared to no revenue for 2004.
Offsetting this decrease was a $0.3 million increase in revenue from the
Company’s financial services division in 2004 from continued growth from this
relatively new business initiative, which was launched in 2003. Trust revenue
increased $0.6 million or 14% in 2004, primarily from growth in assets under
management and increased trust accounts. Other income increased $1.3 million
or
13%, in 2004, from growth in ATM and other consumer and commercial banking
fee
income. Bank owned life insurance (“BOLI”) income increased $0.7 million in 2004
compared to 2003 as the Company recognized a full year of BOLI income in 2004
compared to 6 months of BOLI income in 2003 due to the $30 million purchase
of
BOLI in June 2003.
NONINTEREST
EXPENSE
Total
noninterest expense increased $5.3 million or 5% from $104.5 million in 2003
to
$109.8 million in 2004. Salaries and benefits increased $4.8 million or 9%
in
2004 from increases in salaries of $2.1 million, incentive compensation of
$0.8
million, and medical insurance of $1.4 million. The increase in salaries was
driven primarily by merit increases and an increase in full-time equivalent
employees (from market expansion). Incentive compensation increased from
increases in revenue generator incentive payments, financial services
commissions and 401(K)/ESOP contributions as the Company’s focus has shifted to
a variable compensation structure for sales-oriented employees. Rising health
care costs drove the increase in medical insurance. Occupancy expense increased
$0.6 million or 6% in 2004 from increases in depreciation, rent and property
taxes from branch expansion in the Albany and Binghamton markets in 2004 and
2003. Professional fees and outside services increased $0.7 million or 14%
in
2004 compared to 2003 from increases in audit costs related to Sarbanes-Oxley
compliance and courier expense (market expansion and increased fuel costs).
In
the fourth quarter of 2004, the Company took a $2.0 million goodwill impairment
charge related to its broker/dealer subsidiary MGI. The goodwill impairment
charge stems from the purchase price agreed to in a definitive agreement signed
in the fourth quarter 2004 for the sale of MGI, which closed in the first
quarter of 2005. The sale of MGI was due to the Company’s decision to change its
strategy in delivering financial services directly through its Bank and Trust
Department.
Offsetting
these increases were decreases in 2004 in other operating expense of $1.5
million and $0.6 million in loan collection and OREO costs. The decrease in
other operating expense resulted from a $1.4 million reversal of an accrued
liability that was determined to no longer be required in the fourth quarter
of
2004. The decrease in loan collection and OREO costs resulted from lower
collection costs from a decrease in nonperforming loans.
IMPACT
OF INFLATION AND CHANGING PRICES
Interest
rate risk is the most significant market risk affecting the Company. Other
types
of market risk, such as foreign currency exchange rate risk and commodity price
risk, do not arise in the normal course of the Company’s business activities or
are immaterial to the results of operations.
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 minimizing the net
interest margin compression. At times, depending on the level of general
interest rates, the relationship between long and short-term interest rates,
market conditions and competitive factors, the Board and management may
determine to increase the Company’s interest rate risk position somewhat in
order to increase its net interest margin. The Company’s results of operations
and net portfolio values remain vulnerable to changes in interest rates and
fluctuations in the difference between long-and short-term interest
rates.
The
primary tool utilized by ALCO to manage interest rate risk is a balance
sheet/income statement simulation model (interest rate sensitivity analysis).
Information such as principal balance, interest rate, maturity date, cash flows,
next repricing date (if needed), and current rates is uploaded into the model
to
create an ending balance sheet. In addition, ALCO makes certain assumptions
regarding prepayment speeds for loans and leases and mortgage related investment
securities along with any optionality within the deposits and borrowings. The
model is first run under an assumption of a flat rate scenario (i.e. no change
in current interest rates) with a static balance sheet over a 12-month period.
Two additional models are run in which a gradual increase of 200 bp and a
gradual decrease of 200 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 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
earning assets repricing downward faster than interest-bearing liabilities.
The
inability to effectively lower deposit rates will likely reduce or eliminate
the
otherwise normal expected benefit of lower interest rates. In the rising rate
scenarios, net interest income is projected to experience a decline from the
flat rate scenario. Net interest income is projected to remain at lower levels
than in a flat rate scenario through the simulation period primarily due to
a
lag in assets repricing while funding costs increase. The potential impact
on
earnings is dependent on the ability to lag deposit repricing. Net interest
income for the next twelve months in the +200/- 200 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 December 31, 2005 balance sheet position:
|
Table
10. Interest Rate Sensitivity Analysis
|
||||
|
Change
in interest rates
(In
basis points)
|
Percent
change
in
net interest income
|
|||
|
+200
|
(2.15
|
%)
|
||
|
-200
|
(1.09
|
%)
|
||
Under
the
flat rate scenario with a static balance sheet, net interest income is
anticipated to decrease approximately 1.8% from total net interest income for
2005. The Company anticipates under current conditions, interest expense is
expected to increase at a faster rate that interest income as the Company is
somewhat liability sensitive. In order to protect net interest income from
anticipated net interest margin compression, the Company will continue to focus
on increasing earning assets through loan growth and leverage opportunities.
However, if the Company cannot increase the level of earning assets at
December 31, 2005, the Company expects net interest income to decline in
2006.
The
Company has taken several measures to mitigate net interest margin compression.
The Company began originating 20-year and 30-year residential real estate
mortgages with the intent to sell at the end of the second quarter of 2005,
limiting its exposure to long-term fixed rate assets. The Company has also
shortened the average life of its investment securities portfolio by limiting
purchases of mortgage-backed securities and redirecting proceeds into
short-duration CMOs and US Agency notes and bonds. Lastly, from time to time
during 2005, the Company has increased its long-term debt to offset exposure
to
long-term earning assets.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Stockholders
NBT
Bancorp Inc.:
We
have
audited the accompanying consolidated balance sheets of NBT Bancorp Inc. and
subsidiaries (the Company) as of December 31, 2005 and 2004, and the related
consolidated statements of income, changes in stockholders’ equity, cash flows
and comprehensive income for each of the years in the three-year period ended
December 31, 2005. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of NBT Bancorp Inc. and
subsidiaries at December 31, 2005 and 2004, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 2005, in conformity with U.S. generally accepted accounting
principles.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of NBT Bancorp Inc.’s
internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal
Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 6, 2006 expressed an unqualified opinion on
management’s assessment of, and effective operation of, internal control over
financial reporting.
/S/
KPMG
LLP
Albany,
New York
March
6,
2006
|
As
of December 31,
|
|||||||
|
(In
thousands, except share and per share data)
|
2005
|
2004
|
|||||
|
Assets
|
|||||||
|
Cash
and due from banks
|
$
|
134,501
|
$
|
98,437
|
|||
|
Short-term
interest bearing accounts
|
7,987
|
8,286
|
|||||
|
Securities
available for sale, at fair value
|
954,474
|
952,542
|
|||||
|
Securities
held to maturity (fair value $93,701 and $82,712)
|
93,709
|
81,782
|
|||||
|
Federal
Reserve and Federal Home Loan Bank stock
|
40,259
|
36,842
|
|||||
|
Loans
and leases
|
3,022,657
|
2,869,921
|
|||||
|
Less
allowance for loan and lease losses
|
47,455
|
44,932
|
|||||
|
Net
loans and leases
|
2,975,202
|
2,824,989
|
|||||
|
Premises
and equipment, net
|
63,693
|
63,743
|
|||||
|
Goodwill
|
47,544
|
45,570
|
|||||
|
Intangible
assets, net
|
3,808
|
2,013
|
|||||
|
Bank
owned life insurance
|
33,648
|
32,302
|
|||||
|
Other
assets
|
71,948
|
65,798
|
|||||
|
Total
assets
|
$
|
4,426,773
|
$
|
4,212,304
|
|||
|
Liabilities
|
|||||||
|
Demand
(noninterest bearing)
|
$
|
593,422
|
$
|
520,218
|
|||
|
Savings,
NOW, and money market
|
1,325,166
|
1,435,561
|
|||||
|
Time
|
1,241,608
|
1,118,059
|
|||||
|
Total
deposits
|
3,160,196
|
3,073,838
|
|||||
|
Short-term
borrowings
|
444,977
|
338,823
|
|||||
|
Long-term
debt
|
414,330
|
394,523
|
|||||
|
Trust
preferred debentures
|
23,875
|
18,720
|
|||||
|
Other
liabilities
|
49,452
|
54,167
|
|||||
|
Total
liabilities
|
4,092,830
|
3,880,071
|
|||||
|
Stockholders’
equity
|
|||||||
|
Preferred
stock, $0.01 par value; Authorized 2,500,000 shares at December 31,
2005
and 2004.
|
-
|
-
|
|||||
|
Common
stock, $0.01 par value. Authorized 50,000,000 shares at December
31, 2005
and 2004; issued 34,400,925 and 34,401,008 at December 31, 2005 and
2004,
respectively
|
344
|
344
|
|||||
|
Additional
paid-in-capital
|
219,157
|
218,012
|
|||||
|
Unvested
restricted stock
|
(457
|
)
|
(296
|
)
|
|||
|
Retained
earnings
|
163,989
|
137,323
|
|||||
|
Accumulated
other comprehensive (loss) income
|
(6,477
|
)
|
4,989
|
||||
|
Common
stock in treasury, at cost, 2,101,382 and 1,544,247 shares
|
(42,613
|
)
|
(28,139
|
)
|
|||
|
Total
stockholders’ equity
|
333,943
|
332,233
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
4,426,773
|
$
|
4,212,304
|
|||
See
accompanying notes to consolidated financial statements.
|
Years
ended December 31,
|
||||||||||
|
(In
thousands, except per share data)
|
2005
|
2004
|
2003
|
|||||||
|
Interest,
fee, and dividend income
|
||||||||||
|
Interest
and fees on loans and leases
|
$
|
189,714
|
$
|
163,795
|
$
|
159,118
|
||||
|
Securities
available for sale
|
41,120
|
42,264
|
43,851
|
|||||||
|
Securities
held to maturity
|
3,407
|
3,044
|
3,391
|
|||||||
|
Other
|
2,126
|
1,076
|
938
|
|||||||
|
Total
interest, fee, and dividend income
|
236,367
|
210,179
|
207,298
|
|||||||
|
Interest
expense
|
||||||||||
|
Deposits
|
49,932
|
39,761
|
45,941
|
|||||||
|
Short-term
borrowings
|
10,984
|
4,086
|
2,171
|
|||||||
|
Long-term
debt
|
16,114
|
15,022
|
14,762
|
|||||||
|
Trust
preferred debentures
|
1,226
|
823
|
-
|
|||||||
|
Total
interest expense
|
78,256
|
59,692
|
62,874
|
|||||||
|
Net
interest income
|
158,111
|
150,487
|
144,424
|
|||||||
|
Provision
for loan and lease losses
|
9,464
|
9,615
|
9,111
|
|||||||
|
Net
interest income after provision for loan and lease losses
|
148,647
|
140,872
|
135,313
|
|||||||
|
Noninterest
income
|
||||||||||
|
Service
charges on deposit accounts
|
16,894
|
16,470
|
15,833
|
|||||||
|
Broker/
dealer and insurance revenue
|
3,186
|
6,782
|
6,869
|
|||||||
|
Trust
|
5,029
|
4,605
|
4,041
|
|||||||
|
Net
securities (losses) gains
|
(1,236
|
)
|
216
|
175
|
||||||
|
Bank
owned life insurance
|
1,347
|
1,487
|
815
|
|||||||
|
ATM/Debit
card Fees
|
6,162
|
5,530
|
5,307
|
|||||||
|
Retirement
plan administration fees
|
4,426
|
-
|
-
|
|||||||
|
Other
|
6,741
|
5,799
|
4,738
|
|||||||
|
Total
noninterest income
|
42,549
|
40,889
|
37,778
|
|||||||
|
Noninterest
expense
|
||||||||||
|
Salaries
and employee benefits
|
60,005
|
55,204
|
50,439
|
|||||||
|
Occupancy
|
10,452
|
9,905
|
9,328
|
|||||||
|
Equipment
|
8,118
|
7,573
|
7,627
|
|||||||
|
Data
processing and communications
|
10,349
|
10,972
|
10,752
|
|||||||
|
Professional
fees and outside services
|
6,087
|
6,175
|
5,433
|
|||||||
|
Office
supplies and postage
|
4,628
|
4,459
|
4,216
|
|||||||
|
Amortization
of intangible assets
|
544
|
284
|
620
|
|||||||
|
Capital
securities
|
-
|
-
|
732
|
|||||||
|
Loan
collection and other real estate owned
|
1,002
|
1,241
|
1,840
|
|||||||
|
Goodwill
impairment
|
-
|
1,950
|
-
|
|||||||
|
Other
|
14,120
|
12,014
|
13,530
|
|||||||
|
Total
noninterest expense
|
115,305
|
109,777
|
104,517
|
|||||||
|
Income
before income tax expense
|
75,891
|
71,984
|
68,574
|
|||||||
|
Income
tax expense
|
23,453
|
21,937
|
21,470
|
|||||||
|
Net
income
|
$
|
52,438
|
$
|
50,047
|
$
|
47,104
|
||||
|
Earnings
per share
|
||||||||||
|
Basic
|
$
|
1.62
|
$
|
1.53
|
$
|
1.45
|
||||
|
Diluted
|
1.60
|
1.51
|
1.43
|
|||||||
See
accompanying notes to consolidated financial statements.
|
Years
ended December 31,
2005,
2004, and 2003
(In
thousands except share and per share data)
|
Common
stock
|
Additional
Paid-in-
capital
|
Unvested
Restricted
Stock
|
Retained
earnings
|
Accumulated
other
comprehensive
(loss)/
income
|
Common
stock
in
treasury
|
Total
|
|||||||||||||||
|
Balance
at December 31, 2002
|
$
|
344
|
$
|
215,363
|
$
|
(127
|
)
|
$
|
90,165
|
$
|
16,531
|
$
|
(29,894
|
)
|
$
|
292,382
|
||||||
|
Net
income
|
-
|
-
|
-
|
47,104
|
-
|
-
|
47,104
|
|||||||||||||||
|
Cash
dividends- $0.68 per share
|
-
|
-
|
-
|
(22,173
|
)
|
-
|
-
|
(22,173
|
)
|
|||||||||||||
|
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
|
-
|
360
|
-
|
-
|
-
|
(360
|
)
|
-
|
||||||||||||||
|
Net
issuance of 494,948 shares to employee benefit plans and other stock
plans, including tax benefit
|
-
|
912
|
-
|
(2,449
|
)
|
-
|
9,212
|
7,675
|
||||||||||||||
|
Grant
of 11,846 shares of restricted stock awards
|
-
|
1
|
(203
|
)
|
-
|
-
|
202
|
-
|
||||||||||||||
|
Amortization
of restricted stock awards
|
-
|
-
|
133
|
-
|
-
|
-
|
133
|
|||||||||||||||
|
Other
comprehensive loss
|
-
|
-
|
-
|
-
|
(8,598
|
)
|
-
|
(8,598
|
)
|
|||||||||||||
|
Balance
at December 31, 2003
|
344
|
216,636
|
(197
|
)
|
112,647
|
7,933
|
(27,329
|
)
|
310,034
|
|||||||||||||
|
Net
income
|
-
|
-
|
-
|
50,047
|
-
|
-
|
50,047
|
|||||||||||||||
|
Cash
dividends- $0.74 per share
|
-
|
-
|
-
|
(24,251
|
)
|
-
|
-
|
(24,251
|
)
|
|||||||||||||
|
Purchase
of 423,989 treasury shares
|
-
|
-
|
-
|
-
|
-
|
(9,149
|
)
|
(9,149
|
)
|
|||||||||||||
|
Net
issuance of 458,593 shares to employee benefit plans and other stock
plans, including tax benefit
|
-
|
1,317
|
-
|
(1,120
|
)
|
-
|
8,103
|
8,300
|
||||||||||||||
|
Grant
of 14,547 shares of restricted stock awards
|
-
|
59
|
(312
|
)
|
-
|
-
|
253
|
-
|
||||||||||||||
|
Amortization
of restricted stock awards
|
-
|
-
|
196
|
-
|
-
|
-
|
196
|
|||||||||||||||
|
Forfeited
963 shares of restricted stock
|
-
|
-
|
17
|
-
|
-
|
(17
|
)
|
-
|
||||||||||||||
|
Other
comprehensive loss
|
-
|
-
|
-
|
-
|
(2,944
|
)
|
-
|
(2,944
|
)
|
|||||||||||||
|
Balance
at December 31, 2004
|
|
344
|
|
218,012
|
|
(296
|
)
|
|
137,323
|
|
4,989
|
|
(28,139
|
)
|
|
332,233
|
||||||
|
Net
income
|
-
|
-
|
-
|
52,438
|
-
|
-
|
52,438
|
|||||||||||||||
|
Cash
dividends- $0.76 per share
|
-
|
-
|
-
|
(24,673
|
)
|
-
|
-
|
(24,673
|
)
|
|||||||||||||
|
Purchase
of 1,008,114 treasury shares
|
-
|
-
|
-
|
-
|
-
|
(23,165
|
)
|
(23,165
|
)
|
|||||||||||||
|
Net
issuance of 415,976 shares to employee benefit plans and other stock
plans, including tax benefit
|
-
|
1,292
|
-
|
(1,099
|
)
|
-
|
8,025
|
8,218
|
||||||||||||||
|
Grant
of 35,003 shares of restricted stock awards
|
-
|
(147
|
)
|
(519
|
)
|
-
|
-
|
666
|
-
|
|||||||||||||
|
Amortization
of restricted stock awards
|
-
|
-
|
358
|
-
|
-
|
-
|
358
|
|||||||||||||||
|
Other
comprehensive loss
|
-
|
-
|
-
|
-
|
(11,466
|
)
|
-
|
(11,466
|
)
|
|||||||||||||
|
Balance
at December 31, 2005
|
$
|
344
|
$
|
219,157
|
$
|
(457
|
)
|
$
|
163,989
|
$
|
(6,477
|
)
|
$
|
(42,613
|
)
|
$
|
333,943
|
|||||
See
accompanying notes to consolidated financial
statements.
|
Years
ended December 31,
|
||||||||||
|
(In
thousands, except per share data)
|
2005
|
2004
|
2003
|
|||||||
|
Operating
activities
|
||||||||||
|
Net
income
|
$
|
52,438
|
$
|
50,047
|
$
|
47,104
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||||
|
Provision
for loan and lease losses
|
9,464
|
9,615
|
9,111
|
|||||||
|
Depreciation
and amortization of premises and equipment
|
6,296
|
6,057
|
6,507
|
|||||||
|
Net
accretion on securities
|
1,362
|
2,406
|
4,806
|
|||||||
|
Amortization
of intangible assets
|
544
|
284
|
620
|
|||||||
|
Amortization
of restricted stock awards
|
358
|
196
|
133
|
|||||||
|
Bank
owned life insurance income
|
(1,347
|
)
|
(1,487
|
)
|
(815
|
)
|
||||
|
Deferred
income tax expense
|
743
|
7,602
|
6,357
|
|||||||
|
Proceeds
from sale of loans held for sale
|
24,690
|
19,541
|
8,886
|
|||||||
|
Originations
and purchases of loans held for sale
|
(27,674
|
)
|
(2,631
|
)
|
(2,812
|
)
|
||||
|
Net
loss on disposal of premises and equipment
|
-
|
-
|
166
|
|||||||
|
Net
gains on sales of loans held for sale
|
(55
|
)
|
(89
|
)
|
-
|
|||||
|
Net
security losses (gains)
|
1,236
|
(216
|
)
|
(175
|
)
|
|||||
|
Net
gain on sales of other real estate owned
|
(351
|
)
|
(909
|
)
|
(927
|
)
|
||||
|
Tax
benefit from exercise of stock options
|
1,057
|
1,336
|
1,294
|
|||||||
|
Writedown
of nonmarketable securities
|
-
|
-
|
620
|
|||||||
|
Purchase
of Bank owned life insurance
|
-
|
-
|
(30,000
|
)
|
||||||
|
Goodwill
impairment
|
-
|
1,950
|
-
|
|||||||
|
Net
decrease (increase) in other assets
|
1,803
|
2,164
|
(2,524
|
)
|
||||||
|
Net
(decrease) increase in other liabilities
|
(5,506
|
)
|
696
|
(2,629
|
)
|
|||||
|
Net
cash provided by operating activities
|
65,058
|
96,562
|
45,722
|
|||||||
|
Investing
activities
|
||||||||||
|
Net
cash and cash equivalents provided by acquisitions
|
-
|
-
|
10,594
|
|||||||
|
Cash
paid for the acquisition of EPIC Advisors, Inc.
|
(6,129
|
)
|
-
|
-
|
||||||
|
Cash
received for the sale of M. Griffith Inc.
|
1,016
|
-
|
-
|
|||||||
|
Securities
available for sale:
|
||||||||||
|
Proceeds
from maturities, calls, and principal paydowns
|
173,460
|
262,999
|
458,327
|
|||||||
|
Proceeds
from sales
|
53,044
|
12,950
|
206,754
|
|||||||
|
Purchases
|
(250,003
|
)
|
(253,469
|
)
|
(657,578
|
)
|
||||
|
Securities
held to maturity:
|
||||||||||
|
Proceeds
from maturities, calls, and principal paydowns
|
44,624
|
55,770
|
53,991
|
|||||||
|
Purchases
|
(56,654
|
)
|
(40,388
|
)
|
(68,752
|
)
|
||||
|
Net
increase in loans
|
(156,998
|
)
|
(254,985
|
)
|
(296,981
|
)
|
||||
|
Net
increase in Federal Reserve and FHLB stock
|
(3,417
|
)
|
(2,799
|
)
|
(10,344
|
)
|
||||
|
Purchases
of premises and equipment, net
|
(6,055
|
)
|
(7,357
|
)
|
(7,827
|
)
|
||||
|
Proceeds
from sales of other real estate owned
|
1,022
|
2,582
|
4,076
|
|||||||
|
Net
cash used in investing activities
|
(206,090
|
)
|
(224,697
|
)
|
(307,740
|
)
|
||||
|
Financing
activities
|
||||||||||
|
Net
increase in deposits
|
86,358
|
72,487
|
66,011
|
|||||||
|
Net
increase in short-term borrowings
|
106,154
|
35,892
|
197,329
|
|||||||
|
Proceeds
from issuance of long-term debt
|
60,000
|
30,000
|
125,000
|
|||||||
|
Repayments
of long-term debt
|
(40,193
|
)
|
(5,177
|
)
|
(100,775
|
)
|
||||
|
Proceeds
from the issuance of trust preferred debentures
|
5,155
|
-
|
-
|
|||||||
|
Proceeds
from the issuance of shares to employee benefit plans and other stock
plans
|
7,161
|
6,964
|
6,381
|
|||||||
|
Purchase
of treasury stock
|
(23,165
|
)
|
(9,149
|
)
|
(6,489
|
)
|
||||
|
Cash
dividends and payment for fractional shares
|
(24,673
|
)
|
(24,251
|
)
|
(22,173
|
)
|
||||
|
Net
cash provided by financing activities
|
176,797
|
106,766
|
265,284
|
|||||||
|
Net
increase (decrease) in cash and cash equivalents
|
35,765
|
(21,369
|
)
|
3,266
|
||||||
|
Cash
and cash equivalents at beginning of year
|
106,723
|
128,092
|
124,826
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
142,488
|
$
|
106,723
|
$
|
128,092
|
||||
|
Supplemental
disclosure of cash flow information
|
||||||||||
|
Cash
paid during the year for:
|
||||||||||
|
Interest
|
$
|
76,563
|
$
|
60,181
|
$
|
64,334
|
||||
|
Income
taxes
|
23,582
|
10,696
|
12,700
|
|||||||
|
Noncash
investing activities:
|
||||||||||
|
Transfer
of loans to other real estate owned
|
$
|
360
|
$
|
885
|
$
|
1,363
|
||||
|
Fair
value of assets acquired
|
6,565
|
-
|
1,155
|
|||||||
|
Fair
value of assets sold
|
1,405
|
-
|
-
|
|||||||
|
Fair
value of liabilities assumed
|
435
|
-
|
13,311
|
|||||||
|
Fair
value of liabilities transferred
|
389
|
-
|
-
|
|||||||
See
accompanying notes to consolidated financial statements.
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Net
income
|
$
|
52,438
|
$
|
50,047
|
$
|
47,104
|
||||
|
Other
comprehensive loss, net of tax
|
||||||||||
|
Unrealized
net holding losses arising during the year (pre-tax amounts of $20,308,
$4,531 and $13,764)
|
(12,209
|
)
|
(2,724
|
)
|
(8,276
|
)
|
||||
|
Minimum
pension liability adjustment (pre-tax amounts of $0, ($147), and
($362))
|
-
|
(89
|
)
|
(217
|
)
|
|||||
|
Less
reclassification adjustment for net losses (gains) related to securities
available for sale included in net income (pre-tax amounts of $1,236,
($216), and ($174)]
|
743
|
(131
|
)
|
(105
|
)
|
|||||
|
Total
other comprehensive loss
|
(11,466
|
)
|
(2,944
|
)
|
(8,598
|
)
|
||||
|
Comprehensive
income
|
$
|
40,972
|
$
|
47,103
|
$
|
38,506
|
||||
See
accompanying notes to consolidated financial statements
NBT
BANCORP INC. AND SUBSIDIARIES:
DECEMBER
31, 2005 AND 2004
|
(1)
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
The
accounting and reporting policies of NBT Bancorp Inc. (Bancorp) and its
subsidiaries, NBT Bank, N.A. (NBT Bank) and NBT Financial Services, Inc.,
conform, in all material respects, to accounting principles generally accepted
in the United States of America (GAAP) and to general practices within the
banking industry. Collectively, Bancorp and its subsidiaries are referred to
herein as “the Company.”
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Material
estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan and lease losses
and
the valuation of other real estate owned acquired in connection with
foreclosures. In connection with the determination of the allowance for loan
and
lease losses and the valuation of other real estate owned, management obtains
appraisals for properties.
The
following is a description of significant policies and practices:
CONSOLIDATION
The
accompanying consolidated financial statements include the accounts of Bancorp
and its wholly owned subsidiaries mentioned above. All material intercompany
transactions have been eliminated in consolidation. Amounts previously reported
in the consolidated financial statements are reclassified whenever necessary
to
conform with the current year’s presentation. In the “Parent Company Financial
Information,” the investment in subsidiaries is carried under the equity method
of accounting.
The
Company determines whether it has a controlling financial interest in an entity
by first evaluating whether the entity is a voting interest entity or a variable
interest entity under accounting principles generally accepted in the United
States. Voting interest entities are entities in which the total equity
investment at risk is sufficient to enable the entity to finance itself
independently and provides the equity holders with the obligation to absorb
losses, the right to receive residual returns and the right to make decisions
about the entity’s activities. The Company consolidates voting interest entities
in which it has all, or at least a majority of, the voting interest. As defined
in applicable accounting standards, variable interest entities (VIEs) are
entities that lack one or more of the characteristics of a voting interest
entity. A controlling financial interest in an entity is present when an
enterprise has a variable interest, or a combination of variable interests,
that
will absorb a majority of the entity’s expected losses, receive a majority of
the entity’s expected residual returns, or both. The enterprise with a
controlling financial interest, known as the primary beneficiary, consolidates
the VIE. The Company’s wholly owned subsidiaries CNBF Capital Trust I and NBT
Statutory Trust I are VIEs for which the Company is not the primary beneficiary.
Accordingly, the accounts of these entities are not included in the Company’s
consolidated financial statements.
SEGMENT
REPORTING
The
Company’s operations are primarily in the community banking industry and include
the provision of traditional banking services. The Company operates solely
in
the geographical regions of central and northern New York and northeastern
Pennsylvania. The Company has identified separate operating segments; however,
these segments did not meet the quantitative thresholds for separate
disclosure.
CASH
EQUIVALENTS
The
Company considers amounts due from correspondent banks, cash items in process
of
collection, and institutional money market mutual funds to be cash equivalents
for purposes of the consolidated statements of cash flows.
SECURITIES
The
Company classifies its securities at date of purchase as either available for
sale, held to maturity, or trading. Held to maturity debt securities are those
that the Company has the ability and intent to hold until maturity. Available
for sale securities are recorded at fair value. Unrealized holding gains and
losses, net of the related tax effect, on available for sale securities are
excluded from earnings and are reported in stockholders’ equity as a component
of accumulated other comprehensive income or loss. Held to maturity securities
are recorded at amortized cost. Trading securities are recorded at fair value,
with net unrealized gains and losses recognized currently in income. Transfers
of securities between categories are recorded at fair value at the date of
transfer. A decline in the fair value of any available for sale or held to
maturity security below cost that is deemed other-than-temporary is charged
to
earnings resulting in the establishment of a new cost basis for the security.
Securities with other-than-temporary impairment are generally placed on
non-accrual status.
Nonmarketable
equity securities are carried at cost, with the exception of investments owned
by NBT Bank’s small business investment company (SBIC) subsidiary, which are
carried at fair value with net unrealized gains and losses recognized currently
in income in accordance with SBIC rules.
Premiums
and discounts are amortized or accreted over the life of the related security
as
an adjustment to yield using the interest method. Dividend and interest income
are recognized when earned. Realized gains and losses on securities sold are
derived using the specific identification method for determining the cost of
securities sold.
Investments
in Federal Reserve and Federal Home Loan Bank stock are required for membership
in those organizations and are carried at cost since there is no market value
available.
LOANS
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 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.
Loans
and
leases are placed on nonaccrual status when timely collection of principal
and
interest in accordance with contractual terms is doubtful. Loans and leases
are
transferred to a nonaccrual basis generally when principal or interest payments
become ninety days delinquent, unless the loan is well secured and in the
process of collection, or sooner when management concludes circumstances
indicate that borrowers may be unable to meet contractual principal or interest
payments. When a loan or lease is transferred to a nonaccrual status, all
interest previously accrued in the current period but not collected is reversed
against interest income in that period. Interest accrued in a prior period
and
not collected is charged-off against the allowance for loan and lease
losses.
If
ultimate repayment of a nonaccrual loan is expected, any payments received
are
applied in accordance with contractual terms. If ultimate repayment of principal
is not expected, any payment received on a nonaccrual loan is applied to
principal until ultimate repayment becomes expected. Nonaccrual loans are
returned to accrual status when they become current as to principal and interest
or demonstrate a period of performance under the contractual terms and, in
the
opinion of management, are fully collectible as to principal and interest.
When
in the opinion of management the collection of principal appears unlikely,
the
loan balance is charged-off in total or in part.
Commercial
type loans are considered impaired when it is probable that the borrower will
not repay the loan according to the original contractual terms of the loan
agreement, and all loan types are considered impaired if the loan is
restructured in a troubled debt restructuring.
A
loan is
considered to be a trouble debt restructured loan (TDR) when the Company grants
a concession to the borrower because of the borrower’s financial condition that
it would not otherwise consider. Such concessions include the reduction of
interest rates, forgiveness of principal or interest, or other modifications
at
interest rates that are less than the current market rate for new obligations
with similar risk. TDR loans that are in compliance with their modified terms
and that yield a market rate may be removed from the TDR status after a period
of performance.
ALLOWANCE
FOR LOAN AND LEASE LOSSES
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
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.
PREMISES
AND EQUIPMENT
Premises
and equipment are stated at cost, less accumulated depreciation. Depreciation
of
premises and equipment is determined using the straight-line method over the
estimated useful lives of the respective assets. Expenditures for maintenance,
repairs, and minor replacements are charged to expense as incurred.
OTHER
REAL ESTATE OWNED
Other
real estate owned (OREO) consists of properties acquired through foreclosure
or
by acceptance of a deed in lieu of foreclosure. These assets are recorded at
the
lower of fair value of the asset acquired less estimated costs to sell or “cost”
(defined as the fair value at initial foreclosure). At the time of foreclosure,
or when foreclosure occurs in-substance, the excess, if any, of the loan over
the fair market value of the assets received, less estimated selling costs,
is
charged to the allowance for loan losses and any subsequent valuation
write-downs are charged to other expense. Operating costs associated with the
properties are charged to expense as incurred. Gains on the sale of OREO are
included in income when title has passed and the sale has met the minimum down
payment requirements prescribed by GAAP.
GOODWILL
AND OTHER INTANGIBLE ASSETS
The
Company accounts for goodwill and other intangible assets in accordance with
Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill
and Other Intangible Assets.”
Under
Statement No. 142, goodwill and intangible assets that have indefinite useful
lives are not amortized, but are tested at least annually for impairment.
Intangible assets that have finite useful lives, such as core deposit
intangibles, continue to be amortized over their useful lives. Core deposit
intangibles are amortized over a maximum of 10 years using the straight-line
methods for all periods presented.
