SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________.
COMMISSION FILE NUMBER 0-14703
NBT BANCORP INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 16-1268674
(State of Incorporation) (I.R.S. Employer Identification No.)
52 SOUTH BROAD STREET NORWICH, NEW YORK 13815
(Address of Principal Executive Offices)(Zip
Code)
Registrant's Telephone Number, Including Area Code: (607) 337-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter periods that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
As of October 31, 1997, there were 9,002,467 shares outstanding, including
441,344 shares held in the treasury, of the Registrant's common stock, No Par,
Stated Value $1.00. There were no shares of the Registrant's preferred stock, No
Par, Stated Value $1.00, outstanding at that date.
An index to exhibits follows the signature page of this FORM 10-Q.
NBT BANCORP INC.
FORM 10-Q--Quarter Ended September 30, 1997
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 1997, December 31,
1996, and September 30, 1996
Consolidated Statements of Income for the three month and nine
month periods ended September 30, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the nine month
periods ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows for the nine month periods
ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements at September 30, 1997
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on FORM 8-K
SIGNATURES
INDEX TO EXHIBITS
-2-
NBT BANCORP INC. AND SUBSIDIARY SEPTEMBER 30, December 31, September 30,
CONSOLIDATED BALANCE SHEETS 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands) (UNAUDITED) (See Notes) (Unaudited)
ASSETS
Cash and due from banks $ 41,112 $ 35,790 $ 51,743
Federal funds sold and securities purchased under agreements
to resell 15,488 - -
Loans available for sale 3,335 4,135 3,788
Securities available for sale, at fair value 440,695 369,202 368,025
Securities held to maturity (fair value-$33,625,
$42,238 and $48,839) 33,626 42,239 48,842
Loans:
Commercial and agricultural 315,405 281,991 268,167
Real estate mortgage 128,863 119,870 118,847
Consumer 272,570 252,732 247,618
- ------------------------------------------------------------------------------------------------------------------
Total loans 716,838 654,593 634,632
Less allowance for loan losses 11,438 10,473 9,965
- ------------------------------------------------------------------------------------------------------------------
Net loans 705,400 644,120 624,667
Premises and equipment, net 17,603 16,307 16,259
Intangible assets, net 8,942 9,953 10,348
Other assets 16,130 17,240 17,641
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,282,331 $1,138,986 $1,141,313
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 127,054 $ 122,115 $ 119,510
Savings, NOW, and money market 371,931 359,141 378,706
Time 495,866 435,063 420,151
- ------------------------------------------------------------------------------------------------------------------
Total deposits 994,851 916,319 918,367
Short-term borrowings 158,762 88,244 91,626
Other borrowings 186 20,195 23,055
Other liabilities 9,658 7,964 6,395
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 1,163,457 1,032,722 1,039,443
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par, stated value $1.00; shares
authorized-2,500,000 - - -
Common stock, no par, stated value $1.00; shares
authorized-12,500,000; issued 9,002,467,
8,838,437 and 8,864,430 9,002 8,838 8,442
Capital surplus 85,531 82,731 75,461
Retained earnings 31,377 24,208 29,928
Unrealized gain (loss) on securities available for sale,
net of income tax effect 754 (1,529) (3,867)
Common stock in treasury at cost, 449,744,
481,449 and 489,092 shares (7,790) (7,984) (8,094)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 118,874 106,264 101,870
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,282,331 $1,138,986 $1,141,313
- ------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
-3-
Three months ended Nine months ended
NBT BANCORP INC. AND SUBSIDIARY September 30, September 30,
CONSOLIDATED STATEMENTS OF INCOME 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts) (Unaudited)
Interest and fee income:
Loans $16,599 $14,831 $47,741 $42,615
Securities - taxable 7,798 6,380 21,932 18,679
Securities - tax exempt 244 435 917 1,131
Other 207 32 300 71
- ------------------------------------------------------------------------------------------------------------------
Total interest and fee income 24,848 21,678 70,890 62,496
- ------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 8,735 7,981 25,880 23,747
Short-term borrowings 2,207 1,151 4,708 2,902
Other borrowings 133 235 705 395
- ------------------------------------------------------------------------------------------------------------------
Total interest expense 11,075 9,367 31,293 27,044
- ------------------------------------------------------------------------------------------------------------------
Net interest income 13,773 12,311 39,597 35,452
Provision for loan losses 965 875 2,680 2,175
- ------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,808 11,436 36,917 33,277
- ------------------------------------------------------------------------------------------------------------------
Noninterest income:
Trust income 687 654 2,060 1,963
Service charges on deposit accounts 926 847 2,763 2,421
Securities gains (losses) (90) 194 (72) 1,205
Other income 457 431 1,520 1,188
- ------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,980 2,126 6,271 6,777
- ------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 4,556 4,355 13,154 13,096
Net occupancy expense 584 596 1,892 1,894
Equipment expense 435 421 1,279 1,324
Amortization of intangible assets 314 395 1,051 1,185
Other operating expense 3,015 2,693 8,353 8,183
- ------------------------------------------------------------------------------------------------------------------
Total noninterest expense 8,904 8,460 25,729 25,682
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,884 5,102 17,459 14,372
Income taxes 2,182 1,764 6,275 5,386
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,702 $ 3,338 $11,184 $ 8,986
- ------------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.43 $ 0.39 $ 1.30 $ 1.05
Cash dividends per common share $ 0.170 $ 0.124 $ 0.470 $ 0.372
Average common shares outstanding 8,665,491 8,404,086 8,619,551 8,544,860
- ------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
-4-
NBT BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------
Unrealized
Gain(Loss)
On Securities
Common Capital Retained Available Treasury
Stock Surplus Earnings For Sale Stock Total
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (Unaudited)
BALANCE AT DECEMBER 31, 1995 $8,442 $75,464 $24,076 $ 2,822 $(2,760) $108,044
Net income 8,986 8,986
Cash dividends - $0.372 per share (3,134) (3,134)
Purchase of 411,348 treasury shares (6,851) (6,851)
Sale of 92,531 treasury shares to
dividend reinvestment and other
stock plans (3) 1,517 1,514
Unrealized loss on securities
available for sale, net of tax
effect of $1,348 (6,689) (6,689)
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 $8,442 $75,461 $29,928 $(3,867) $(8,094) $101,870
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $8,838 $82,731 $24,208 $(1,529) $(7,984) $106,264
Net income 11,184 11,184
Cash dividends - $0.470 per share (4,015) (4,015)
Common stock issued
to stock option plan 164 2,476 2,640
Purchase of 131,900 treasury shares (2,569) (2,569)
Sale of 163,605 treasury shares to
dividend reinvestment and other
stock plans 324 2,763 3,087
Unrealized gain on securities
available for sale, net of tax
effect of $3,526 2,283 2,283
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 $9,002 $85,531 $31,377 $ 754 $(7,790) $118,874
- --------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
-5-
NBT BANCORP INC. AND SUBSIDIARY Nine Months Ended September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1997 1996
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 11,184 $ 8,986
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 2,680 2,175
Depreciation and amortization of premises and equipment 1,064 1,139
Amortization of premiums and accretion of discounts on securities 96 99
Amortization of intangible assets 1,051 1,185
Proceeds from sales of loans originated for sale 3,559 3,820
Loans originated for sale (2,759) (3,294)
Realized (gains) losses on sales of securities 72 (1,205)
(Increase) decrease in interest receivable (105) 934
Increase in interest payable 617 165
Other, net 821 1,933
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,280 15,937
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities 28,787 27,282
Proceeds from sales 144,591 154,417
Purchases (241,105) (167,595)
Securities held to maturity:
Proceeds from maturities 22,037 23,848
Purchases (13,425) (32,380)
Net (increase) in loans (63,960) (45,802)
Purchase of premises and equipment, net (2,360) (931)
Sale of branch, net (219) -
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (125,654) (41,161)
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 78,532 45,335
Net increase (decrease) in short-term borrowings 70,518 (24,319)
Proceeds from issuance of other borrowings - 20,050
Repayments of other borrowings (20,009) (7)
Common stock issued, including treasury shares reissued 5,727 1,514
Purchase of treasury stock (2,569) (6,851)
Cash dividends and payment for fractional shares (4,015) (3,134)
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 128,184 32,588
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 20,810 7,364
Cash and cash equivalents at beginning of year 35,790 44,379
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 56,600 $ 51,743
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 30,676 $ 26,879
Income taxes 3,661 5,257
Noncash investing activity:
Transfer of loans available for sale to loans held to maturity - 1,775
- --------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
-6-
NBT BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of NBT Bancorp Inc. (the Registrant) and its wholly-owned subsidiary,
NBT Bank, N. A. (Bank). All intercompany transactions have been eliminated in
consolidation. Certain amounts previously reported in the financial statements
have been reclassified to conform with the current presentation.
