SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-Q
(Mark
One)
T
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended June 30, 2007.
OR
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from ________ to ________.
COMMISSION
FILE NUMBER 0-14703
NBT
BANCORP INC.
(Exact
Name of Registrant as Specified in its Charter)
DELAWARE
|
16-1268674
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
52
SOUTH BROAD STREET, NORWICH, NEW YORK 13815
(Address
of Principal Executive Offices) (Zip Code)
Registrant's
Telephone Number, Including Area Code: (607)
337-2265
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for shorter periods that the Registrant was required
to
file such reports), and (2) has been subject to such filing requirements
for the
past 90 days. Yes T No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large
Accelerated Filer T
|
Accelerated
Filer £
|
Non-Accelerated
Filer £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
Yes £ No T
As
of
July 31, 2007, there were 33,326,160 shares outstanding of the Registrant's
common stock, $0.01 par value.
FORM
10-Q--Quarter Ended June 30, 2007
TABLE
OF CONTENTS
PART
I
|
FINANCIAL
INFORMATION
|
|
|
Item
1
|
Interim
Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Item
2
|
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|
|
Item
3
|
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|
|
Item
4
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
Item
1
|
|
Item
1A
|
|
Item
2
|
|
Item
3
|
|
Item
4
|
|
Item
5
|
|
Item
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December
31, |
|
|
June
30,
|
|
(In
thousands, except share and per share data)
|
|
2007
|
|
|
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
134,058
|
|
|
$ |
130,936
|
|
|
$ |
136,005
|
|
Short-term
interest bearing accounts
|
|
|
7,252
|
|
|
|
7,857
|
|
|
|
9,575
|
|
Securities
available for sale, at fair value
|
|
|
1,118,124
|
|
|
|
1,106,322
|
|
|
|
1,100,416
|
|
Securities
held to maturity (fair value $146,944, $136,287, and
$109,562)
|
|
|
147,537
|
|
|
|
136,314
|
|
|
|
110,331
|
|
Federal
Reserve and Federal Home Loan Bank stock
|
|
|
33,061
|
|
|
|
38,812
|
|
|
|
40,338
|
|
Loans
and leases
|
|
|
3,432,300
|
|
|
|
3,412,654
|
|
|
|
3,347,876
|
|
Less
allowance for loan and lease losses
|
|
|
57,058
|
|
|
|
50,587
|
|
|
|
50,148
|
|
Net
loans and leases
|
|
|
3,375,242
|
|
|
|
3,362,067
|
|
|
|
3,297,728
|
|
Premises
and equipment, net
|
|
|
65,286
|
|
|
|
66,982
|
|
|
|
66,948
|
|
Goodwill
|
|
|
103,412
|
|
|
|
103,356
|
|
|
|
102,803
|
|
Intangible
assets, net
|
|
|
10,998
|
|
|
|
11,984
|
|
|
|
13,338
|
|
Bank
owned life insurance
|
|
|
42,667
|
|
|
|
41,783
|
|
|
|
40,926
|
|
Other
assets
|
|
|
83,997
|
|
|
|
81,159
|
|
|
|
77,504
|
|
Total
assets
|
|
$ |
5,121,634
|
|
|
$ |
5,087,572
|
|
|
$ |
4,995,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
(noninterest bearing)
|
|
$ |
681,732
|
|
|
$ |
646,377
|
|
|
$ |
642,901
|
|
Savings,
NOW, and money market
|
|
|
1,606,473
|
|
|
|
1,566,557
|
|
|
|
1,567,171
|
|
Time
|
|
|
1,670,961
|
|
|
|
1,583,304
|
|
|
|
1,537,829
|
|
Total
deposits
|
|
|
3,959,166
|
|
|
|
3,796,238
|
|
|
|
3,747,901
|
|
Short-term
borrowings
|
|
|
290,387
|
|
|
|
345,408
|
|
|
|
320,637
|
|
Long-term
debt
|
|
|
352,151
|
|
|
|
417,728
|
|
|
|
421,736
|
|
Trust
preferred debentures
|
|
|
75,422
|
|
|
|
75,422
|
|
|
|
75,422
|
|
Other
liabilities
|
|
|
53,574
|
|
|
|
48,959
|
|
|
|
52,610
|
|
Total
liabilities
|
|
|
4,730,700
|
|
|
|
4,683,755
|
|
|
|
4,618,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value. Authorized 2,500,000 shares at June 30,
2007,
December 31, 2006 and June 30, 2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.01 par value. Authorized 50,000,000 shares at June
30, 2007,