When
facts and circumstances indicate potential impairment of amortizable intangible
assets, the Company evaluates the recoverability of the asset carrying value,
using estimates of undiscounted future cash flows over the remaining asset
life.
Any impairment loss is measured by the excess of carrying value over fair value.
Goodwill impairment tests are performed on an annual basis or when events or
circumstances dictate. In these tests, the fair values of each reporting unit,
or segment, is compared to the carrying amount of that reporting unit in order
to determine if impairment is indicated. If so, the implied fair value of the
reporting unit’s goodwill is compared to its carrying amount and the impairment
loss is measured by the excess of the carrying value over fair
value.
TREASURY
STOCK
Treasury
stock acquisitions are recorded at cost. Subsequent sales of treasury stock
are
recorded on an average cost basis. Gains on the sale of treasury stock are
credited to additional paid-in-capital. Losses on the sale of treasury stock
are
charged to additional paid-in-capital to the extent of previous gains, otherwise
charged to retained earnings.
INCOME
TAXES
Income
taxes are accounted for under the asset and liability method. The Company files
a consolidated tax return on the accrual basis. Deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The
effect on deferred taxes of a change in tax rates is recognized in income in
the
period that includes the enactment date.
STOCK-BASED
COMPENSATION
The
Company accounts for its stock-based compensation plans in accordance with
the
provisions of Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees,”
and
related interpretations. On January 1, 1996, The Company adopted SFAS No. 123,
“Accounting
for Stock-Based Compensation”
(SFAS
No.123), which permits entities to recognize as expense over the vesting period
the estimated fair value of all stock based awards measured on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
net income per share disclosures for employee stock-based grants made in 1995
and thereafter as if the fair value based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of
APB
Opinion No. 25 and provide the pro forma disclosures of SFAS No.
123.
At
December 31, 2005, the Company had two stock option plans (Plans). Under the
terms of the Plans, options are granted to directors and key employees to
purchase shares of the Company’s common stock at a price equal to the fair
market value of the common stock on the date of the grant. Options granted
have
a vesting period of four years and terminate eight or ten years from the date
of
the grant.
The
per
share weighted average fair value of stock options granted during 2005, 2004,
and 2003 was $5.88, $5.81, and $4.03, respectively. The fair value of each
award
is estimated on the grant date using the Black-Scholes option pricing model
with
the following weighted average assumptions used for grants in the years ended
December 31:
|
Years
ended December 31,
|
|||
|
2005
|
2004
|
2003
|
|
|
Dividend
yield
|
3.05%-3.70%
|
3.01%-3.74%
|
3.11%-3.97%
|
|
Expected
volatility
|
28.67%-30.00%
|
29.82%-31.65%
|
31.34%-31.45%
|
|
Risk-free
interest rates
|
3.85%-4.36%
|
3.56%-4.41%
|
2.98%-3.98%
|
|
Expected
life
|
7
years
|
7
years
|
7
years
|
Had
the
Company determined compensation cost based on the estimated fair value at the
grant date for its stock options under SFAS No. 123, the Company’s net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
|
Years
ended December 31,
|
||||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Net
income
|
||||||||||
|
As
reported
|
$
|
52,438
|
$
|
50,047
|
$
|
47,104
|
||||
|
Add:
Stock-based compensation expense included in reported net income,
net of
related tax effects
|
370
|
119
|
80
|
|||||||
|
Deduct:
Total stock-based compensation expense determined under fair value
based
methods for all awards, net of related tax effects
|
(1,571
|
)
|
(1,215
|
)
|
(1,072
|
)
|
||||
|
Pro
forma net income
|
$
|
51,237
|
$
|
48,951
|
$
|
46,112
|
||||
|
Basic
earnings per share
|
||||||||||
|
As
reported
|
$
|
1.62
|
$
|
1.53
|
$
|
1.45
|
||||
|
Pro
forma
|
1.58
|
1.50
|
1.42
|
|||||||
|
Diluted
earnings per share
|
||||||||||
|
As
reported
|
1.60
|
1.51
|
1.43
|
|||||||
|
Pro
forma
|
1.56
|
1.48
|
1.40
|
|||||||
The
Company expects to adopt the provisions of SFAS No. 123, “Share-Based Payment
(Revised 2004),” on January 1, 2006. Among other things, SFAS No. 123R
eliminates the ability to account for stock-based compensation using APB No.
25
and requires that such transactions be recognized as compensation cost in the
income statement based on their fair values on the date of grant. SFAS No.
123R
is effective for the Company on January 1, 2006. See Note 1 - New Accounting
Pronouncement - Share-Based Payment for additional information.
PER
SHARE AMOUNTS
Basic
earnings per share (EPS) excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity (such as the Company’s
dilutive stock options and restricted stock).
OTHER
FINANCIAL INSTRUMENTS
The
Company is a party to certain other financial instruments with off-balance-sheet
risk such as commitments to extend credit, unused lines of credit, as well
as
certain mortgage loans sold to investors with recourse. The Company’s policy is
to record such instruments when funded.
COMPREHENSIVE
INCOME
At
the
Company, comprehensive income represents net income plus other comprehensive
income, which consists of the net change in unrealized gains or losses on
securities available for sale, and minimum pension liability, net of income
taxes, for the period. Accumulated other comprehensive (loss) income represents
the net unrealized gains or losses on securities available for sale, net of
income taxes, as of the consolidated balance sheet dates.
PENSION
COSTS
The
Company maintains a noncontributory, defined benefit pension plan covering
substantially all employees, as well as supplemental employee retirement plans
covering certain executives. Costs associated with these plans, based on
actuarial computations of current and future benefits for employees, are charged
to current operating expenses.
TRUST
Assets
held by the Company in a fiduciary or agency capacity for its customers are
not
included in the accompanying consolidated balance sheets, since such assets
are
not assets of the Company. Such assets totaled $2.2 billion and $2.0 billion
at
December 31, 2005 and 2004, respectively. Trust income is recognized on the
accrual method based on contractual rates applied to the balances of trust
accounts.
New
Accounting Pronouncement - Accounting Changes and Error
Corrections
SFAS
No. 154, “Accounting Changes and Error Corrections, a Replacement of APB Opinion
No. 20 and FASB Statement No. 3.” SFAS
154
establishes, unless impracticable, retrospective application as the required
method for reporting a change in accounting principle in the absence of explicit
transition requirements specific to a newly adopted accounting principle.
Previously, most changes in accounting principle were recognized by including
the cumulative effect of changing to the new accounting principle in net income
of the period of the change. Under SFAS 154, retrospective application requires
(i) the cumulative effect of the change to the new accounting principle on
periods prior to those presented to be reflected in the carrying amounts of
assets and liabilities as of the beginning of the first period presented, (ii)
an offsetting adjustment, if any, to be made to the opening balance of retained
earnings (or other appropriate components of equity) for that period, and (iii)
financial statements for each individual prior period presented to be adjusted
to reflect the direct period-specific effects of applying the new accounting
principle. Special retroactive application rules apply in situations where
it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. Indirect effects of a change in accounting principle
are
required to be reported in the period in which the accounting change is made.
SFAS 154 carries forward the guidance in APB Opinion 20 “Accounting Changes,”
requiring justification of a change in accounting principle on the basis of
preferability. SFAS 154 also carries forward without change the guidance
contained in APB Opinion 20, for reporting the correction of an error in
previously issued financial statements and for a change in an accounting
estimate. SFAS 154 is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. The Company does not
expect SFAS 154 will significantly impact its financial statements upon its
adoption on January 1, 2006.
New
Accounting Pronouncement - Share-Based Payments
SFAS
No. 123, “Share-Based Payment (Revised 2004).” SFAS
123R
establishes standards for the accounting for transactions in which an entity
(i)
exchanges its equity instruments for goods or services, or (ii) incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity’s equity instruments or that may be settled by the issuance of the
equity instruments. SFAS 123R eliminates the ability to account for stock-based
compensation using APB 25 and requires that such transactions be recognized
as
compensation cost in the income statement based on their fair values on the
measurement date, which is generally the date of the grant. SFAS 123R was to
be
effective for the Company on July 1, 2005; however, the required implementation
date was delayed until January 1, 2006. The Company will transition to
fair-value based accounting for stock-based compensation using a modified
version of prospective application (“modified prospective application”). Under
modified prospective application, as it is applicable to the Company, SFAS
123R
applies to new awards and to awards modified, repurchased, or cancelled after
January 1, 2006. Additionally, compensation cost for the portion of awards
for
which the requisite service has not been rendered (generally referring to
non-vested awards) that are outstanding as of January 1, 2006 must be recognized
as the remaining requisite service is rendered during the period of and/or
the
periods after the adoption of SFAS 123R. The attribution of compensation cost
for those earlier awards will be based on the same method and on the same
grant-date fair values previously determined for the pro forma disclosures
required for companies that did not adopt the fair value accounting method
for
stock-based employee compensation. Based on the stock-based compensation awards
related to stock options outstanding as of December 31, 2005 for which the
requisite service is not expected to be fully rendered prior to January 1,
2006
and new awards granted in 2006, the Company expects to recognize total pre-tax,
quarterly compensation cost of approximately $530 thousand, beginning in the
first quarter of 2006, in accordance with the accounting requirements of SFAS
123R. Future levels of compensation cost recognized related to stock-based
compensation awards (including the aforementioned expected costs during the
period of adoption) may be impacted by new awards and/or modifications,
repurchases and cancellations of existing awards before and after the adoption
SFAS 123R.
New
Accounting Pronouncement - The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments
FASB
Staff Position (FSP) No. 115-1, “The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments.” FSP
115-1
provides guidance for determining when an investment is considered impaired,
whether impairment is other-than-temporary, and measurement of an impairment
loss. An investment is considered impaired if the fair value of the investment
is less than its cost. If, after consideration of all available evidence to
evaluate the realizable value of its investment, impairment is determined to
be
other-than-temporary, then an impairment loss should be recognized equal to
the
difference between the investment’s cost and its fair value. FSP 115-1 nullifies
certain provisions of Emerging Issues Task Force (EITF) Issue No. 03-1, “The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments,” while retaining the disclosure requirements of EITF 03-1 which
were adopted in 2003. FSP 115-1 is effective for reporting periods beginning
after December 15, 2005. The Company does not expect FSP 115-1 will
significantly impact its financial statements upon its adoption on January
1,
2006.
|
(2)
|
MERGER
AND ACQUISITION ACTIVITY
|
|
A)
|
EPIC
Advisors, Inc.
|
In
January 2005, the Company acquired EPIC Advisors, Inc., a 401(k) record keeping
firm located in Rochester, NY. In that transaction, the Company recorded
customer relationship intangible assets of $2.1 million and non-compete
provision intangible assets of $0.2 million, which have amortization periods
of
13 years and 5 years, respectively. Also in connection with the acquisition,
the
Company recorded $3.0 million in goodwill.
|
B)
|
M.
Griffith Inc.
|
In
March
2005, the Company sold its broker/dealer subsidiary, M. Griffith Inc. In
connection with the sale of M. Griffith Inc., goodwill was reduced by $1.1
million and was allocated against the sales price. In the fourth quarter of
2004, the Company recorded a $2.0 million goodwill impairment charge in
connection with the above mentioned sale. A definitive agreement was signed
by
the Company and the acquirer in the fourth quarter of 2004. The negotiation
and
resolution of sale terms for M. Griffith Inc. during the fourth quarter of
2004
resulted in the goodwill impairment charge.
|
C)
|
CNB
Bancorp, Inc. (unaudited)
|
As
of
December 31, 2005, the transaction detailed below was pending.
On
February 10, 2006, the Company acquired CNB Bancorp, Inc. (“CNB”), a bank
holding company headquartered in Gloversville, New York. The acquisition was
accomplished by merging CNB with and into the Company (the "Merger"). By virtue
of this acquisition, CNB’s banking subsidiary, City National Bank and Trust
Company was merged with and into NBT Bank, N.A. City National Bank and Trust
Company operated 9 full-service community banking offices - located in Fulton,
Hamilton, Montgomery and Saratoga counties, with approximately $400 million
in
assets. The Merger increases the Company’s assets to approximately $4.9
billion.
In
connection with the Merger, the Company issued an aggregate of 2.1 million
shares of Company common stock and $39 million in cash to the former holders
of
CNB common stock. In connection with acquisition of CNB, the Company formed
NBT
Statutory Trust II (“Trust II”) in February 2006 to fund the cash portion of the
acquisition as well as to provide regulatory capital. The Company raised $51.5
million through Trust II in February 2006.
CNB
nonqualified stock options, entitling holders to purchase CNB common stock
outstanding, were cancelled on the closing date and such option holders received
an option payment subject to the terms of the merger agreement. The total number
of CNB nonqualified stock options that were canceled was 103,545, which resulted
in a cash payment to option holders before any applicable federal or state
withholding tax, of approximately $1.3 million. In accordance with the terms
of
the merger agreement, all outstanding CNB incentive stock options as of the
effective date were assumed by the Company. At that time, there were 144,686
CNB
incentive stock options that were exchanged for 237,278 replacement incentive
stock options of the Company.
Based
on
the $22.42 per share closing price of the Company’s common stock on February 10,
2006, the transaction is valued at approximately $88 million.
|
(3)
|
EARNINGS
PER SHARE
|
The
following is a reconciliation of basic and diluted earnings per share for the
years presented in the consolidated statements of income:
|
Years
ended December 31,
|
||||||||||||||||||||||||||||
|
2005
|
2004
|
2003
|
||||||||||||||||||||||||||
|
(In
thousands, except per share data)
|
Net
income
|
Weighted
average
shares
|
Per
share
amount
|
Net
income
|
Weighted
average
shares
|
Per
share
amount
|
Net
income
|
Weighted
average
shares
|
Per
share
amount
|
|||||||||||||||||||
|
Basic
earnings per share
|
$
|
52,438
|
32,437
|
$
|
1.62
|
$
|
50,047
|
32,739
|
$
|
1.53
|
$
|
47,104
|
32,540
|
$
|
1.45
|
|||||||||||||
|
Effect
of dilutive securities
|
||||||||||||||||||||||||||||
|
Stock
based compensation
|
265
|
336
|
285
|
|||||||||||||||||||||||||
|
Contingent
shares
|
8
|
12
|
19
|
|||||||||||||||||||||||||
|
Diluted
earnings per share
|
$
|
52,438
|
32,710
|
$
|
1.60
|
$
|
50,047
|
33,087
|
$
|
1.51
|
$
|
47,104
|
32,844
|
$
|
1.43
|
|||||||||||||
There
were approximately 386,000, 5,000, and 229,000 weighted average stock options
for the years ended December 31, 2005, 2004, and 2003, respectively, that were
not considered in the calculation of diluted earnings per share since the stock
options’ exercise prices were greater than the average market price during these
periods.
|
(4)
|
FEDERAL
RESERVE BANK REQUIREMENT
|
The
Company is required to maintain reserve balances with the Federal Reserve Bank.
The required average total reserve for NBT Bank for the 14-day maintenance
period ending December 21, 2005 was $59.5 million.
|
(5)
|
SECURITIES
|
The
amortized cost, estimated fair value, and unrealized gains and losses of
securities
available for sale are as follows:
|
(In
thousands)
|
Amortized
cost
|
Unrealized
gains
|
Unrealized
losses
|
Estimated
fair value
|
|||||||||
|
December
30, 2001
|
|||||||||||||
|
U.S.
Treasury
|
$
|
10,005
|
$
|
-
|
$
|
-
|
10,005
|
||||||
|
Federal
Agency
|
236,410
|
41
|
3,015
|
233,436
|
|||||||||
|
State
& municipal
|
76,574
|
2,861
|
30
|
79,405
|
|||||||||
|
Mortgage-backed
|
448,496
|
1,186
|
10,517
|
439,165
|
|||||||||
|
Collateralized
mortgage obligations
|
178,263
|
-
|
4,284
|
173,979
|
|||||||||
|
Corporate
|
1,184
|
137
|
-
|
1,321
|
|||||||||
|
Other
securities
|
13,806
|
3,394
|
37
|
17,163
|
|||||||||
|
Total
securities available for sale
|
$
|
964,738
|
$
|
7,619
|
$
|
17,883
|
$
|
954,474
|
|||||
|
December
30, 2000
|
|||||||||||||
|
U.S.
Treasury
|
$
|
10,037
|
$
|
1
|
$
|
61
|
$
|
9,976
|
|||||
|
Federal
Agency
|
120,511
|
381
|
773
|
120,119
|
|||||||||
|
State
& municipal
|
79,848
|
4,906
|
-
|
84,754
|
|||||||||
|
Mortgage-backed
|
574,417
|
5,072
|
2,774
|
576,715
|
|||||||||
|
Collateralized
mortgage obligations
|
135,202
|
592
|
811
|
134,983
|
|||||||||
|
Corporate
|
1,183
|
133
|
-
|
1,316
|
|||||||||
|
Other
securities
|
22,537
|
2,640
|
498
|
24,679
|
|||||||||
|
Total
securities available for sale
|
$
|
943,735
|
$
|
13,725
|
$
|
4,917
|
$
|
952,542
|
|||||
In
the
available for sale category at December 31, 2005, federal agency securities
were
comprised of Government-Sponsored Enterprise (“GSE”) securities;
Mortgaged-backed securities were comprised of GSEs with an amortized cost of
$395.5 million and a fair value of $386.0 million and US Government Agency
securities with an amortized cost of $53.0 million and a fair value of $53.2
million; Collateralized mortgage obligations were comprised of GSEs with an
amortized cost of $102.6 million and a fair value of $100.2 million and US
Government Agency securities with an amortized cost of $75.7 million and a
fair
value of $73.8 million.
The
following table sets forth information with regard to sales transactions of
securities available for sale:
|
Years
ended December 31
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Proceeds
from sales
|
$
|
53,044
|
$
|
12,950
|
$
|
206,742
|
||||
|
Gross
realized gains
|
$
|
816
|
$
|
457
|
$
|
4,339
|
||||
|
Gross
realized losses
|
(2,052
|
)
|
(241
|
)
|
(4,164
|
)
|
||||
|
Net
securities (losses) gains
|
$
|
(1,236
|
)
|
$
|
216
|
$
|
175
|
|||
At
December 31, 2005 and 2004, securities available for sale with amortized costs
totaling $887.4 million and $881.8 million, respectively, were pledged to secure
public deposits and for other purposes required or permitted by law.
Additionally, at December 31, 2005, securities available for sale with an
amortized cost of $74.7 million were pledged as collateral for securities sold
under the repurchase agreements.
The
amortized cost, estimated fair value, and unrealized gains and losses of
securities held to maturity are as follows:
|
(In
thousands)
|
Amortized
cost
|
Unrealized
gains
|
Unrealized
losses
|
Estimated
fair
value
|
|||||||||
|
December
30, 2001
|
|||||||||||||
|
Mortgage-backed
|
$
|
4,354
|
$
|
128
|
$
|
-
|
$
|
4,482
|
|||||
|
State
& municipal
|
87,582
|
352
|
488
|
87,446
|
|||||||||
|
Other
securities
|
1,773
|
-
|
-
|
1,773
|
|||||||||
|
Total
securities held to maturity
|
$
|
93,709
|
$
|
480
|
$
|
488
|
$
|
93,701
|
|||||
|
December
30, 2000
|
|||||||||||||
|
Mortgage-backed
|
$
|
6,412
|
$
|
294
|
$
|
-
|
$
|
6,706
|
|||||
|
State
& municipal
|
75,128
|
772
|
136
|
75,764
|
|||||||||
|
Other
securities
|
242
|
-
|
-
|
242
|
|||||||||
|
Total
securities held to maturity
|
$
|
81,782
|
$
|
1,066
|
$
|
136
|
$
|
82,712
|
|||||
At
December 31, 2005, all of the mortgaged-backed securities held to maturity
were
comprised of US Government Agency securities.
Other
securities include nonmarketable equity securities, including certain securities
acquired by NBT Bank’s small business investment company (SBIC) subsidiary, and
trust preferred securities.
The
following table sets forth information with regard to investment securities
with
unrealized losses at December 31, 2005, segregated according to the length
of
time the securities had been in a continuous unrealized loss
position:
|
Less
than 12 months
|
12
months or longer
|
Total
|
|||||||||||||||||
|
Security
Type:
|
Fair
Value
|
Unrealized
losses
|
Fair
Value
|
Unrealized
losses
|
Fair
Value
|
Unrealized
losses
|
|||||||||||||
|
Mortgage-backed
|
$
|
172,102
|
$
|
(2,495
|
)
|
$
|
386,371
|
$
|
(12,298
|
)
|
$
|
558,473
|
$
|
(14,793
|
)
|
||||
|
Federal
agency
|
163,016
|
(1,924
|
)
|
59,966
|
(1,094
|
)
|
222,982
|
(3,018
|
)
|
||||||||||
|
State
and municipal
|
22,781
|
(235
|
)
|
9,053
|
(285
|
)
|
31,834
|
(520
|
)
|
||||||||||
|
Total
securities with unrealized losses
|
$
|
357,899
|
$
|
(4,654
|
)
|
$
|
455,390
|
$
|
(13,677
|
)
|
$
|
813,289
|
$
|
(18,331
|
)
|
||||
At
December 31, 2004, the Company had $110.6 million of mortgaged-backed securities
with unrealized losses of $2.5 million twelve months or longer and $3.2 million
of state and municipal securities with unrealized losses of $0.1 million twelve
months or longer.
Declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses. In estimating other-than-temporary impairment losses,
management considers, among other things, (i)
the
length of time and the extent to which the fair value has been less than cost,
(ii) the financial condition and near-term prospects of the issuer, and (iii)
the intent and ability of the Company to retain its investment in the issuer
for
a period of time sufficient to allow for any
anticipated
recovery in fair value.
Management
has the ability and intent to hold the securities classified as held to maturity
until they mature, at which time the Company will receive full value for the
securities. Furthermore, as of December 31, 2005, management also had the
ability and intent to hold the securities classified as available for sale
for a
period of time sufficient for a recovery of cost. The unrealized losses are
largely due to increases in market interest rates over the yields available
at
the time the underlying securities were purchased. The fair value is expected
to
recover as the bonds approach their maturity date or repricing date or if market
yields for such investments decline. Management does not believe any of the
securities are impaired due to reasons of credit quality. Accordingly, as of
December 31, 2005, management believes the impairments detailed in the table
above are temporary and no impairment loss has been realized in the Company’s
consolidated income statement.
The
following tables set forth information with regard to contractual maturities
of
debt securities at December 31, 2005:
|
(In
thousands)
|
Amortized
cost
|
Estimated
fair value
|
|||||
|
Debt
securities classified as available for sale
|
|||||||
|
Within
one year
|
$
|
45,264
|
$
|
44,914
|
|||
|
From
one to five years
|
217,765
|
215,440
|
|||||
|
From
five to ten years
|
89,812
|
89,840
|
|||||
|
After
ten years
|
598,091
|
587,117
|
|||||
|
$
|
950,932
|
$
|
937,311
|
||||
|
Debt
securities classified as held to maturity
|
|||||||
|
Within
one year
|
$
|
26,451
|
$
|
26,452
|
|||
|
From
one to five years
|
31,724
|
31,526
|
|||||
|
From
five to ten years
|
19,360
|
19,169
|
|||||
|
After
ten years
|
16,174
|
16,554
|
|||||
|
$
|
93,709
|
$
|
93,701
|
||||
Maturities
of mortgage-backed, collateralized mortgage obligations and asset-backed
securities are stated based on their estimated average lives. Actual maturities
may differ from estimated average lives or contractual maturities because,
in
certain cases, borrowers have the right to call or prepay obligations with
or
without call or prepayment penalties.
Except
for U.S. Government securities, there were no holdings, when taken in the
aggregate, of any single issues that exceeded 10% of consolidated stockholders’
equity at December 31, 2005 and 2004.
|
(6)
|
LOANS
AND LEASES AND ALLOWANCE FOR LOAN AND LEASE
LOSSES
|
A
summary
of loans and leases, net of deferred fees and origination costs, by category
is
as follows:
|
At
December 31,
|
|||||||
|
(In
thousands)
|
2005
|
2004
|
|||||
|
Residential
real estate mortgages
|
$
|
701,734
|
$
|
721,615
|
|||
|
Commercial
and commercial real estate mortgages
|
1,032,977
|
1,018,548
|
|||||
|
Real
estate construction and development
|
163,863
|
136,934
|
|||||
|
Agricultural
and agricultural real estate mortgages
|
114,043
|
108,181
|
|||||
|
Consumer
|
463,955
|
412,139
|
|||||
|
Home
equity
|
463,848
|
391,807
|
|||||
|
Lease
financing
|
82,237
|
80,697
|
|||||
|
Total
loans and leases
|
$
|
3,022,657
|
$
|
2,869,921
|
|||
FHLB
advances are collateralized by a blanket lien on the Company’s residential real
estate mortgages.
Changes
in the allowance for loan and lease losses for the three years ended December
31, 2005, are summarized as follows:
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Balance
at January 1
|
$
|
44,932
|
$
|
42,651
|
$
|
40,167
|
||||
|
Provision
|
9,464
|
9,615
|
9,111
|
|||||||
|
Recoveries
|
4,078
|
4,272
|
5,216
|
|||||||
|
Charge-offs
|
(11,019
|
)
|
(11,606
|
)
|
(11,843
|
)
|
||||
|
Balance
at December 31
|
$
|
47,455
|
$
|
44,932
|
$
|
42,651
|
||||
The
following table sets forth information with regard to nonperforming
loans:
|
At
December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Loans
in nonaccrual status
|
$
|
13,419
|
$
|
14,991
|
$
|
13,861
|
||||
|
Loans
contractually past due 90 days or more and still accruing
interest
|
878
|
1,186
|
968
|
|||||||
|
Total
nonperforming loans
|
$
|
14,297
|
$
|
16,177
|
$
|
14,829
|
||||
There
were no material commitments to extend further credit to borrowers with
nonperforming loans. There are no loans classified as troubled debt restructures
at December 31, 2005, 2004, and 2003.
Accumulated
interest on the above nonaccrual loans of approximately $0.5 million, $1.0
million , and $1.7 million would have been recognized as income in 2005, 2004,
and 2003, respectively, had these loans been in accrual status. Approximately
$0.4 million, $0.8 million, and $1.2 million of interest on the above nonaccrual
loans was collected in 2005, 2004, and 2003, respectively.
Impaired
loans, which primarily consist of nonaccruing commercial type loans decreased
slightly, totaling $9.4 million at December 31, 2005 as compared to $10.5
million at December 31, 2004. At December 31, 2005, $2.9 million of the total
impaired loans had a specific reserve allocation of $0.0 million or 0% compared
to $0.5 million of total impaired loans at December 31, 2004 which had a
specific reserve allocation of $0.2 million or 30%.
The
following provides additional information on impaired loans for the periods
presented:
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Average
recorded investment on impaired loans
|
$
|
9,908
|
$
|
9,478
|
$
|
12,741
|
||||
|
Interest
income recognized on impaired loans
|
207
|
499
|
608
|
|||||||
|
Cash
basis interest income recognized on impaired loans
|
207
|
499
|
608
|
|||||||
RELATED
PARTY TRANSACTIONS
In
the
ordinary course of business, the Company has made loans at prevailing rates
and
terms to directors, officers, and other related parties. Such loans, in
management’s opinion, do not present more than the normal risk of collectibility
or incorporate other unfavorable features. The aggregate amount of loans
outstanding to qualifying related parties and changes during the years are
summarized as follows:
|
(In
thousands)
|
2005
|
2004
|
|||||
|
Balance
at January 1
|
$
|
16,820
|
$
|
16,394
|
|||
|
New
loans
|
2,823
|
7,942
|
|||||
|
Repayments
|
(3,737
|
)
|
(7,516
|
)
|
|||
|
Balance
at December 31
|
$
|
15,906
|
$
|
16,820
|
|||
|
(7)
|
PREMISES
AND EQUIPMENT, NET
|
A
summary
of premises and equipment follows:
|
December
31,
|
|||||||
|
(In
thousands)
|
2005
|
2004
|
|||||
|
Land,
buildings, and improvements
|
$
|
76,889
|
$
|
74,948
|
|||
|
Equipment
|
62,497
|
58,671
|
|||||
|
Construction
in progress
|
236
|
198
|
|||||
|
139,622
|
133,817
|
||||||
|
Accumulated
depreciation
|
75,929
|
70,074
|
|||||
|
Total
premises and equipment
|
$
|
63,693
|
$
|
63,743
|
|||
Land,
buildings, and improvements with a carrying value of approximately $3.8 million
and $4.0 million at December 31, 2005 and 2004, respectively, are pledged to
secure long-term borrowings.
Rental
expense included in occupancy expense amounted to
$3.0 million in 2005, $2.7 million in 2004, and $2.4 million in 2003. The future
minimum rental payments related to noncancelable operating leases with original
terms of one year or more are as follows at December 31, 2005 (in
thousands):
|
Future
Minimum Rental Payments
|
||||
|
2006
|
$
|
2,590
|
||
|
2007
|
2,341
|
|||
|
2008
|
1,804
|
|||
|
2009
|
1,384
|
|||
|
2010
|
1,031
|
|||
|
Thereafter
|
6,620
|
|||
|
Total
|
15,770
|
|||
|
(8)
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
A
summary
of goodwill by operating subsidiaries follows:
|
(In
thousands)
|
January
1,
2005
|
Goodwill
Acquired
|
Goodwill
Disposed
|
Impairment
Loss
|
December
31,
2005
|
|||||||||||
|
NBT
Bank, N.A.
|
$
|
44,520
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
44,520
|
||||||
|
NBT
Financial Services, Inc.
|
1,050
|
3,024
|
1,050
|
-
|
3,024
|
|||||||||||
|
Total
|
$
|
45,570
|
$
|
3,024
|
$
|
1,050
|
$
|
-
|
$
|
47,544
|
||||||
|
January
1,
2004
|
Goodwill
Acquired
|
Goodwill
Disposed
|
Impairment
Loss
|
December
31,
2004
|
||||||||||||
|
NBT
Bank, N.A.
|
$
|
44,520
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
44,520
|
||||||
|
NBT
Financial Services, Inc.
|
3,001
|
-
|
-
|
1,951
|
1,050
|
|||||||||||
|
Total
|
$
|
47,521
|
$
|
-
|
$
|
-
|
$
|
1,951
|
$
|
45,570
|
||||||
In
January 2005, the Company acquired EPIC Advisors, Inc., a 401(k) record keeping
firm located in Rochester, NY. In that transaction, the Company recorded
customer relationship intangible assets of $2.1 million and non-compete
provision intangible assets of $0.2 million, which have amortization periods
of
13 years and 5 years, respectively. Also in connection with the acquisition,
the
Company recorded $3.0 million in goodwill.
In
March
2005, the Company sold its broker/dealer subsidiary, M. Griffith Inc. In
connection with the sale of M. Griffith Inc., goodwill was reduced by $1.1
million and was allocated against the sales price. In the fourth quarter of
2004, the Company recorded a $2.0 million goodwill impairment charge in
connection with the above mentioned sale. A definitive agreement was signed
by
the Company and the acquirer in the fourth quarter of 2004. The negotiation
and
resolution of sale terms for M. Griffith Inc. during the fourth quarter of
2004
resulted in the goodwill impairment charge.
The
Company has intangible assets with definite useful lives capitalized on its
consolidated balance sheet in the form of core deposit and identified intangible
assets. These intangible assets continue to be amortized over their estimated
useful lives in accordance with SFAS No. 142, which range from one to
twenty-five years. There were no adjustments to the useful lives of these
intangible assets as a result of the adoption of SFAS No. 142.