The determination of the allowance for loan losses is a material estimate
that is particularly susceptible to significant change in the near term. In
connection with the determination of the allowance for loan losses, management
obtains independent appraisals for significant properties.
Net income per common share is computed based on the weighted average
number of common shares and common share equivalents outstanding during each
period after giving retroactive effect to stock dividends. Cash dividends per
common share are computed based on declared rates adjusted retroactively for
stock dividends.
The balance sheet at December 31, 1996 has been derived from audited
financial statements at that date. The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to FORM 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine month period ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Registrant's annual report on FORM 10-K for the year
ended December 31, 1996.
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 125 Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. This statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on consistent
application of a financial-components approach that focuses on control. The
Company adopted SFAS No. 125 on January 1, 1997 and there was no material impact
on the Company's financial statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 (SFAS No. 128) Earnings Per Share effective for periods ending
after December 15, 1997. SFAS No. 128 was issued to simplify the computation of
Earnings Per Share (EPS) and to make the U.S. standard more compatible with
international standards. Prior period EPS will be restated after the effective
date of this statement. The adoption of SFAS No. 128 should have no significant
effect on earnings per share as the Company does not have a complex capital
structure.
In February 1997, the FASB issued SFAS No. 129 Disclosure of
Information about Capital Structure. SFAS No. 129 consolidates existing
disclosure requirements and eliminates the exemption of nonpublic entities from
certain capital disclosure requirements. The new Statement contains no change in
disclosure requirements for companies that were subject to the previously
existing requirements. The adoption of SFAS No. 129 should not have a material
impact on the Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 130 Reporting Comprehensive
Income. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. The impact of adopting SFAS No. 130, which
is effective for periods beginning after December 15, 1997, has not been
determined.
In June 1997, the FASB issued SFAS No. 131 Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 requires public business
enterprises to report financial and other information about key
revenue-producing segments of the entity for which such information is available
and is utilized by the chief operating decision maker. Specific information to
be reported for individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be provided.
SFAS No. 131 is effective for periods beginning after December 15, 1997 and the
impact of its adoption has not been determined.
-7-
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, various commitments and contingent liabilities
arise, including commitments to extend credit and standby letters of credit.
Also, off-balance sheet financial instruments such as interest rate swaps,
forward contracts, futures, options on financial futures, and interest rate
caps, collars and floors bear risk based on financial market conditions. The
following table summarizes the Registrant's exposure to these off-balance sheet
commitments and contingent liabilities as of September 30, 1997:
Contractual or
Notional Value
at September 30, 1997
Financial instruments with off-balance sheet credit risk:
Commitments to extend credit $116,209,000
Standby letters of credit 1,753,000
Financial instruments with off-balance
sheet market risk None
-8-
NBT BANCORP INC. AND SUBSIDIARY
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to provide the reader with a
concise description of the financial condition and results of operations of NBT
Bancorp Inc. (Bancorp) and its wholly owned subsidiary, NBT Bank, N.A. (Bank)
collectively referred to herein as the Company. This discussion will focus on
Results of Operations, Financial Position, Capital Resources and Asset/Liability
Management. Reference should be made to the Company's consolidated financial
statements and footnotes thereto included in this FORM 10-Q as well as to the
Company's 1996 FORM 10-K for an understanding of the following discussion and
analysis. The Company has a long history of distributing stock dividends; in
December 1996, a 5% stock dividend was distributed for the thirty-seventh
consecutive year. Throughout this discussion and analysis, amounts per common
share have been adjusted retroactively for stock dividends and splits for
purposes of comparability.
On October 28, 1997, Bancorp announced the declaration of a 5% stock
dividend and a regular quarterly cash dividend of $0.17 per share. The stock and
cash dividends will be paid on December 15, 1997 to shareholders of record as of
December 1, 1997. The cash dividend will be paid on the increased number of
shares. Amounts per common share have not been adjusted for the prospective
December 15, 1997 stock dividend. The adjustment for purposes of comparability
will occur after the payment date.
On October 6, 1997, the Company opened a new branch in Rome, New York.
In addition, the Company recently announced the plans for construction of a full
service branch in Oneonta, New York with an anticipated opening date of January
1998.
OVERVIEW
Net income of $3.7 million ($0.43 per share) was realized in the third quarter
of 1997, representing a 10.9% increase from third quarter 1996 net income of
$3.3 million ($0.39 per share). The major contributing factor for the increase
in net income was increased net interest income. The increase in net interest
income was a result of an increase in average earning assets, primarily loans
and investment securities.
Net income of $11.2 million ($1.30 per share) was realized for the nine
month period ended September 30, 1997, a 24.5% increase from the first nine
months 1996 net income of $9.0 million ($1.05 per share). The increased
profitability for the nine months ended September 30, 1997 was driven by factors
similar to those of third quarter 1997.
Table 1 depicts several measurements of performance on an annualized
basis. Returns on average assets and equity measure how effectively an entity
utilizes its total resources and capital, respectively. Both the return on
average assets and the return on average equity ratios increased for the nine
month period ended September 30, 1997 compared to the same period a year
previous.
Net interest margin, net federal taxable equivalent (FTE) interest
income divided by average interest-earning assets, is a measure of an entity's
ability to utilize its earning assets in relation to the interest cost of
funding. Taxable equivalency adjusts income by increasing tax exempt income to a
level that is comparable to taxable income before taxes are applied.
TABLE 1
PERFORMANCE MEASUREMENTS
- ------------------------------------------------------------------------------------------------
First Second THIRD NINE Fourth Twelve
Quarter Quarter QUARTER MONTHS Quarter Months
- ------------------------------------------------------------------------------------------------
1997
Return on average assets 1.19% 1.33% 1.17% 1.23%
Return on average equity 12.82% 14.78% 12.74% 13.43%
Net interest margin 4.71% 4.65% 4.64% 4.66%
- ------------------------------------------------------------------------------------------------
1996
Return on average assets 1.09% 0.99% 1.18% 1.09% 1.12% 1.10%
Return on average equity 10.94% 10.90% 13.28% 11.69% 12.11% 11.80%
Net interest margin 4.66% 4.64% 4.70% 4.67% 4.77% 4.69%
- ------------------------------------------------------------------------------------------------
-9-
NET INTEREST INCOME
Net interest income is the difference between interest income on earning assets,
primarily loans and securities, and interest expense on interest bearing
liabilities, primarily deposits and borrowings. Net interest income is effected
by the interest rate spread, the difference between the yield on earning assets
and cost of interest bearing liabilities, as well as the volumes of such assets
and liabilities. Table 2 represents an analysis of net interest income on a
federal taxable equivalent basis.