December 31, 2006 and June 30, 2006; issued 36,459,462, 36,459,491,
and
36,459,537 at June 30, 2007, December 31, 2006, and June 30,
2006,
respectively
|
|
|
365
|
|
|
|
365
|
|
|
|
365
|
|
Additional
paid-in-capital
|
|
|
271,639
|
|
|
|
271,528
|
|
|
|
270,307
|
|
Retained
earnings
|
|
|
204,175
|
|
|
|
191,770
|
|
|
|
177,808
|
|
Accumulated
other comprehensive loss
|
|
|
(18,822 |
) |
|
|
(14,014 |
) |
|
|
(17,114 |
) |
Common
stock in treasury, at cost, 3,091,395, 2,203,549 and 2,576,398
shares at
June 30, 2007, December 31, 2006, and June 30, 2006,
respectively
|
|
|
(66,423 |
) |
|
|
(45,832 |
) |
|
|
(53,760 |
) |
Total
stockholders’ equity
|
|
|
390,934
|
|
|
|
403,817
|
|
|
|
377,606
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
5,121,634
|
|
|
$ |
5,087,572
|
|
|
$ |
4,995,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited interim consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
Consolidated
Statements of Income (unaudited)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest,
fee, and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans and leases
|
|
$ |
60,689
|
|
|
$ |
57,085
|
|
|
$ |
120,497
|
|
|
$ |
109,918
|
|
Securities
available for sale
|
|
|
13,562
|
|
|
|
13,084
|
|
|
|
27,029
|
|
|
|
24,961
|
|
Securities
held to maturity
|
|
|
1,525
|
|
|
|
1,043
|
|
|
|
2,969
|
|
|
|
2,028
|
|
Other
|
|
|
719
|
|
|
|
619
|
|
|
|
1,459
|
|
|
|
1,230
|
|
Total
interest, fee, and dividend income
|
|
|
76,495
|
|
|
|
71,831
|
|
|
|
151,954
|
|
|
|
138,137
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
26,950
|
|
|
|
20,869
|
|
|
|
52,934
|
|
|
|
38,094
|
|
Short-term
borrowings
|
|
|
2,918
|
|
|
|
4,111
|
|
|
|
6,010
|
|
|
|
8,048
|
|
Long-term
debt
|
|
|
3,997
|
|
|
|
4,227
|
|
|
|
8,483
|
|
|
|
8,369
|
|
Trust
preferred debentures
|
|
|
1,272
|
|
|
|
1,255
|
|
|
|
2,540
|
|
|
|
2,138
|
|
Total
interest expense
|
|
|
35,137
|
|
|
|
30,462
|
|
|
|
69,967
|
|
|
|
56,649
|
|
Net
interest income
|
|
|
41,358
|
|
|
|
41,369
|
|
|
|
81,987
|
|
|
|
81,488
|
|
Provision
for loan and lease losses
|
|
|
9,770
|
|
|
|
1,703
|
|
|
|
11,866
|
|
|
|
3,431
|
|
Net
interest income after provision for loan and lease losses
|
|
|
31,588
|
|
|
|
39,666
|
|
|
|
70,121
|
|
|
|
78,057
|
|
Noninterest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
4,936
|
|
|
|
4,493
|
|
|
|
9,405
|
|
|
|
8,712
|
|
Broker/
dealer and insurance revenue
|
|
|
1,093
|
|
|
|
967
|
|
|
|
2,176
|
|
|
|
1,875
|
|
Trust
|
|
|
1,792
|
|
|
|
1,459
|
|
|
|
3,229
|
|
|
|
2,817
|
|
Net
securities gains (losses)
|
|
|
21
|
|
|
|
22
|
|
|
|
16
|
|
|
|
(912 |
) |
Bank
owned life insurance
|
|
|
450
|
|
|
|
392
|
|
|
|
884
|
|
|
|
773
|
|
ATM
and debit card fees
|
|
|
2,041
|
|
|
|
1,789
|
|
|
|
3,937
|
|
|
|
3,434
|
|
Retirement
plan administration fees
|
|
|
1,601
|
|
|
|
1,431
|
|
|
|
3,193
|
|
|
|
2,662
|
|
Other
|
|
|
2,058
|
|
|
|
2,003
|
|
|
|
3,842
|
|
|
|
4,419
|
|
Total
noninterest income
|
|
|
13,992
|
|
|
|
12,556
|
|
|
|
26,682
|
|
|
|
23,780
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
13,022
|
|
|
|
16,335
|
|
|
|
28,986
|
|
|
|
32,083
|
|
Occupancy
|
|
|
2,585
|
|
|
|
2,747
|
|
|
|
5,754
|
|
|
|
5,735
|
|
Equipment
|
|
|
1,837
|
|
|
|
2,067
|
|
|
|
3,770
|
|
|
|
4,223
|
|
Data
processing and communications
|
|
|
2,845
|
|
|
|
2,649
|
|
|
|
5,722
|
|
|
|
5,351
|
|
Professional
fees and outside services
|
|
|
1,926
|
|
|
|
1,800
|
|
|
|
3,584
|
|
|
|
3,632
|
|
Office
supplies and postage
|
|
|
1,334
|
|
|
|
1,456
|
|
|
|
2,630
|
|
|
|
2,637
|
|
Amortization
of intangible assets
|
|
|
410
|
|
|
|
466
|
|
|
|
819
|
|
|
|
789
|
|
Loan
collection and other real estate owned
|
|
|
228
|
|
|
|
289
|
|
|
|
605
|
|
|
|
500
|
|
Other
|
|
|
3,827
|
|
|
|
3,885
|
|
|
|
7,016