A
summary
of core deposit and other intangible assets follows:
|
December
31,
|
|||||||
|
(In
thousands)
|
2005
|
2004
|
|||||
|
Core
deposit intangibles
|
|||||||
|
Gross
carrying amount
|
$
|
2,186
|
$
|
2,186
|
|||
|
Less:
accumulated amortization
|
1,561
|
1,329
|
|||||
|
Net
carrying amount
|
625
|
857
|
|||||
|
Identified
intangible assets
|
|||||||
|
Gross
carrying amount
|
3,196
|
857
|
|||||
|
Less:
accumulated amortization
|
530
|
218
|
|||||
|
Net
carrying amount
|
2,666
|
639
|
|||||
|
Intangibles
that will not amortize
|
517
|
517
|
|||||
|
Total
intangibles with definite useful lives
|
|||||||
|
Gross
carrying amount
|
5,899
|
3,560
|
|||||
|
Less:
accumulated amortization
|
2,091
|
1,547
|
|||||
|
Net
carrying amount
|
$
|
3,808
|
$
|
2,013
|
|||
| Amortization expense on intangible assets with definite useful lives totaled $0.5 million for 2005, $0.3 million for 2004 and $0.6 million for 2003. Amortization expense on intangible assets with definite useful lives is expected to total $0.5 million for 2006, 2007, and 2008, and $0.3 million for 2009 and 2010. |
|
(9)
|
DEPOSITS
|
The
following table sets forth the maturity distribution of time deposits at
December 31, 2005 (in thousands):
|
Time
deposits
|
||||
|
Within
one year
|
$
|
775,911
|
||
|
After
one but within two years
|
304,635
|
|||
|
After
two but within three years
|
119,564
|
|||
|
After
three but within four years
|
22,376
|
|||
|
After
four but within five years
|
10,722
|
|||
|
After
five years
|
8,400
|
|||
|
Total
|
$
|
1,241,608
|
||
Time
deposits of $100,000 or more aggregated $591.8 million and $477.8 million at
year end 2005 and 2004, respectively.
|
(10)
|
SHORT-TERM
BORROWINGS
|
Short-term
borrowings total $445.0 million and $338.8 million at December 31, 2005 and
2004, respectively, and consist of Federal funds purchased and securities sold
under repurchase agreements, which generally represent overnight borrowing
transactions, and other short-term borrowings, primarily Federal Home Loan
Bank
(FHLB) advances, with original maturities of one year or less. The Company
has
unused lines of credit with the FHLB available for short-term financing and
access to brokered deposits of approximately $594 million and $545 million
at
December 31, 2005 and 2004, respectively.
Included
in the information provided above, the Company has two lines of credit available
with the FHLB, which are automatically renewed on July 30th
of each
year. The first is an overnight line of credit for approximately $100.0 million
with interest based on existing market conditions. The second is a one-month
overnight repricing line of credit for approximately $100.0 million with
interest based on existing market conditions. As of December 31, 2005, there
was
$87.5 million (included in federal funds purchased) outstanding on these lines
of credit. Borrowings on these lines are secured by FHLB stock, certain
securities and one-to-four family first lien mortgage loans. Securities
collateralizing repurchase agreements are held in safekeeping by nonaffiliated
financial institutions and are under the Company’s control.
Information
related to short-term borrowings is summarized as follows:
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Federal
funds purchased
|
||||||||||
|
Balance
at year-end
|
$
|
145,000
|
$
|
65,000
|
$
|
59,000
|
||||
|
Average
during the year
|
84,845
|
62,436
|
55,797
|
|||||||
|
Maximum
month end balance
|
145,000
|
106,000
|
89,000
|
|||||||
|
Weighted
average rate during the year
|
3.55
|
%
|
1.48
|
%
|
1.22
|
%
|
||||
|
Weighted
average rate at December 31
|
4.30
|
%
|
2.36
|
%
|
1.14
|
%
|
||||
|
Securities
sold under repurchase agreements
|
||||||||||
|
Balance
at year-end
|
$
|
74,727
|
$
|
73,573
|
$
|
68,681
|
||||
|
Average
during the year
|
82,658
|
76,120
|
68,044
|
|||||||
|
Maximum
month end balance
|
91,409
|
93,000
|
101,192
|
|||||||
|
Weighted
average rate during the year
|
1.86
|
%
|
0.93
|
%
|
1.02
|
%
|
||||
|
Weighted
average rate at December 31
|
2.82
|
%
|
0.92
|
%
|
0.92
|
%
|
||||
|
Other
short-term borrowings
|
||||||||||
|
Balance
at year-end
|
$
|
225,250
|
$
|
200,250
|
$
|
175,250
|
||||
|
Average
during the year
|
186,141
|
163,720
|
66,491
|
|||||||
|
Maximum
month end balance
|
225,250
|
200,250
|
175,250
|
|||||||
|
Weighted
average rate during the year
|
3.46
|
%
|
1.49
|
%
|
1.20
|
%
|
||||
|
Weighted
average rate at December 31
|
4.41
|
%
|
2.41
|
%
|
1.20
|
%
|
||||
|
(11)
|
LONG-TERM
DEBT
|
Long-term
debt consists of obligations having an original maturity at issuance of more
than one year. A majority of the Company’s long-term debt is comprised of FHLB
advances collateralized by the FHLB stock owned by the Company, certain of
its
mortgage-backed securities and a blanket lien on its residential real estate
mortgage loans. A summary as of December 31, 2005 is as follows:
|
As
of December 31, 2005
|
|||||||||||||
|
Maturity
|
Amount
|
Weighted
Average
Rate
|
Callable
Amount
|
Weighted
Average
Rate
|
|||||||||
|
2006
|
85,000
|
4.23
|
%
|
-
|
0.00
|
%
|
|||||||
|
2007
|
65,000
|
2.84
|
%
|
25,000
|
3.02
|
%
|
|||||||
|
2008
|
115,261
|
3.82
|
%
|
35,000
|
5.29
|
%
|
|||||||
|
2009
|
75,000
|
5.25
|
%
|
75,000
|
5.25
|
%
|
|||||||
|
2010
|
25,000
|
3.07
|
%
|
25,000
|
3.07
|
%
|
|||||||
|
2013
|
25,000
|
3.21
|
%
|
25,000
|
3.21
|
%
|
|||||||
|
2014
|
20,000
|
3.39
|
%
|
20,000
|
3.39
|
%
|
|||||||
|
2025
|
4,069
|
2.75
|
%
|
-
|
|||||||||
|
$
|
414,330
|
$
|
205,000
|
||||||||||
|
(12)
|
Trust
Preferred Debentures
|
The
Company has issued a total of $23.9 million of junior subordinated deferrable
interest debentures to two wholly owned Delaware statutory business trusts,
CNBF
Capital Trust I (“CNBF Trust I”) and NBT Statutory Trust I (“NBT Trust I) and
collectively referred to as the (‘Trusts”). The trusts are considered variable
interest entities for which the Company is not the primary beneficiary.
Accordingly, the accounts of the trusts are not included in the Company’s
consolidated financial statements. See Note 1 — Summary of Significant
Accounting Policies for additional information about the Company’s consolidation
policy. Details of the Company’s transactions with these trusts are presented
below.
In
June
1999, CNBF Trust I issued $18 million of floating rate (three-month LIBOR plus
275 basis points) trust preferred securities, which represent beneficial
interests in the assets of the trust. The trust preferred securities will mature
on August 31, 2029 and are redeemable with the approval of the Federal Reserve
Board in whole or in part at the option of the Company at any time after
September 1, 2009 and in whole at any time upon the occurrence of certain events
affecting their tax or regulatory capital treatment. Distributions on the trust
preferred securities are payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year. CNBF
Trust I also issued $0.7 million of common equity securities to the Company.
The
proceeds of the offering of the trust preferred securities and common equity
securities were used to purchase $18.7 million of floating
rate (three-month LIBOR plus 275 basis points) junior
subordinated deferrable interest debentures issued by the Company, which have
terms substantially similar to the trust preferred securities.
In
November 2005, NBT Trust I issued $5 million of fixed rate (at 6.30%) trust
preferred securities, which represent beneficial interests in the assets of
the
trust. The trust preferred securities will mature on December 1, 2035 and are
redeemable with the approval of the Federal Reserve Board in whole or in part
at
the option of the Corporation at any time after December 1, 2010 and in whole
at
any time upon the occurrence of certain events affecting their tax or regulatory
capital treatment. Distributions on the trust preferred securities are payable
quarterly in arrears on March 15, June 15, September 15 and December 15 of
each
year. NBT Trust I also issued $0.2 million of common equity securities to the
Company. The proceeds of the offering of the trust preferred securities and
common equity securities were used to purchase $5.2 million of fixed rate (at
6.30%) junior subordinated deferrable interest debentures issued by the
Corporation, which have terms substantially similar to the trust preferred
securities.
In
connection with the acquisition of CNB, the Company formed NBT Statutory Trust
II (“Trust II”) in February 2006 to fund the cash portion of the acquisition as
well as to provide regulatory capital. The Company raised $51.5 million through
Trust II in February 2006 at a fixed rate of 6.195% for five years, variable
rate thereafter at 3-mos LIBOR plus 140 bp; callable after five
years.
The
Company has the right to defer payments of interest on the debentures at any
time or from time to time for a period of up to ten consecutive semi-annual
periods with respect to each deferral period in the case of the debentures
issued to the Trusts. Under the terms of the debentures, in the event that
under
certain circumstances there is an event of default under the debentures or
the
Company has elected to defer interest on the debentures, the Company may not,
with certain exceptions, declare or pay any dividends or distributions on its
capital stock or purchase or acquire any of its capital stock.
Payments
of distributions on the trust preferred securities and payments on redemption
of
the trust preferred securities are guaranteed by the Company on a limited basis.
The Company also entered into an agreement as to expenses and liabilities with
the Trusts pursuant to which it agreed, on a subordinated basis, to pay any
costs, expenses or liabilities of each trust other than those arising under
the
trust preferred securities. The obligations of the Company under the junior
subordinated debentures, the related indentures, the trust agreements
establishing the trusts, the guarantees and the agreements as to expenses and
liabilities, in the aggregate, constitute a full and unconditional guarantee
by
the Company of each trust’s obligations under the trust preferred
securities.
Despite
the fact that the accounts of CNBF Trust I and NBT Trust I are not included
in
the Company’s consolidated financial statements, the $22 million of the $23
million in trust preferred securities issued by these subsidiary trusts are
included in the Tier 1 capital of the Company for regulatory capital purposes
as
allowed by the Federal Reserve Board (NBT
Bank, NA owns $1.0 million of CNBF Trust I securities).
In
February 2005, the Federal Reserve Board issued a final rule that allows the
continued inclusion of trust preferred securities in the Tier 1 capital of
bank
holding companies. The Board’s final rule limits the aggregate amount of
restricted core capital elements (which includes trust preferred securities,
among other things) that may be included in the Tier 1 capital of most bank
holding companies to 25% of all core capital elements, including restricted
core
capital elements, net of goodwill less any associated deferred tax liability.
Large, internationally active bank holding companies (as defined) are subject
to
a 15% limitation. Amounts of restricted core capital elements in excess of
these
limits generally may be included in Tier 2 capital. The final rule provides
a
five-year transition period, ending March 31, 2009, for application of the
quantitative limits. The Corporation does not expect that the quantitative
limits will preclude it from including the $22 million in trust preferred
securities in Tier 1 capital. However, the trust preferred securities could
be
redeemed without penalty if they were no longer permitted to be included in
Tier
1 capital.
|
(13)
|
INCOME
TAXES
|
The
significant components of income tax expense attributable to operations
are:
|
Years
ended December 31,
|
||||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Current
|
||||||||||
|
Federal
|
$
|
22,125
|
$
|
13,853
|
$
|
12,723
|
||||
|
State
|
585
|
482
|
2,390
|
|||||||
|
22,710
|
14,335
|
15,113
|
||||||||
|
Deferred
|
||||||||||
|
Federal
|
(177
|
)
|
6,351
|
7,980
|
||||||
|
State
|
920
|
1,251
|
(1,623
|
)
|
||||||
|
743
|
7,602
|
6,357
|
||||||||
|
Total
income tax expense
|
$
|
23,453
|
$
|
21,937
|
$
|
21,470
|
||||
Not
included in the above table is income tax benefit of approximately ($8.8
million), ($3.3 million), and ($6.9 million) for 2005, 2004, and 2003,
respectively, relating to unrealized loss on available for sale securities,
tax
benefits recognized with respect to stock options exercised, and tax benefit
related to minimum pension liability, which were recorded directly in
stockholders’ equity.
The
tax
effects of temporary differences that give rise to significant portions of
the
deferred tax assets and deferred tax liabilities are as follows:
|
December
31,
|
|||||||
|
(In
thousands)
|
2005
|
2004
|
|||||
|
Deferred
tax assets
|
|||||||
|
Allowance
for loan and lease losses
|
$
|
17,975
|
$
|
17,032
|
|||
|
Deferred
compensation
|
5,156
|
4,878
|
|||||
|
Postretirement
benefit obligation
|
1,678
|
1,743
|
|||||
|
Writedowns
on corporate debt securities
|
657
|
2,261
|
|||||
|
Accrued
liabilities
|
523
|
844
|
|||||
|
New
York State tax credit and net operating loss carryforward
|
784
|
975
|
|||||
|
Other
|
841
|
557
|
|||||
|
Total
deferred tax assets
|
27,614
|
28,290
|
|||||
|
Deferred
tax liabilities
|
|||||||
|
Pension
and executive retirement
|
6,837
|
6,627
|
|||||
|
Premises
and equipment, primarily due to accelerated depreciation
|
3,039
|
3,610
|
|||||
|
Equipment
leasing
|
20,999
|
21,715
|
|||||
|
Deferred
loan costs
|
519
|
338
|
|||||
|
Intangible
amortization
|
3,025
|
1,996
|
|||||
|
Other
|
652
|
386
|
|||||
|
Total
deferred tax liabilities
|
35,071
|
34,672
|
|||||
|
Net
deferred tax liability at year-end
|
(7,457
|
)
|
(6,382
|
)
|
|||
|
Net
deferred tax liability at beginning of year
|
(6,382
|
)
|
1,220
|
||||
|
Increase
in net deferred tax liability
|
1,075
|
7,602
|
|||||
|
Purchase
accounting adjustment
|
(332
|
)
|
-
|
||||
|
Deferred
tax expense
|
$
|
743
|
$
|
7,602
|
|||
The
above
table does not include the recorded deferred tax asset of $4.1 million as of
December 31, 2005 and the deferred tax liability of $3.5 million as of December
31, 2004 related to the net unrealized holding gain/loss in the
available-for-sale securities portfolio. The table also excludes a deferred
tax
asset of $0.2 million as of both December 31, 2005 and 2004, related to the
minimum SERP liability. The changes in these deferred assets and liabilities
are
recorded directly in accumulated other comprehensive income (loss).
Realization
of deferred tax assets is dependent upon the generation of future taxable income
or the existence of sufficient taxable income within the available carryback
period. A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. Based on available
evidence, gross deferred tax assets will ultimately be realized and a valuation
allowance was not deemed necessary at December 31, 2005 and 2004.
At
December 31, 2005, the Company has a New York State tax credit carryforward
of
$1.2 million which may be carried forward indefinitely.
The
proposed 2006 New York State budget bill contains a provision that would
disallow the exclusion of dividends paid by a real estate investment trust
subsidiary (“REIT”). The bill, if enacted as proposed would be effective for
taxable years beginning on or after January 1, 2006, and the Company would
lose
the tax benefit associated with the REIT. Until there is resolution to this
proposal, the Company may have to increase the 2006 tax provision by
approximately $0.3 million per quarter as compared to 2005 and may have to
begin recording the increased provision in the first quarter of 2006.
Additionally, the proposed legislation would reduce the statutory tax rate
on
the taxable income base from 7.50% to 6.75%.
The
following is a reconciliation of the provision for income taxes to the amount
computed by applying the applicable Federal statutory rate of 35% to income
before taxes:
|
Years
ended December 31
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Federal
income tax at statutory rate
|
$
|
26,562
|
$
|
25,193
|
$
|
24,001
|
||||
|
Tax
exempt income
|
(2,577
|
)
|
(2,427
|
)
|
(2,545
|
)
|
||||
|
Net
increase in CSV of life insurance
|
(808
|
)
|
(756
|
)
|
(513
|
)
|
||||
|
State
taxes, net of federal tax benefit
|
978
|
1,125
|
501
|
|||||||
|
Other,
net
|
(702
|
)
|
(1,198
|
)
|
26
|
|||||
|
Income
tax expense
|
$
|
23,453
|
$
|
21,937
|
$
|
21,470
|
||||
|
(14)
|
STOCKHOLDERS’
EQUITY
|
Certain
restrictions exist regarding the ability of the subsidiary bank to transfer
funds to the Company in the form of cash dividends. The approval of the Office
of Comptroller of the Currency (OCC) is required to pay dividends when a bank
fails to meet certain minimum regulatory capital standards or when such
dividends are in excess of a subsidiary bank’s earnings retained in the current
year plus retained net profits for the preceding two years (as defined in the
regulations). At December 31, 2005, approximately $58.5 million of the total
stockholders’ equity of the Bank was available for payment of dividends to the
Company without approval by the OCC. The Bank’s ability to pay dividends also is
subject to the Bank being in compliance with regulatory capital requirements.
The Bank is currently in compliance with these requirements. Under the State
of
Delaware Business Corporation Law, the Company may declare and pay dividends
either out of accumulated net retained earnings or capital surplus.
In
October 2004, the Company adopted a Stockholder Rights Plan (Plan) designed
to
ensure that any potential acquirer of the Company negotiate with the board
of
directors and that all Company stockholders are treated equitably in the event
of a takeover attempt. At that time, the Company paid a dividend of one
Preferred Share Purchase Right (Right) for each outstanding share of common
stock of the Company. Similar rights are attached to each share of the Company’s
common stock issued after November 16, 2004. Under the Plan, the Rights will
not
be exercisable until a person or group acquires beneficial ownership of 15%
or
more of the Company’s outstanding common stock, begins a tender or exchange
offer for 15% or more of the Company’s outstanding common stock. Additionally,
until the occurrence of such an event, the Rights are not severable from the
Company’s common stock and, therefore, the Rights will be transferred upon the
transfer of shares of the Company’s common stock. Upon the occurrence of such
events, each Right entitles the holder to purchase one one-hundredth of a share
of Series A Junior Participating Preferred Stock, no par value, and $0.01 stated
value per share of the Company at a price of $70.
The
Plan
also provides that upon the occurrence of certain specified events, the holders
of Rights will be entitled to acquire additional equity interests, in the
Company or in the acquiring entity, such interests having a market value of
two
times the Right’s exercise price of $70. The Rights, which expire October 24,
2014, are redeemable in whole, but not in part, at the Company’s option prior to
the time they are exercisable, for a price of $0.001 per Right.
|
(15)
|
REGULATORY
CAPITAL REQUIREMENTS
|
Bancorp
and NBT Bank are subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions
by
regulators that, if undertaken, could have a direct material effect on the
consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, NBT Bank must meet specific
capital guidelines that involve quantitative measures of NBT Bank’s assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and NBT Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 Capital to risk-weighted assets, and of Tier
1
capital to average assets. As of December 31, 2005 and 2004, the Company and
NBT
Bank meet all capital adequacy requirements to which they were
subject.
Under
their prompt corrective action regulations, regulatory authorities are required
to take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized institution. Such actions could
have a direct material effect on an institution’s financial statements. The
regulations establish a framework for the classification of banks into five
categories: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized, and critically under capitalized. As of
December 31, 2005, the most recent notification from NBT Bank’s regulators
categorized NBT Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized NBT Bank must
maintain minimum total risk-based, Tier 1 risk-based, Tier 1 capital to average
asset ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed NBT Bank’s
category.
The
Company and NBT Bank’s actual capital amounts and ratios are presented as
follows:
|
Actual
|
Regulatory
ratio requirements
|
||||||||||||
|
(Dollars
in thousands)
|
Amount
|
Ratio
|
Minimum
capital
adequacy
|
For
classification
as
well capitalized
|
|||||||||
|
As
of December 31, 2005
|
|||||||||||||
|
Total
capital (to risk weighted assets):
|
|||||||||||||
|
Company
combined
|
$
|
350,819
|
11.05
|
%
|
8.00
|
%
|
10.00
|
%
|
|||||
|
NBT
Bank
|
336,900
|
10.65
|
%
|
8.00
|
%
|
10.00
|
%
|
||||||
|
Tier
I Capital (to risk weighted assets)
|
|||||||||||||
|
Company
combined
|
311,033
|
9.80
|
%
|
4.00
|
%
|
6.00
|
%
|
||||||
|
NBT
Bank
|
297,255
|
9.40
|
%
|
4.00
|
%
|
6.00
|
%
|
||||||
|
Tier
I Capital (to average assets)
|
|||||||||||||
|
Company
combined
|
311,033
|
7.16
|
%
|
4.00
|
%
|
5.00
|
%
|
||||||
|
NBT
Bank
|
297,255
|
6.89
|
%
|
4.00
|
%
|
5.00
|
%
|
||||||
|
As
of December 31, 2004
|
|||||||||||||
|
Total
capital (to risk weighted assets)
|
|||||||||||||
|
Company
combined
|
$
|
334,617
|
11.04
|
%
|
8.00
|
%
|
10.00
|
%
|
|||||
|
NBT
Bank
|
317,835
|
10.65
|
%
|
8.00
|
%
|
10.00
|
%
|
||||||
|
Tier
I Capital (to risk weighted assets)
|
|||||||||||||
|
Company
combined
|
296,631
|
9.78
|
%
|
4.00
|
%
|
6.00
|
%
|
||||||
|
NBT
Bank
|
280,446
|
9.40
|
%
|
4.00
|
%
|
6.00
|
%
|
||||||
|
Tier
I Capital (to average assets)
|
|||||||||||||
|
Company
combined
|
296,631
|
7.13
|
%
|
4.00
|
%
|
5.00
|
%
|
||||||
|
NBT
Bank
|
280,446
|
6.83
|
%
|
4.00
|
%
|
5.00
|
%
|
||||||
|
(16)
|
EMPLOYEE
BENEFIT PLANS
|
PENSION
PLAN
The
Company has a qualified, noncontributory, defined benefit pension plan covering
substantially all of its employees at December 31, 2005. Benefits paid from
the
plan are based on age, years of service, compensation, social security benefits,
and are determined in accordance with defined formulas. The Company’s policy is
to fund the pension plan in accordance with ERISA standards. Assets of the
plan
are invested in publicly traded stocks and bonds. Prior to January 1, 2000,
the
Company’s plan was a traditional defined benefit plan based on final average
compensation. On January 1, 2000, the plan was converted to a cash balance
plan
with grandfathering provisions for existing participants.
The
net
periodic pension expense and the funded status of the plan are as
follows:
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Components
of net periodic benefit cost
|
||||||||||
|
Service
cost
|
$
|
1,868
|
$
|
1,655
|
$
|
1,347
|
||||
|
Interest
cost
|
2,249
|
2,154
|
2,028
|
|||||||
|
Expected
return on plan assets
|
(3,828
|
)
|
(3,740
|
)
|
(3,175
|
)
|
||||
|
Amortization
of initial unrecognized asset
|
(192
|
)
|
(192
|
)
|
(192
|
)
|
||||
|
Amortization
of prior service cost
|
1,107
|
186
|
153
|
|||||||
|
Amortization
of unrecognized net gain
|
587
|
447
|
295
|
|||||||
|
Net
periodic pension cost
|
1,791
|
510
|
456
|
|||||||
|
Change
in projected benefit obligation
|
||||||||||
|
Benefit
obligation at beginning of year
|
(40,277
|
)
|
(36,791
|
)
|
(31,942
|
)
|
||||
|
Service
cost
|
(1,868
|
)
|
(1,655
|
)
|
(1,347
|
)
|
||||
|
Interest
cost
|
(2,249
|
)
|
(2,154
|
)
|
(2,028
|
)
|
||||
|
Actuarial
loss
|
(64
|
)
|
(952
|
)
|
(3,512
|
)
|
||||
|
Benefits
paid
|
3,253
|
2,481
|
2,412
|
|||||||
|
Prior
service cost
|
(30
|
)
|
(1,206
|
)
|
(374
|
)
|
||||
|
Projected
benefit obligation at end of year
|
(41,235
|
)
|
(40,277
|
)
|
(36,791
|
)
|
||||
|
Change
in plan assets
|
||||||||||
|
Fair
value of plan assets at beginning of year
|
44,500
|
43,905
|
32,602
|
|||||||
|
Actual
return on plan assets
|
1,922
|
2,195
|
5,216
|
|||||||
|
Employer
contributions
|
1,487
|
881
|
8,500
|
|||||||
|
Benefits
paid
|
(3,253
|
)
|
(2,481
|
)
|
(2,412
|
)
|
||||
|
Fair
value of plan assets at end of year
|
44,656
|
44,500
|
43,906
|
|||||||
|
Plan
assets in excess of projected benefit obligation
|
3,421
|
4,223
|
7,115
|
|||||||
|
Unrecognized
portion of net asset at transition
|
(598
|
)
|
(789
|
)
|
(981
|
)
|
||||
|
Unrecognized
net actuarial loss
|
12,908
|
11,524
|
9,475
|
|||||||
|
Unrecognized
prior service cost
|
1,692
|
2,768
|
1,748
|
|||||||
|
Prepaid
pension cost
|
17,423
|
17,726
|
17,357
|
|||||||
|
Accumulated
benefit obligation
|
$
|
(40,337
|
)
|
$
|
(38,962
|
)
|
$
|
(35,381
|
)
|
|
|
Weighted
average assumptions as of December 31
|
||||||||||
|
Discount
rate
|
5.50
|
%
|
5.75
|
%
|
6.00
|
%
|
||||
|
Expected
long-term return on plan assets
|
8.50
|
%
|
8.75
|
%
|
8.75
|
%
|
||||
|
Rate
of compensation increase
|
3.75
|
%
|
3.75
|
%
|
3.75
|
%
|
||||
|
The
following assumptions were used to determine net periodic pension
cost:
|
||||||||||
|
Discount
rate
|
5.75
|
%
|
6.00
|
%
|
6.50
|
%
|
||||
|
Expected
long-term return on plan assets
|
8.75
|
%
|
8.75
|
%
|
8.75
|
%
|
||||
|
Rate
of compensation increase
|
3.75
|
%
|
3.75
|
%
|
4.00
|
%
|
||||
The
following is a summary of the plan’s weighted average asset allocation at
December 31, 2005:
|
(In
thousands)
|
Actual
Allocation
|
Percentage
Allocation
|
|||||
|
Cash
and Cash Equivalents
|
$
|
2,291
|
5.10
|
%
|
|||
|
Equity
Mutual Funds
|
|
5,101
|
11.40
|
%
|
|||
|
US
Government Bonds
|
7,555
|
16.90
|
%
|
||||
|
Corporate
Bonds
|
4,461
|
10.00
|
%
|
||||
|
Foreign
Bonds
|
245
|
0.60
|
%
|
||||
|
Common
Stock
|
21,840
|
48.90
|
%
|
||||
|
Preferred
Stock
|
994
|
2.20
|
%
|
||||
|
Foreign
Equity
|
2,169
|
4.90
|
%
|
||||
|
Total
|
$
|
44,656
|
100.00
|
%
|
|||
PLAN
INVESTMENT POLICY AS OF DECEMBER 31, 2005:
The
Company’s key investment objectives in managing its defined benefit plan assets
are to ensure that present and future benefit obligations to all participants
and beneficiaries are met as they become due; to provide a total return that,
over the long-term, maximizes the ratio of the plan assets to liabilities,
while
minimizing the present value of required Company contributions, at the
appropriate levels of risk; to meet statutory requirements and regulatory
agencies’ requirements; and to satisfy applicable accounting standards. The
Company periodically evaluates the asset allocations, funded status, rate of
return assumption and contribution strategy for satisfaction of our investment
objectives. Generally, the investment manager allocates investments as follows:
of 20-40% of the total portfolio in fixed income, 40-80% in equities, and 0-20%
in cash. Only high-quality bonds should be included in the portfolio. All issues
that are rated lower than A by Standard and Poor’s should be excluded. Equity
securities at December 31, 2005 and 2004 do not include any NBT Bancorp Inc.
common stock.
The
following table sets forth estimated future benefit payments:
|
Estimated
future benefit payments
|
|||
|
Year
|
Estimated
future payment
|
||
|
2006
|
$
|
5,001
|
|
|
2007
|
2,800
|
||
|
2008
|
2,890
|
||
|
2009
|
3,118
|
||
|
2010
|
3,144
|
||
|
2011
- 2015
|
16,491
|
||
DETERMINATION
OF ASSUMED RATE OF RETURN
The
expected long-term rate-of-return on plan assets reflects long-term earnings
expectations on existing plan assets. In estimating that rate, appropriate
consideration is given to historical returns earned by plan assets as well
as
historical returns of comparable market indexes aligned with the Company’s plan
assets. Average rates of return over the past 10 and 15 year periods were
considered and the results are summarized as follows:
|
Percentage
Allocation
|
Comparable
Market Index
|
Expected
Return
Average
|
Expected
Weighted
Return
|
||||||||||
|
Cash
and Cash Equivalents
|
5.10
|
%
|
Citigroup
Treasury Bill - 3 Month Index
|
3.77
|
%
|
0.19
|
%
|
||||||
|
American
Funds New Perspective R3
|
3.30
|
%
|
MSCI
World Index
|
6.92
|
%
|
0.23
|
%
|
||||||
|
Ishares
MSCI Emerging
|
1.00
|
%
|
MSCI
EAFE Index
|
5.17
|
%
|
0.05
|
%
|
||||||
|
Ishares
MSCI EAFE
|
2.50
|
%
|
MSCI
EAFE Index
|
5.17
|
%
|
0.13
|
%
|
||||||
|
Ishares
Russell 2000
|
1.10
|
%
|
Russell
2000 Index
|
10.66
|
%
|
0.12
|
%
|
||||||
|
Midcap
Spider S&P 400
|
3.50
|
%
|
S&P
500 Index
|
10.76
|
%
|
0.38
|
%
|
||||||
|
US
Government Bonds
|
16.90
|
%
|
Lehman
Bros. 5-10 year Govt Index
|
6.57
|
%
|
1.11
|
%
|
||||||
|
Corporate
Bonds
|
10.00
|
%
|
Lehman
Bros. Corp. Index
|
6.46
|
%
|
0.65
|
%
|
||||||
|
Foreign
Bonds
|
0.60
|
%
|
Lehman
Bros. Aggregate Bond Fund
|
6.16
|
%
|
0.04
|
%
|
||||||
|
Common
Stock
|
48.90
|
%
|
S&P
500 Index
|
10.76
|
%
|
5.26
|
%
|
||||||
|
Preferred
Stock
|
2.20
|
%
|
S&P
500 Index
|
10.76
|
%
|
0.24
|
%
|
||||||
|
Foreign
Equity
|
4.90
|
%
|
MSCI
World Index
|
6.92
|
%
|
0.34
|
%
|
||||||
|
|
Expected
Average Return:
|
8.74
|
%
|
||||||||||
The
Company is not required to make contributions to the plan in 2006.
In
addition to the Company’s noncontributory defined benefit retirement and pension
plan, the Company provides a supplemental employee retirement plans to certain
current and former executives. The amount of the liabilities recognized in
the
Company’s consolidated balance sheets associated with these plans was $10.8
million and $9.2 million at December 31, 2005 and 2004, respectively. The
charges to expense with respect to these plans amounted to $1.7 million, $1.3
million, and $1.0 million for the years ended December 31, 2005, 2004, and
2003,
respectively. The discount rate used in determining the actuarial present values
of the projected benefit obligations was 5.50%, 5.75%, and 6.00%, at December
31, 2005, 2004, and 2003, respectively.
POSTRETIREMENT
BENEFITS OTHER THAN PENSIONS
The
Company provides certain health care benefits for retired employees. Benefits
are accrued over the employees’ active service period. Only employees that were
employed by NBT Bank on or before January 1, 2000 are eligible to receive
postretirement health care benefits. The plan is contributory for participating
retirees, requiring participants to absorb certain deductibles and coinsurance
amounts with contributions adjusted annually to reflect cost sharing provisions
and benefit limitations called for in the plan. Employees become eligible for
these benefits if they reach normal retirement age while working for the
Company. The Company funds the cost of postretirement health care as benefits
are paid. The Company elected to recognize the transition obligation on a
delayed basis over twenty years.