Federal taxable equivalent (FTE) net interest income increased $1.4
million for the third quarter of 1997 compared to the same period of 1996. This
increase was primarily a result of the $127.6 million increase in average
earning assets, less the $99.1 million increase in average interest bearing
liabilities.
Total FTE interest income increased $3.1 million over third quarter
1996. This increase is also primarily a result of the increase in average
earning assets. Also contributing to the increase in interest income was a 13
basis point (0.13%) increase in the yield on average earning assets, primarily
driven by a 41 basis point (0.41%) increase in the yield earned on the
securities available for sale portfolio. During the same time period, total
interest expense increased $1.7 million. The cost of interest bearing
liabilities increased 26 basis points (0.26%), as certificates of deposit and
short-term borrowing costs increased. The increase in average interest bearing
liabilities also contributed to the increase in overall interest expense, as
certificates of deposits and short-term borrowings experienced volume increases.
For the first nine months of 1997, FTE net interest income increased
$4.1 million over the comparable period of 1996. This increase can be attributed
to a $118.3 million increase in average earning assets, less a $105.0 million
increase in interest bearing liabilities.
As previously stated, net interest margin is a measure of an entity's
ability to utilize its earning assets in relation to the interest cost of
funding. The net interest margin of 4.64% for the quarter ended September 30,
1997 was down from 4.70% for the comparable period of 1996. The decline is due
to the increase in funding costs being greater than the increase in the yield on
earning assets. The net interest margin of 4.66% for first nine months of 1997
is comparable to 4.67% for the same period in 1996.
-10-
TABLE 2
COMPARATIVE ANALYSIS OF FEDERAL TAXABLE EQUIVALENT NET INTEREST INCOME
Three months ended September 30,
Annualized
Yield/Rate Amounts Variance
1997 1996 (dollars in thousands) 1997 1996 Total Volume Rate
---- ---- ---- ---- ----- ------ ----
4.69% 8.57% Interest bearing deposits $ 1 $ 5 $ (4) $ (2) $ (2)
5.16% 5.41% Federal funds sold 186 7 179 180 (1)
5.50% 5.16% Other short-term investments 20 20 - (1) 1
6.93% 6.52% Securities available for sale 7,581 6,201 1,380 953 427
7.89% 8.24% Loans available for sale 57 70 (13) (10) (3)
Securities held to maturity:
7.03% 6.15% Taxable 242 190 52 22 30
7.36% 6.64% Tax exempt 347 658 (311) (377) 66
9.31% 9.37% Loans 16,598 14,796 1,802 1,835 (33)
------------------------------------------------------------------------------------
8.33% 8.20% Total interest income 25,032 21,947 3,085 2,600 485
2.91% 2.94% Money Market Deposit Accounts 647 723 (76) (70) (6)
1.61% 1.59% NOW accounts 483 457 26 20 6
2.81% 2.82% Savings accounts 1,115 1,159 (44) (43) (1)
5.37% 5.20% Certificates of deposit 6,490 5,642 848 640 208
5.65% 5.29% Short-term borrowings 2,207 1,151 1,056 968 88
6.25% 6.33% Other borrowings 133 235 (102) (100) (2)
------------------------------------------------------------------------------------
4.36% 4.10% Total interest expense 11,075 9,367 1,708 1,415 293
------------------------------------------------------------------------------------
Net interest income $13,957 $12,580 $1,377 $1,185 $192
====================================================================================
3.97% 4.10% Interest rate spread
===== ===== ====================
4.64% 4.70% Net interest margin
===== ===== ===================
FTE adjustment $ 184 $ 269
============== ======= =======
Nine Months Ended September 30,
Annualized
Yield/Rate Amounts Variance
1997 1996 (dollars in thousands) 1997 1996 Total Volume Rate
---- ---- ---- ---- ----- ------ ----
4.52% 5.84% Interest bearing deposits $ 4 $ 14 $ (10) $ (6) $ (4)
5.17% 5.60% Federal funds sold 192 15 177 178 (1)
5.28% 5.19% Other short-term investments 104 42 62 62 -
6.81% 6.44% Securities available for sale 21,330 18,076 3,254 2,211 1,043
8.30% 8.61% Loans available for sale 231 296 (65) (54) (11)
Securities held to maturity:
6.92% 6.66% Taxable 670 624 46 22 24
6.79% 7.01% Tax exempt 1,339 1,719 (380) (325) (55)
9.32% 9.31% Loans 47,678 42,421 5,257 5,228 29
-----------------------------------------------------------------------------------
8.29% 8.16% Total interest income 71,548 63,207 8,341 7,316 1,025
2.92% 2.93% Money Market Deposit Accounts 2,020 2,304 (284) (274) (10)
1.62% 1.73% NOW accounts 1,424 1,365 59 149 (90)
2.83% 2.95% Savings accounts 3,294 3,530 (236) (94) (142)
5.29% 5.23% Certificates of deposit 19,142 16,548 2,594 2,414 180
5.50% 5.17% Short-term borrowings 4,708 2,902 1,806 1,619 187
5.80% 7.58% Other borrowings 705 395 310 421 (111)
-----------------------------------------------------------------------------------
4.27% 4.13% Total interest expense 31,293 27,044 4,249 4,235 14
-----------------------------------------------------------------------------------
Net interest income $40,255 $36,163 $4,092 $3,081 $1,011
===================================================================================
4.02% 4.03% Interest rate spread
===== ===== ====================
4.66% 4.67% Net interest margin
===== ===== ===================
FTE adjustment $ 658 $ 711
============== ======= =======
-11-
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation allowance established to provide
for the estimated possible losses related to the collection of the Company's
loan portfolio. The allowance is maintained at a level considered adequate to
provide for loan loss exposure based on management's estimate of potential
future losses considering an evaluation of portfolio risk, prevailing and
anticipated economic factors, and past loss experience. Management determines
the provision and allowance for loan losses based on a number of factors
including a comprehensive in-house loan review program conducted throughout the
year. The loan portfolio is continually evaluated in order to identify potential
problem loans, credit concentration, and other risk factors such as current and
projected economic conditions. The allowance for loan losses to outstanding
loans at September 30, 1997 is 1.60%, up from 1.57% at September 30, 1996.
Management considers the allowance for loan losses to be adequate based on
evaluation and analysis of the loan portfolio.
Table 3 reflects changes to the allowance for loan losses for the
periods presented. The allowance is increased by provisions for losses charged
to operations and is reduced by net charge-offs. Charge-offs are made when the
collectability of loan principal within a reasonable time is unlikely. Any
recoveries of previously charged-off loans are credited directly to the
allowance for loan losses. Net charge-offs for the third quarter of 1997 were
$0.6 million, or 0.34% of average loans, compared to $0.3 million, or 0.22% of
average loans for the same period of 1996. The rise in net charge-offs was
concentrated in the commercial and consumer portfolios, partially offset by a
decline in real estate mortgage charge-offs. The increase in commercial
charge-offs can be attributed to one customer. Personal bankruptcies have
resulted in an increase to consumer charge-offs.
Net charge-offs for the nine months ended September 30, 1997 were $1.7
million, or 0.34% of average loans, compared to $1.3 million, or 0.29% of
average loans for the same period during the previous year. The increase in
year to date charge-offs can also be attributed to the personal bankruptcies
experienced in the consumer portfolio.