|
|
|
|
7,216
|
|
Total
noninterest expense
|
|
|
28,014
|
|
|
|
31,694
|
|
|
|
58,886
|
|
|
|
62,166
|
|
Income
before income tax expense
|
|
|
17,566
|
|
|
|
20,528
|
|
|
|
37,917
|
|
|
|
39,671
|
|
Income
tax expense
|
|
|
5,502
|
|
|
|
6,359
|
|
|
|
11,721
|
|
|
|
11,914
|
|
Net
income
|
|
$ |
12,064
|
|
|
$ |
14,169
|
|
|
$ |
26,196
|
|
|
$ |
27,757
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.36
|
|
|
$ |
0.41
|
|
|
$ |
0.77
|
|
|
$ |
0.82
|
|
Diluted
|
|
$ |
0.36
|
|
|
$ |
0.41
|
|
|
$ |
0.77
|
|
|
$ |
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited interim consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Unvested
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in-
|
|
|
Retained
|
|
|
Awards
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
loss
|
|
|
Stock
|
|
|
Total
|
|
(in
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
$ |
344
|
|
|
$ |
219,157
|
|
|
$ |
163,989
|
|
|
$ |
(457 |
) |
|
$ |
(6,477 |
) |
|
$ |
(42,613 |
) |
|
$ |
333,943
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
27,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,757
|
|
Cash
dividends - $0.38 per share
|
|
|
|
|
|
|
|
|
|
|
(13,044 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,044 |
) |
Purchase
of 738,504 treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,501 |
) |
|
|
(16,501 |
) |
Issuance
of 2,058,661 shares of common stock in connection with purchase
business
combination
|
|
|
21
|
|
|
|
48,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,625
|
|
Issuance
of 237,278 incentive stock options in purchase transaction
|
|
|
|
|
|
|
1,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,955
|
|
Acquisition
of 2,500 shares of company stock in purchase transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55 |
) |
|
|
(55 |
) |
Issuance
of 227,205 shares to employee benefit plans and other stock plans,
including tax benefit
|
|
|
|
|
|
|
345
|
|
|
|
(894 |
) |
|
|
|
|
|
|
|
|
|
|
4,634
|
|
|
|
4,085
|
|
Reclassification
adjustment
from the adoption of FAS123R
|
|
|
|
|
|
|
(457 |
) |
|
|
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
1,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,523
|
|
Grant
of 41,408 shares of restricted stock
|
|
|
|
|
|
|
(835 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
835
|
|
|
|
-
|
|
Forfeit
2,625 shares of restricted stock
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
(45 |
) |
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,637 |
) |
|
|
|
|
|
|
(10,637 |
) |
Balance
at June 30, 2006
|
|
$ |
365
|
|
|
$ |
270,307
|
|
|
$ |
177,808
|
|
|
$ |
-
|
|
|
$ |
(17,114 |
) |
|
$ |
(53,760 |
) |
|
$ |
377,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
$ |
365
|
|
|
$ |
271,528
|
|
|
$ |
191,770
|
|
|
$ |
-
|
|
|
$ |
(14,014 |
) |
|
$ |
(45,832 |
) |
|
$ |
403,817
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
26,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,196
|
|
Cash
dividends - $0.39 per share
|
|
|
|
|
|
|
|
|
|
|
(13,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,291 |
) |
Purchase
of 1,100,367 treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,037 |
) |
|
|
(25,037 |
) |
Net
issuance of 142,582 shares to employee benefit plans and other
stock
plans, including tax benefit
|
|
|
|
|
|
|
134
|
|
|
|
(500 |
) |
|
|
|
|
|
|
|
|
|
|
2,979
|
|
|
|
2,613
|
|
Stock-based
compensation
|
|
|
|
|
|
|
1,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,444
|
|
Grant
of 69,939 shares of restricted stock awards
|
|
|
|
|
|
|
(1,467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,467
|
|
|
|
-
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,808 |
) |
|
|
|
|
|
|
(4,808 |
) |
Balance
at June 30, 2007
|
|
$ |
365
|
|
|
$ |
271,639