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Components
of net periodic benefit cost
|
||||||||||
|
Service
cost
|
$
|
3
|
$
|
35
|
$
|
131
|
||||
|
Interest
cost
|
212
|
277
|
365
|
|||||||
|
Amortization
of transition obligation
|
23
|
39
|
39
|
|||||||
|
Amortization
of losses
|
167
|
186
|
161
|
|||||||
|
Amortization
of unrecognized prior service cost
|
(265
|
)
|
(265
|
)
|
(159
|
)
|
||||
|
Net
periodic postretirement benefit cost
|
140
|
272
|
537
|
|||||||
|
Change
in accumulated benefit obligation
|
||||||||||
|
Benefit
obligation at beginning of the year
|
4,841
|
4,777
|
7,516
|
|||||||
|
Service
cost
|
3
|
35
|
131
|
|||||||
|
Interest
cost
|
212
|
277
|
365
|
|||||||
|
Plan
participants’ contributions
|
282
|
272
|
-
|
|||||||
|
Actuarial
loss
|
(712
|
)
|
152
|
117
|
||||||
|
Amendments
|
-
|
-
|
(3,045
|
)
|
||||||
|
Benefits
paid
|
(774
|
)
|
(672
|
)
|
(304
|
)
|
||||
|
Accumulated
benefit obligation at end of year
|
3,852
|
4,841
|
4,780
|
|||||||
|
Components
of accrued benefit cost
|
||||||||||
|
Accumulated
benefit obligation at end of year
|
(3,852
|
)
|
(4,841
|
)
|
(4,780
|
)
|
||||
|
Unrecognized
transition obligation
|
-
|
23
|
62
|
|||||||
|
Unrecognized
prior service cost
|
(2,688
|
)
|
(2,953
|
)
|
(3,219
|
)
|
||||
|
Unrecognized
actuarial net loss
|
2,953
|
3,831
|
3,866
|
|||||||
|
Accrued
benefit cost
|
$
|
(3,587
|
)
|
$
|
(3,940
|
)
|
$
|
(4,071
|
)
|
|
|
Weighted
average discount rate
|
5.50
|
%
|
5.75
|
%
|
6.00
|
%
|
||||
For
measurement purposes, the annual rates of increase in the per capita cost of
covered medical and prescription drug benefits for fiscal year 2005 were assumed
to be 10.0 and 13.0 percent, respectively. The rates were assumed to decrease
gradually to 5.0 percent for fiscal year 2014 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect
on
amounts reported for health care plans. A one-percentage point change in the
health care trend rates would have the following effects as of and for the
year
ended December 31, 2005:
|
(In
thousands)
|
1-Percentage
point increase
|
1-Percentage
point decrease
|
|||||
|
Increase
(decrease) on total service and interest cost components
|
$
|
18
|
$
|
(17
|
)
|
||
|
Increase
(decrease) on postretirement accumulated benefit
obligation
|
353
|
(330
|
)
|
||||
EMPLOYEE
401(K) AND EMPLOYEE STOCK OWNERSHIP PLANS
At
December 31, 2005, the Company maintains a 401(k) and employee stock ownership
plan (the Plan). The Company contributes to the Plan based on employees’
contributions out of their annual salary. In addition, the Company may also
make
discretionary contributions to the Plan based on profitability. Participation
in
the plan is contingent upon certain age and service requirements. The recorded
expenses associated with this plan was $1.6 million in 2004, $1.4 million in
2004, and $1.5 million in 2003.
STOCK
OPTION PLANS
The
following is a summary of changes in options outstanding:
|
Number
of options
|
Weighted
average of
exercise
price of options
under
the plans
|
||||||
|
Balance
at December 31, 2002
|
2,192,223
|
$
|
14.96
|
||||
|
Granted
|
398,888
|
17.72
|
|||||
|
Exercised
|
(489,253
|
)
|
12.42
|
||||
|
Lapsed
|
(37,284
|
)
|
14.89
|
||||
|
Balance
at December 31, 2003
|
2,064,574
|
16.09
|
|||||
|
Granted
|
381,109
|
22.19
|
|||||
|
Exercised
|
(448,669
|
)
|
15.26
|
||||
|
Lapsed
|
(22,975
|
)
|
18.53
|
||||
|
Balance
at December 31, 2004
|
1,974,039
|
17.43
|
|||||
|
Granted
|
426,855
|
23.16
|
|||||
|
Exercised
|
(413,176
|
)
|
16.45
|
||||
|
Lapsed
|
(71,094
|
)
|
20.78
|
||||
|
Balance
at December 31, 2005
|
1,916,624
|
$
|
18.79
|
||||
The
following table summarizes information concerning
stock options outstanding at December 31, 2005:
|
Options
outstanding
|
Options
exercisable
|
|||||||||||||||
|
Range
of exercise
prices
|
Number
outstanding
|
Weighted
average remaining contractual life (in years)
|
Weighted
average
exercise
price
|
Number
exercisable
|
Weighted
average exercise price
|
|||||||||||
|
$10.00
- $13.75
|
75,128
|
3.32
|
$
|
10.94
|
75,128
|
$
|
10.94
|
|||||||||
|
$13.76
- $17.50
|
579,861
|
5.36
|
15.12
|
513,649
|
15.22
|
|||||||||||
|
$17.51
- $21.25
|
565,413
|
5.35
|
18.65
|
424,577
|
18.83
|
|||||||||||
|
$21.26
- $25.00
|
696,222
|
8.67
|
22.82
|
195,154
|
22.51
|
|||||||||||
|
$10.00
- $25.00
|
1,916,624
|
6.48
|
$
|
18.79
|
1,208,508
|
$
|
17.40
|
|||||||||
|
(17)
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
The
Company’s concentrations of credit risk are reflected in the consolidated
balance sheets. The concentrations of credit risk with standby letters of
credit, unused lines of credit, commitments to originate new loans and loans
sold with recourse generally follow the loan classifications.
At
December 31, 2005, approximately 62% of the Company’s loans are secured by real
estate located in central and northern New York and northeastern Pennsylvania.
Accordingly, the ultimate collectibility of a substantial portion of the
Company’s portfolio is susceptible to changes in market conditions of those
areas. Management is not aware of any material concentrations of credit to
any
industry or individual borrowers.
The
Company is a party to certain financial instruments with off balance sheet
risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, unused lines
of credit, standby letters of credit, and as certain mortgage loans sold to
investors with recourse. The Company’s exposure to credit loss in the event of
nonperformance by the other party to the commitments to extend credit, unused
lines of credit, standby letters of credit, and loans sold with recourse is
represented by the contractual amount of those instruments. The Company uses
the
same credit standards in making commitments and conditional obligations as
it
does for on balance sheet instruments.
The
total
amount of loans serviced by the Company for unrelated third parties was
approximately $81.2 million and $70.8 million at December 31, 2005 and 2004,
respectively.
In
the
normal course of business there are various outstanding legal proceedings.
In
the opinion of management, the aggregate amount involved in such proceedings
is
not material to the consolidated balance sheets or results of operations of
the
Company.
|
At
December 31,
|
|||||||
|
(In
thousands)
|
2005
|
2004
|
|||||
|
Unused
lines of credit
|
$
|
230,863
|
$
|
228,789
|
|||
|
Commitments
to extend credits, primarily variable rate
|
266,274
|
278,610
|
|||||
|
Standby
letters of credit
|
42,866
|
31,616
|
|||||
|
Loans
sold with recourse
|
5,750
|
5,594
|
|||||
In
November 2002, the FASB issued FASB Interpretation No. 45 (“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 requires certain new disclosures and potential liability-recognition
for
the fair value at issuance of guarantees that fall within its scope. Under
FIN
No. 45, the Company does not issue any guarantees that would require
liability-recognition or disclosure, other than its standby letters of
credit.
The
Company guarantees the obligations or performance of customers by issuing
stand-by letters of credit to third parties. These stand-by letters of credit
are frequently issued in support of third party debt, such as corporate debt
issuances, industrial revenue bonds, and municipal securities. The risk involved
in issuing stand-by letters of credit is essentially the same as the credit
risk
involved in extending loan facilities to customers, and they are subject to
the
same credit origination, portfolio maintenance and management procedures in
effect to monitor other credit and off-balance sheet products. Typically, these
instruments have terms of five years or less and expire unused; therefore,
the
total amounts do not necessarily represent future cash requirements. The fair
value of the Company’s stand-by letters of credit at December 31, 2005 and 2004
was not significant.
|
(18)
|
PARENT
COMPANY FINANCIAL INFORMATION
|
|
December
31,
|
|||||||
|
(In
thousands)
|
2005
|
2004
|
|||||
|
Assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
10,229
|
$
|
5,949
|
|||
|
Securities
available for sale, at estimated fair value
|
11,345
|
8,363
|
|||||
|
Investment
in subsidiaries, on equity basis
|
342,699
|
334,423
|
|||||
|
Other
assets
|
17,363
|
23,205
|
|||||
|
Total
assets
|
$
|
381,636
|
$
|
371,940
|
|||
|
Liabilities
and Stockholders’ Equity
|
|||||||
|
Total
liabilities
|
$
|
47,693
|
$
|
39,707
|
|||
|
Stockholders’
equity
|
333,943
|
332,233
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
381,636
|
$
|
371,940
|
|||
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Dividends
from subsidiaries
|
35,400
|
29,732
|
28,715
|
|||||||
|
Management
fee from subsidiaries
|
54,373
|
47,872
|
44,736
|
|||||||
|
Interest
and other dividend income
|
839
|
258
|
206
|
|||||||
|
Net
gain on sale of securities available for sale
|
-
|
4
|
-
|
|||||||
|
90,612
|
77,866
|
73,657
|
||||||||
|
Operating
expense
|
55,201
|
50,442
|
45,692
|
|||||||
|
Income
before income tax (benefit) expense and equity in undistributed
income of
subsidiaries
|
35,411
|
27,424
|
27,965
|
|||||||
|
Income
tax (benefit) expense
|
(728
|
)
|
(993
|
)
|
272
|
|||||
|
Equity
in undistributed income of subsidiaries
|
16,299
|
21,630
|
19,411
|
|||||||
|
Net
income
|
$
|
52,438
|
$
|
50,047
|
$
|
47,104
|
||||
|
Years
ended December 31,
|
||||||||||
|
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
|
Operating
activities
|
||||||||||
|
Net
income
|
$
|
52,438
|
$
|
50,047
|
$
|
47,104
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||||
|
Net
gains on sale of securities available for sale
|
-
|
8
|
-
|
|||||||
|
Tax
benefit from exercise of stock options
|
1,057
|
1,336
|
1,294
|
|||||||
|
Distributions
in excess of equity in undistributed income of
subsidiaries
|
(16,299
|
)
|
(21,630
|
)
|
(19,411
|
)
|
||||
|
Other,
net
|
5,540
|
(2,061
|
)
|
(4,008
|
)
|
|||||
|
Net
cash provided by operating activities
|
42,736
|
27,700
|
24,979
|
|||||||
|
Investing
activities
|
||||||||||
|
Proceeds
from sales of securities available for sale
|
-
|
1,000
|
-
|
|||||||
|
Purchases
of premises and equipment
|
(2,834
|
)
|
(2,342
|
)
|
(1,534
|
)
|
||||
|
Net
cash used in investing activities
|
(2,834
|
)
|
(1,342
|
)
|
(1,534
|
)
|
||||
|
Financing
activities
|
||||||||||
|
Proceeds
from the issuance of shares to employee benefit plans and other
stock
plans
|
7,161
|
6,964
|
6,381
|
|||||||
|
Payment
on long-term debt
|
(100
|
)
|
(90
|
)
|
(85
|
)
|
||||
|
Proceeds
from the issuance of trust preferred debentures
|
5,155
|
-
|
-
|
|||||||
|
Purchase
of treasury shares
|
(23,165
|
)
|
(9,149
|
)
|
(6,489
|
)
|
||||
|
Cash
dividends and payment for fractional shares
|
(24,673
|
)
|
(24,251
|
)
|
(22,173
|
)
|
||||
|
Net
cash used in financing activities
|
(35,622
|
)
|
(26,526
|
)
|
(22,366
|
)
|
||||
|
Net
increase (decrease) in cash and cash equivalents
|
4,280
|
(168
|
)
|
1,079
|
||||||
|
Cash
and cash equivalents at beginning of year
|
5,949
|
6,117
|
5,038
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
10,229
|
$
|
5,949
|
$
|
6,117
|
||||
|
(19)
|
FAIR
VALUES OF FINANCIAL INSTRUMENTS
|
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments.
SHORT
TERM INSTRUMENTS
For
short-term instruments, such as cash and cash equivalents, accrued interest
receivable, accrued interest payable, and short term borrowings, carrying value
approximates fair value.
SECURITIES
Fair
values for securities are based on quoted market prices or dealer quotes, where
available. Where quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.
LOANS
For
variable rate loans that reprice frequently and have no significant credit
risk,
fair values are based on carrying values. The fair values for fixed rate loans
are estimated through discounted cash flow analysis using interest rates
currently being offered for loans with similar terms and credit quality.
Nonperforming loans are valued based upon recent loss history for similar
loans.
DEPOSITS
The
fair
values disclosed for savings, money market, and noninterest bearing accounts
are, by definition, equal to their carrying values at the reporting date. The
fair value of fixed maturity time deposits is estimated using a discounted
cash
flow analysis that applies interest rates currently offered to a schedule of
aggregated expected monthly maturities on time deposits.
LONG-TERM
DEBT
The
fair
value of long-term debt has been estimated using discounted cash flow analysis
that applies interest rates currently offered for notes with similar
terms.
COMMITMENTS
TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The
fair
value of commitments to extend credit and standby letters of credit are
estimated using fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present credit
worthiness of the counterparties. Carrying amounts, which are comprised of
the
unamortized fee income, are not significant.
TRUST
PREFERRED DEBENTURES
A
significant portion of the outstanding balance at December 31, 2005 is variable
rate in nature, as such the carrying value approximates fair value.
Estimated
fair values of financial instruments at December 31 are as follows:
|
2005
|
2004
|
||||||||||||
|
(In
thousands)
|
Carrying
amount
|
Estimated
fair
value
|
Carrying
amount
|
Estimated
fair
value
|
|||||||||
|
Financial
assets
|
|||||||||||||
|
Cash
and cash equivalents
|
$
|
142,488
|
$
|
142,488
|
$
|
106,723
|
$
|
106,723
|
|||||
|
Securities
available for sale
|
954,474
|
954,474
|
952,542
|
952,542
|
|||||||||
|
Securities
held to maturity
|
93,709
|
93,701
|
81,782
|
82,712
|
|||||||||
|
Loans
(1)
|
3,022,657
|
2,949,799
|
2,869,921
|
2,835,643
|
|||||||||
|
Less
allowance for loan losses
|
47,455
|
-
|
44,932
|
-
|
|||||||||
|
Net
loans
|
2,975,202
|
2,949,799
|
2,824,989
|
2,835,643
|
|||||||||
|
Accrued
interest receivable
|
19,008
|
19,008
|
15,652
|
15,652
|
|||||||||
|
Financial
liabilities
|
|||||||||||||
|
Savings,
NOW, and money market
|
$
|
1,325,166
|
$
|
1,325,166
|
$
|
1,435,561
|
$
|
1,435,561
|
|||||
|
Time
deposits
|
1,241,608
|
1,234,680
|
1,118,059
|
1,115,118
|
|||||||||
|
Noninterest
bearing
|
593,422
|
593,422
|
520,218
|
520,218
|
|||||||||
|
Short-term
borrowings
|
444,977
|
444,977
|
338,823
|
338,823
|
|||||||||
|
Long-term
debt
|
414,330
|
407,783
|
394,523
|
421,113
|
|||||||||
|
Accrued
interest payable
|
8,077
|
8,077
|
6,384
|
6,384
|
|||||||||
|
Trust
preferred debentures
|
23,875
|
23,875
|
18,720
|
18,720
|
|||||||||
|
1.
|
Lease
receivables, although excluded from the scope of SFAS No. 107, are
included in the estimated fair value amounts at their carrying
amounts.
|
Fair
value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates
do
not reflect any premium or discount that could result from offering for sale
at
one time the Company’s entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Company’s financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics
of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair
value estimates are based on existing on and off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, the Company has a substantial trust and
investment management operation that contributes net fee income annually. The
trust and investment management operation is not considered a financial
instrument, and its value has not been incorporated into the fair value
estimates. Other significant assets and liabilities include the benefits
resulting from the low-cost funding of deposit liabilities as compared to the
cost of borrowing funds in the market, and premises and equipment. In addition,
the tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in the estimate of fair value.
None.
As
of the
end of the period covered by this Annual Report on Form 10-K, an evaluation
was
carried out by the Company’s management, with the participation of its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures were effective as of the end of the period covered
by
this report. No changes were made to the Company’s internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934) during the last fiscal quarter that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Management
Report on Internal Controls Over Financial Reporting
The
management of NBT Bancorp, Inc. (the “Company”) is responsible for establishing
and maintaining adequate internal control over financial reporting. The
Company’s internal control over financial reporting is a process designed under
the supervision of the Company’s Chief Executive Officer and Chief Financial
Officer to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company’s consolidated financial statements
for external purposes in accordance with generally accepted accounting
principles.
As
of
December 31, 2005, management assessed the effectiveness of the Company’s
internal control over financial reporting based on the criteria for effective
internal control over financial reporting established in “Internal Control —
Integrated Framework,” issued by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission. Based on the assessment, management
determined that the Company maintained effective internal control over financial
reporting as of December 31, 2005, based on those criteria.
KPMG
LLP,
the independent registered public accounting firm that audited the consolidated
financial statements of the Company included in this Annual Report on Form
10-K,
has issued an attestation report on management’s assessment of the effectiveness
of the Company’s internal control over financial reporting as of December 31,
2005. The report, which expresses unqualified opinions on management’s
assessment and on the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2005, is included in this Item under
the
heading “Report of Independent Registered Public Accounting Firm.”
To
the Board of Directors and Stockholders of NBT Bancorp
Inc.
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting,
that
NBT Bancorp Inc. (the Company) maintained effective internal control over
financial reporting as of December 31, 2005, based on criteria established
in
Internal
Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness
of
internal control over financial reporting. Our responsibility is to express
an
opinion on management’s assessment and an opinion on the effectiveness of the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that the NBT Bancorp Inc. maintained effective
internal control over financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on the criteria established in
Internal
Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005,
based on the criteria established in Internal
Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of NBT Bancorp
Inc. and subsidiaries as of December 31, 2005 and 2004 and the related
consolidated statements of income, changes in stockholders’ equity, cash flows,
and comprehensive income for each of the years in the three-year period ended
December 31, 2005, and our report dated March 6, 2006 expressed an unqualified
opinion on those financial statements.
/s/
KPMG
LLP
Albany,
NY
March
6,
2006
|
OTHER
INFORMATION
|
None.
PART
III
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE
REGISTRANT
|
The
information required by this item is incorporated herein by reference to the
Company’s definitive Proxy Statement for its annual meeting of shareholders to
be held on May 2, 2006 (the “Proxy Statement”), which will be filed with the
Securities and Exchange Commission within 120 days of the Company’s 2005 fiscal
year end.
|
EXECUTIVE
COMPENSATION
|
The
information required by this item is incorporated herein by reference to the
Company’s definitive Proxy Statement for its annual meeting of shareholders to
be held on May 2, 2006 (the “Proxy Statement”), which will be filed with the
Securities and Exchange Commission within 120 days of the Company’s 2005 fiscal
year end.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
MATTERS
|
EQUITY
COMPENSATION PLAN INFORMATION
As
of
December 31, 2005, the following table summarizes the Company’s equity
compensation plans:
|
Plan
Category
|
A.
Number of securities to be
issued
upon exercise of
outstanding
options
|
B.
Weighted-average
exercise
price of outstanding
options
|
Number
of securities
remaining
available for future
issuance
under equity
compensation
plans
(excluding
securities reflected in
column
A.)
|
|||||||
|
Equity
compensation plans approved by stockholders
|
1,916,624
|
$
|
18.79
|
2,195,302
|
||||||
|
Equity
compensation plans not approved by stockholders
|
None
|
None
|
None
|
|||||||
The
remaining information required by this item is incorporated herein by reference
to the Proxy Statement.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
The
information required by this item is incorporated herein by reference to
the
Proxy Statement.
|
PRINCIPAL
ACCOUNTING FEES AND
SERVICES
|
The
information required by this item is incorporated herein by reference to
the
Proxy Statement.
PART
IV
|
EXHIBITS
ANDFINANCIAL STATEMENT SCHEDULES
|
|
(a)
|
(1)
|
The
following Consolidated Financial Statements are included in Part
II,
|
|
Item
8 hereof:
|
||
|
Report
of Independent Registered Public Accounting Firm.
|
||
|
Consolidated
Balance Sheets as of December 31, 2005 and 2004.
|
||
|
Consolidated
Statements of Income for each of the three years ended December 31,
2005,
2004 and 2003.
|
||
|
Consolidated
Statements of Changes in Stockholders’ Equity for each of the three years
ended December 31, 2005, 2004 and
2003.
|
||
|
Consolidated
Statements of Cash Flows for each of the three years ended December
31,
2005, 2004 and 2003.
|
||
|
Consolidated
Statements of Comprehensive Income for each of the three years ended
December 31, 2005, 2004 and 2003.
|
||
|
Notes
to the Consolidated Financial Statements.
|
||
|
(a)
|
(2)
|
There
are no financial statement schedules that are required to be filed
as part
of this form since they are not applicable or the information is
included
in the consolidated financial statements.
|
|
(a)
|
(3)
|
See
below for all exhibits filed herewith and the Exhibit
Index.
|
|
2.1
|
Agreement
and Plan of Merger by and between NBT Bancorp Inc., and CNB Bancorp,
Inc.,
dated as of June 13, 2005 (filed as Exhibit 2.1 to Registrant’s
Form 8-K, filed on June 14, 2005 and incorporated herein by
reference).
|
|
3.1
|
Certificate
of Incorporation of NBT Bancorp Inc. as amended through July 23,
2001
(filed as Exhibit 3.1 to Registrant's Form 10-K for the year ended
December 31, 2001, filed on March 29, 2002 and incorporated herein
by
reference).
|
|
3.2
|
By-laws
of NBT Bancorp Inc. as amended and restated through July 23, 2001
(filed
as Exhibit 3.2 to Registrant's Form 10-K for the year ended December
31,
2001, filed on March 29, 2002 and incorporated herein by
reference).
|
|
3.3
|
Rights
Agreement, dated as of November 15, 2004, between NBT Bancorp Inc.
and
Registrar and Transfer Company, as Rights Agent (filed as Exhibit
4.1 to
Registrant's Form 8-K, file number 0-14703, filed on November 18,
2004,
and incorporated by reference herein).
|
|
3.4
|
Certificate
of Designation of the Series A Junior Participating Preferred Stock
(filed
as Exhibit A to Exhibit 4.1 of the Registration’s Form 8-K, file Number
0-14703, filed on November 18, 2004, and incorporated herein by
reference).
|
|
4.1
|
Specimen
common stock certificate for NBT’s common stock (filed as exhibit 4.1 to
the Registrant’s Amendment No. 1 to Registration Statement on Form S-4
filed on December 27, 2005 and incorporated herein by
reference).
|
|
10.1
|
NBT
Bancorp Inc. 1993 Stock Option Plan (filed as Exhibit 99.1 to Registrant's
Form S-8 Registration Statement, file number 333-71830 filed on
October
18, 2001 and incorporated by reference herein).
|
|
10.2
|
NBT
Bancorp Inc. Non-Employee Director, Divisional Director and Subsidiary
Director Stock Option Plan (filed as Exhibit 99.1 to Registrant's
Form S-8
Registration Statement, file number 333-73038 filed on November
9, 2001
and incorporated by reference herein).
|
|
10.3
|
CNB
Bancorp, Inc. Stock Option Plan (incorporated by reference to Exhibit
A of
CNB Bancorp, Inc.’s definitive proxy statement filed with the SEC on
September 4, 1998 and incorporated by reference
herein).
|
|
10.4
|
NBT
Bancorp Inc. Employee Stock Purchase Plan. (filed as Exhibit 10.11
to
Registrant's Form 10-K for the year ended December 31, 2001, filed
on
March 29, 2002 and incorporated herein by reference).
|
|
10.5
|
NBT
Bancorp Inc. Non-employee Directors Restricted and Deferred Stock
Plan
(filed as Appendix A of Registrant's Definitive Proxy Statement
on Form
14A filed on April 4, 2003, and incorporated by reference
herein).
|
|
10.6
|
NBT
Bancorp Inc. Performance Share Plan (filed as Appendix B of Registrant's
Definitive Proxy Statement on Form 14A filed on April 4, 2003,
and
incorporated by reference herein).
|
|
NBT
Bancorp Inc. 2006 Executive Incentive Compensation
Plan.
|
|
|
10.8
|
CNB
Bancorp, Inc. Long-Term Incentive Compensation Plan (incorporated
by
reference to Appendix B of CNB Bancorp, Inc.’s definitive proxy statement
filed with the SEC on March 14, 2002 and incorporated by reference
herein).
|
|
10.9
|
Form
of Employment Agreement between NBT Bancorp Inc. and Daryl R. Forsythe
made as of August 2, 2003. (filed as Exhibit 10.1 to Registrant's
Form
10-Q for the quarterly period ended September 30, 2003, filed on
November
13, 2003 and incorporated herein by reference).
|
| 10.10 | Amendment dated December 19, 2005 to Form of Employment Agreement between NBT Bancorp Inc. and Daryl R. Forsythe made as of August 2, 2003. |
|
Supplemental
Retirement Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe as amended and restated Effective
January 1, 2005.
|
|
|
Death
Benefits Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe made August 22,
1995.
|
|
10.13
|
Amendment
dated January 28, 2002 to Death Benefits Agreement between NBT
Bancorp
Inc., NBT Bank, National Association and Daryl R. Forsythe made
August 22,
1995. (filed as Exhibit 10.18 to Registrant's Form 10-K for the
year ended
December 31, 2001, filed on March 29, 2002 and incorporated herein
by
reference).
|
|
10.14
|
Split-Dollar
Agreement between NBT Bancorp Inc., NBT Bank, National Association
and
Daryl R. Forsythe made January 25, 2002. (filed as Exhibit 10.25
to
Registrant's Form 10-K for the year ended December 31, 2003, filed
on
March 15, 2004 and incorporated herein by reference).
|
|
Form
of Employment Agreement between NBT Bancorp Inc. and Martin A.
Dietrich as
amended and restated January 1, 2005.
|
|
|
10.16
|
Supplemental
Executive Retirement Agreement between NBT Bancorp Inc. and Martin
A.
Dietrich as amended and restated January 20, 2006.
|
|
10.17
|
Change
in control agreement with Martin A. Dietrich as amended and restated
July
23, 2001 (filed as Exhibit 10.3 to Registrant's Form 10-Q for the
quarterly period ended September 30, 2001, filed on November 14,
2001 and
incorporated herein by reference).
|
|
Form
of Employment Agreement between NBT Bancorp Inc. and Michael J.
Chewens as
amended and restated January 1, 2005.
|
|
|
10.19
|
Supplemental
Executive Retirement Agreement between NBT Bancorp Inc. and Michael
J.
Chewens made as of July 23, 2001 (filed as Exhibit 10.12 to Registrant's
Form 10-Q for the quarterly period ended September 30, 2001, filed
on
November 14, 2001 and incorporated by reference
herein).
|
|
10.20
|
Change
in control agreement with Michael J. Chewens as amended and restated
July
23, 2001 (filed as Exhibit 10.1 to Registrant's Form 10-Q for the
quarterly period ended September 30, 2001, filed on November 14,
2001 and
incorporated herein by reference).
|
|
Form
of Employment Agreement between NBT Bancorp Inc. and David E. Raven
as
amended and restated January 1, 2005.
|
|
|
10.22
|
Change
in control agreement with David E. Raven as amended and restated
July 23,
2001 (filed as Exhibit 10.7 to Registrant's Form 10-Q for the quarterly
period ended September 30, 2001, filed on November 14, 2001 and
incorporated by reference herein).
|
|
10.23
|
Supplemental
Executive Retirement Agreement between NBT Bancorp Inc. and David
E. Raven
made as of January 1, 2004. (filed as Exhibit 10.35 to Registrant's
Form
10-K for the year ended December 31, 2003, filed on March 15, 2004
and
incorporated herein by reference).
|
|
Form
of Employment Agreement between NBT Bancorp Inc. and Ronald M.
Bentley
made as of August 16, 2005.
|
|
|
Change
in control agreement with Ronald M. Bentley dated August 22,
2005.
|
|
|
Description
for Arrangement for Directors Fees.
|
|
|
A
list of the subsidiaries of the Registrant.
|
|
|
Consent
of KPMG LLP.
|
|
|
Certification
by the Chief Executive Officer pursuant to Rules 13(a)-14(a)/15(d)-14(e)
of the Securities and Exchange Act of 1934.
|
|
|
Certification
by the Chief Financial Officer pursuant to Rules 13(a)-14(a)/15(d)-14(e)
of the Securities and Exchange Act of 1934.
|
|
|
Certification
by the Chief Executive Officer pursuant to 18 U.S.C 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
of
1934, NBT Bancorp Inc. has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
NBT
BANCORP INC. (Registrant)
|
|
|
March
14, 2006
|
|
|
/S/
Martin A. Dietrich
|
|
|
Martin
A. Dietrich
|
|
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
/S/
Daryl R. Forsythe
|
|
|
Daryl
R. Forsythe
|
|
|
Chairman
and Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Martin A. Dietrich
|
|
|
Martin
A. Dietrich
|
|
|
NBT
Bancorp Inc. President,CEO, and Director (Principal Executive
Officer)
|
|
|
Date:
|
March
14, 2006
|
|
/S/
John C. Mitchell
|
|
|
John
C. Mitchell, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Joseph G. Nasser
|
|
|
Joseph
G. Nasser, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Peter B. Gregory
|
|
|
Peter
B. Gregory, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
William C. Gumble
|
|
|
William
C. Gumble, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Michael Hutcherson
|
|
|
Michael
Hutcherson, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Richard Chojnowski
|
|
|
Richard
Chojnowski, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Michael Murphy
|
|
|
Michael
Murphy, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Michael J. Chewens
|
|
|
Michael
J. Chewens
|
|
|
Chief
Financial Officer
|
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
|
Date:
|
March
14, 2006
|
|
/S/
William L. Owens
|
|
|
William
L. Owens, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Van Ness D. Robinson
|
|
|
Van
Ness D. Robinson, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Joseph A. Santangelo
|
|
|
Joseph
A. Santangelo, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Janet H. Ingraham
|
|
|
Janet
H. Ingraham, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Paul Horger
|
|
|
Paul
Horger, Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Andrew S. Kowalczyk, Jr
|
|
|
Andrew
S. Kowalczyk, Jr., Director
|
|
|
Date:
|
March
14, 2006
|
|
/S/
Patricia T. Civil
|
|
|
Patricia
T. Civil, Director
|
|
|
Date:
|
March
14, 2006
|
100
Exhibit
10.7
NBT
Bancorp Inc. 2006 Executive Incentive Compensation Plan
January
2006
NBT
BANCORP INC. AND SUBSIDIARIES
2006
EXECUTIVE INCENTIVE COMPENSATION PLAN
NBT
BANCORP INC. AND SUBSIDIARIES
2006
EXECUTIVE INCENTIVE COMPENSATION PLAN
Table
of
Contents
|
Page
|
|
|
Introduction
|
1-2
|
|
Incentive
Plan
|
|
|
Section
I - Definitions
|
3
|
|
Section
II - Participation
|
4
|
|
Section
III - Activating the Plan
|
4
|
|
Section
IV - Calculation of Awards
|
4
|
|
Section
V - President's Special Recommendations
|
4
|
|
Section
VI - Distribution of Awards
|
5
|
|
Section
VII - Plan Administration
|
5
|
|
Section
VIII - Amendment, Modification, Suspension or Termination
|
5
|
|
Section
IX - Effective Date
|
5
|
|
Section
X - Employer Relations with Participants
|
6
|
|
Section
XI - Governing Law
|
6
|
|
Incentive
Plan Participants and Distribution of Awards
|
Appendix
A
|
NBT
BANCORP INC. AND SUBSIDIARIES
Introduction
It
is
important to examine the benefits that accrue to the organization through the
operation of the Executive Incentive Compensation Plan (EICP). The Plan impacts
directly on the success of the organization and its purpose can be summarized
as
follows:
|
*
|
Provides
Motivation:
The opportunity for incentive awards provides Executives with the
impetus
to "stretch" for challenging, yet attainable,
goals.
|
|
*
|
Provides
Retention:
By
enhancing the organization's competitive compensation
posture.
|
|
*
|
Provides
Management Team Building:
By
making the incentive award dependent on the attainment of organization
goals, a "team orientation" is fostered among the participant
group.
|
|
*
|
Provides
Individual Motivation:
By
encouraging the participant to make significant personal contribution
to
the corporate effort.
|
|
*
|
Provides
Competitive Compensation Strategy:
The implementation of incentive arrangements is competitive with
current
practice in the banking industry.
|
-1-
Highlights
of the 2006 Executive Incentive Compensation Plan (EICP) are listed
below:
|
1.
|
The
Plan is competitive compared with similar sized banking organizations
and
the banking industry in general.
|
|
2.
|
The
Compensation Committee of the Board of Directors controls all aspects
of
the Plan.
|
|
3.
|
All
active Executives are eligible for
participation.
|
|
4.
|
The
financial criteria necessary for Plan operation consist of achieving
certain levels of Earnings Per Share (EPS) for the Company and its
Subsidiaries as applicable. Certain non-recurring events inclusive
of
changes to tax law or accounting rules may be excluded from the financials
at the discretion of the CEO and the Compensation
Committee.
|
|
5.
|
Incentive
distributions will be made during the first quarter of the year following
the Plan Year and will be based on the matrix in Appendix
A.
|
|
6.
|
Incentive
awards will be based on attainment of corporate goals. Total incentive
awards may contain Corporate, Subsidiary and Individual components.