TABLE 3
ALLOWANCE FOR LOAN LOSSES
- -----------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
Balance, beginning of period $11,085 $9,438 $10,473 $ 9,120
Recoveries 271 230 666 692
Charge-offs (883) (578) (2,381) (2,022)
- -------------------------------------------------------------------------------------------------------
Net (charge-offs) (612) (348) (1,715) (1,330)
Provision for loan losses 965 875 2,680 2,175
- -------------------------------------------------------------------------------------------------------
Balance, end of period $11,438 $9,965 $11,438 $ 9,965
- -------------------------------------------------------------------------------------------------------
COMPOSITION OF NET (CHARGE-OFFS)
- -------------------------------------------------------------------------------------------------------
Commercial and agricultural $ (321) 52% $ (212) 61% $ (683) 40% $ (708) 53%
Real estate mortgage (30) 5% (88) 25% (37) 2% (171) 13%
Consumer (261) 43% (48) 14% (995) 58% (451) 34%
- -------------------------------------------------------------------------------------------------------
Net (charge-offs) $ (612) 100% $ (348) 100% $(1,715) 100% $(1,330) 100%
- -------------------------------------------------------------------------------------------------------
Annualized net charge-offs
to average loans 0.34% 0.22% 0.34% 0.29%
- -------------------------------------------------------------------------------------------------------
Annualized net charge-offs to average loans for the year ended
December 31, 1996 0.29%
- -------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Table 4 below presents quarterly and year-to-date noninterest income.
Noninterest income for the third quarter of 1997, excluding security gains and
nonrecurring income, increased $0.1 million or 7.1% when compared to third
quarter of 1996. Service charges on deposit accounts were a major contributor to
this increase, as the Company has placed emphasis on collection, instead of
waiver, of overdraft charges. Trust income has continued its growth trend as
managed assets have steadily increased. For the nine month period ended
September 30, 1997, excluding security gains and nonrecurring income,
noninterest income increased $0.6 million or 9.9% compared to the same period
during 1996. The decline in securities gains for the quarter and year-to-date
periods can be attributed to the change in market conditions from the previous
year. Other income for the nine month period ended September 30, 1997 includes a
one-time gain of $0.2 million on the sale of the Hamden branch to The National
Bank of Delaware County during the second quarter.
-12-
TABLE 4
NONINTEREST INCOME
- --------------------------------------------------------------------------------------------------
First Second THIRD NINE Fourth Twelve
(dollars in thousands) Quarter Quarter QUARTER MONTHS Quarter Months
- --------------------------------------------------------------------------------------------------
1997
Trust income $ 686 $ 687 $ 687 $2,060
Service charges on deposit accounts 904 933 926 2,763
Securities gains (losses) 17 1 (90) (72)
Other income 413 650 457 1,520
- -------------------------------------------------------------------------------------------------
Total noninterest income $2,020 $2,271 $1,980 $6,271
- -------------------------------------------------------------------------------------------------
1996
Trust income $ 654 $ 655 $ 654 $1,963 $ 679 $2,642
Service charges on deposit accounts 775 799 847 2,421 951 3,372
Securities gains (losses) 792 219 194 1,205 (26) 1,179
Other income 363 394 431 1,188 481 1,669
- -------------------------------------------------------------------------------------------------
Total noninterest income $2,584 $2,067 $2,126 $6,777 $2,085 $8,862
- -------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE AND OPERATING EFFICIENCY
Table 5 presents components of noninterest expense as well as selected operating
efficiency ratios. Noninterest expense for the quarter ended September 30, 1997
experienced a $0.4 million increase compared to the same period of 1996.
Noninterest expense for the nine months ended September 30, 1997 experienced a
minimal increase as compared to the same period of 1996.
Salaries and wages decreased by $0.1 million for the first nine months
of 1997, compared to the same period during 1996. This salary reduction resulted
from a decline of 31 average full-time equivalent (FTE) employees, primarily
through normal attrition without replacement. Also contributing to the reduction
of FTE's was the outsourcing of the Company's items processing function.
Employee benefits for the third quarter and nine months ended September
30, 1997 experienced a $0.2 million increase compared to the same time periods
of 1996. This increase can be attributed to a rise in the accrual for executive
incentive compensation based on current years income performance.
Legal, audit, and outside services expense declined $0.2 million for
the nine months ended September 30, 1997 compared to the same period in 1996.
During the first nine months of 1996, the Company invested $0.1 million in a
nonrecurring reengineering initiative to enhance customer service and operating
efficiencies.
Other operating expense increased by $0.3 million for the nine months
ended September 30, 1997 as compared to the same period during 1996. This
increase can be attributed to several expense categories, with the greatest
increases in the supplies and communications, training and development, and
miscellaneous charge-off categories.
Two important operating efficiency measures that the Company closely
monitors are the efficiency and expense ratios. The efficiency ratio is computed
as total noninterest expense (excluding nonrecurring charges) divided by net
interest income plus noninterest income (excluding net security gains and losses
and nonrecurring income). The efficiency ratio declined to 55.6% in the third
quarter of 1997 from 58.3% for the same period of 1996. This favorable decline
was a result of the increase in net interest income, while maintaining
noninterest expense at a stable level. The expense ratio is computed as total
noninterest expense (excluding nonrecurring charges) less noninterest income
(excluding net security gains and losses and nonrecurring income) divided by
average assets. The expense ratio declined to 2.2% for the third quarter 1997
from 2.3% for the same period of 1996. The decline reflects positive expense
control efforts and increased assets.
-13-
TABLE 5
NONINTEREST EXPENSE AND PRODUCTIVITY MEASUREMENTS
- ---------------------------------------------------------------------------------------------------
First Second THIRD NINE Fourth Twelve
(dollars in thousands) Quarter Quarter QUARTER MONTHS Quarter Months
- ---------------------------------------------------------------------------------------------------
1997
Salaries and wages $3,042 $3,150 $3,196 $ 9,388
Employee benefits 1,309 1,097 1,360 3,766
Net occupancy expense 654 654 584 1,892
Equipment expense 436 408 435 1,279
FDIC insurance 28 29 30 87
Legal, audit, and outside services 930 891 1,013 2,834
Loan collection and other loan
related expenses 423 375 552 1,350
Amortization of intangible assets 378 359 314 1,051
Other operating expense 1,359 1,303 1,420 4,082
- ---------------------------------------------------------------------------------------------------
Total noninterest expense $8,559 $8,266 $8,904 $25,729
- ---------------------------------------------------------------------------------------------------
Efficiency ratio 57.56% 53.38% 55.56% 55.47%
Expense ratio 2.27% 2.05% 2.16% 2.16%
Average full-time equivalent
employees 498 496 495 496
Average assets per average
full-time equivalent employee
(millions) $ 2.3 $ 2.5 $ 2.5 $ 2.4
- ---------------------------------------------------------------------------------------------------
1996
Salaries and wages $3,208 $3,174 $3,146 $ 9,528 $3,236 $12,764
Employee benefits 1,244 1,115 1,209 3,568 1,485 5,053
Net occupancy expense 674 624 596 1,894 497 2,391
Equipment expense 462 441 421 1,324 441 1,765
FDIC insurance 1 - 1 2 - 2
Legal, audit, and outside services 983 1,086 958 3,027 846 3,873
Loan collection and other loan
related expenses 343 520 459 1,322 544 1,866
Amortization of intangible assets 395 395 395 1,185 395 1,580
Other operating expense 1,276 1,281 1,275 3,832 1,296 5,128
- ---------------------------------------------------------------------------------------------------
Total noninterest expense $8,586 $8,636 $8,460 $25,682 $8,740 $34,422
- ---------------------------------------------------------------------------------------------------
Efficiency ratio 64.34% 62.23% 58.29% 61.53% 58.52% 60.74%
Expense ratio 2.55% 2.46% 2.30% 2.43% 2.33% 2.41%
Average full-time equivalent
employees 534 530 516 527 503 521
Average assets per average
full-time equivalent employee
(millions) $ 2.0 $ 2.1 $ 2.2 $ 2.1 $ 2.3 $ 2.1
- ---------------------------------------------------------------------------------------------------
INCOME TAXES
Income tax expense for the third quarter of 1997 was $2.2 million, compared with
$1.8 million for the third quarter of 1996. For the first nine months of 1997,
income tax expense amounted to $6.3 million, compared with $5.4 million for the
same period of 1996. The year-to-date increase in income tax expense of $0.9
million is primarily due to a $3.1 million, or 21.5% increase in income before
income taxes.