|
|
|
$ |
204,175
|
|
|
$ |
-
|
|
|
$ |
(18,822 |
) |
|
$ |
(66,423 |
) |
|
$ |
390,934
|
|
|
|
Six
Months Ended June 30,
|
|
Consolidated
Statements of Cash Flows (unaudited)
|
|
2007
|
|
|
2006
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
26,196
|
|
|
$ |
27,757
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Provision
for loan and lease losses
|
|
|
11,866
|
|
|
|
3,431
|
|
Depreciation
and amortization of premises and equipment
|
|
|
2,688
|
|
|
|
3,114
|
|
Net
accretion on securities
|
|
|
46
|
|
|
|
140
|
|
Amortization
of intangible assets
|
|
|
819
|
|
|
|
789
|
|
Stock-based
compensation
|
|
|
1,444
|
|
|
|
1,523
|
|
Bank
owned life insurance income
|
|
|
(884 |
) |
|
|
(773 |
) |
Proceeds
from sale of loans held for sale
|
|
|
13,164
|
|
|
|
14,977
|
|
Originations
and purchases of loans held for sale
|
|
|
(14,024 |
) |
|
|
(12,806 |
) |
Net
gains on sales of loans held for sale
|
|
|
(76 |
) |
|
|
(167 |
) |
Net
security (gains) losses
|
|
|
(16 |
) |
|
|
912
|
|
Net
gain on sales of other real estate owned
|
|
|
(131 |
) |
|
|
(167 |
) |
Net
gain on sale of branch
|
|
|
-
|
|
|
|
(470 |
) |
Net
(increase) decrease in other assets
|
|
|
(1,897 |
) |
|
|
8,726
|
|
Net
increase in other liabilities
|
|
|
7,696
|
|
|
|
364
|
|
Net
cash provided by operating activities
|
|
|
46,891
|
|
|
|
47,350
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Net
cash paid for sale of branch
|
|
|
-
|
|
|
|
(2,307 |
) |
Net
cash used in CNB Bancorp, Inc. merger
|
|
|
-
|
|
|
|
(20,881 |
) |
Securities
available for sale:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities, calls, and principal paydowns
|
|
|
101,382
|
|
|
|
89,093
|
|
Proceeds
from sales
|
|
|
10,553
|
|
|
|
42,292
|
|
Purchases
|
|
|
(131,816 |
) |
|
|
(148,539 |
) |
Securities
held to maturity:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities, calls, and principal paydowns
|
|
|
27,185
|
|
|
|
21,206
|
|
Purchases
|
|
|
(38,487 |
) |
|
|
(29,636 |
) |
Net
increase in loans
|
|
|
(25,060 |
) |
|
|
(139,871 |
) |
Net
decrease (increase) in Federal Reserve and FHLB stock
|
|
|
5,751
|
|
|
|
(79 |
) |
Purchases
of premises and equipment, net
|
|
|
(992 |
) |
|
|
(1,182 |
) |
Proceeds
from sales of other real estate owned
|
|
|
495
|
|
|
|
397
|
|
Net
cash used in investing activities
|
|
|
(50,989 |
) |
|
|
(189,507 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
162,928
|
|
|
|
258,696
|
|
Net
decrease in short-term borrowings
|
|
|
(55,021 |
) |
|
|
(124,340 |
) |
Repayments
of long-term debt
|
|
|
(65,577 |
) |
|
|
(15,149 |
) |
Proceeds
from the issuance of trust preferred debentures
|
|
|
-
|
|
|
|
51,547
|
|
Tax
benefit from exercise of stock options
|
|
|
359
|
|
|
|
432
|
|
Proceeds
from the issuance of shares to employee benefit plans and other
stock
plans
|
|
|
2,254
|
|
|
|
3,608
|
|
Purchase
of treasury stock
|
|
|
(25,037 |
) |
|
|
(16,501 |
) |
Cash
dividends and payment for fractional shares
|
|
|
(13,291 |
) |
|
|
(13,044 |
) |
Net
cash provided by financing activities
|
|
|
6,615
|
|
|
|
145,249
|
|
Net
increase in cash and cash equivalents
|
|
|
2,517
|
|
|
|
3,092
|
|
Cash
and cash equivalents at beginning of period
|
|
|
138,793
|
|
|
|
142,488
|
|
Cash
and cash equivalents at end of period
|
|
$ |
141,310
|
|
|
$ |
145,580
|
|
Supplemental
disclosure of cash flow information
|
|
Six
Months Ended June 30,
|
|
Cash
paid during the period for:
|
|
2007
|
|
|
2006
|
|
Interest
|
|
$ |
69,241
|
|
|
$ |
54,888
|
|
Income
taxes
|
|
|
5,752
|
|
|
|
9,496
|
|
Noncash
investing activities:
|
|
|
|
|
|
|
|
|
Loans
transferred to OREO
|
|
$ |
955
|
|
|
$ |
389
|
|
Dispositions:
|
|
|
|
|
|
|
|
|
Fair
value of assets sold
|
|
$ |
-
|
|
|
$ |
3,453
|
|
Fair
value of liabilities transferred