The
Corporate and Subsidiary components are awarded by virtue of performance
related to pre-established goals and the individual component is
awarded
by virtue of individual performance related to individual goals.
No bonus
will be paid unless the Corporation attains its pre-established goals,
and
Division Heads achieve their respective
budgets.
|
-2-
NBT
BANCORP INC. AND SUBSIDIARIES
The
Board
of Directors has established this 2006 Executive Incentive Compensation Plan.
The purpose of the Plan is to meet and exceed financial goals and to promote
a
superior level of performance relative to the competition in our market areas.
Through payment of incentive compensation beyond base salaries, the Plan
provides reward for meeting and exceeding financial goals.
SECTION
I
- DEFINITIONS
Various
terms used in the Plan are defined as follows:
Base
Salary:
The base
salary at the end of the Plan Year, excluding any bonuses, contributions to
Executive benefit programs, or other compensation not designated as
salary.
Board
of Directors:
The
Board of Directors of NBT Bancorp Inc.
CEO:
The CEO
of NBT Bancorp Inc.
Corporate
Goals:
Those
pre-established objectives and goals of NBT Bancorp Inc. which are required
to
activate distribution of awards under the Plan.
Divisional/Subsidiary
Goals:
Those
pre-established objectives and goals which apply to each of the Banking
Divisions of NBT Bancorp Inc. and which may activate distribution of awards
under the Plan.
Individual
Goals:
Key
objectives mutually agreed upon between participants and
management.
Compensation
Committee:
The
Compensation and Benefits Committee of the NBT Bancorp Inc. Board of
Directors.
Plan
Participant:
An
eligible Executive as designated by the CEO and approved by the Compensation
Committee for participation for the Plan Year.
Plan
Year:
The 2006
calendar year.
-3-
SECTION
II - ELIGIBILITY
TO PARTICIPATE
To
be
eligible for an award under the Plan, a Plan participant must be an Executive
in
full-time service at the start and close of the calendar year and at the time
of
the award unless mutually agreed upon prior to the Executive leaving the
company. Newly hired employees may be designated by the CEO and approved by
the
Compensation Committee as eligible for an award as determined by their date
of
hire or any relevant employment agreement. A Plan participant must be in the
same or equivalent position, at year-end as they were when named a participant
or have been promoted during the course of the year, to be eligible for an
award. If a Plan participant voluntarily leaves the company prior to the payment
of the award, he/she is not eligible to receive an award unless mutually agreed
upon prior to the Executive leaving the company. However, if the active
full-time service of a participant in the Plan is terminated by death,
disability, retirement, or if the participant is on an approved leave of
absence, an award will be recommended for such a participant based on the
proportion of the Plan Year that he/she was in active service.
SECTION
III - ACTIVATING
THE PLAN
The
operation of the Plan is predicated on attaining and exceeding management
performance goals. The goals will consist of the attainment of certain Earnings
Per Share (EPS) levels as applicable. Non-recurring events including changes
in
tax laws and accounting rules may be excluded from the financial results at
the
discretion of the CEO and upon approval of the Compensation Committee. The
Corporation must achieve a minimum EPS set forth in Appendix A and Division
Heads must achieve their respective budgets to trigger an award pursuant to
the
terms of this Plan.
SECTION
IV - CALCULATION
OF AWARDS
The
Compensation Committee designates the incentive formula as shown in Appendix
A.
The Compensation Committee will make final decisions with respect to all
incentive awards and will have final approval over all incentive awards. The
individual participant data regarding maximum award and formulas used in
calculation has been customized and appears as Appendix A.
SECTION
V
- SPECIAL
RECOMMENDATIONS
The
CEO
will recommend to the Compensation Committee the amounts to be awarded to
individual participants in the incentive Plan. The CEO may recommend a change
outside the formula to a bonus award (increase or decrease) to an individual
participant by a specified percentage based on assessment of special individual
performance outside the individual goals or based on special circumstances
that
may have occurred during the plan year. The Compensation Committee may amend
the
CEO's bonus award. No award will be granted to an Executive whose performance
is
unacceptable.
-4-
SECTION
VI - DISTRIBUTION
OF AWARDS
Distribution
of the EICP will be made during the first quarter of the year following the
plan. Distribution of the award must be approved by the Compensation
Committee.
In
the
event of death, any approved award earned under the provisions of this plan
will
become payable to the designated beneficiary of the participant as recorded
under the Company’s group life insurance program; or in the absence of a valid
designation, to the participant's estate.
SECTION
VII - PLAN
ADMINISTRATION
The
Compensation Committee shall, with respect to the Plan have full power and
authority to construe, interpret, manage, control and administer this Plan.
The
Committee shall decide upon cases in conformity with the objectives of the
Plan
under such rules as the Board of Directors may establish.
Any
decision made or action taken by NBT Bancorp Inc., the Board of Directors,
or
the Compensation Committee arising out of, or in connection with, the
administration, interpretation, and effect of the Plan shall be at their
absolute discretion and will be conclusive and binding on all parties. No member
of the Board of Directors, Compensation Committee, or employee shall be liable
for any act or action hereunder, whether of omission or commission, by a Plan
participant or employee or by any agent to whom duties in connection with the
administration of the Plan have been delegated in accordance with the provision
of the Plan.
SECTION
VIII - AMENDMENT,
MODIFICATION, SUSPENSION OR TERMINATION
NBT
Bancorp Inc. reserves the right, by and through its Board of Directors to amend,
modify, suspend, reinstate or terminate all or part of the Plan at any time.
The
Compensation Committee will give prompt written notice to each participant
of
any amendment, suspension or termination or any material modification of the
Plan. In the event of a merger or acquisition, the Plan and related financial
formulas will be reviewed and adjusted to take into account the effect of such
activities.
SECTION
IX - EFFECTIVE
DATE OF THE PLAN
The
effective date of the Plan shall be January 1, 2006.
-5-
SECTION
X
- EMPLOYER
RELATION WITH PARTICIPANTS
Neither
establishment nor the maintenance of the Plan shall be construed as conferring
any legal rights upon any participant or any person for a continuation of
employment, nor shall it interfere with the right of an employer to discharge
any participant or otherwise deal with him/her without regard to the existence
of the Plan.
SECTION
XI - GOVERNING
LAW
Except
to
the extent pre-empted under federal law, the provisions of the Plan shall be
construed, administered and enforced in accordance with the domestic internal
law of the State of New York. In the event of relevant changes in the Internal
Revenue Code, related rulings and regulations, changes imposed by other
regulatory agencies affecting the continued appropriateness of the Plan and
awards made thereunder, the Board may, at its sole discretion, accelerate or
change the manner of payments of any unpaid awards or amend the provisions
of
the Plan.
-6-
Exhibit
10.10
Amendment
dated December 19, 2005 to Form of Employment Agreement between NBT Bancorp
Inc.
and Daryl R. Forsythe made as of August 2, 2003.
December
19, 2005
Daryl
R.
Forsythe
21
Ridgeland Road
Norwich,
New York 13815
Re:
Employment Agreement and Change in Control -- Severance Agreement
Amendment
Dear
Daryl:
As
you
are aware, in 2004 a new Section 409A was added to the Internal Revenue Code
by
the American Jobs Creation Act of 2004 (the “Act”). The Act has made significant
changes in the tax law as it is applied to executive compensation. In late
September of 2005 the Internal Revenue Service published proposed regulations
relating to compliance with the Jobs Act. As a “key employee” severance payments
made to you on termination from employment under the terms of your current
employment agreement with NBT Bancorp Inc.1
(“Employment Agreement”) must be made in compliance with the Act or a
substantial excise tax (payable by you) will be imposed.
Your
Employment Agreement provides that you would be entitled to certain severance
payments if your relationship with NBT Bancorp Inc. was involuntarily terminated
(other than “for cause”) or you resigned for Good Reason, as those terms are
defined in your Employment Agreement. Pursuant to the Employment Agreement,
severance payments would begin on the date immediately following the Termination
Date (as defined in your Employment Agreement) and continue for the term set
forth in your Employment Agreement.
Your
Change in Control -- Severance Agreement2
(“Severance Agreement”) provides that you would be entitled to severance
payments if, within 24 months following a Change in Control of NBT Bancorp
Inc.,
your employment as Chief Executive Officer was involuntarily terminated (other
than for “Cause”) or you resigned for Good Reason (or without Good Reason within
12 months following a Change in Control of NBT Bancorp Inc.), as those terms
are
defined in your Severance Agreement. Pursuant to the Severance Agreement,
severance payment would begin not later than the fifth business day following
your Date of Termination (as defined in your Severance Agreement) and continue
for the term set forth in your Severance Agreement.
1
Dated
August 2, 2003, and as revised on January 1, 2005.
2
Dated
July 23, 2001.
If
the
severance payments provided for in your Employment Agreement or your Severance
Agreement were made as described therein the Act provides that these payments
would be subject to the excise tax of 20% of the severance payment.
Under
the
Act, one of the ways to avoid application of the excise tax to severance due
a
“key employee” under the terms of an employment agreement such as yours is to
defer payment for six (6) months after separation from employment. Accordingly,
the Compensation and Benefits Committee of NBT Bancorp Inc. has determined
that
in the event that you become entitled to severance payments under your
Employment Agreement and/or Severance Agreement, it will defer commencement
of
those payments until six (6) months after your relationship with NBT Bancorp
Inc. ends. In all other respects, both your Employment Agreement and your
Severance Agreement shall remain in full force and effect.
In
accordance with section 10 of the Employment Agreement and section 10 of the
Severance Agreement, please sign the acknowledgement and agreement set forth
below and return one original to me. The other original is for your
files.
|
Very
truly yours,
|
|||
|
NBT
BANCORP INC.
|
|||
|
By:
|
/S/
Michael J. Chewens
|
||
|
Michael
J. Chewens
|
|||
|
Senior
Executive Vice President
|
|||
|
and
Chief Financial Officer
|
|||
Acknowledged
and Agreed to:
/S/
Daryl
R. Forsythe
Daryl
R.
Forsythe
Chairman
and Chief Executive Officer
Date:
December 19, 2005
Exhibit
10.11
Supplemental
Retirement Agreement between NBT Bancorp Inc., NBT Bank, National Association
and Daryl R. Forsythe as amended and restated effective January 1,
2005.
Supplemental
Retirement Agreement
(as
amended and restated effective January 1 2005)
(Revised)
This
sets
forth the terms of an agreement for the payment of supplemental retirement
income (“Agreement”) made as of January 1, 1995 (and as revised on
April 28, 1998, January 1, 2000, January 1, 2001, August 2,
2003 and again as of January 1, 2005) between (i) NBT
BANCORP INC.,
a
Delaware corporation and a registered bank holding company, and NBT
BANK, NATIONAL ASSOCIATION,
a
national banking association chartered under the laws of the United States,
both
having offices located at Norwich, New York (collectively, the “Bank”), and
(ii) DARYL R.
FORSYTHE,
an
individual residing at 21 Ridgeland Road, Norwich, New York 13815, and
who is a member of a select group of management or highly compensated employees
within the meaning of section 201(2) of the Employee Retirement Income
Security Act of 1974, as amended (“Forsythe”).
1.
Purpose
of the Agreement.
The
purpose of this Agreement is to provide Forsythe a supplemental retirement
benefit in accordance with the terms of this Agreement
2.
Definitions.
For
purposes of this Agreement, the following words shall have the meaning
indicated:
(a)
Actuarial
Equivalent.
“Actuarial Equivalent” shall have the same meaning the term “Actuarial
Equivalent” has under Section 2.03 of Appendix A to the Qualified Plan
(i.e.,
the NBT
BANCORP INC. Defined Benefit Pension Plan, as amended and restated as of October
1, 1989, including amendments adopted through August 31, 1998) using the
following actuarial assumptions:
(i)
Mortality:
“Applicable Mortality Rate” as such term is defined in Section 2.03c of
said Appendix A to the Qualified Plan
(ii)
Interest
Rate:
“Applicable Interest Rate” as such term is defined in Section 2.09b of said
Appendix A to the Qualified Plan
(b)
Beneficiary.
“Beneficiary” shall mean such living person or living persons designated by
Forsythe in accordance with subsection 5(a) herein to receive benefits
under this Agreement after his death, or his personal or legal representative,
all as herein described and provided. Except as provided in subsection 6(b)
herein, if no Beneficiary is designated by Forsythe or if no Beneficiary
survives Forsythe, the Beneficiary shall be Forsythe’s estate.
(c)
Cause.
“Cause”
shall mean Forsythe’s:
(i)
willful or gross misconduct with respect to the business and affairs of the
Bank, or with respect to any of its affiliates for which Forsythe is assigned
material responsibilities or duties;
(ii)
conviction of a felony (after the earlier of the expiration of any applicable
appeal period without perfection of an appeal by Forsythe or the denial of
any
appeal as to which no further appeal or review is available to Forsythe) whether
or not committed in the course of his employment by the Bank;
(iii)
willful neglect, failure, or refusal to carry out his duties under the
Employment Agreement between NBT Bancorp Inc. and Forsythe dated as of
August 2, 2003 (and revised as of January 1. 2005) (the “Employment Agreement”)
in a reasonable manner (other than any such failure resulting from disability
or
death or from termination by Forsythe for Good Reason, as defined in the
Employment Agreement) after a written demand for substantial performance is
delivered to Forsythe that specifically identifies the manner in which the
Bank
believes that Forsythe has not substantially performed his duties and he has
not
resumed substantial performance of his duties on a continuous basis within
thirty days of receiving such demand; or
(iv)
breach of any representation or warranty in section 6(a) of the Employment
Agreement or of any agreement contained in section 1, 4, 5, or 6(b) of the
Employment Agreement, which breach is material and adverse to the Bank or any
of
its affiliates for which Forsythe is assigned material responsibilities or
duties.
(d)
Change
of Control.
“Change
of Control” shall mean a Change in Control as such term is defined in the Change
of Control Agreement between Forsythe and the Bank dated January 1, 2000 (a
revision of the April 28, 1998 and February 21, 1995 agreements).
(e)
Code.
“Code”
shall mean the Internal Revenue Code of 1986, as amended.
(f)
Determination
Date.
“Determination Date” shall mean the date of Forsythe’s retirement as a Full-Time
Employee.
(g)
Final
Average Compensation.
“Final
Average Compensation” shall have the same meaning as the term “Final Average
Compensation” has under Section 2.27 of Appendix A to the Qualified Plan
(i.e.,
the NBT
BANCORP INC. Defined Benefit Pension Plan, as amended and restated as of October
1, 1989, including amendments adopted through August 31, 1998), except that
in
determining the amount of Compensation (as defined in Section 2.14 of said
Appendix A to the Qualified Plan) to be used in calculating Final Average
Compensation under Section 2.27 of said Appendix A to the Qualified Plan,
Compensation shall not be subject to the compensation limitation of section
401(a)(17) of the Code.
(h)
Full-Time
Employee.
“Full-Time Employee” shall mean an employee of the Bank who works not less than
1,000 hours in a calendar year.
(i)
Other
Retirement Benefits.
“Other
Retirement Benefits” shall mean the sum of:
(i)
The
annual benefit payable to Forsythe from the Qualified Plan, plus
(ii)
The
annual benefit that could be provided by (A) Bank contributions (other than
elective deferrals) made on Forsythe’s behalf under the NBT Bancorp Inc.
401(k) and Employee Stock Ownership Plan, and (B) actual earnings on
contributions in (A), if such contributions and earnings were converted to
a
benefit payable at age 65 in the same form as the benefit paid under this
Agreement, using the same actuarial assumptions as are provided under
subsection 2(a).
The
amount of Other Retirement Benefits shall be determined by an actuary selected
by the Bank, with such determination to be made without reduction for payment
of
benefits prior to any stated “normal retirement date” and without regard to
whether Forsythe is receiving payment of such benefits on the Determination
Date.
(j)
Present
Value.
“Present Value” shall mean the present value of a benefit determined on the
basis of the following actuarial assumptions:
(i)
Mortality:
“Applicable Mortality Rate” as such term is defined in Section 2.03c of
Appendix A to the Qualified Plan (i.e.,
the NBT
BANCORP INC. Defined Benefit Pension Plan, as amended and restated as of October
1, 1989, including amendments adopted through August 31, 1998).
(ii)
Interest
Rate:
“Applicable Interest Rate” as such term is defined in Section 2.09b of said
Appendix A to the Qualified Plan.
(k)
Qualified
Plan.
“Qualified Plan” shall mean the NBT BANCORP INC. Defined Benefit Pension
Plan, as amended and restated effective as of January 1, 2000.
(l)
Social
Security Benefit.
“Social
Security Benefit” shall mean Forsythe’s actual social security benefit at his
Social Security Retirement Age.
(i)
Social
Security Retirement Age.
“Social
Security Retirement Age” shall have the same meaning the term “Social Security
Retirement Age” has under Section 2.58 of Appendix A to the Qualified Plan
(i.e.,
the NBT
BANCORP INC. Defined Benefit Pension Plan, as amended and restated as of October
1, 1989, including amendments adopted through August 31, 1998).
(m)
Year
of Service.
“Year
of Service” shall mean a calendar year in which Forsythe completes not less than
1,000 hours of service.
3.
Amount
of Supplemental Retirement Benefit
(a)
Supplemental
Retirement Benefit.
(i)
Amount
Payable as a Cash Benefit.
Upon
Forsythe’s retirement as a Full-Time Employee, the Bank shall pay Forsythe a
Supplemental Retirement Benefit the amount (as apportioned in paragraphs A
and B
below and section 4 herein) of which shall be calculated in accordance with
the
benefit formula set forth in Appendix A attached to this Agreement.
A.
Accrued
Benefit as of December 31, 2004.
Starting from January 1, 1995, Forsythe has continuously accrued a
supplemental cash retirement benefit under pervious versions of the Agreement
through, and including, December 31, 2004 (the “Pre-2005 Accrued Cash
Benefit”). It is the Bank’s intention that the Pre-2005 Accrued Cash Benefit
shall be deemed a “grandfathered” benefit with respect to the application of
section 409A of the Code. The Pre-2005 Accrued Cash Benefit shall be based
on a ratio of a numerator of 10, over a denominator of 13.6667 (equal to
Forsythe’s total years of Full-Time Employee service with the Bank commencing
January 1995, assuming he continues in service until age 65).
B.
Post-2004
Accrual of Benefits.
Starting from January 1, 2005, through and including Forsythe’s retirement
from Full-Time Employee service with the Bank, Forsythe shall continue to accrue
a supplemental cash retirement benefit under the Agreement (the “Post-2004
Accrued Cash Benefit”). The Post-2004 Accrued Cash Benefit shall be subject to
the application of section 409A of the Code. The Post-2004 Accrued Cash
Benefit shall be based on a ratio of a numerator equal to Forsythe’s years of
Full-Time Employee service with the Bank commencing from January 1995 through
Forsythe’s retirement, over a denominator of 13.6667 (equal to Forsythe’s total
years of Full-Time Employee service with the Bank commencing January 1995,
assuming he continues in service until age 65), less the Accrued Benefit as
of
December 31, 2004.
(ii)
Continued
Medical Benefits.
Upon
Forsythe’s retirement, the Bank will continue in force the same level of medical
benefits (including but not limited to medical, dental and vision care) that
were in effect at the time of Executive’s retirement at the same cost sharing as
in effect at the time of Executive’s retirement, for Executive and for his
spouse (if alive) until their deaths. Any subsequent adjustments (including
levels and cost) made to the Bank’s benefit plans shall effect Forsythe is the
same manner as they would had he been employed at the same level as of the
date
of his retirement.
4.
Time
of Payment.
Except
as
provided in section 6 (payment on death), the Bank shall commence payment
of the Pre-2005 Accrued Cash Benefit as of the month immediately following
the
month of Forsythe’s retirement as a Full-Time Employee; provided, however, no
payment of the Post-2004 Accrued Cash Benefit shall commence earlier than the
first day of the seventh (7th)
month
following Forsythe’s “separation from service” as that phrase is defined for
purposes of section 409A of the Code. Forsythe’s continued medical benefits
shall continue in force uninterrupted as stated in paragraph 3(a)(ii)
herein.
5.
Form
of Payment.
(a)
The
Accrued Cash Benefits described in sections 3 and 4 herein shall be paid as
a straight life annuity, payable in monthly installments, for Forsythe’s life;
provided, however, that if Forsythe has no surviving spouse and dies before
having received 60 monthly payments, such monthly payments shall be continued
to
his Beneficiary until the total number of monthly payments to Forsythe and
his
Beneficiary equal 60, whereupon all payments shall cease and the Bank’s
obligation under this Agreement shall be deemed to have been fully discharged.
If Forsythe and his Beneficiary shall die before having received a total of
60
monthly payments, an amount equal to the Actuarial Equivalent of the balance
of
such monthly payments shall be paid in a single sum to the estate of the
survivor of Forsythe and his Beneficiary. If Supplemental Retirement Benefits
are payable in the form described in this subsection 5(a), Forsythe shall
designate in writing, as his Beneficiary, any person or persons, primarily,
contingently or successively, to whom the Bank shall pay benefits following
Forsythe’s death if Forsythe’s death occurs before 60 monthly payments have been
made.
(b)
Notwithstanding the form of payment described in subsection 5(a), if
Forsythe is married on the date payment of the Accrued Cash Benefit commences,
the benefit shall be paid as a 50% joint and survivor annuity with Forsythe’s
spouse as the Beneficiary. The 50% joint and survivor annuity shall be the
Actuarial Equivalent of the benefit described in subsection 5(a). If the
Accrued Cash Benefit is payable pursuant to this subsection 5(b), but
Forsythe’s spouse fails to survive him, no payments will be made pursuant to
this Agreement following Forsythe’s death.
©
Notwithstanding the foregoing provisions of this section 5, the Bank, in
its sole discretion, may accelerate the payment of all or any portion of the
Pre-2005 Accrued Cash Benefit at any time. Any Pre-2005 Accrued Cash Benefit
payment accelerated in accordance with this subsection 5(c) shall be the
Actuarial Equivalent of the payment being accelerated. Except as provided in
subsection 6(b) herein, there shall be no acceleration of the Post-2004 Accrued
Cash Benefit.
6.
Payments
upon Forsythe’s Death.
(a)
Except as provided in subsections 6(b) and (c) and Appendix A section 4, if
Forsythe shall die before his retirement from the Bank, no payment shall be
due
his spouse or estate under this Agreement
(b)
If
Forsythe’s death shall occur after his retirement from the Bank, but before
payment of any Pre-2005 Accrued Cash Benefit has commenced, Forsythe’s surviving
spouse shall be paid as a straight annuity, 50 percent of the total (both
Pre-2005 and Post-2004) Accrued Cash Benefit for her life commencing within
30
days following Forsythe’s death, calculated in accordance with
subsection 3(a). Such payments shall be made in monthly installments,
subject to the right of the Bank to accelerate payment at any time,
notwithstanding subsection 5(c). However, if Forsythe’s spouse fails to
survive him, the Bank shall pay to Forsythe’s estate a lump sum benefit equal to
50 percent of the Present Value of Forsythe’s total Accrued Cash
Benefit.
(c)
Except as otherwise provided in subsection 6(b), no payments shall be made
under this Agreement if Forsythe dies before payment of any Accrued Cash Benefit
begins and his spouse fails to survive him.
(d)
If
Forsythe’s death shall occur after payment of an Accrued Cash Benefit has
commenced, Forsythe surviving spouse or other Beneficiaries shall receive
payments under this Agreement to the extent provided in
section 5.
7.
Forfeiture
for Cause.
Notwithstanding any other provision of this Agreement, if Forsythe’s employment
with the Bank is terminated for Cause, Forsythe and his spouse or other
Beneficiaries shall forfeit all rights to any payment or other benefit under
this Agreement.
8.
Powers.
The
Bank shall have such powers as may be necessary to discharge its duties under
this Agreement, including the power to interpret and construe this Agreement
and
to determine all questions regarding employment, disability status, service,
earnings, income and such factual matters as birth and marital status. The
Bank’s determinations hereunder shall he conclusive and binding upon the parties
hereto and all other persons having or claiming an interest under this
Agreement. The Bank shall have no power to add to, subtract from, or modify
any
of the terms of this Agreement. The Bank’s determinations hereunder shall be
entitled to deference upon review by any court, agency or other entity empowered
to review its decisions, and shall not be overturned or set aside by any court,
agency or other entity unless found to be arbitrary, capricious or contrary
to
law.
9.
Claims
Procedure.
(a)
Any
claim for benefits by Forsythe, his spouse or other Beneficiaries shall be
made
in writing to the Bank. In this section, Forsythe and his Beneficiaries are
referred to as “claimants.”
(b)
If
the Bank denies a claim in whole or in part, it shall send the claimant a
written notice of the denial within 90 days after the date it receives a claim,
unless it needs additional time to make its decision. In that case, the Bank
may
authorize an extension of an additional 90 days if it notifies the claimant
of
the extension within the initial 90-day period. The extension notice shall
state
the reasons for the extension and the expected decision date.
(c)
A
denial notice shall contain:
(i)
The
specific reason or reasons for the denial of the claim;
(ii)
Specific reference to pertinent Agreement provisions upon which the denial
is
based;
(iii)
A
description of any additional material or information necessary to perfect
the
claim, with an explanation of why the material or information is necessary;
and
(iv)
An
explanation of the review procedures provided below.
(d)
Within 60 days after the claimant receives a denial notice, he or she may file
a
request for review with the Bank. Any such request must be made in
writing.
(e)
A
claimant who timely requests review shall have the right to review pertinent
documents, to submit additional information or written comments, and to be
represented.
(f)
The
Bank shall send the claimant a written decision on any request for review within
60 days after the date it receives a request for review, unless an extension
of
time is needed, due to special circumstances. In that case, the Bank may
authorize an extension of an additional 60 days, provided it notifies the
claimant of the extension within the initial 60-day period.
(g)
The
review decision shall contain:
(i)
The
specific reason or reasons for the decision; and
(ii)
Specific reference to the pertinent Agreement provisions upon which the decision
is based.
(h)
If
the Bank does not send the claimant a review decision within the applicable
lime
period, the claim shall be deemed denied on review.
(i)
The
denial notice or, in the case of’ a timely review, the review decision
(including a deemed denial under subsection 9(h)) shall be the Bank’s final
decision.
10.
Assignment.
Neither
Forsythe nor his spouse or other Beneficiaries may transfer his, her or their
right to payments to which he, she or they are entitled under this Agreement.
Except insofar as may otherwise he required by law, any Supplemental Retirement
Benefit payable under this Agreement shall not be subject in any manner to
alienation by anticipation, sale, transfer, assignment, pledge or encumbrance,
nor subject to the debts, contracts, or liabilities of Forsythe or his spouse
or
other Beneficiaries.
11.
Continued
Employment.
This
Agreement shall not be construed as conferring on Forsythe a right to continued
employment with the Bank.
12.
Funding.
(a)
The
Supplemental Retirement Benefit at all times shall he entirely unfunded, and
no
provision shall at any time be made with respect to segregating any assets
of
the Bank for payments of any benefits hereunder, except that in the event of
a
Change of Control, the Bank, within five (5) days of such Change of
Control, shall fund a grantor trust within the meaning of section 671 of
the Code with an amount sufficient to cover all potential liabilities under
this
Agreement.
(b)
Neither Forsythe nor his spouse or other Beneficiaries shall have any interest
in any particular assets of the Bank by reason of the right to receive a benefit
under this Agreement. Forsythe and his spouse or other Beneficiaries shall
have
only the rights of general unsecured creditors of the Bank with respect to
ally
rights under this Agreement.
(c)
Nothing contained in this Agreement shall constitute a guarantee by the Bank
or
any entity or person that tile assets of the Bank will he sufficient to pay
any
benefit hereunder.
13.
Withholding.
Any
payment made pursuant to this Agreement shall be reduced by federal and state
income, FICA or other employee payroll, withholding or other similar taxes
the
Bank may be required to withhold. In addition, as the Accrued Cash Benefit
accrues during Forsythe’s employment with the Bank, the Bank may withhold from
Forsythe’s regular compensation from the Bank any FICA or other employee
payroll, withholding or other similar taxes the Bank may be required to
withhold.
14.
Successors
and Assigns.
This
Agreement shall be binding upon, and shall inure to the benefit of, the
successors and assigns of the Bank.
15.
Applicable
Laws.
This
Agreement shall he construed and administered in accordance with the laws of
the
State of New York, except to the extent preempted by federal
law.
16.
Amendment.
This
Agreement may not be amended, modified or otherwise altered except by written
instrument executed by both parties.
17.
Entire
Agreement.
This
Agreement constitutes the entire agreement and understanding of the parties,
and
supersedes all prior agreements or understanding (whether oral or written)
between the parties relating to deferred compensation and/or supplemental
retirement income.
The
parties hereby execute this Agreement as follows:
NBT
BANCORP INC.
By:
/S/
Michael J. Chewens
Dated:
December 19, 2005
Its:
Secretary
NBT
BANK, NATIONAL ASSOCIATION
By:
/S/
Michael J. Chewens
Dated:
December 19, 2005
Its:
Secretary
Dated:
December 19, 2005
/S/
Daryl
R. Forsythe
DARYL
R. FORSYTHE
APPENDIX
A
(To
The Supplemental Retirement Agreement Amended and Restated as of January 1,
2005)
1.
Supplemental Retirement Benefit Formula for Purposes of Agreement
Section 3.
a.
Amount Payable on and after Age 65. If Forsythe shall remain
employed by the Bank until reaching his 65th birthday, serving as a Full-Time
Employee until such date, and subject to the other terms and conditions of
this
Agreement, the Bank shall pay Forsythe an annual “Supplemental Retirement
Benefit” determined as follows:
i.
On and after Age 65 but before Social Security Retirement Age.
Forsythe shall be entitled to a Supplemental Retirement Benefit on and after
his
65th birthday but before his Social Security Retirement Age in an amount equal
to the excess of (1) 75 percent of Forsythe’s Final Average
Compensation, over (2) Forsythe’s Other Retirement Benefits, determined as
of the Determination Date and calculated in accordance with Agreement subsection
2(i).
ii.
On and after Social Security Retirement Age. Forsythe shall be
entitled to a Supplemental Retirement Benefit on and after his Social Security
Retirement Age in an amount equal to the excess of (1) 75 percent of
Forsythe’s Final Average Compensation, over (2) the sum of
(aa) Forsythe’s Other Retirement Benefits, determined as of the
Determination Date and calculated in accordance with Agreement
subsection 2(i), plus (bb) Forsythe’s Social Security
Benefit.
b.
Amount Payable on and after Age 56 but before Age 60.
If Forsythe shall remain employed by the Bank until reaching his 56th birthday,
serving as a Full-Time Employee until such date and he continues to serve as
a
Full-Time Employee until the date of his retirement, and he retires then or
thereafter but before reaching his 60th birthday, and subject to the other
terms
and conditions of the Agreement, the Bank shall pay Forsythe on his 60th
birthday, pursuant to Appendix section 3, or to his spouse or other Beneficiary,
pursuant and subject to Appendix section 4 if he has died before his 60th
birthday, a reduced early Supplemental Retirement Benefit calculated in
accordance with Appendix section 2 and the following schedule;
i.
If the
date of Forsythe’s retirement shall be on or after his 56th birthday but before
his 57th birthday, the Bank shall pay Forsythe 20% of the reduced early
Supplemental Retirement Benefit so calculated;
ii.
If
the date of Forsythe’s retirement shall be on or after his 57th birthday but
before his 58th birthday, the Bank shall pay Forsythe 40% of the reduced early
Supplemental Retirement Benefit so calculated;
iii.
If
the date of Forsythe’s retirement shall be on or after his 58th birthday but
before his 59th birthday, the Bank shall pay Forsythe 60% of the reduced early
Supplemental Retirement Benefit so calculated; and
iv.
if
the date of Forsythe’s retirement shall be on or after his 59th birthday but
before his 60th birthday, the Bank shall pay Forsythe 80% of the reduced early
Supplemental Retirement Benefit so calculated.
c.
Amount Payable on and after Age 60 but before Age 65.
If Forsythe shall remain employed by the Bank until reaching his 60th birthday,
serving as a Full-Time Employee until such date and he continues to serve as
a
Full-Time Employee until the date of his retirement, and he retires then or
thereafter but before reaching his 65th birthday, and subject to the other
terms
and conditions of this Agreement, the Bank shall pay Forsythe a reduced early
Supplemental Retirement Benefit calculated in accordance with Appendix section
2
except that at age 62 the amount shall not be less than an amount equal to
the excess of (A) 65% of Forsythe’s Final Average Compensation over
(B) Forsythe’s Other Retirement Benefits determined as of the Determination
Date and calculated in accordance with Agreement section 2(i).
2.