-14-
TABLE 6
AVERAGE BALANCES
- -------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------
Securities available for sale $ 434,367 $ 372,901 $ 417,944 $ 372,707
Securities held to maturity 32,367 51,698 39,313 45,260
- -------------------------------------------------------------------------------------------------
Total securities 466,734 424,599 457,257 417,967
Loans available for sale 2,861 3,379 3,720 4,591
Loans 707,709 629,458 684,266 609,238
Deposits 965,188 920,922 962,543 911,451
Short-term borrowings 154,997 86,610 114,539 74,908
Other borrowings 8,449 14,775 16,235 6,960
Stockholders' equity 115,313 100,028 111,303 102,684
Assets 1,254,842 1,130,081 1,214,229 1,103,523
Earning assets 1,192,781 1,065,157 1,153,839 1,035,527
Interest bearing liabilities $1,007,660 $ 908,594 $ 979,992 $ 874,949
- -------------------------------------------------------------------------------------------------
SECURITIES
Average total securities increased $42.1 million, or 9.9%, for the third quarter
of 1997 over the same period of 1996. Also, a $39.3 million, or 9.4% increase in
average securities occurred for the nine month period ended September 30, 1997
compared to the same period of 1996. These increases were realized in the
securities available for sale category. During the third quarter of 1997, the
securities portfolio represented 39.1% of average earning assets. Investments
are primarily U.S. Government agency guaranteed securities classified as
available for sale. Held to maturity securities are obligations of the State of
New York political subdivisions and do not include any direct obligations of the
State of New York. At September 30, 1997, the composition of the securities
portfolio was 93% available for sale and 7% held to maturity.
LOANS
Average loan volume for the three months ended September 30, 1997 was $78.3
million, or 12.4% greater than the third quarter 1996 average. The loan growth
has been present in all loan categories, with the most significant increases in
commercial and consumer loans, $44.5 and $27.1 million, respectively.
The Company has experienced an increase in the demand for commercial
loans, with growth of $33.4 million, or 11.8% since year-end 1996, primarily in
the business and real estate categories. The consumer loan increase can be
attributed to homequity loans, as volumes have increased $18.7 million since
year-end 1996, primarily in the revolving category. During the third quarter of
1997, the loan portfolio represented 59.3% of average earning assets. The
Company does not engage in highly leveraged transactions or foreign lending
activities.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets consist of nonaccrual loans and other real estate owned
(OREO). Loans are generally placed on nonaccrual when principal or interest
payments become ninety days past due, unless the loan is well secured and in the
process of collection. Loans may also be placed on nonaccrual when circumstances
indicate that the borrower may be unable to meet the contractual principal or
interest payments. OREO represents property acquired through foreclosure and is
valued at the lower of the outstanding loan balance or fair market value, less
any estimated disposal costs.
Total nonperforming assets increased $0.5 million, or 9.9% at September
30, 1997 compared to September 30, 1996. Impaired commercial and agricultural
loans increased $0.6 million, while real estate and consumer loans experienced a
minimal decline between the reporting periods. The changes in nonperforming
assets are presented in Table 7 below.
At September 30, 1997, the recorded investment in impaired loans was
$3.5 million. Included in this amount is $0.2 million of impaired loans for
which the specifically allocated allowance for loan loss is $0.1 million. In
addition, included in impaired loans is $3.3 million of impaired loans that, as
a result of the adequacy of collateral values and cash flow analysis do not have
a specific reserve. At December 31, 1996, the recorded investment in impaired
loans was $2.6 million, of which $0.4 million had a specific allowance
allocation of $0.1 million and $2.2 million of which there was no specific
reserve. At September 30, 1996, the recorded investment in impaired loans was
$3.1 million, of which $1.2 million had a specific allowance allocation of $0.4
million and $1.9 million of which there was no specific reserve. The Company
classifies all nonaccrual loans as impaired loans, except smaller-balance
homogeneous loans that are collectively evaluated for impairment.
-15-
TABLE 7
NONPERFORMING ASSETS AND RISK ELEMENTS
- ---------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
(in thousands) 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------
Impaired commercial and agricultural loans $3,531 76% $2,441 73% $2,941 71%
Other nonaccrual loans:
Real estate mortgage 444 10% 251 8% 507 12%
Consumer 649 14% 628 19% 680 17%
- ---------------------------------------------------------------------------------------------------------
Total nonaccrual loans 4,624 100% 3,320 100% 4,128 100%
- ---------------------------------------------------------------------------------------------------------
Other real estate owned 1,136 1,242 1,115
- ---------------------------------------------------------------------------------------------------------
Total nonperforming assets 5,760 4,562 5,243
- ---------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Commercial and agricultural 178 18% 418 40% 221 36%
Real estate mortgage 434 44% 344 33% 193 31%
Consumer 378 38% 289 27% 201 33%
- ---------------------------------------------------------------------------------------------------------
Total 990 100% 1,051 100% 615 100%
- ---------------------------------------------------------------------------------------------------------
Total assets containing risk elements $6,750 $5,613 $5,858
- ---------------------------------------------------------------------------------------------------------
Total nonperforming assets to loans 0.80% 0.70% 0.83%
Total assets containing risk elements to loans 0.94% 0.86% 0.92%
Total nonperforming assets to assets 0.45% 0.40% 0.46%
Total assets containing risk elements to assets 0.53% 0.49% 0.51%
- ---------------------------------------------------------------------------------------------------------
TABLE 8
CHANGES IN NONACCRUAL AND IMPAIRED LOANS
- -----------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------
Balance at beginning of period $3,619 $4,669 $ 3,320 $ 4,817
Loans placed on nonaccrual 2,337 1,164 5,025 4,824
Charge-offs (621) (361) (1,503) (1,240)
Payments (644) (786) (1,689) (2,892)
Transfers to OREO (25) (232) (332) (463)
Loans returned to accrual (42) (326) (197) (918)
- -----------------------------------------------------------------------------------------
Balance at end of period $4,624 $4,128 $ 4,624 $ 4,128
- -----------------------------------------------------------------------------------------
CHANGES IN OREO
- -----------------------------------------------------------------------------------------
Balance at beginning of period $ 887 $ 986 $ 1,242 $ 2,000
Additions 608 244 960 511
Sales (306) (55) (910) (1,158)
Write-downs (53) (60) (156) (238)
- -----------------------------------------------------------------------------------------
Balance at end of period $1,136 $1,115 $ 1,136 $ 1,115
- -----------------------------------------------------------------------------------------
DEPOSITS
Customer deposits represent the greatest source of funding assets. Average total
deposits for the quarter ended September 30, 1997, increased $44.3 million, or
4.8% from the same period in 1996. Time deposits experienced a $47.7 million
increase, while other deposit categories saw a decline in average balances. The
increase in time deposits can be attributed to municipal time deposits. Average
municipal time deposits for third quarter 1997 increased $43.7 million over
third quarter 1996. During the third quarter of 1997, average transaction and
savings deposits (DDA, Savings, MMDA and NOW's) decreased by $3.4 million
compared to the third quarter 1996.
BORROWED FUNDS
The Company's borrowed funds consist of short-term borrowings and other
borrowings. Short-term borrowings include federal funds purchased, securities
sold under agreement to repurchase, and Federal Home Loan Bank advances. Other
borrowings include a 366 day advance, hence one day longer than would qualify
for short-term classification, which matured in July 1997. Average borrowings
for the nine months ended September 30, 1997 increased $48.9 million, or 59.7%
as compared to the same period of 1996. The Company has increased its use of
borrowings as a source of funding the growth in earning assets. Utilization of
broker repurchase agreements as a source of funds have increased an average of
$30.1 million for the first nine months of 1997 compared to the same period in
1996.
-16-
CAPITAL AND DIVIDENDS
Stockholders' equity of $118.9 million represents 9.3% of total assets at
September 30, 1997, compared with $106.3 million, or 9.3% at December 31, 1996
and $101.9 million, or 8.9% a year previous. The equity increase is primarily
due to earnings retention. Also contributing to the increase in equity is the
appreciation in the value reflected in the securities available for sale
portfolio.
On a per share basis, cash dividends declared were increased in
December 1996 as the Company declared a 5% stock dividend in October 1996
followed by a 15% increase in the cash dividend to $0.15 per share. In July of
1997, the Company raised the third quarter cash dividend to $0.17 per share, a
13% increase. The dividend increase reflects the Company's earnings and capital
strength. The Company does not have a target dividend payout ratio, rather the
Board of Directors considers the Company's earnings position and earnings
potential when making dividend decisions.
The accompanying Table 10 presents the high, low and closing sales
price for the common stock as reported on the NASDAQ National Market System, and
cash dividends declared per share of common stock. At September 30, 1997, total
market capitalization of the Company's common stock was approximately $225.6
million compared to $150.4 million at December 31, 1996 and $134.6 million at
September 30, 1996. The change in market capitalization is due to an increase in
the stock's market price, as well as a slight increase in the number of shares
outstanding. The Company's price to book value ratio was 1.90 at September 30,
1997 and 1.32 a year previous. The per share market price was 15 times
annualized earnings at September 30, 1997 and 11 times annualized earnings at
September 30, 1996.
Capital is an important factor in ensuring the safety of depositors'
accounts. For both 1996 and 1995, the Company earned the highest possible
national safety and soundness rating from two national bank rating services,
Bauer Financial Services and Veribanc, Inc. In October of 1997, the Company
earned the Blue Ribbon Bank designation from Veribanc for the second quarter of
1997. Their ratings are based on capital levels, loan portfolio quality and
security portfolio strength.
As the capital ratios in Table 9 indicate, the Company remains well
capitalized. Capital measurements are significantly in excess of regulatory
minimum guidelines and meet the requirements to be considered well capitalized
for all periods presented. Tier 1 and risk-based capital ratios have regulatory
minimum guidelines of 4% and 8% respectively, with requirements to be considered
well capitalized of 6% and 10%, respectively.
TABLE 9
CAPITAL MEASUREMENTS
- --------------------------------------------------------------------------------------------------
First Second THIRD Fourth
Quarter Quarter QUARTER Quarter
- --------------------------------------------------------------------------------------------------
1997
Tier 1 leverage ratio 8.91% 8.75% 8.76%
Tier 1 capital ratio 14.53% 14.46% 14.47%
Total risk-based capital ratio 15.78% 15.71% 15.73%
Cash dividends as a percentage of net income 36.46% 34.27% 35.90%
Per common share:
Book value $12.60 $13.33 $13.90
Tangible book value $11.47 $12.24 $12.85
- --------------------------------------------------------------------------------------------------
1996
Tier 1 leverage ratio 8.83% 8.55% 8.49% 8.70%
Tier 1 capital ratio 14.73% 14.29% 14.00% 14.06%
Total risk-based capital ratio 15.98% 15.54% 15.25% 15.31%
Cash dividends as a percentage of net income 36.90% 38.55% 34.87% 36.10%
Per common share:
Book value $12.04 $11.98 $12.20 $12.72
Tangible book value $10.73 $10.71 $10.96 $11.52
- --------------------------------------------------------------------------------------------------
-17-
TABLE 10
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
- ------------------------------------------------------------------------------
Cash
Dividends
Quarter Ending High Low Close Declared
- ------------------------------------------------------------------------------
1996
March 31 $16.22 $15.24 $16.19 $0.124
June 30 16.67 15.60 15.60 0.124
September 30 16.43 15.00 16.07 0.124
December 31 19.00 16.07 18.00 0.150
- ------------------------------------------------------------------------------
1997
March 31 $20.00 $17.63 $19.50 $0.150
June 30 26.88 19.50 26.88 0.150
SEPTEMBER 30 26.75 22.25 26.38 0.170
- ------------------------------------------------------------------------------
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objectives of asset and liability management are to provide for the
safety of depositor and investor funds, assure adequate liquidity, and maintain
an appropriate balance between interest sensitive earning assets and interest
bearing liabilities. Liquidity management involves the ability to meet the cash
flow requirements of customers who may be depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. The Asset/Liability Management 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 must also provide the
flexibility to implement appropriate strategies and tactical actions.
Requirements change as loans grow, deposits and securities mature, and payments
on borrowings are made. Interest rate sensitivity management seeks to avoid
widely fluctuating net interest margins and to ensure consistent net interest
income through periods of changing economic conditions.
The Company's primary measure of liquidity is called the basic surplus,
which compares the adequacy of cash sources to the amounts of volatile funding
sources. 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. Accordingly, the Company has established borrowing
agreements with other banks (Federal Funds), the Federal Home Loan Bank of New
York (short and long-term borrowings which are denoted as advances), and
repurchase agreements with major brokerage firms.
At September 30, 1997 and 1996, the Company's basic surplus ratios (net
access to cash and secured borrowings as a percentage of total assets) were
approximately 7.3% and 11.1%, respectively. The Company has set a present
internal minimum guideline range of 5% to 7%. As these ratios indicate, the
Company's liquidity is well within management standards.
Interest rate risk is determined by the relative sensitivities of
earning asset yields and interest bearing liability costs to changes in interest
rates. The method by which banks evaluate interest rate risk is to look at the
interest sensitivity gap, the difference between interest sensitive assets and
interest sensitive liabilities repricing during the same period, measured at a
specific point in time. Through analysis of the interest sensitivity gap, the
Company attempts to position its assets and liabilities to maximize net interest
income in several different interest rate scenarios. As of September 30, 1997,
the interest sensitivity gap indicates that the Company is liability sensitive.
The liability sensitivity is a result of the increased loan growth being funded
through short-term deposits and borrowings. The Company is currently positioned
to benefit from a declining interest rate environment; however, the nature and
timing of the benefit will be initially impacted by the extent to which core
deposit and borrowing rates are decreased as rates lower. At September 30, 1997,
a 100 basis point gradual increase or decrease in interest rates was estimated
to have less than a 2.4% impact on net interest income relative to a flat rate
environment over the next twelve month period.