Early Supplemental Retirement Benefit. If the Bank commences
payment of a reduced early Supplemental Retirement Benefit before Forsythe
reaches age 65, the amount paid shall equal the product of (i) the
Supplemental Retirement Benefit, as calculated under Appendix section 1(a)(i),
times (ii) a fraction, the numerator of which shall be the number of
complete months of Forsythe’s employment with the Bank after
January 1, 1995, and the denominator of which is 164 (the number of
complete months of employment Forsythe would have had after
January 1, 1995 if he remained employed by the Bank until the first
day of the month following his 65th birthday).
3.
Payment. Subject only to the section 409A of the Code rules
regarding distribution of any portion of the Post-2004 Accrued Cash Benefit,
the
Bank shall commence payment of a reduced early Supplemental Retirement Benefit
on the first day of the month following Forsythe’s Determination Date in
connection with early retirement after reaching age 60 and prior to the date
of
his 65th
birthday; provided that, if Forsythe shall retire prior to his 60th
birthday
as permitted in this Agreement, the Bank shall commence payment of the reduced
early Supplemental Retirement Benefit on the first day of the month following
Forsythe’s 60th
birthday.
4.
Death. If Forsythe dies before his 60th
birthday
and on or after his 56th
birthday, before payment of any Supplemental Retirement Benefit has commenced,
Forsythe’s surviving spouse shall be paid, in monthly installments, as a
straight life annuity, 50 percent of such Supplemental Retirement Benefit for
her life commencing within 30 days following Forsythe’s death, calculated in
accordance with Appendix subsection 1(b) and, if such death occurs while
Forsythe is employed by the Bank, as if he had retired on the day before his
death, subject to the right of the Bank to accelerate such payments as provided
in Agreement subsection 5(c). However, if Forsythe’s spouse fails to survive
him, the Bank shall pay to Forsythe’s estate a lump sum benefit equal to 50
percent of the Present Value of Forsythe’s Supplemental Retirement Benefit,
calculated as provided in the preceding sentence.
Exhibit
10.12
Death
Benefits Agreement between NBT Bancorp Inc., NBT Bank, National Association
and
Daryl R. Forsythe made August 22, 1995.
DEATH
BENEFITS AGREEMENT
THIS
AGREEMENT, made and entered into this 22nd day of August, 1995, by and among
NBT
Bancorp Inc., a Delaware corporation and registered bank holding company, and
NBT Bank, National Association, a national banking association organized under
the laws of the United States (hereinafter referred to collectively as the
"Bank") and Daryl R. Forsythe, an individual residing at 13 Concord Street,
Sidney, New York, NY 13838 (hereinafter referred to as the "Employee").
WHEREAS,
the Bank has retained the Employee as its president and chief executive officer;
and
WHEREAS,
the Bank is desirous of retaining the services of the Employee; and
WHEREAS,
the Bank is desirous of assisting the Employee in carrying life insurance on
his
life; and
WHEREAS,
the Bank has determined that its interests can best be served under a
"split-dollar" arrangement; and
WHEREAS,
the Bank and the Employee have applied for Insurance Policy No. 8876212 (the
"Policy") issued by the New England Mutual Life Insurance Company ("The New
England") in the face amount of $800,000 on the
Employee's
life; and
WHEREAS,
the Bank and the Employee agree to make said insurance policy subject to this
split-dollar agreement; and
WHEREAS,
it is now understood and agreed that this split-dollar agreement is to be
effective as of the date on which the Policy was issued by The New England.
NOW,
THEREFORE, for value received and in consideration of the mutual covenants
contained herein, the parties agree as follows:
ARTICLE
I
- DEFINITIONS
For
purposes of this Agreement, the following terms will have the meanings set
forth
below:
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1.
|
"Cash
Surrender Value of the Policy" will mean the Cash Value of the Policy,
plus the cash value of any paid-up additions, plus any dividend
accumulations and unpaid dividends, and less any Policy Loan Balance.
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|
2.
|
"Cash
Value of the Policy" will mean the cash value as illustrated in the
table
of values shown in the Policy.
|
|
3.
|
"Bank's
Interest in the Policy" will be defined in Article VII.
|
|
4.
|
"Current
Loan Value of the Policy" will mean the Loan Value of the Policy
reduced
by any outstanding Policy Loan Balance.
|
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5.
|
"Loan
Value of the Policy" will mean the amount which together with loan
interest will equal the Cash Value of the Policy and of any paid-up
additions on the next loan interest due date or on the next premium
due
date, whichever is the smaller amount.
|
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6.
|
"Policy
Loan Balance" at any time will mean policy loans outstanding plus
interest
accrued to date.
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ARTICLE
II - ALLOCATION OF PREMIUMS
The
Bank
will pay all premiums on the Policy when due.
ARTICLE
III - WAIVER OF PREMIUMS RIDER
The
Bank
has added a rider to the Policy providing for the waiver of premiums in the
event of the Employee's disability. Any additional premium attributable to
such
rider will be payable by the Bank.
ARTICLE
IV - OTHER RIDERS AND SUPPLEMENTAL AGREEMENTS
Should
the parties to this Agreement deem it desirable, the Bank will add to the Policy
one or more of such other riders and supplemental agreements which may be
available from The New England from time to time. Any additional premium
attributable to any such rider or supplemental agreement will be payable by
the
Bank. Notwithstanding the provisions of Article VIII, any additional death
benefits provided by such rider or supplemental agreement will be paid to the
Bank, unless otherwise agreed to by the parties at the time of the adoption
of
the particular rider or supplemental agreement.
ARTICLE
V
- PAYMENT OF PREMIUMS
Any
premium or portion thereof which is payable by the Employee under any Article
of
this Agreement may at the election of the Employee be deducted from the cash
compensation otherwise payable to him, and the Bank agrees to transmit that
premium or portion, along with any premium or portion thereof payable by it,
to
The New England on or before the premium due date.
ARTICLE
VI - APPLICATION OF POLICY DIVIDENDS
All
dividends attributable to the Policy will be to provide paid-up additional
insurance.
-2-
ARTICLE
VII - RIGHTS IN THE POLICY
The
Employee will have the sole right to designate the beneficiary of the death
proceeds of the Policy in excess of the Bank's Interest in the Policy. The
Bank
will have and may exercise, except as limited hereinafter, all ownership rights
in the Policy. The Bank will not surrender the policy for cancellation except
upon expiration of the thirty (30) day period described in Article X. The Bank
will not without the written consent of the Employee assign its rights in the
Policy, other than for the purposes of obtaining a loan against the Policy,
to
anyone other than the Employee. The Bank will not take any action dealing with
The New England that would impair any right or interest of the Employee in
the
Policy. The Bank will have the right to borrow from The New England and to
secure that loan by the Policy, an amount which, together with the unpaid
interest accrued thereon, will at no time exceed the lesser of (a) the Bank's
Interest in the Policy or (b) the Loan Value of the Policy. "Bank's Interest
in
the Policy" will mean, at any time at which the value of such interest is to
be
determined under this Agreement, the Cash Surrender Value of the Policy at
such
time.
ARTICLE
VIII - RIGHTS TO THE PROCEEDS AT DEATH
In
the
event of the Employee's death while this Agreement is in force, the beneficiary
designated by the Employee will receive $600,000 from the Policy proceeds.
The
Bank will receive the remainder of the Policy proceeds.
ARTICLE
IX - TERMINATION OF AGREEMENT
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1.
|
This
Agreement may be terminated at any time while the Employee is living
by
written notice thereof by either the Bank or the Employee to the
other;
and, in any event, this Agreement will terminate upon termination
of the
Employee's employment.
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2.
|
In
the event of the Employee's total disability, as defined in the rider,
which begins while the Employee is employed, while the rider is in
force,
and which continues for at least six months, the benefits provided
under
this Agreement will continue until midnight before the Employee's
65th
birthday. If at any time following the initial six month period of
disability as defined in the rider The New England stops waiving
premiums,
then Section 1 of this Article will again be applicable.
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ARTICLE
X
- EMPLOYEE RIGHTS UPON TERMINATION
Upon
termination of the Agreement, the Employee will transfer all of his right,
title
and interest in the Policy to the Bank, by executing such documents as are
necessary to transfer such right, title and interest as of the date of
termination. The Bank will thereafter be able to deal with the Policy in any
way
it may see fit.
-3-
ARTICLE
XI - PLAN MANAGEMENT
For
purposes of the Employee Retirement Income Security Act of 1974 ("ERISA"),
the
Bank will be the "Named Fiduciary" and "Plan Administrator" of the split dollar
life insurance plan (the "Plan") for which this Agreement is hereby designated
the written plan instrument. The Bank's board of directors may authorize a
person or group of persons to fulfill the responsibilities of the Bank as Plan
Administrator. The Named Fiduciary or the Plan Administrator may employ others
to render advice with regard to its responsibilities under this Plan. The Named
Fiduciary may also allocate fiduciary responsibilities to others and may
exercise any other powers necessary for the discharge of its duties to the
extent not in conflict with ERISA.
ARTICLE
XII - CLAIMS PROCEDURE
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1.
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Filing
Claims: Any insured, beneficiary or other individual (hereinafter
"Claimant") entitled to benefits under the Plan or under the Policy
will
file a claim request with the Plan Administrator with respect to
benefits
under the Plan with The New England with respect to benefits under
the
Policy. The Plan Administrator will, upon written request of the
Claimant,
make available copies of any claim forms or instructions provided
by The
New England or advise the Claimant where such forms or instructions
may be
obtained.
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|
2.
|
Notification
to Claimant: If a claim is wholly or partially denied, the Plan
Administrator will furnish to the Claimant a notice of the decision
within
ninety (90) days in writing and in a manner calculated to be understood
by
the Claimant, which notice will contain the following information:
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|
(a)
|
The
specific reason or reasons for the denial;
|
|
(b)
|
Specific
reference to pertinent Plan provisions upon which the denial is based;
|
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(c)
|
A
description of any additional material or information necessary for
the
Claimant to perfect the claim and an explanation of why such material
or
information is necessary; and
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(d)
|
An
explanation of the Plan's claims review procedure describing the
steps to
be taken by a Claimant who wishes to submit his claim for review.
|
In
the
case of benefits which are provided under the Policy, the initial decision
on
the claims will be make by The New England.
|
3.
|
Review
Procedure: A Claimant or his authorized representative may with respect
to
any denied claim:
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|
(a)
|
Request
a review upon written application filed within sixty (60) days after
receipt by the Claimant of written notice of the denial of his claim;
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-4-
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(b)
|
Review
pertinent documents; and
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|
(c)
|
Submit
issues and comments in writing.
|
Any
request or submission will be in writing and will be directed to the Named
Fiduciary (or its designee). The Named Fiduciary (or its designee) will have
the
sole responsibility for the review of any denied claim and will take all steps
appropriate in the light of its findings.
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4.
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Decision
on Review: The Named Fiduciary (or its designee). The Named Fiduciary
(or
its designee) will render a decision upon review. If special circumstances
(such as the need to hold a hearing or any matter pertaining to the
denied
claim) warrant additional time, the decision will be rendered as
soon as
possible, but not later than one hundred twenty (120) days after
receipt
of the request for review. Written notice of any such extension will
be
furnished to the Claimant prior to the commencement of the extension.
The
decision on review will be in writing and will include specific reasons
for the decision, written in a manner calculated to be understood
by the
Claimant, as well as specific references to the pertinent provisions
of
the Plan on which the decision is based. If the decision on review
is not
furnished to the Claimant with the time limits prescribed above,
the claim
will be deemed denied on review.
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ARTICLE
XIII - SATISFACTION OF CLAIM
The
Employee agrees that his rights and interests, and the rights and interests
of
any persons taking under or through him, will be completely satisfied upon
compliance by the Bank with the provisions of this Agreement.
ARTICLE
XIV - AMENDMENT AND ASSIGNMENT
This
Agreement may be altered, amended or modified, including the addition of any
extra policy provisions, by a written instrument signed by the Bank and the
Employee. Either party may, subject to the limitations of Article VII, assign
its interests and obligations under this Agreement, provided, however, that
any
assignment will be subject to the terms of this Agreement.
ARTICLE
XV - POSSESSION OF POLICY
The
Bank
will keep possession of the Policy. The Bank agrees from time to time to make
the Policy available to the Employee or to The New England for the purpose
of
endorsing or filing any change of beneficiary on the Policy for that portion
of
the death proceeds in excess of the Bank's Interest in the Policy as provided
in
Article VII, but the Policy will promptly be returned to the Bank.
ARTICLE
XVI - GOVERNING LAW
This
Agreement sets forth the entire agreement of the parties hereto, and any and
all
prior agreements, to the extent inconsistent herewith, are hereby superseded.
-5-
This
Agreement will be governed by the laws of the State of New York.
ARTICLE
XVII - INTERPRETATION
Where
appropriate in this Agreement, words used in the singular will include the
plural and words used in the masculine will include the feminine.
IN
WITNESS WHEREOF, the parties have hereunto set their hands and seals, the Bank
by its duly authorized officer, on the day and year first written above.
EMPLOYEE
/s/Daryl
R. Forsythe (L.S.)
Daryl
R.
Forsythe
NBT
Bancorp Inc.
/s/Everett
A. Gilmour (L.S.)
By
Its
Chairman of Board
NBT
Bank,
National Association
/s/Paul
O. Stillman (L.S.)
By
Its
Compensation Committee Chairman
-6-
Exhibit
10.15
Form
of
Employment Agreement between NBT Bancorp Inc. and Martin A. Dietrich made as
of
January 1, 2005.
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this first day
of
January 2005, 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 executive officer of NBT Bank,
National Association, a wholly-owned subsidiary of NBTB ("NBT Bank"), as
president of NBTB from January 1, 2005 to December 31, 2005 and then as
president and chief executive officer of NBTB as of January 1, 2006. Further,
Executive will 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 agree-ments
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 Employ-ment, 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 invest-ments, and (iii) with the prior permis-sion of the chairman
of
the board of
NBTB,
hold such other director-ships 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 com-mencing on
the
date of this Agreement (the "Commence-ment Date") and continuing until the
Termination Date, which shall mean the earliest to occur of:
(i) the
fifth
anniversary of the Commencement Date, unless the Term of Employment shall be
extended by mutual agreement of the parties;
(ii) the
death
of Executive;
(iii) Executive's
inability to perform his duties hereunder, as a result of physical or mental
disability as reasonably determined by the personal physician of Executive,
for
a period of at least 180 consecutive days or for at least 180 days during any
period of twelve consecutive months during the Term of Employment;
or
(iv) the
discharge of Executive by NBTB "for cause," which shall mean one or more of
the
following:
(A) any
willful or gross misconduct by Executive with respect to the business and
affairs of NBTB or 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 speci-fically 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 representa-tion 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 responsibili-ties or duties; or
(v) Executive's
resignation from his position as president and chief operating officer of NBT
Bank other than for "Good Reason," as hereinafter defined; or
(vi) the
termination of Executive's employment by NBTB "without cause," which shall
be
for any reason other than those set forth in subsections (i), (ii), (iii),
(iv),
or (v) of this section 2(a), at any time, upon the thirtieth day following
notice to Executive; or
(vii) Executive's
resignation for "Good Reason."
"Good
Reason" shall mean, without Executive's express written consent, reassignment
of
Executive to a position other than as president and chief operating officer
of
NBT Bank other than for "Cause," or a decrease in the amount or level of
Executive's salary or benefits from the amount or level established in section
3
hereof.
(b) In
the
event that the Term of Employment shall be terminated for any reason other
than
that set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive shall be
entitled to receive, upon the occur-rence 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 arrange-ments 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 immedi-ately
following the Termi-na-tion Date and ending upon and including the latest of
the
fifth anniversary of the Commence-ment Date or the third 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 Termina-tion
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
plus improvements, 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) 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:
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(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
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(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.
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(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) 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 plus improvements,
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:
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(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
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(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.
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3. Compensation.
For the
services to be performed by Executive for NBTB and its affiliates under this
Agreement, Executive shall be compensated in the following manner:
(a) Salary.
During
the Term of Employment:
(i) NBTB
shall pay Executive a salary, which, on an annual basis, shall be $350,000.
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 and in line with comparable compensation
for
positions in companies of similar size and structure, 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 Employ-ment, 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
dismember-ment insurance, provided that there be no duplication of such benefits
as are provided under any other provision of this Agree-ment.
(c) Stock
Options and NBT Performance Share Plan.
Each
January or February annually during the Term of Employ-ment, 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 reimburse-ment of
expenses for business use in accordance with section 3(h).
(f) Country
Club Dues.
During
the Term of Employment, Executive shall be reimbursed for dues and assessments
incurred in relation to Executive's membership at a country club mutually agreed
upon by NBTB and the Executive.
(g) Withholding.
All
compensation to be paid to Executive hereunder shall be subject to required
withholding and other taxes.
(h) Expenses.
During
the Term of Employment, Executive shall be reim-bursed 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 informa-tion of NBTB or its affiliates or are
en-trusted to third parties. Such confidential information includes but is
not
limited to procedures, methods, sales relation-ships developed while in the
service of NBTB or its affiliates, knowledge of customers and their
require-ments, marketing plans, marketing information, studies, forecasts,
and
surveys, competitive analyses, mailing and marketing lists, new business
proposals, lists of vendors, consul-tants, and other persons who render service
or provide material to NBTB or NBT Bank or their affiliates, and composi-tions,
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
informa-tion 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 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 (or its
affiliates) in its discretion may apply for and procure as owner and for its
own
benefit insurance on the life of Executive, in such amount and in such form
as
NBTB may choose. NBTB shall make all payments for such insurance and shall
receive all benefits from it. Executive shall have no interest whatsoever in
any
such policy or policies but, at the request of NBTB, shall submit to medical
examinations and supply such information and execute such documents as may
reasonably be required by the insurance company or companies to which NBTB
has
applied for insurance.
6. Representations
and Warranties.
(a) Executive
represents and warrants to NBTB that his execution, delivery, and performance
of
this Agreement will not result in or constitute a breach of or conflict with
any
term, covenant, condition, or provision of any commitment, contract, or other
agreement or instrument, including, without limitation, any other employment
agreement, to which Executive is or has been a party.
(b) Executive
shall indemnify, defend, and hold harmless NBTB for, from, and against any
and
all losses, claims, suits, damages, expenses, or liabilities, including court
costs and counsel fees, which NBTB has incurred or to which NBTB may become
subject, insofar as such losses, claims, suits, damages, expenses, liabilities,
costs, or fees arise out of or are based upon any failure of any represen-tation
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
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Attention:
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Mr.
Daryl R. Forsythe, Chairman
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With
a
required copy to:
NBT
Bancorp Inc. Corporate Counsel
If
to
Executive:
Mr.
Martin A. Dietrich
122
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 obliga-tions 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 jurisdic-tion and venue for any suit or action arising out
of
this Agree-ment. Each of the parties consents to personal jurisdic-tion 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 trans-actions contem-plated thereby
by certified or regis-tered 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 uncon-ditionally 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 under-stand-ings
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 instru-ment 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 unenforce-able 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 contain-ing any such provision held to be invalid, illegal, or
unenforce-able) 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' experi-ence in resolving commercial disputes through
arbitration. In the event any claim or dispute involves an amount in excess
of
$100,000, either party may request that the matter be heard by a panel of three
arbitrators; otherwise all matters subject to arbitration shall be heard and
resolved by a single arbitrator. The arbitrator shall have the same power to
compel the attendance of witnesses and to order the production of documents
or
other materials and to enforce discovery as could be exercised by a United
States District Court judge sitting in the Northern District of New York. In
the
event of any arbitration, each party shall have a reasonable right to conduct
discovery to the same extent permitted by the Federal Rules of Civil Procedure,
provided that such discovery shall be concluded within ninety days after the
date the matter is set for arbitration. In the event of any arbitration, the
arbitrator or arbitrators shall have the power to award reasonable attorney's
fees to the prevailing party. Any provision in this Agreement to the contrary
notwithstanding, this section shall be governed by the Federal Arbitration
Act
and the parties have entered into this Agreement pursuant to such
Act.
13. Costs
of Litigation.
In the
event litigation is commenced to enforce any of the provisions hereof, or to
obtain declaratory relief in connection with any of the provisions hereof,
the
prevailing party shall be entitled to recover reasonable attorney's fees. In
the
event this Agreement is asserted in any litigation as a defense to any
liability, claim, demand, action, cause of action, or right asserted in such
litigation, the party prevailing on the issue of that defense shall be entitled
to recovery of reasonable attorney's fees.
14. Affiliation.
A
company will be deemed to be "affiliated" with NBTB or NBT Bank according to
the
definition of "Affiliate" set forth in Rule 12b-2 of the General Rules and
Regulations under the Securi-ties 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.
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NBT
BANCORP INC.
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By:
|
/S/
Daryl R. Forsythe
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||
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Daryl
R. Forsythe
|
|||
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Chairman
and Chief Executive Officer
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|||
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MARTIN
A. DIETRICH
|
|||
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/S/
Martin A. Dietrich
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Exhibit
10.18
Form
of
Employment Agreement between NBT Bancorp Inc. and Michael J. Chewens made as
of
January 1, 2005.
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT
AGREEMENT
(the
"Agreement") made and entered into as of the first day of January
2005,
by and
between MICHAEL J. CHEWENS ("Executive") and NBT BANCORP INC., a Delaware
corporation having its principal office in Norwich, New York
("NBTB")
W
I T N E S S E T H T H A T :
WHEREAS,
Executive is an senior executive vice president and the chief financial officer
of NBTB and NBT Bank, National Association, a national banking association
which
is a wholly-owned subsidiary of NBTB ("NBT Bank");
WHEREAS,
NBTB desires to secure the continued employment of Executive, subject to the
provisions of this Agreement; and
WHEREAS,
Executive is desirous of entering into the Agreement for such periods and upon
the terms and conditions set forth herein;
NOW,
THEREFORE, in consideration of the premises and mutual covenants and agreements
hereinafter set forth, intending to be legally bound, the parties agree as
follows:
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1.
|
Employment;
Responsibilities and Duties.
|
(a) NBTB
hereby agrees to employ Executive and to cause NBT Bank and any successor
organization to NBT Bank to employ Executive, and Executive hereby agrees to
serve as a senior executive vice president and the chief financial officer
of
NBTB and NBT Bank, and of any successor organization to NBTB or NBT Bank, as
applicable, during the Term of Employment. Executive shall have such executive
duties, responsibilities, and authority as shall be set forth in the bylaws
of
NBTB and NBT Bank or as may otherwise be determined by NBTB. During the Term
of
Employment, Executive shall report directly to the chief executive officer
of
NBTB.
(b) Executive
shall devote his full working time and best efforts to the performance of his
responsibilities and duties hereunder. During the Term of Employment, Executive
shall not, without the prior written consent of the chief executive officer
of
NBTB, render services as an employee, independent contractor, or otherwise,
whether or not compensated, to any person or entity other than NBTB or its
affiliates; provided that Executive may, where involvement in such activities
does not individually or in the aggregate significantly interfere with the
performance by Executive of his duties or violate the provisions of section
4
hereof, (i) render services to charitable organizations, (ii) manage his
personal investments, and (iii) with the prior permission of the chief executive
officer of NBTB,
hold
such other directorships or part-time academic appointments or have such other
business affiliations as would otherwise be prohibited under this section
1.
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2.
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Term
of Employment.
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(a) The
term
of this Agreement ("Term of Employment") shall be the period commencing on
the
date of this Agreement (the "Commencement Date") and continuing until the
Termination Date, which shall mean the earliest to occur of:
(i) January
1, 2008, provided, however, that on January 1, 2006 and on each January 1
thereafter, the Term of Employment shall be extended by one additional
year;
(ii) the
death
of Executive;
(iii)
Executive's
inability to perform his duties hereunder, as a result of physical or mental
disability as reasonably determined by the personal physician of Executive,
for
a period of at least 180 consecutive days or for at least 180 days during any
period of twelve consecutive months during the Term of Employment;
or
(iv)
the
discharge of Executive by NBTB "for cause," which shall mean one or more of
the
following:
(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 senior executive vice president and chief
financial officer of NBTB or NBT Bank other than for "Good Reason," as
hereinafter defined; or
(vi) the
termination of Executive's employment by NBTB "without cause," which shall
be
for any reason other than those set forth in subsections (i), (ii), (iii),
(iv),
or (v) of this section 2(a), at any time, upon the thirtieth day following
notice to Executive; or
(vii) Executive's
resignation for "Good Reason."
"Good
Reason" shall mean, without Executive's express written consent, reassignment
of
Executive to a position other than senior executive
vice president and chief financial officer of NBTB or NBT Bank other than for
"Cause," or a decrease in the amount or level of Executive's salary or benefits
from the amount or level established in section 3 hereof.
(b) In
the
event that the Term of Employment shall be terminated for any reason other
than
that set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive shall be
entitled to receive, upon the occurrence of any such event:
(i) any
salary (as hereinafter defined) payable pursuant to section 3(a)(i) hereof
which
shall have accrued as of the Termination Date; and
(ii) such
rights as Executive shall have accrued as of the Termination Date under the
terms of any plans or arrangements in which he participates pursuant to section
3(b) hereof, any right to reimbursement for expenses accrued as of the
Termination Date payable pursuant to section 3(g) hereof, and the right to
receive the cash equivalent of paid annual leave and sick leave accrued as
of
the Termination Date pursuant to section 3(d) hereof, and
(c) In
the
event that the Term of Employment shall be terminated for the reason set forth
in section 2(a)(vi) or 2(a)(vii) hereof, Executive shall be entitled to
receive:
(i) any
salary payable pursuant to section 3(a)(i) hereof which shall have accrued
as of
the Termination Date, and, for the period commencing on the date immediately
following the Termination Date and ending upon and including the latest of
the
third anniversary of the Commencement Date or the date to which the Term of
Employment shall (as of the Termination Date) have automatically extended itself
under section 2(a)(i) hereof, salary payable at the rate established pursuant
to
section 3(a)(i) hereof, in a manner consistent with the normal payroll practices
of NBTB with respect to executive personnel as presently in effect or as they
may be modified by NBTB from time to time;
(ii) such
rights as Executive may have accrued as of the Termination Date under the terms
of any plans or arrangements in which he participates pursuant to section 3(b)
hereof, any right to reimbursement for expenses accrued as of the Termination
Date payable pursuant to section 3(g) hereof, and the right to receive the
cash
equivalent of paid annual leave and sick leave accrued as of the Termination
Date pursuant to section 3(d) hereof; and
(iii)
if,
within eighteen (18) months following the Termination Date, Executive should
sell his principal residence in the Binghamton Rand McNally Metropolitan Area
as
determined by Rand McNally & Company (the "Binghamton RMA") and relocate to
a place outside of the Binghamton RMA, (A) reimbursement for any shortfall
between the net proceeds on the sale of his principal residence and the purchase
price plus improvements, including direct, necessary and reasonable transaction
costs incurred in connection with such purchase, as determined by the
controller’s division of NBT Bank, for such residence, and including direct,
necessary and reasonable expenses, as determined by the finance division of
NBT
Bank, incurred to prepare the residence for sale, (B) reimbursement for direct,
necessary and reasonable expenses, as determined by the finance division of
NBT
Bank, incurred in connection with the sale of such residence not already
included as part of the reimbursement under (A) above, and (C) an amount
necessary to pay all federal, state and local income taxes resulting from any
reimbursement made pursuant to (A) and (B) (including any additional federal,
state and local income taxes resulting from the payment hereunder of such
taxes), the intent being that Executive shall be paid an additional amount
(the
“Gross-Up”) such that the net amount retained by the Executive, after deduction
of such federal, state and local income taxes resulting from the reimbursement
under (A) and (B) shall be equal to the amount of the reimbursement under (A)
and (B) before payment of such taxes; for purposes of determining the amount
of
the Gross-Up, Executive shall be deemed to pay federal, state and local income
taxes at the highest marginal rate of taxation in effect in the calendar year
in
which the reimbursement is made. Amounts due under this subsection shall be
paid
as soon as administratively practicable, but in no event later than ninety
(90)
days after the date of the sale of Executive’s principal residence.
Notwithstanding
the foregoing, in the event the Executive is reimbursed, entitled to
reimbursement, or is paid any amounts by an entity or entities other than NBTB
or NBT Bank of any affiliate or successor thereof (the “Third Party”), for any
amounts for which Executive has received, or is entitled to receive,
reimbursement under (A) or (B) above with respect to the sale of his principal
residence or any Gross-Up under (C) above, the Executive agrees:
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(3)
|
with
regard to amounts already paid by NBTB or NBT Bank or any affiliate
or
successor thereof (hereinafter referred to collectively as the “Company”),
the Executive shall notify the Company of all amounts received or
due from
the Third Party, and shall reimburse the Company in an amount equal
to the
amount so received or due from the Third Party up to the amount the
Company paid to the Executive under (A), (B), and (C) above;
and
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(4)
|
with
regard to amounts due but not yet paid by the Company to the Executive,
the Executive shall notify the Company of any amounts received or
due from
the Third Party, and the Executive agrees that the Company shall
reduce
the amount due under (A), (B), and (C) above by the amount the Executive
has been paid or is entitled to be paid by the Third Party up to
the
amount due the Executive from the
Company.
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(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) hereof, and the right to
receive the cash equivalent of paid annual leave and sick leave accrued as
of
the Termination Date pursuant to section 3(d) hereof;
(iii) the
severance payment and other benefits provided in the Change- in-Control
Agreement; and
(iv) if,
within eighteen (18) months following the Termination Date, Executive should
sell his principal residence in the Binghamton RMA and relocate to a place
outside of the Binghamton RMA, (A) reimbursement for any shortfall between
the
net proceeds on the sale of his principal residence and the purchase price
plus
improvements, including direct, necessary and reasonable transaction costs
incurred in connection with such purchase, as determined by the finance division
of NBT Bank, for such residence, and including direct, necessary and reasonable
expenses, as determined by the controller’s division of NBT Bank, incurred to
prepare the residence for sale, (B) reimbursement for direct, necessary and
reasonable expenses, as determined by the finance division
of NBT Bank, incurred in connection with the sale of such residence not already
included as part of the reimbursement under (A) above, and (C) the Gross-Up,
the
intent being that the net amount retained by the Executive, after deduction
of
such federal, state and local income taxes resulting from the reimbursement
under (A) and (B) shall be equal to the amount of the reimbursement under (A)
and (B) before payment of such taxes; for purposes of determining the amount
of
the Gross-Up, Executive shall be deemed to pay federal, state and local income
taxes at the highest marginal rate of taxation in effect in the calendar year
in
which the reimbursement is made. Amounts due under this subsection shall be
paid
as soon as administratively practicable, but in no event later than ninety
(90)
days after the date of the sale of Executive’s principal
residence.
Notwithstanding
the foregoing, in the event the Executive is reimbursed, entitled to
reimbursement, or is paid any amounts by a Third Party, for any amounts for
which Executive has received, or is entitled to receive, reimbursement under
(A)
or (B) above with respect to the sale of his principal residence or any Gross-Up
under (C) above, the Executive agrees:
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(3)
|
with
regard to amounts already paid by the Company, the Executive shall
notify
the Company of all amounts received or due from the Third Party,
and shall
reimburse the Company in an amount equal to the amount so received
or due
from the Third Party up to the amount the Company paid to the Executive
under (A), (B), and (C) above; and
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(4)
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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.
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3. Compensation.
For the
services to be performed by Executive for NBTB and its affiliates under this
Agreement, Executive shall be compensated in the following manner:
(a) Salary.
During
the Term of Employment:
(i) NBTB
shall pay Executive a salary, which, on an annual basis, shall be $271,600.00
commencing on January 1, 2005. Salary commencing on January 1, 2006 will be
negotiated between Executive and the CEO of NBTB based on recommendations from
the Compensation and Benefits Committee and in line with compensation for
comparable positions in companies of similar size and structure, but in no
case
less than $271,600.00.
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 NBTB 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 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, 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, model, and year of which
automobile shall be appropriate to an officer of Executive's rank and which
will
be replaced every two years (or earlier if the accumulated mileage exceeds
50,000 miles). Executive shall be responsible for all expenses of ownership
and
use of any such
automobile, subject to reimburse-ment of expenses for business use in accordance
with section 3(h).
(f) Country
Club Dues.
During
the Term of Employment, Executive shall be reimbursed for dues and assessments
incurred in relation to Executive's membership at a country club mutually agreed
upon by the chief executive officer of NBTB and the Executive.
(g) Withholding.
All
compensation to be paid to Executive hereunder shall be subject to required
withholding and other taxes.
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(h)
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Expenses.