-18-
- -------------------------------------------------------------------------------------------------------------------
SELECTED FIVE YEAR DATA 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
Net income $ 12,179 $ 9,329 $ 6,508 $ 8,505 $ 8,043
Return on average assets 1.10% 0.90% 0.64% 0.93% 0.94%
Return on average equity 11.80% 9.18% 6.53% 8.79% 8.89%
Net interest margin 4.69% 4.43% 4.81% 5.26% 5.52%
Efficiency ratio 60.74% 65.92% 70.22% 71.05% 69.48%
Expense ratio 2.41% 2.51% 2.96% 3.21% 3.19%
Tier 1 leverage ratio 8.70% 8.80% 9.05% 9.24% 9.01%
Tier 1 capital ratio 14.06% 15.21% 16.09% 15.40% 15.30%
Total risk-based capital ratio 15.31% 16.46% 17.35% 16.66% 16.61%
Cash dividends as a percentage of
net income 36.10% 42.47% 55.22% 38.82% 36.94%
Per Common Share:
Net income $ 1.43 $ 1.06 $ 0.73 $ 0.95 $ 0.92
Cash dividends declared $ 0.522 $ 0.450 $ 0.407 $ 0.375 $ 0.341
Book value $ 12.72 $ 12.44 $ 11.12 $ 11.41 $ 10.72
Tangible book value $ 11.52 $ 11.11 $ 10.01 $ 9.93 $ 8.74
Stock dividends distributed 5.00% 5.00% 5.00% 5.00% 5.00%
Market price:
High $ 19.00 $ 17.14 $ 15.98 $ 15.98 $ 12.53
Low $ 15.00 $ 14.29 $ 12.96 $ 10.90 $ 8.62
End of year $ 18.00 $ 16.67 $ 14.96 $ 15.76 $ 11.93
Price/earnings multiple 12.59X 15.77x 12.72x 10.79x 12.89x
Price/book value multiple 1.42X 1.34x 1.34x 1.38x 1.11x
Total assets $1,138,986 $1,106,266 $1,044,557 $953,907 $868,616
Total stockholders' equity $ 106,264 $ 108,044 $ 98,307 $101,108 $ 94,012
Average common shares
outstanding (thousands) 8,513 8,800 8,939 8,897 8,732
- -------------------------------------------------------------------------------------------------------------------
-19-
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
This item is omitted, as there have been no material legal proceedings initiated
or settled during the quarter ended September 30, 1997.
Item 2 -- Changes in Securities
Following are listed changes in the Company's Common Stock outstanding during
the quarter ended September 30, 1997 as well as certain actions which have been
taken which may affect the number of shares of Common Stock (shares) outstanding
in the future. There was no Preferred Stock outstanding during the quarter ended
September 30, 1997.
The Company has Stock Option Plans covering key employees. These
options vest over a four-year period with the first vesting date one-year from
the date of grant. Outstanding at September 30, 1997 are non-qualified stock
options covering 340,764 shares at exercise prices ranging between $9.01 and
$20.15 with expiration dates between January 10, 1998, and May 12, 2007. There
are 576,550 shares of authorized common stock designated for possible issuance
under the Plans, including the aforementioned shares. The number of shares
designated for the Plans, the number of shares under existing options and the
option price per share may be adjusted upon certain changes in capitalization,
such as stock dividends, stock splits and other occurrences as enumerated in the
Plans. (FORMs S-8, Registration Statement Nos. 33-18976 and 33-77410, filed with
the Commission on December 9, 1987 and April 6, 1994, respectively).
In 1995, the Company granted its then Chairman stock options in
connection with the discharge of severance obligations of the Company and the
Bank under his employment agreement. The agreement issued options covering
136,437 and 28,593 shares with exercise prices of $14.69 and $15.33,
respectively, and an expiration date of January 31, 1997 (the number of shares
under option and the option price per share have been adjusted for stock
dividends). The Company filed a registration statement relating to these option
shares. These stock options did not serve to reduce the number available under
the previously mentioned Plans. The former Chairman exercised 1,000 options in
November 1996 and 164,030 in January 1997 resulting in no further shares
available for exercise. Shares were issued from authorized, but unissued common
stock. (FORM S-8, Registration Statement No. 333-02925, filed with the
Commission on April 29, 1996).
The Company has a Dividend Reinvestment Plan for stockholders under
which no new shares of common stock were issued for the quarter ended September
30, 1997. There are 500,726 shares of authorized but unissued common stock
designated for possible issuance under the Plan (the number of shares available
has been adjusted for stock dividends and splits). (FORM S-3, Registration
Statement No. 33-12247, filed with the Commission on February 26, 1987).
The Company's Board of Directors has reserved 25,000 of authorized but
unissued shares for future payment of an annual Board retainer. In January 1997,
each Director was granted 165 shares which are restricted from one to three
years for payment of their 1997 Board retainer. Shares were purchased from
treasury therefore the number of authorized and unissued shares was not
effected.
The Company's Board of Directors has authorized the purchase on the
open market by the Company of additional shares of treasury stock. These
treasury shares are to be used for a variety of corporate purposes, primarily to
meet the needs of the Company's Employee Stock Ownership Plan, Automatic
Dividend Reinvestment and Stock Purchase Plan, Stock Option Plans, Retirement
Savings Plan, Restricted Stock Agreements and Bank Trust Department directed IRA
and HR-10 accounts. Purchases and sales during 1997 totalled 131,900 and
163,605, respectively, with 449,744 shares in treasury at September 30, 1997.
Purchases are made at the prevailing market price in effect at the dates of the
transactions. Subsequent sales to both the Company's Employee Stock Ownership
Plan and Dividend Reinvestment and Stock Purchase Plan, if any, were made at the
five day average of the highest and lowest quoted selling price of the Company's
common stock on the National Market System of NASDAQ.
The Company currently is authorized to issue 2.5 million shares of
preferred stock, no par value, $1.00 stated value. The Board of Directors is
authorized to fix the particular designations, preferences, rights,
qualifications, and restrictions for each series of preferred stock issued. The
Company has a Stockholder Rights Plan (Plan) designed to ensure that any
potential acquiror of the Company negotiate with the Board of Directors and that
all Company stockholders are treated equitably in the event of a takeover
attempt. When the Plan was adopted, the Company paid a dividend of one Preferred
Share Purchase Right (Right) for each outstanding share of common stock of the
Company. Similar Rights are attached to each share of the Company's common stock
issued after November 15, 1994, the date of adoption subject to adjustment.
Under the Plan, the Rights will not be exercisable until a person or group
acquires beneficial ownership of 20 percent or more of the Company's outstanding
common stock, begins a tender or exchange offer for 25 percent or more of the
Company's outstanding common stock, or an adverse person, as declared by the
Board of Directors, acquires 10 percent or more of the Company's outstanding
common stock. Additionally, until the occurrence of such an event, the Rights
are not severable from the Company's common stock and therefore, the Rights will
be transferred upon the transfer of shares of the Company's common stock. Upon
the occurrence of such events, each Right entitles the holder to purchase one
one-hundredth of a share of Series R Preferred Stock, no par value, and $1.00
stated value per share of the Company at a price of $100.
-20-
The Plan also provides that upon the occurrence of certain specified
events, the holders of Rights will be entitled to acquire additional equity
interests in the Company or in the acquiring entity, such interests having a
market value of two times the Right's exercise price of $100. The Rights, which
expire November 14, 2004, are redeemable in whole, but not in part, at the
Company's option prior to the time they are exercisable, for a price of $0.01
per Right.
Item 3 -- Defaults Upon Senior Securities
This item is omitted because there were no defaults upon the Registrant's senior
securities during the quarter ended September 30, 1997.
Item 4 -- Submission of Matters to a Vote of Security Holders
This item is omitted as there is no disclosure required for the quarter ended
September 30, 1997.
Item 5 -- Other Information
Not Applicable
Item 6 -- Exhibits and Reports on FORM 8-K
An index to exhibits follows the signature page of this FORM 10-Q.
No reports on FORM 8-K were filed by the Registrant during the quarter ended
September 30, 1997.
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on FORM 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized, this 13th day of November, 1997.
NBT BANCORP INC.
By: /s/ JOE C. MINOR
Joe C. Minor
Chief Financial Officer and Treasurer
-22-
INDEX TO EXHIBITS
The following documents are attached as Exhibits to this FORM 10-Q or, if
annotated by the symbol *, are incorporated by reference as Exhibits as
indicated by the page number or exhibit cross-reference to the prior filings of
the Registrant with the Commission.
FORM 10-Q
Exhibit Exhibit
Number Cross-Reference
10.1 Lease Extension of Vail Mills Office. Herein
10.2 Defined Benefit Pension Plan Amendment #5 Herein
10.3 Defined Benefit Pension Plan Amendment #6 Herein
27.1 Financial Data Schedule for the nine months ended September 30, 1997. Herein
-23-
EXHIBIT 10.1
LEASE EXTENSION OF VAIL MILLS OFFICE
NBT BANK
April 1, 1997
Mr. Fred Showers
Mrs. Reta L. Showers
3786 State Highway 30 #1
Amsterdam, New York 12010
Re: Land lease located at Route 30, Mayfield, New York
Expiration Date: June 30, 1997
Dear Mr. & Mrs. Showers:
According to the terms of the lease for land located at Route 30 Mayfield, New
York, we wish to exercise the option to renew such lease beginning July 1, 1997.
We offer to extend the term to cover a one year period commencing July 1, 1997
through June 30, 1998 with the option to renew. The annual rental would be six
thousand six hundred and fifteen dollars ($6,615) payable in monthly payments of
$551.25. All other terms and conditions would remain the same. Second year would
commence July 1, 1998 through June 30, 1999 would be six thousand nine hundred
forty five and seventy five (6,945.75) payable in monthly payments of $578.88.
If the terms and conditions in this letter meet with your approval, please sign
both copies and return one to my attention in the self-addressed, post-paid
envelope for our files. Should you have any questions, please do not hesitate to
give me a call at 607-337-6115. Thank you.
Sincerely,
/s/Donna L. Deuel
Donna L. Deuel
Vice President
Administrative Services
May 9, 1997 /s/Fred Showers
Date Fred Showers
May 9, 1997 /s/Reta Showers
Date Reta Showers
NBT Bank, N.A., 52 South Broad Street, P.O. Box 351, Norwich, New York 13815
*Telephone 607-337-6000
EXHIBIT 10.2
DEFINED BENEFIT PENSION PLAN AMENDMENT #5
AMENDMENT #5
NBT BANCORP INC.
DEFINED BENEFIT PENSION PLAN
This sets forth Amendment #5 to the NBT Bancorp Inc. Defined
Benefit Pension Plan, as amended and restated through December 31, 1994
("Plan").
Effective as of July 22, 1997, the first paragraph of Section
2.14 of the Plan shall be amended to provide in its entirety as follows (the
amended portions are underscored):
2.14 Compensation shall mean remuneration paid by the Employer
to a Participant in the form of fixed basic annual salary or wages,
commissions, overtime, and cash bonuses actually received; provided
that, for Plan Years that begin prior to January 1, 1995, Compensation
shall include remuneration in the form of severance pay and for Plan
Years beginning before October 1, 1993, Compensation shall not include
remuneration in the form of commissions. For all years, Compensation
shall include any amount contributed by the Employer at the direction
of the Participant pursuant to a salary reduction agreement, which
amount is not includable in the Participant's gross income under Code
Section 125 (cafeteria plans) or Code Section 402(a)(8) ("401(k)"
plans). Compensation shall not include any other form of remuneration,
regardless of the manner calculated or paid. For example,
"Compensation" shall not include amounts realized from the exercise of
stock options or from the disposition of stock or stock rights,
Employer contributions to any public or private benefit plan or system,
or (after December 31, 1994) amounts paid as severance pay.
Executed this 22 day of July, 1997.
NBT BANCORP INC.
By: /s/John Roberts
EXHIBIT 10.3
DEFINED BENEFIT PENSION PLAN AMENDMENT #6
AMENDMENT #6
NBT BANCORP INC.
DEFINED BENEFIT PENSION PLAN
This sets forth Amendment #6 to the NBT Bancorp Inc. Defined
Benefit Pension Plan, as amended and restated through December 31, 1994
("Plan").
Effective as of September 1, 1997, the Plan shall be amended
as follows:
1. Section 2.03 of the Plan shall be amended and
restated to provide in its entirety as follows:
2.03 Actuarial Equivalent or Actuarially Equivalent
shall mean a benefit payable in a different form and/or at a
different time than a Participant's Accrued Benefit, but
having the same value as that benefit when computed using the
following actuarial assumptions:
Mortality: 1984 Unisex Mortality Table
Interest: 7 percent per annum
a. Notwithstanding the preceding sentence, for
Annuity Starting Dates that occur before September 1, 1997,
the present value of any distribution (other than a
non-decreasing life annuity payable for a period not less than
the life of the Participant or Surviving Spouse) shall be
determined using the Code Section 417(e)(3) interest rates(s)
described in subsection (b) below, if such rate(s) would
produce a greater benefit than the assumptions above.
b. The Code Section 417 interest rates are:
i. The Applicable Interest Rate if the
present value of the benefit (using
such rate(s)) is not in excess of
$25,000; or
ii. 120 percent of the Applicable
Interest Rate if the present value
of the benefit exceeds $25,000 (as
determined under subsection (i)
above). In no event shall the
present value determined under this
subsection (ii) be less than
$25,000.
c. Notwithstanding the foregoing of this Section
2.03, and subject to subsection 2.03(d) below, for Annuity
Starting Dates that occur after August 31, 1997, the present
value of a lump sum distribution shall be determined by
applying the Applicable Interest Rate and the "Applicable
Mortality Table." For purposes of this subsection 2.03(c), the
"Applicable Mortality Table" is the mortality table based on
the prevailing commissioners' standard table (described in
Code Section 807(d)(5)(A)) used to determine reserves for
group annuity contracts issued on the date as of which present
value is being determined (without regard to any other
subparagraph of Code Section 807(d)(5)), that is prescribed by
the Internal Revenue Service in revenue rulings, notices or
other guidance, published in the Internal Revenue Bulletin.
d. The lump sum distribution payable to a Participant
whose Annuity Starting Date occurs after August 31, 1997 shall
not be less than the present value of the benefit accrued by
the Participant through August 31, 1997, when calculated by
using the interest rate and mortality assumptions in the first
sentence of this Section 2.03, based on the Participant's age
on the Annuity Starting Date.
2. Section 2.09 of the Plan shall be amended and restated to provide in its
entirety as follows:
2.09 Applicable Interest Rate shall mean:
a. for Annuity Starting Dates that occur before
September 1, 1997, the interest rate or rates that would be
used, as of the first day of the Plan Year that contains the
Annuity Starting Date, by the PBGC for purposes of determining
the present value of the Participant's benefits under the
Plan, if the Plan had terminated on that date with
insufficient assets to provide benefits guaranteed by the
PBGC; and
b. for Annuity Starting Dates that occur after August
31, 1997, the annual interest rate on 30-year Treasury
securities for the second month that precedes the Plan Year
during which the Annuity Starting Date occurs. (For example,
for Annuity Starting Dates that occur in 1998, the Applicable
Interest Rate shall be the annual interest rate on 30-year
Treasury securities for November 1997, as specified by the
Internal Revenue Service in revenue rulings, notices or other
guidance published in the Internal Revenue Bulletin.)
Executed as of this 1st day of August 1997.
NBT BANCORP INC.
By: /s/Jane Neal
Title: Senior Vice President
EXHIBIT 27
FINANCIAL DATA SCHEDULE