During the Term of Employment, Executive shall
be
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reimbursed
for reasonable travel and other expenses incurred or paid by Executive in
connection with the performance of his services under this Agreement, upon
presentation of expense statements or vouchers or such other supporting
information as may from time to time be requested, in accordance with such
policies of NBTB as are in effect as of the Commencement Date and as may be
modified by NBTB from time to time, under such terms as may be applicable to
officers of Executive's rank employed by NBTB or its affiliates.
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4.
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Confidential
Business Information; Non-Competition.
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(a)
|
Executive
acknowledges that certain business methods, creative techniques,
and
technical data of NBTB and its affiliates and the like are deemed
by NBTB
to be and are in fact confidential business information of NBTB or
its
affiliates or are entrusted to third parties. Such confidential
information includes but is not limited to procedures, methods, sales
relationships developed while in the service of NBTB or its affiliates,
knowledge of customers and their requirements, marketing plans, marketing
information, studies, forecasts, and surveys, competitive analyses,
mailing and marketing lists, new business proposals, lists of vendors,
consultants, and other persons who render service or provide material
to
NBTB or NBT Bank or their affiliates, and compositions, ideas, plans,
and
methods belonging to or related to the affairs of NBTB or NBT Bank
or
their affiliates. In this regard, NBTB asserts proprietary rights
in all
of its business information and that of its affiliates except for
such
information as is clearly in the public domain. Notwithstanding the
foregoing, information that would be generally known or available
to
persons skilled in Executive's fields shall be considered to be "clearly
in the public domain" for the purposes of the preceding sentence.
Executive agrees that he will not disclose or divulge to any third
party,
except as may be required by his duties hereunder, by law, regulation,
or
order of a court or government authority, or as directed by NBTB,
nor
shall he use to the detriment of NBTB or its affiliates or use in
any
business or on behalf of any business competitive with or substantially
similar to any business of NBTB or NBT Bank or their affiliates,
any
confidential business information obtained during the course of his
employment by NBTB. The foregoing shall not be construed as restricting
Executive from disclosing such information to the employees of NBTB
or NBT
Bank or their affiliates. On or before the Termination Date, Executive
shall promptly deliver to NBTB any and all tangible, confidential
information in his possession.
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(b) Executive
hereby agrees that from the Commencement Date until the first anniversary of
the
Termination Date, Executive will not (i) interfere with the relationship of
NBTB
or NBT Bank or their affiliates with any of their employees, suppliers, agents,
or representatives (including, without limitation, causing or helping another
business to hire any employee of NBTB or NBT Bank or their affiliates), or
(ii)
directly or indirectly divert or attempt to divert from NBTB, NBT Bank or their
affiliates any business in which any of them has been actively engaged during
the Term of Employment, nor interfere with the relationship of NBTB, NBT Bank
or
their affiliates with any of their customers or prospective customers. This
paragraph 4(b) shall not, in and of itself, prohibit Executive from engaging
in
the banking, trust, or financial services business in any capacity, including
that of an owner or employee.
(c) Executive
acknowledges and agrees that irreparable injury will result to NBTB in the
event
of a breach of any of the provisions of this section 4 (the "Designated
Provisions") and that NBTB will have no adequate remedy at law with respect
thereto. Accordingly, in the event of a material breach of any Designated
Provision, and in addition to any other legal or equitable remedy NBTB may
have,
NBTB shall be entitled to the entry of a preliminary and permanent injunction
(including, without limitation, specific performance) by a court of competent
jurisdiction in Chenango County, New York, or elsewhere, to restrain the
violation or breach thereof by Executive, and Executive submits to the
jurisdiction of such court in any such action.
(d) It
is the
desire and intent of the parties that the provisions of this section 4 shall
be
enforced to the fullest extent permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought. Accordingly, if
any
particular provision of this section 4 shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. In addition, should any court
determine that the provisions of this section 4 shall be unenforceable with
respect to scope, duration, or geographic area, such court shall be empowered
to
substitute, to the extent enforceable, provisions similar hereto or other
provisions so as to provide to NBTB, to the fullest extent permitted by
applicable law, the benefits intended by this section 4.
5. Life
Insurance.
In
light of the unusual abilities and experience of Executive, NBTB (or its
affiliates) in its discretion may apply for and procure as owner and for its
own
benefit insurance on the life of Executive, in such amount and in such form
as
NBTB may choose. NBTB shall make all payments for such insurance and shall
receive all benefits from it. Executive shall have no interest whatsoever in
any
such policy or policies but, at the request of NBTB, shall submit to medical
examinations and supply such information and execute such documents as may
reasonably be required by the insurance company or companies to which NBTB
has
applied for insurance.
6. Representations
and Warranties.
(a) Executive
represents and warrants to NBTB that his execution, delivery, and performance
of
this Agreement will not result in or constitute a breach of or conflict with
any
term, covenant, condition, or provision of any commitment, contract, or other
agreement or instrument, including, without limitation, any other employment
agreement, to which Executive is or has been a party.
(b) Executive
shall indemnify, defend, and hold harmless NBTB for, from, and against any
and
all losses, claims, suits, damages, expenses, or liabilities, including court
costs and counsel fees, which NBTB has incurred or to which NBTB may become
subject, insofar as such losses, claims, suits, damages, expenses, liabilities,
costs, or fees arise out of or are based upon any failure of any representation
or warranty of Executive in section 6(a) hereof to be true and correct when
made.
7. Notices.
All
notices, consents, waivers, or other communications which are required or
permitted hereunder shall be in writing and deemed to have been duly given
if
delivered personally or by messenger, transmitted by telex or telegram, by
express courier, or sent by registered or certified mail, return receipt
requested, postage prepaid. All communications shall be addressed to the
appropriate address of each party as follows:
If
to
NBTB:
NBT
Bancorp Inc.
52
South
Broad Street
Norwich,
New York 13815
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Attention:
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Chief
Executive Officer
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With
a
required copy to:
NBT
Bancorp Inc. Corporate Counsel
If
to
Executive:
Mr.
Michael J. Chewens
2613
Pine
Bluff Drive
Vestal,
New York 13850-2909
All
such
notices shall be deemed to have been given on the date delivered, transmitted,
or mailed in the manner provided above.
8. Assignment.
Neither
party may assign this Agreement or any rights or obligations hereunder without
the consent of the other party.
9. Governing
Law.
This
Agreement shall be governed by, construed, and enforced in accordance with
the
laws of the State of New York, without giving effect to the principles of
conflict of law thereof. The parties hereby designate Chenango County, New
York
to be the proper jurisdiction and venue for any suit or action arising out
of
this Agreement. Each of the parties consents to personal jurisdiction in such
venue for such a proceeding and agrees that it may be served with process in
any
action with respect to this Agreement or the transactions contemplated thereby
by certified or registered mail, return receipt requested, or to its registered
agent for service of process in the State of New York. Each of the parties
irrevocably and unconditionally waives and agrees, to the fullest extent
permitted by law, not to plead any objection that it may now or hereafter have
to the laying of venue or the convenience of the forum of any action or claim
with respect to this Agreement or the transactions contemplated thereby brought
in the courts aforesaid.
10. Entire
Agreement.
This
Agreement constitutes the entire understanding between
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 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.
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NBT
BANCORP INC.
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||
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By:
|
/S/
Daryl R. Forsythe
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|
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Daryl
R. Forsythe
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||
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Chairman
and
|
||
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Chief
Executive Officer
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||
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MICHAEL
J. CHEWENS
|
||
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/S/
Michael J. Chewens
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||
Exhibit
10.21
Form
of
Employment Agreement between NBT Bancorp Inc. and David E. Raven made as of
August 31, 2005.
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this thirty
first day of August 2005 by and between DAVID E. RAVEN ("Executive") and NBT
BANCORP INC., a Delaware corporation having its principal office in Norwich,
New
York ("NBTB")
W
I T N E S S E T H T H A T :
WHEREAS,
Executive is an executive vice president of NBTB and president and chief
executive officer of Pennstar Bank, a Division of NBT Bank, National
Association, a national banking association which is a wholly-owned subsidiary
of NBTB ("NBT Bank");
WHEREAS,
NBTB desires to secure the continued employment of Executive, subject to the
provisions of this Agreement; and
WHEREAS,
Executive is desirous of entering into the Agreement for such periods and upon
the terms and conditions set forth herein;
NOW,
THEREFORE, in consideration of the premises and mutual covenants and agree-ments
hereinafter set forth, intending to be legally bound, the parties agree as
follows:
1. Employment;
Responsibilities and Duties.
(a) NBTB
and
NBT Bank hereby agrees to employ Executive and to cause Pennstar Bank and any
successor organization to Pennstar Bank to employ Executive, and Executive
hereby agrees to serve as an executive vice president of NBTB and president
and
chief executive officer of Pennstar Bank, during the Term of Employment.
Executive shall have such executive duties, responsibilities, and authority
as
shall be set forth in the bylaws of NBTB and NBT Bank or as may otherwise be
determined by NBTB or NBT Bank. During the Term of Employment, Executive shall
report directly to the chief executive officer of NBT Bank and dotted line
to
the Chairman of the Board of Pennstar Bank.
(b) Executive
shall devote his full working time and best efforts to the performance of his
responsibilities and duties hereunder. During the Term of Employ-ment, Executive
shall not, without the prior written consent of the chief executive officer
of
NBT Bank, render services as an employee, independent contractor, or otherwise,
whether or not compensated, to any person or entity other than NBTB or its
affiliates; provided that Executive may, where involvement in such activities
does not individually or in the aggregate significantly interfere with the
performance by Executive of his duties or violate the provisions of section
4
hereof, (i) render services to charitable organizations, (ii) manage his
personal invest-ments, and (iii) with the prior permis-sion of the chief
executive officer of NBT Bank, hold such other director-ships 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 com-mencing on
the
date of this Agreement (the "Commence-ment Date") and continuing until the
Termination Date, which shall mean the earliest to occur of:
(i) January
1, 2008 provided, however, that on January 1, 2006 and each January 1
thereafter, the Term of Employment shall automatically be extended by one
additional year;
(ii) the
death
of Executive;
(iii)
Executive's
inability to perform his duties hereunder, as a result of physical or mental
disability as reasonably determined by the personal physician of Executive,
for
a period of at least 180 consecutive days or for at least 180 days during any
period of twelve consecutive months during the Term of Employment;
or
(iv) the
discharge of Executive by NBTB "for cause," which shall mean one or more of
the
following:
(A) any
willful or gross misconduct by Executive with respect to the business and
affairs of NBTB or Pennstar Bank, or with respect to any of its affiliates
for
which Executive is assigned material responsibilities or duties;
(B) the
conviction of Executive of a felony (after the earlier of the expiration of
any
applicable appeal period without perfection of an appeal by Executive or the
denial of any appeal as to which no further appeal or review is available to
Executive) whether or not committed in the course of his employment by
NBTB;
(C) Executive's
willful neglect, failure, or refusal to carry out his duties hereunder in a
reasonable manner (other than any such failure resulting from disability or
death or from termination by Executive for Good Reason, as hereinafter defined)
after a written demand for substantial performance is delivered to Executive
that speci-fically 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 representa-tion 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 responsibili-ties or duties; or
(v) Executive's
resignation from his position as executive vice president of NBTB or as
president and chief executive officer of Pennstar Bank other than for "Good
Reason," as hereinafter defined; or
(vi) the
termination of Executive's employment by NBTB "without cause," which shall
be
for any reason other than those set forth in subsections (i), (ii), (iii),
(iv),
or (v) of this section 2(a), at any time, upon the thirtieth day following
notice to Executive; or
(vii) Executive's
resignation for "Good Reason."
"Good
Reason" shall mean, without Executive's express written consent, reassignment
of
Executive to a position other than executive vice president of NBTB or as
president and chief executive officer of Pennstar Bank other than for "Cause,"
or a decrease in the amount or level of Executive's salary or benefits from
the
amount or level established in section 3 hereof.
(b) In
the
event that the Term of Employment shall be terminated for any reason other
than
that set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive shall be
entitled to receive, upon the occur-rence 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 arrange-ments in which he participates pursuant to section
3(b) hereof, any right to reimbursement for expenses accrued as of the
Termination Date payable pursuant to section 3(h) hereof, and the right to
receive the cash equivalent of paid annual leave and sick leave accrued as
of
the Termination Date pursuant to section 3(d) hereof.
(c) In
the
event that the Term of Employment shall be terminated for the reason set forth
in section 2(a)(vi) or 2(a)(vii) hereof, Executive shall be entitled to
receive:
(i) any
salary payable pursuant to section 3(a)(i) hereof which shall have accrued
as of
the Termination Date, and, for the period commencing on the date immediately
following the Termination Date and ending upon and including the latest of
the
third anniversary of the Commencement Date or the date to which the Term of
Employment shall (as of the Termination Date) have automatically extended itself
under section 2(a)(i) hereof, salary payable at the rate established pursuant
to
section 3(a)(i) hereof, in a manner consistent with the normal payroll practices
of NBTB with respect to executive personnel as presently in effect or as they
may be modified by NBTB from time to time;
(ii) such
rights as Executive may have accrued as of the Termination Date under the terms
of any plans or arrangements in which he participates pursuant to section 3(b)
hereof, any right to reimbursement for expenses accrued as of the Termina-tion
Date payable pursuant to section 3(h) hereof, and the right to receive the
cash
equivalent of paid annual leave and sick leave accrued as of the Termination
Date pursuant to section 3(d) hereof; and
(iii) if,
within eighteen (18) months following the Termination Date, Executive should
sell his principal residence in the Scranton Rand McNally Metropolitan Area
as
determined by Rand McNally & Company (the “Scranton RMA”) and relocate to a
place outside of the Scranton RMA, (A) reimbursement for any shortfall between
the net proceeds on the sale of his principal residence and the purchase price
plus improvements including direct, necessary and reasonable transaction costs
incurred in connection with such purchase, as determined by the finance division
of NBTB, for such residence, and including direct, necessary and reasonable
expenses, as determined by the finance division of NBTB, incurred to prepare
the
residence for sale, (B) reimbursement for direct, necessary and reasonable
expenses, as determined by the finance division of NBTB, incurred in connection
with the sale of such residence not already included as part of the
reimbursement under (A) above, and (C) an amount necessary to pay all federal,
state and local income taxes resulting from any reimbursement made pursuant
to
(A) and (B) (including any additional federal state and local income taxes
resulting from the payment hereunder of such taxes), the intent being that
Executive shall be paid an additional amount (the “Gross-Up”) such that the net
amount retained by the Executive, after deduction of such federal, state and
local income taxes resulting from the reimbursement under (A) and (B) shall
be
equal to the amount of the reimbursement under (A) and (B) before payment of
such taxes; for purposes of determining the amount of the Gross-Up, Executive
shall be deemed to pay federal, state and local income taxes at the highest
marginal rate of taxation in effect in the calendar year in which the
reimbursement is made. Amounts due under this subsection shall be paid as soon
as administratively practicable, but in no event later than ninety (90) days
after the date of the sale of Executive’s principal residence.
Notwithstanding
the foregoing, in the event the Executive is reimbursed, entitled to
reimbursement, or is paid any amounts by an entity or entities other than NBTB
or Pennstar Bank or any affiliate or successor thereof (the “Third Party”), for
any amounts for which Executive has received, or is entitled to receive,
reimbursement under (A) or (B) above with respect to the sale of his principal
residence or any Gross-Up under (C) above, the Executive agrees:
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(1)
|
with
regard to amounts already paid by NBTB or Pennstar Bank or any affiliate
or successor thereof (hereinafter referred to collectively as the
“Company”), the Executive shall notify the Company of all amounts received
or due from the Third Party, and shall reimburse the Company in an
amount
equal to the amount so received or due from the Third Party up to
the
amount the Company paid to the Executive under (A), (B), and (C)
above;
and
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|
(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.
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(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 Agree-ment, 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 arrange-ments in which he participates pursuant to section
3(b) hereof, any right to reimbursement for expenses accrued as of the
Termination Date payable pursuant to section 3(h) hereof, and the right to
receive the cash equivalent of paid annual leave and sick leave accrued as
of
the Termination Date pursuant to section 3(d) hereof; and
(iii) the
severance payment and other benefits provided in the Change-in-Control
Agreement; and
(iv) if,
within eighteen (18) months following the Termination Date, Executive should
sell his principal residence in the Scranton RMA and relocate to a place outside
of the Scranton RMA, (A) reimbursement for any shortfall between the net
proceeds on the sale of his principal residence and the purchase price plus
improvements, including direct, necessary and reasonable transaction costs
incurred in connection with such purchase, as determined by the finance division
of NBT Bank, for such residence, and including direct, necessary and reasonable
expenses, as determined by the finance division of NBT Bank, incurred to prepare
the residence for sale, (B) reimbursement for direct, necessary and reasonable
expenses, as determined by the finance division of NBT Bank, incurred in
connection with the sale of such residence not already included as part of
the
reimbursement under (A) above, and (C) the Gross-Up, the intent being that
the
net amount retained by the Executive, after deduction of such federal, state
and
local income taxes resulting from the reimbursement under (A) and (B) shall
be
equal to the amount of the reimbursement under (A) and (B) before payment of
such taxes; for purposes of determining the amount of the Gross-Up, Executive
shall be deemed to pay federal, state and local income taxes at the highest
marginal rate of taxation in effect in the calendar year in which the
reimbursement is made. Amounts due under this subsection shall be paid as soon
as administratively practicable, but in no event later than ninety (90) days
after the date of the sale of Executive’s principal residence.
Notwithstanding
the foregoing, in the event the Executive is reimbursed, entitled to
reimbursement, or is paid any amounts by a Third Party, for any amounts for
which Executive has received, or is entitled to receive, reimbursement under
(A)
or (B) above with respect to the sale
of
his principal residence or any Gross-Up under (C) above, the Executive agrees:
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(5)
|
with
regard to amounts already paid by the Company, the Executive shall
notify
the Company of all amounts received or due from the Third Party,
and shall
reimburse the Company in an amount equal to the amount so received
or due
from the Third Party up to the amount the Company paid to the Executive
under (A), (B), and (C) above; and
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|
(6)
|
with
regard to amounts due but not yet paid by the Company to the Executive,
the Executive shall notify the Company of any amounts received or
due from
the Third Party, and the Executive agrees that the Company shall
reduce
the amount due under (A), (B), and (C) above by the amount the Executive
has been paid or is entitled to be paid by the Third Party up to
the
amount due the Executive from the
Company.
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3. Compensation.
For the
services to be performed by Executive for NBTB and its affiliates under this
Agreement, Executive shall be compensated in the following manner:
(a) Salary.
During
the Term of Employment:
(i) NBTB
shall pay Executive a salary, which, on an annual basis, shall be $275,000.00
commencing on August 1, 2005. Salary commencing on January 1, 2007 will be
negotiated between Executive and the CEO of NBTB based on recommendations from
the Compensation and Benefits Committee and in line with compensation for
comparable positions in companies of similar size and structure, but in no
case
less than $275,000.00. 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 Employ-ment, 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
dismember-ment insurance, provided that there be no duplication of such benefits
as are provided under any other provision of this Agree-ment.
(c) Stock
Options and NBTB Performance Share Plan.
Each
January or February annually during the Term of Employ-ment, 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, Executive shall be entitled to participate in ant 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, model, and year of which
automobile shall be appropriate to an officer of Executive's rank and which
will
be replaced every two years (or earlier if the accumulated mileage exceeds
50,000 miles). Executive shall be responsible for all expenses of ownership
and
use of any such automobile, subject to reimburse-ment of expenses for business
use in accordance with section 3(h).
(f) Country
Club Dues.
During
the Term of Employment, Executive shall be reimbursed for dues and assessments
incurred in relation to Executive's membership at a country club mutually agreed
upon by the chief executive officer of NBT Bank and the Executive.
(g) Withholding.
All
compensation to be paid to Executive hereunder shall be subject to required
withholding and other taxes.
(h) Expenses.
During
the Term of Employment, Executive shall be reim-bursed 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 informa-tion of NBTB or its affiliates or are
en-trusted to third parties. Such confidential information includes but is
not
limited to procedures, methods, sales relation-ships developed while in the
service of NBTB or its affiliates, knowledge of customers and their
require-ments, marketing plans, marketing information, studies, forecasts,
and
surveys, competitive analyses, mailing and marketing lists, new business
proposals, lists of vendors, consul-tants, and other persons who render service
or provide material to NBTB or Pennstar Bank or their affiliates, and
composi-tions, ideas, plans, and methods belonging to or related to the affairs
of NBTB or Pennstar Bank or their affiliates. In this regard, NBTB asserts
proprietary rights in all of its business information and that of its affiliates
except for such informa-tion as is clearly in the public domain. Notwithstanding
the foregoing, information that would be generally known or available to persons
skilled in Executive's fields shall be considered to be "clearly in the public
domain" for the purposes of the preceding sentence. Executive agrees that he
will not disclose or divulge to any third party, except as may be required
by
his duties hereunder, by law, regulation, or order of a court or government
authority, or as directed by NBTB, nor shall he use to the detriment of NBTB
or
its affiliates or use in any business or on behalf of any business competitive
with or substantially similar to any business of NBTB or Pennstar Bank or their
affiliates, any confidential business information obtained during the course
of
his employment by NBTB. The foregoing shall not be construed as restricting
Executive from disclosing such information to the employees of NBTB or Pennstar
Bank or their affiliates. On or before the Termination Date, Executive shall
promptly deliver to NBTB any and all tangible, confidential information in
his
possession.
(b) Executive
hereby agrees that from the Commencement Date until the first anniversary of
the
Termination Date, Executive will not (i) interfere with the relationship of
NBTB
or Pennstar Bank or their affiliates with any of their employees, suppliers,
agents, or representatives (including without limitation, causing or helping
another business to hire any employee of NBTB or Pennstar Bank or their
affiliates), or (ii) directly or indirectly divert or attempt to divert from
NBTB, Pennstar Bank or their affiliates any business in which any of them has
been actively engaged during the Term of Employment, nor interfere with the
relationship of NBTB, Pennstar Bank or their affiliates with any of their
customers or prospective customers. This paragraph 4(b) shall not, in and of
itself, prohibit Executive from engaging in the banking, trust, or financial
services business in any capacity, including that of an owner or
employee.
(c) Executive
acknowledges and agrees that irreparable injury will result to NBTB in the
event
of a breach of any of the provisions of this section 4 (the "Designated
Provisions") and that NBTB will have no adequate remedy at law with respect
thereto. Accordingly, in the event of a material breach of any Designated
Provision, and in addition to any other legal or equitable remedy NBTB may
have,
NBTB shall be entitled to the entry of a preliminary and permanent injunction
(includ-ing, 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 juris-diction 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
juris-diction 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 (or its
affiliates) in
its
discretion may apply for and procure as owner and for its own benefit insurance
on the life of Executive, in such amount and in such form as NBTB may choose.
NBTB shall make all payments for such insurance and shall receive all benefits
from it. Executive shall have no interest whatsoever in any such policy or
policies but, at the request of NBTB, shall submit to medical examinations
and
supply such information and execute such documents as may reasonably be required
by the insurance company or companies to which NBTB has applied for
insurance.
6. Representations
and Warranties.
(a) Executive
represents and warrants to NBTB that his execution, delivery, and performance
of
this Agreement will not result in or constitute a breach of or conflict with
any
term, covenant, condition, or provision of any commitment, contract, or other
agreement or instrument, including, without limitation, any other employment
agreement, to which Executive is or has been a party.
(b) Executive
shall indemnify, defend, and hold harmless NBTB for, from, and against any
and
all losses, claims, suits, damages, expenses, or liabilities, including court
costs and counsel fees, which NBTB has incurred or to which NBTB may become
subject, insofar as such losses, claims, suits, damages, expenses, liabilities,
costs, or fees arise out of or are based upon any failure of any represen-tation
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
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Attention:
|
Chief
Executive Officer
|
With
a
required copy to:
NBT
Bancorp Inc. Corporate Counsel
If
to
Executive:
Mr.
David
E. Raven
808
Parkview Road
Moscow,
PA 18444
All
such
notices shall be deemed to have been given on the date delivered, transmitted,
or mailed in the manner provided above.
8. Assignment.
Neither
party may assign this Agreement or any rights or obliga-tions 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 jurisdic-tion and venue for any suit or action arising out
of
this Agree-ment. Each of the parties consents to personal jurisdic-tion 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 trans-actions contem-plated thereby
by certified or regis-tered 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 uncon-ditionally 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 under-stand-ings
between the parties hereto or between Executive and Pennstar Bank or any of
its
affiliates regarding the subject matter hereof, including without limitation
the
terms and conditions of employment, compensation, benefits, retirement,
competition following employment, and the like, are merged into and superseded
by this Agreement. Neither this Agreement nor any provisions hereof can be
modified, changed, discharged, or terminated except by an instru-ment 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 unenforce-able 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 contain-ing any such provision held to be invalid, illegal, or
unenforce-able) 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' experi-ence in resolving commercial disputes through
arbitration. In the event any claim or dispute involves an amount in excess
of
$100,000, either party may request that the matter be heard by a panel of three
arbitrators; otherwise all matters subject to arbitration shall be heard and
resolved by a single arbitrator. The arbitrator shall have the same power to
compel the attendance of witnesses and to order the production of documents
or
other materials and to enforce discovery as could be exercised by a United
States District Court judge sitting in the Northern District of New York. In
the
event of any arbitration, each party shall have a reasonable right to conduct
discovery to the same extent permitted by the Federal Rules of Civil Procedure,
provided that such discovery shall be concluded within ninety days after the
date the matter is set for arbitration. In the event of any arbitration, the
arbitrator or arbitrators shall have the power to award reasonable attorney's
fees to the prevailing party. Any provision in this Agreement to the contrary
notwithstanding, this section shall be governed by the Federal Arbitration
Act
and the parties have entered into this Agreement pursuant to such
Act.
13. Costs
of Litigation.
In the
event litigation is commenced to enforce any of the provisions hereof, or to
obtain declaratory relief in connection with any of the provisions hereof,
the
prevailing party shall be entitled to recover reasonable attorney's fees. In
the
event this Agreement is asserted in any litigation as a defense to any
liability, claim, demand, action, cause of action, or right asserted in such
litigation, the party prevailing on the issue of that defense shall be entitled
to recovery of reasonable attorney's fees.
14. Affiliation.
A
company will be deemed to be "affiliated" with NBTB or Pennstar Bank according
to the definition of "Affiliate" set forth in Rule 12b-2 of the General Rules
and Regulations under the Securi-ties 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.
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NBT
BANCORP INC.
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||
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By:
|
/S/
Daryl R. Forsythe
|
|
|
Daryl
R. Forsythe
|
||
|
Chairman
and
|
||
|
Chief
Executive Officer
|
||
|
DAVID
E. RAVEN
|
||
|
/S/
David E. Raven
|
||
Exhibit
10.24
Form
of
Employment Agreement between NBT Bancorp Inc. and Ronald M. Bentley made as
of
August 31, 2005.
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this 31st day
of
August 2005,
by and
between Ronald M. Bentley ("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 serving as the Executive Vice President of NBTB and President
of
Retail Banking of NBT Bank, National Association, a national banking association
which is a wholly-owned subsidiary of NBTB (“NBT Bank”);
WHEREAS,
the parties desire to enter into this Agreement, setting forth the terms and
conditions of the continued employment relationship of Executive with
NBTB;
NOW,
THEREFORE, in consideration of the foregoing and the mutual promises, covenants
and agreements set forth in this Agreement, intending to be legally bound,
the
parties agree as follows:
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1.
|
Employment;
Responsibilities and Duties.
|
(a) NBTB
hereby agrees to continue to employ Executive and to cause NBT Bank and any
successor organization to NBT Bank to employ Executive, and Executive hereby
agrees to serve as the Executive Vice President of NBTB and President of Retail
Banking of NBT Bank and any successor organization to NBTB or NBT Bank, as
applicable, during the Term of Employment (as such term is defined below).
During the Term of Employment, Executive shall perform all duties, and
responsibilities, and have the authority as shall be set forth in the bylaws
of
NBTB or NBT Bank or as may otherwise be determined and assigned to him by
NBTB or
by NBT
Bank.
(b) Executive
shall devote his full working time and best efforts to the performance of his
responsibilities and duties hereunder. During the Term of Employment, Executive
shall not, without the prior written consent of the Chief Executive Officer
of
NBTB, render services as an employee, independent contractor, or otherwise,
whether or not compensated, to any person or entity other than NBTB, NBT Bank
or
their affiliates; provided that Executive may, where involvement in such
activities does not individually or in the aggregate significantly interfere
with the performance of his duties or violate the provisions of section 4
hereof, (i) render services to charitable organizations, (ii) manage his
personal investments, and (iii) with the prior permission of the Chief Executive
Officer of NBTB, hold such other directorships or part-time academic
appointments or have such other business affiliations as would otherwise be
prohibited under this section 1.
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2.
|
Term
of Employment.
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(a) The
initial term of employment under this Agreement shall be for the period
commencing on the date hereof and ending on January 1, 2007 (the “Initial
Term”.), provided, however, that on December 31, 2006, and each December 31,
thereafter, the term of the agreement shall extend itself by one additional
year
(the “Extended Term”), unless NBTB has given contrary written notice to
Executive at least 90 days before any such renewal date. The Initial Term and
all such Extended Terms are collectively referred to herein as the “Term of
Employment.”
(b) Executive’s
employment with NBTB shall not terminate prior to the expiration of the Initial
Term or any Extended Term, except as provided below:
(i)
Voluntary
Termination. Executive may terminate this Agreement upon not less than 90 days
prior written notice delivered to NBTB, in which event Executive shall be
entitled to compensation and benefits earned or accrued through the effective
date of termination (the “Termination Date”).
(ii) Termination
Upon Death. This Agreement shall terminate upon Executive’s death, in which
event Executive’s estate shall be entitled to compensation and benefits earned
or accrued through the date of death.
(iii) Termination
Upon Disability. NBTB may terminate this Agreement upon Executive’s disability.
For purposes of this Agreement, Executive’s inability to perform his duties
hereunder by reason of physical or mental illness or injury for a period of
at
least 90 consecutive days or at least 120 days in any period of 12 consecutive
months (the “Disability Period”) shall constitute disability. The determination
of disability shall be made by a physician selected by NBTB. During the
Disability Period, Executive shall be entitled to the Base Salary (as such
term
is defined below) otherwise payable during that period, reduced by any other
NBTB provided benefits to which Executive may be entitled, which benefits are
specifically payable solely on account of such disability (including, but not
limited to, benefits provided under any disability insurance policy or program,
worker’s compensation law, or any other benefit program or arrangement). In the
event of termination upon Executive’s disability, Executive shall be entitled to
compensation or benefits earned or accrued through the Termination
Date.
(iv) Termination
for
Cause. NBTB may terminate Executive’s employment for Cause by written notice to
Executive. For purposes of this Agreement, “Cause” shall mean Executive’s: (1)
personal dishonesty, incompetence (which shall be measured against standards
generally prevailing in the financial institutions industry), willful or gross
misconduct with respect to the business and affairs of NBTB or NBT Bank, or
with
respect to any of their affiliates for which Executive is assigned material
responsibilities or duties; (2) willful neglect, failure, or refusal to carry
out his duties hereunder in a reasonable manner 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 such substantial performance within
21
days of receiving such demand; (3) willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or the conviction
of a felony, whether or not committed in the course of his employment with
NBTB;
(4) being a specific subject of a final cease and desist order form, written
agreement with, or other order or supervisory direction from, any federal or
state regulatory authority; (5) conduct tending to bring NBTB, NBT Bank or
any
of their affiliates into public disgrace or disrepute; or (6) breach of any
representation or warranty in section 6(a) hereof or of any agreement contained
in section 1, 4, 5 or 6(b) hereof.
Notwithstanding
any other term or provision of this Agreement to the contrary, if Executive’s
employment is terminated for Cause, Executive shall forfeit all rights to
compensation and benefits otherwise provided pursuant to this Agreement;
provided, however, that the Base Salary shall be paid through the Termination
Date.
(v) Termination
Without Cause. NBTB may terminate Executive’s employment for reasons other than
Cause upon not less than 30 days prior written notice delivered to Executive,
in
which event Executive shall be entitled to the Base Salary for a period of
12
months following the Termination Date and the compensation and benefits earned
or accrued through the Termination Date.
(vi) Termination
for Good Reason. If Executive terminates his employment with NBTB for Good
Reason, other than following a Change of Control, such termination shall be
deemed to have been a termination by NBTB of the Executive’s employment without
Cause and Executive shall be entitled to receive all benefits and payments
due
to him under such a termination.”Good Reason” shall mean, without Executive's
express written consent, reassignment of Executive to a position other than
for
"Cause," or a decrease in the amount or level of Executive's salary or benefits
from the amount or level established herein.
(vii) Resignation.
Effective upon Executive’s termination of employment for any reason, Executive
hereby resigns from any and all offices and positions related to Executive’s
employment with NBTB, NBT Bank or any affiliates thereof, and held by Executive
at the time of termination.
(viii) Regulatory
Limits. Notwithstanding any other provision in this Agreement NBTB may terminate
or suspend this Agreement and the employment of Executive hereunder, as if
such
termination were for Cause under section 2(b)(iv) hereof, to the extent required
by the applicable federal or state statue related to banking, deposit insurance
or bank or savings institution holding companies or by regulations or orders
issued by the Office of the Controller of the Currency, the Federal Deposit
Insurance Corporation or any other state or federal banking regulatory agency
having jurisdiction over NBT Bank or NBTB, and no payment shall be required
to
be made to or for the benefit of Executive under this Agreement to the extent
such payment is prohibited by applicable law, regulation or order issued by
a
banking agency or a court of competent jurisdiction; provided, that it shall
be
NBTB’s burden to prove that any such action was so required
(c) 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 May 1, 2003 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) compensation
and benefits earned or accrued through the Termination Date; and
(ii) the
severance payment and other benefits provided in the Change-in-Control
Agreement; and.
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) Base
Salary.
During
the Term of Employment:
|
(i)
|
NBTB
shall pay Executive a salary which, on an
|
annual
basis, shall be $210,000.00(the “Base Salary”) commencing on August 31, 2005.
Thereafter, Executive’s salary may, in the sole discretion of NBTB, be
negotiated between Executive and the Chief Executive Officer of NBTB based
on
recommendations from NBTB’s Compensation and Benefits Committee and in line with
compensation for comparable positions in companies of similar size and
structure, but in no case less than $210,000.00. Adjustments to the Base Salary,
if any, shall be determined by NBTB. The Base 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 Restricted Stock.
Each
January or February annually during the Term of Employment, Executive will
be
eligible 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 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 as set forth in the Stock Option Plan, 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 the NBTB Performance
Share Plan as applicable to officers of Executive’s rank subject to the terms,
conditions and vesting schedule set forth in the NBT Bancorp Inc. Performance
Share Plan, dated May 1, 2003.
(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 date hereof 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 shall
Executive be entitled to less than four weeks of paid vacation per
year.
(e) Automobile.
During the Term of Employment, NBT will pay a monthly
automobile allowance (not to exceed $650.00 per month.) The Executive shall
apply this allowance towards the expense of ownership, lease, and/or routine
maintenance of a vehicle of suitable choice.
(f)
Country
Club Dues. During
the Term of Employment, Executive shall be eligible for a bank-paid membership
at a country club mutually agreed upon by the chief executive officer of NBTB
and the Executive.
(g) Withholding.
All
compensation to be paid to Executive hereunder shall be subject to required
benefit deductions, tax withholding and other deductions required by law.
(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 date hereof 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 during the term of his employment he has been and will
continue to be entrusted with, have access to and become familiar with various
trade secrets and other confidential business information of NBTB, NBT Bank
and/or their affiliates which have been developed and maintained at great effort
and expense, have been kept protected and confidential, are of great value
to
NBTB, NBT Bank and/or their affiliates, and provide them with a significant
competitive advantage. Such confidential information includes but is not limited
to procedures, methods, sales relationships developed while in the service
of
NBTB, NBT Bank or their 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 hold
in
the strictest confidence and 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, NBT Bank or their affiliates or use in business or on behalf
of any business competitive with or substantially similar to any business of
NBTB, 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, NBT Bank or their affiliates. On or before the Termination
Date, Executive shall promptly deliver to NBTB all material containing NBTB’s
confidential information including any photocopies, extracts or summaries of
it)
in his possession, custody or control.
(b) Executive
hereby agrees that from the Commencement Date until the first anniversary of
the
Termination Date, Executive will not, for any reason, directly or indirectly,
either personally or on behalf of any other person or entity (whether as a
director, stockholder, owner, partner, officer, consultant, principal, employee,
agent or otherwise): (i) interfere with the relationship of NBTB or NBT Bank
or
their affiliates with any of their employees, suppliers, agents, or
representatives (including, without limitation, causing or helping another
business to hire any employee of NBTB or NBT Bank or their affiliates), (ii)
divert or attempt to divert from NBTB, NBT Bank or their affiliates any business
in which any of them has been actively engaged during the Term of Employment,
nor interfere with the relationship of NBTB, NBT Bank or their affiliates with
any of their customers or prospective customers, or (iii) take any action which
is intended, or would reasonably be expected, to adverely affect NBTB, NBT
Bank
or their affiliates, their business, reputation, or their relationship with
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, NBT Bank or their
affiliates, in their discretion, may apply for and procure as owner, and for
their own benefit, insurance on the life of Executive, in such amount and in
such form as NBTB, NBT Bank or their affiliates 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, NBT Bank or their affiliates, 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,
NBT
Bank or their affiliates has applied for insurance.
6. Representations
and Warranties.
(a) Executive
represents and warrants to NBTB that his execution, delivery, and performance
of
this Agreement will not result in or constitute a breach of or conflict with
any
term, covenant, condition, or provision of any commitment, contract, or other
agreement or instrument, including, without limitation, any other employment
agreement, to which Executive is or has been a party.
(b) Executive
shall indemnify, defend, and hold harmless NBTB for, from, and against any
and
all losses, claims, suits, damages, expenses, or liabilities, including court
costs and counsel fees, which NBTB has incurred or to which NBTB may become
subject, insofar as such losses, claims, suits, damages, expenses, liabilities,
costs, or fees arise out of or are based upon any failure of any representation
or warranty of Executive in section 6(a) hereof to be true and correct when
made.
7. Notices.
All notices, consents, waivers, or other communications which are required
or
permitted hereunder shall be in writing and deemed to have been duly given
if
delivered personally or by messenger, transmitted by telex or telegram, by
express courier, or sent by registered or certified mail, return receipt
requested, postage prepaid. All communications shall be addressed to the
appropriate address of each party as follows:
If
to
NBTB:
NBT
Bancorp Inc.
52
South
Broad Street
Norwich,
New York 13815
|
Attention:
|
Chief
Executive Officer
|
With
a
required copy (which shall not constitute notice to:
Stuart
G.
Stein, Esq.
Hogan
& Hartson L.L.P.
555
13th
Street,
N.W.
Washington,
D.C. 20004-1109
Fax:
(202) 637-5910
If
to
Executive:
Mr.
Ronald M. Bentley
30
Springfield Drive
Vorheesville
NY 12186
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, Jurisdiction and Venue.
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
conflicts 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, together with the Change-in-Control Agreement, constitutes the entire
understanding between NBTB, NBT Bank and their affiliates, and Executive
relating to the subject matter hereof. Any previous discussions, agreements,
commitments or understandings of
any
kind or nature between
the parties hereto or between Executive and NBTB, NBT Bank or any of their
affiliates, whether oral or written, 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 is in any way related
to this Agreement or the asserted breach thereof, such dispute shall be referred
to arbitration before the American Arbitration Association the (“AAA”) pursuant
to the AAA’s National Rules for the Resolution of Employment Disputes (the
“Arbitration Rules”). 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 between
the date of the issuance of the Arbitration Notice and the date the dispute
is
set for arbitration to resolve the dispute by mediation in accordance with
the
Arbitration Rules. If the dispute is not resolved by the date set for
arbitration, then any controversy or claim arising out of this Agreement or
the
asserted 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. In the event any claim or dispute involves an amount in excess
of
$100,000, either party may request that the matter 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 discovery shall be concluded within 90 days after the date the
matter is set for arbitration. The arbitrator or arbitrators shall have the
power to award reasonable attorneys’ fees to the prevailing party. Any
provisions 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 attorneys’ 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 attorneys’ fees.
14. Affiliation.
A
company will be deemed to
be an
"affiliate" of, or “affiliated” 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/
Martin A. Dietrich
Martin
A.
Dietrich
President/CEO
of NBT Bank
By:
/S/
Ronald M. Bentley
Executive
12/5/05
Dated
Exhibit
10.25
Change
in
control agreement with Ronald M. Bentley dated May 1, 2003.
May
1,
2003
Mr.
Ronald M. Bentley
30
Springfield Drive
Voorheesville.
NY 12186
Dear
Mr.
Bentley:
NBT
Bancorp Inc. (which, together with its wholly-owned subsidiary, NBT Bank,
National Association, is referred to as the "Company") considers the stability
of its key management group to be essential to the best interests of the Company
and its shareholders. The Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control may arise
and
that the attendant uncertainty may result in the departure or distraction of
key
management personnel to the detriment of the Company and its
shareholders.
Accordingly,
the Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to encourage members of the Company's key
management group to continue as employees notwithstanding the possibility of
a
change in control of the Company.
The
Board
also believes it important that, in the event of a proposal for transfer of
control of the Company, you be able to assess the proposal and advise the Board
without being influenced by the uncertainties of your own
situation.
In
order
to induce you to remain in the employ of the Company, this Agreement, which
has
been approved by the Board, sets forth the severance compensation which the
Company agrees will be provided to you in the event your employment with the
Company is terminated subsequent to a "change in control" of the Company under
the circumstances described below.
Agreement
to Provide Services; Right to Terminate.
(a) Termination
Prior to Certain Offers.
Except
as otherwise provided in paragraph (b) below, or in any written employment
agreement between you and theCompany,
the Company or you may terminate your employment at any time. If, and only
if,
such termination occurs after a "change in control of the Company" (as defined
in section 6), the provisions of this Agreement regarding the payment of
severance compensation and benefits shall apply.
(b) Termination
Subsequent to Certain Offers.
In the
event a tender offer or exchange offer is made by a "person" (as defined in
section 6) for more than 30 percent of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors ("Voting Securities"), including shares of common
stock, no par value, of the Company (the "Company Shares"), you agree that
you
will not
leave the employ of the Company (other than as a result of Disability as such
term is defined in section 6) and will render services to the Company in the
capacity in which you then serve until such tender offer or exchange offer
has
been abandoned or terminated or a change in control of the Company has occurred
as a result of such tender offer or exchange offer.
If,
during the period you are obligated to continue in the employ of the Company
pursuant to this section l(b), the Company reduces your compensation, terminates
your employment without Cause, or you provide written notice of your decision
to
terminate your employment for Good Reason, your obligations under this section
1(b) shall thereupon terminate and you will be entitled to payments provided
under
Section
3(b).
2. Term
of Agreement.
This
Agreement shall commence on the date hereof and shall continue in effect until
December 31, 2005; provided, however, that commencing
December 31, 2003 and each December 31 thereafter, the remaining term
of
this
Agreement shall automatically be extended for one additional year (to a total
of
three years) unless at least 90 days prior to such anniversary, the Company
or
you shall have given notice that this Agreement shall not be extended; and
provided, however, that if a change in control of the Company shall occur while
this Agreement is in effect, this Agreement shall automatically be extended
for
24 months from the date the change in control of the Company occurs. This
Agreement shall terminate if you or the Company terminates your employment
prior
to a change in control of the Company but without prejudice to any remedy the
Company may have for breach of your obligations, if any, under section l
(b).
3. Severance
Payment and Benefits If Termination Occurs Following Change in
Control for Disability, Without Cause, With Good Reason or Without Good Reason
within 12 Months of the Change.
If, (1)
within 24 months from the date of occurrence of any
event
constituting a change in control of the Company (it being recognized that
more than
one
such event may occur in which case the 24-month period shall run from the
date
of
occurrence of each such event), your employment with the Company is terminated
(i) by the Company for Disability, (ii) by the Company without Cause, or (iii)
by you with Good Reason (as defined in section 6), or (II) within 12 months
from
the date of occurrence of any event constituting a change in control of the
Company (it being recognized
that more than one such event may occur in which case the 12-month period shall
run from the date of occurrence of each such event) you terminate your
employment either with or without Good Reason, you shall be entitled to a
severance payment and other benefits as follows:
(a) Disability.
If your
employment with the Company is terminated for Disability, your benefits shall
thereafter be determined in accordance with the Company's long-term disability
income insurance plan. If the Company's long-term disability income insurance
plan is modified or terminated following a change in control, the Company shall
substitute such a plan with benefits applicable to you substantially similar
to
those provided by such plan prior to its modification or termination. During
any
period that you fail to perform your duties hereunder as a result of incapacity
due to physical or mental illness, you shall continue to receive your full
base
salary at the rate then in effect until your employment is terminated by the
Company for Disability.
(b) Termination
Without Cause or With Good Reason or Within 12 Months of Change in
Control.
If your
employment with the Company is terminated without Cause by the Company or with
Good Reason by you, or by you within 12 months of a change in control of the
Company without Good Reason, then the Company shall pay to you, upon demand,
the
following amounts (net of applicable payroll taxes):
(i)
Your
full
base salary through the Date of Termination at the rate in effect on the date
the change in control of the Company occurs plus year-to-date accrued
vacation.
(ii) As
severance pay, an amount equal to the product of 2.00 multiplied by the greater
of (A) the sum of your annualized salary for the calendar year in which the
change in control of the Company occurs, the maximum target bonus that could
have been paid to you for such year if all applicable targets and objectives
had
been achieved, or if no formal bonus program is in effect, the largest bonus
amount paid to you during any one of the three preceding calendar years, your
income from the exercise of nonqualified options during such year, your
compensation income from any disqualifying disposition during such year of
stock
acquired pursuant to the exercise of incentive stock options and other
annualized amounts that constitute taxable income to you from the Company for
such year, without reduction for salary reduction amounts excludible from income
under Section 402(e)(3) or 125 of the Internal Revenue Code of 1986, as amended
(the "Code"), or (B) your average "Compensation" (as defined below) for the
three calendar years preceding the calendar year in which the change in control
of the Company occurs. As used in this subsection 3(b)(ii) your "Compensation"
shall mean your base salary, bonus, income from the exercise of nonqualified
options, compensation income from any disqualifying disposition of stock
acquired pursuant to the exercise of incentive stock options and any other
amounts that constitute taxable income to you fromthe
Company, without reduction for salary reduction amounts excludible from
income
under
Section 402(e)(3) or 125 of the Code.
(c) Related
Benefits.
Unless
you die or your employment is terminated by the Company for Cause or Disability,
or by you other than for Good Reason
and not within 12 months after a change in control of the Company, the
Company shall
maintain in full force and effect, for your continued benefit and, if
applicable, for
the continued
benefit of your spouse and family, for three years after the Date of
Termination, or
such
longer period as may be provided by the terms of the appropriate plan, all
noncash
employee
benefit plans, programs, or arrangements (including, without limitation, pension
and retirement plans and arrangements, stock option plans, life insurance and
health
and accident plans and arrangements, medical insurance plans, disability plans,
and
vacation
plans) in which you were entitled to participate immediately prior to the Date
of Termination, as in effect at the Date of Termination, or, if more favorable
to you and, if applicable, your spouse and family, as in effect generally at
any
time thereafter with respect to executive employees of the Company or any
successor; provided that your continued participation is possible after
Termination under the general terms and provisions of such plans, programs,
and
arrangements; provided, however, that if you become eligible to participate
in a
benefit plan, program, or arrangement of another employer
which confers substantially similar benefits upon you, you shall cease to
receive
benefits
under this subsection in respect of such plan, program, or arrangement. In
the
event that your participation in any such plan, program, or arrangement is
not
possible after Termination under the general terms and provisions of such plans,
programs, and arrangements, the Company shall arrange to provide you with
benefits substantially similar to those which you are entitled to receive under
such plans, programs and arrangements or alternatively, pay an amount equal
to
the reasonable value of such substantially similar benefits. If, after
termination of employment following a change in control
of the Company, you elect or, if applicable, your spouse or family elects,
COBRA
continuation coverage, the Company will pay the applicable COBRA premium for
the
maximum period during which such coverage is available. If termination follows
a
change in control of the Company specified in Section 6(b)(111),
then
you
and, if applicable, your spouse and family may elect in lieu of COBRA
continuation coverage to have the acquiring entity obtain an individual or
group
health insurance coverage and the acquiring entity will pay premiums thereunder
for the maximum period during which you and, if applicable, your spouse and
family could have elected to receive COBRA continuation coverage.
(d) Establishment
of Trust.
Within
five days following conclusion of a change in control of the Company, the
Company shall establish a trust that conforms in all regards with the model
trust published in Revenue Procedure 92-64 and deposit an amount sufficient
to
satisfy all liabilities of the Company under Section 3(b) of this
Agreement.
(e) Automatic
Extension.
Notwithstanding the prior provisions of this Section, if an individual is
elected to the Board of Directors who has not been nominated by the Board of
Directors as constituted prior to his election, then the term of this Agreement
will automatically be extended until two years from the date on which such
individual was elected if such extended termination date is later than the
normal termination date of this Agreement, otherwise, the termination date
of
this Agreement will be as provided above. This extension will
take
effect only upon the first instance of an individual being elected to the Board
of Directors without having been nominated by the original Board.
(f) Alternative
to Lump Sum Payout.
The
amount described in this subsection will be paid to you in a single lump-sum
unless, at least 30 days before the conclusion of a change in control of the
Company, you elect in writing to receive the severance pay in 3 equal annual
payments with the first payment to be made within 30 days of demand and the
subsequent payments to be made by January 31st of each year subsequent to the
year in which the first payment is made, provided that under no circumstances
will two payments be made during a single tax year of the
recipient.
4. Payment
If Termination Occurs Following_ Change in Control, Because of Death
For Cause, or Without Good Reason and not within 12 Months of the Change in
Control.
If your
employment shall be terminated following any event constituting a change in
control of the Company because of your death, or by the Company for Cause,
or by
you other than for Good Reason and not within 12 months after a change in
control of the Company, the Company shall pay you your full base salary through
the Date of Termination at the rate in effect on the date the change in control
of the Company occurs plus year-to-date accrued vacation. The Company shall
have
no further obligations to you under this Agreement.
5. No
Mitigation.
You
shall not be required to mitigate the amount of any payment provided for in
this
Agreement by seeking other employment or otherwise, nor, except as expressly
set
forth herein, shall the amount of any payment provided for in this Agreement
be
reduced by any compensation earned by you as the result of employment by another
employer after the Date of Termination, or otherwise.
6. Definitions
of Certain Terms.
For the
purpose of this Agreement, the terms defined in this section 6 shall have the
meanings assigned to them herein.
(a) Cause.
Termination of your employment by the Company for "Cause" shall mean termination
because, and only because, you committed an act of fraud, embezzlement, or
theft
constituting a felony or an act intentionally against the interests of the
Company which causes the Company material injury. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause unless and until
there
shall have been delivered to you a copy of a resolution duly adopted by
theaffirmative vote of not less than three-quarters of the entire membership
of
the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct constituting Cause as defined above and
specifying the particulars thereof in detail.
(b) Change
in Control of the Company.
A
"change in control of the Company" shall mean:
(i) A
change
in control of a nature that would be required to be reported in response to
Item
6(e) of Schedule 14A of Regulation 14A as in effect on the date hereof pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"); provided that,
without limitation, such a change in control shall be deemed to have occurred
at
such time as any Person hereafter becomes the "Beneficial Owner" (as defined
in
Rule 13d-3 under the Exchange Act), directly or indirectly, of 30 percent or
more of the combined voting power of the Company's Voting Securities;
or
(ii) During
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to con-stitute at least a
majority thereof unless the election, or the nomination for election by the
Company's shareholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period; or
(iii)
There
shall be consummated (x) any consolidation or merger of the Company in which
the
Company is not the continuing or surviving corporation or pursuant to which
Voting Securities would be converted into cash, securities, or other property,
other than a merger of the Company in which the holders of Voting Securities
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (y) any
sale, lease, exchange, or other transfer (in one transaction or a series of
related transac-tions) of all, or substantially all of the assets of the
Company, provided that any such consolidation,, merger, sale, lease, exchange
or
other transfer consummated at the insistence of an appropriate banking
regulatory agency shall not constitute a change in control of the Company;
or
(iv) Approval
by the shareholders of the Company of any plan or proposal for the liquidation
or dissolution of the Company.
(c) Date
of Termination.
"Date of
Termination" shall mean (1) if your employment is terminated by the Company
for
Disability, 30 days after Notice of Termination is given (provided that you
shall not have returned to the performance of your duties on a full-time basis
during such 30-day period), and (ii) if your employment is terminated for any
other reason, the date on which a Notice of Termination is given;provided that
if within 30 days after any Notice of Termination is given the party receiving
such Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties or by a final judgment, order, or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected). The term of this Agreement shall be extended until the Date
of
Termination.
(d) Disability-
Termination of your employment by the Company for "Disability" shall mean
termination because of your absence from your duties with the Company on a
full-time basis for 180 consecutive days as a result of your incapacity due
to
physical or mental illness and your failure to return to the performance of
your
duties on a full-time basis during the 30-day period after Notice of Termination
is given.
(e) Good
Reason.
Termination by you of your employment for "Good Reason" shall mean termination
based on any of the following:
(i) A
change
in your status or position(s) with the Company, which in your reasonable
judgment, does not represent a promotion from your status or positions) as
in
effect immediately prior to the change in control of the Company, or a change
in
your duties or responsibilities which, in your reasonable judgment, is
inconsis-tent with such status or position(s), or any removal of you from,
or
any failure to reappoint or reelect you to, such position(s), except in
connection with the termination of your employment for Cause or Disability
or as
a result of your death or by you other than for Good Reason.
(ii) A
reduction by the Company in your base salary as in effect immediately prior
to
the change in control of the Company.
(iii)
The
failure by the Company to continue in effect any Plan (as hereinafter defined)
in which you are participating at the time of the change in control of the
Company (or Plans providing you with at least substantially similar benefits)
other than as a result of the normal expiration of any such Plan in accordance
with its terms as in effect at the time of the change in control of the Company,
or the taking of any action, or the failure to act, by the Company which would
adversely affect your continued participation in any of such Plans on at least
as favorable a basis to you as is the case on the date of the change in control
of the Company or which would materially reduce your benefits in the future
under any of such Plans or deprive you of any material benefit enjoyed by you
at
the time of the change in control of the Company.
(iv) The
failure by the Company to provide and credit you with the number of paid
vacation days to which you are then entitled in accordance with the Company's
normal vacation policy as in effect immediately prior to the change in control
of the Company.
(v) The
Company's requiring you to be based anywhere other than where your office is
located immediately prior to the change in control of the Company except for
required travel on the Company's business to an extent substantially consistent
with the business travel obligations which you undertook on behalf of the
Company prior to the change in control of the Company.
(vi) The
failure by the Company to obtain from any successor the assent to this Agreement
contemplated by section 8 hereof.
(vii) Any
purported
termination by the Company of your employment which is not effected pursuant
to
a Notice of Termination satisfying the requirements of this Agreement; and
for
purposes of this Agreement, no such purported termination shall be
effective.
(viii) Any
refusal by the
Company to continue to allow you to attend to matters or engage in activities
not directly related to the business of the Company which, prior to the change
in control of the Company, you were permitted by the Board to attend to or
engage in.
For
purposes of this subsection, "Plan" shall mean any compensation plan such as
an
incentive or stock option plan or any employee benefit plan such as a thrift,
pension, profit sharing, medical, disability, accident, life insurance plan,
or
a relocation plan or policy or any other plan, program, or policy of the Company
intended to benefit employees.
(f) Notice
of Termination.
A
"Notice of Termination" of your employment given by the Company shall mean
a
written notice given to you of the termination of your employment which shall
indicate the specific termination provision in this Agreement relied upon,
and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(g) Person.
The tern
"Person" shall mean and include any individual, corporation, partnership, group,
association, or other "person," as such term is used in section 14(d) of the
Exchange Act, other than the Company or any employee benefit plan(s) sponsored
by the Company.
7. Notice.
For the
purposes of this Agreement, notices and all other communications provided for
in
the Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Chief Executive Officer of
the
Company with a copy to the Secretary of the Company, or to such other address
as
either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt.
8. Successors;
Binding Agreement.
(a) This
Agreement shall inure to the benefit of, and be binding upon, any corporate
or
other successor or assignee of the Company which shall acquire, directly or
indirectly, by merger, consolidation or purchase, or otherwise, all or
substantially all of the business or assets of the Company. The Company shall
require any such successor, by an agreement in form and substance satisfactory
to you, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as the Company would be required to perform if
no
such succession had taken place.
(b) This
Agreement shall inure to the benefit of and be enforceable by your personal
or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the
terms of this Agreement to your devisee, legatee, or other designee or, if
there
is no such designee, to your estate.
9. Maximization
of After-Tax Amounts.
Notwithstanding any other provision of this Agreement, and notwithstanding
any
other agreement or formal or informal compensation plan or arrangement, if
you
are a "disqualified individual," as defined in Section 280G(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), your right to receive any payment
or benefit under this Agreement shall be limited to the extent that: (i) such
payment or benefit, taking into account any other "payment in the nature of
compensation"
(within the meaning of Section 28OG of the Code) to you or for your
benefit
("Compensation"), would cause any payment or benefit under this Agreement to
be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of
the
Code as then in effect (a "Parachute Payment") and (ii) as a result of receiving
a Parachute Payment, the aggregate after-tax amount you would receive (under
this Agreement and otherwise) would be less than the maximum after-tax amount
that you could receive without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt
of any such payment or benefit under this Agreement, in conjunction with your
other Compensation,
would cause you to be considered to have received a Parachute Payment
that
would
have the effect of decreasing the after-tax amount received by you as described
in clause (ii) of the preceding sentence, then you shall have the right, in
your
sole discretion, to designate
any payments or benefits under this Agreement,
and
any
other Compensation, that shall
be
reduced or eliminated so as to avoid having the payment or benefit to you under
this
Agreement be deemed to be a Parachute Payment.
10. Miscellaneous.
No
provision of this Agreement may be modified, waived,
or
discharged unless such modification, waiver, or discharge is agreed to in a
writing signed by you and the Chief Executive Officer or President of the
Company. No waiver by either party hereto at any time of any breach by the
other
party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same, or at any prior
or
subsequent, time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by laws of the State of New York without giving effect to the
principles of conflict of laws thereof.
11. Legal
Fees and Expenses.
The
Company shall pay or reimburse any reasonable
legal fees and expenses you may incur in connection with any legal action
to
enforce
your rights under, or to defend the validity of, this Agreement. The Company
will pay or reimburse such legal fees and expenses on a regular, periodic basis
upon presentation
by you of a statement or statements prepared by your counsel in
accordance
with its
usual practices.
12. Validity.
The
invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this
Agreement, which shall remain in full force and effect.
13. Payments
During Controversy.
Notwithstanding the pendency of any dispute or controversy, the Company will
continue to pay you your full compensation in effect when the notice giving
rise
to the dispute was given (including, but not limited to, base
salary and installments of incentive compensation) and continue you as a
participant
in all
compensation, benefit, and insurance plans in which you were participating
when
the notice giving rise to the dispute was given, until the dispute is finally
resolved in accordance with section 7(c). Amounts paid under this section are
in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts
due under this Agreement. You shall be entitled to seek specific performance
of your
right to be paid until the Date of Termination during the pendency of any
dispute or
controversy arising under or in connection with this Agreement.
14. Illegality.
Anything
in this Agreement to the contrary notwithstanding, this Agreement is not
intended and shall not be construed to require any payment to you which
would violate any federal or state statute or regulation, including without
limitation the
"golden parachute payment regulations" of the Federal Deposit Insurance
Corporation
codified
to Part 359 of title 12, Code of Federal Regulations.
If
this
letter correctly sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this letter, which will
then
constitute our agreement on this subject.
|
Very
truly yours,
|
||
|
NBT
BANCORP INC.
|
||
|
By:
/S/
Daryl R. Forsythe
|
||
|
Agreed
To:
|
||
|
/S/
Ronald M. Bentley
|
||
|
Ronald
M. Bentley
|
Exhibit
10.26
Description
of Arrangements for Directors Fees
Description
of Arrangement for Directors Fees
Except
as
set forth below, the following sets forth the amount of fees payable to outside
directors of NBT Bancorp for their services as Directors in fiscal year
2006:
|
Event
|
Fee
|
|
Annual
retainer
|
Cash
- $5,000
Restricted
Stock - $10,000
|
|
Board
meeting attended
|
$900
per meeting
|
|
Telephonic
board meeting
|
$900
per meeting
|
|
Committee
meeting attended
|
Chairman
$900, Member $600
|
|
Telephonic
committee meeting
|
Chairman
$900, Member $600
|
|
Deferred
common stock
|
400
Shares
|
|
Common
stock options
|
1,000
shares multiplied by the number of board meetings attended in the
prior
year and divided by the number of meetings held in the prior
year.
|
|
Special
meeting held with committee member representative at the request
of
management
|
$900
per meeting
|
The
Chairman of the Board’s annual stock retainer is $50,000 (in the form of
unrestricted stock), his annual stock option award is 5,000 multiplied by the
number of board meetings attended during the year and divided by the number
of
meetings held and he receives $1,000 for each board and committee meeting
attended.
Exhibit
21
List
of
the subsidiaries of the Registrant
SUBSIDIARIES
OF THE REGISTRANT
NBT
BANCORP INC. has the following subsidiaries, which are wholly
owned:
NBT
Bank,
National Association
52
South
Broad Street
Norwich,
New York 13815
NBT
Financial Services, Inc.
52
South
Broad Street
Norwich,
New York 13815
CNBF
Capital Trust 1
24
Church
Street
Canajoharie,
New York 13317
NBT
Statutory Trust I
52
South
Broad Street
Norwich,
New York 13815
NBT
Statutory Trust II
52
South
Broad Street
Norwich,
New York 13815
Hathaway
Agency, Inc.
7
Church
Street
Gloversville,
New York 12078
EXHIBIT
23
Consent
of KPMG LLP
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors
NBT
Bancorp Inc.:
We
consent to incorporation by reference in the Registration Statements on Form
S-3
(File No. 33-12247) and Forms S-8 (File Nos. 333-71830, 333-73038, 333-66472,
333-97995, 333-72772, 333-107479, 333-107480 and 333-127098) of NBT Bancorp
Inc.
of our report dated March 6, 2006, with respect to the consolidated balance
sheets of NBT Bancorp Inc. and subsidiaries as of December 31, 2005 and 2004,
and the related consolidated statements of income, changes in stockholders'
equity, cash flows and comprehensive income for each of the years in the
three-year period ended December 31, 2005, management’s assessment of the
effectiveness of internal control over financial reporting as of December 31,
2005 and the effectiveness of internal control over financial reporting as
of
December 31, 2005, which reports appear in the December 31, 2005 annual report
on Form 10-K of NBT Bancorp Inc..
KPMG
LLP
Albany,
New York
March
14,
2006
CERTIFICATION
- Rule 13a-14(a) Certification of Chief Executive Officer
I,
Martin
A. Dietrich, certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K of NBT Bancorp
Inc.
|
|
2.
|
Based
on my knowledge, this annual 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
annual report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this annual 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 annual
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 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we
have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls or 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 annual report
is
being prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this annual 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
|
|
d)
|
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 quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
affect,
the registrant’s internal control over financial reporting;
and
|
|
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 control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial data and have identified
for the
registrant’s auditors any material weaknesses in internal controls;
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.
|
|
Date:
|
March
14, 2006
|
|
/S/
Martin A. Dietrich
|
Martin
A.
Dietrich
Chief
Executive Officer
CERTIFICATION
- Rule 13a-14(a) Certification of Chief Financial Officer
I,
Michael J. Chewens, certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K of NBT Bancorp
Inc.
|
|
2.
|
Based
on my knowledge, this annual 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
annual report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial
information
included in this annual 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 annual
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 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we
have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls or 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 annual report
is
being prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this annual 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
|
|
d)
|
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 quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
affect,
the registrant’s internal control over financial reporting;
and
|
|
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 control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial data and have identified
for the
registrant’s auditors any material weaknesses in internal controls;
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.
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|
Date:
|
March
14, 2006
|
|
/S/
Michael J. Chewens
|
Michael
J. Chewens
Senior
Executive Vice President, Chief Financial Officer and Corporate
Secretary
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED 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-K of the Company for the Annual Period Ended December 31,
2005,
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/
Martin A. Dietrich
|
|
|
Martin
A. Dietrich
|
|
|
Chief
Executive Officer
|
March
14,
2006
The
forgoing certification is being furnished solely pursuant to Subsections (a)
and
(b) of Section 1350, Chapter 63 of Title 18, United States Code in accordance
with Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section, and shall not be deemed
to
be incorporated by reference into any filing under the Securities Act of 1933
or
the Securities Exchange Act of 1934.
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED 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-K of the Company for the Annual Period Ended December 31,
2005,
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
|
March
14,
2006
The
forgoing certification is being furnished solely pursuant to Subsections (a)
and
(b) of Section 1350, Chapter 63 of Title 18, United States Code in accordance
with Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section, and shall not be deemed
to
be incorporated by reference into any filing under the Securities Act of 1933
or
the Securities Exchange Act of 1934.