|
|
|
-
|
|
|
|
5,760
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired
|
|
$ |
-
|
|
|
$ |
432,054
|
|
Fair
value of liabilities assumed
|
|
|
-
|
|
|
|
360,648
|
|
Net
cash and cash equivalents used in merger
|
|
|
-
|
|
|
|
20,881
|
|
Fair
value of equity issued in purchase combination
|
|
|
-
|
|
|
|
50,525
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited interim consolidated financial
statements.
|
|
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
12,064
|
|
|
$ |
14,169
|
|
|
$ |
26,196
|
|
|
$ |
27,757
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
net holding losses arising during the year (pre-tax amounts of
$(11,918),
$(8,134), $(8,112), and $(18,224))
|
|
|
(7,174 |
) |
|
|
(4,890 |
) |
|
|
(4,941 |
) |
|
|
(10,955 |
) |
Less
reclassification adjustment for net (gains) losses related to securities
available for sale included in net income (pre-tax amounts of $(21),
$(22), $(16) and $912)
|
|
|
(13 |
) |
|
|
(13 |
) |
|
|
(10 |
) |
|
|
547
|
|
Minimum
pension liability adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(229 |
) |
Amortization
of previously recorded benefit plan amounts (pre-tax amounts of
$149, $0,
$239 and $0)
|
|
|
89
|
|
|
|
-
|
|
|
|
143
|
|
|
|
-
|
|
Total
other comprehensive loss
|
|
|
(7,098 |
) |
|
|
(4,903 |
) |
|
|
(4,808 |
) |
|
|
(10,637 |
) |
Comprehensive
income
|
|
$ |
4,966
|
|
|
$ |
9,266
|
|
|
$ |
21,388
|
|
|
$ |
17,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited interim consolidated financial
statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2007
Note
1. Description
of Business
NBT
Bancorp Inc. (the Company or the Registrant) 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 is the parent holding
company of NBT Bank, N.A. (the Bank), NBT Financial Services, Inc. (NBT
Financial), Hathaway Agency, Inc., CNBF Capital Trust I, NBT Statutory Trust
I
and NBT Statutory Trust II. Through these subsidiaries, the Company
operates as one segment focused on community banking operations. The Company’s
primary business consists of providing commercial banking and financial services
to its customers in its market area. The principal assets of the Company
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.
Note
2. Basis
of Presentation
The
accompanying unaudited interim consolidated financial statements include
the
accounts of NBT Bancorp Inc. and its wholly owned subsidiaries, NBT Bank,
N.A.,
NBT Financial Services, Inc., Hathaway Agency, Inc., CNBF Capital Trust I,
NBT
Statutory Trust I and NBT Statutory Trust II. Collectively, the
Registrant and its subsidiaries are referred to herein as “the
Company.” All intercompany transactions have been eliminated in
consolidation. Amounts in the prior period financial statements are reclassified
whenever necessary to conform to current period presentation.
Note
3. New
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157 – Fair Value
Measurements (“SFAS 157”), which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(“GAAP”), and expands disclosures about fair value measurements. This Statement
does not require any new fair value measurements, but the application of
this
Statement may change current practice. Adoption is required as of the
beginning of the first fiscal year that begins after November 15, 2007. Early
application of this Standard is encouraged. The Company is assessing the
effect
that SFAS 157 will have on our consolidated financial position, results of
operations and cash flows.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, The Fair Value Option for Financial Assets and Financial Liabilities
(“SFAS 159”). SFAS 159 allows entities to voluntarily choose, at
election dates, to measure many financial assets and financial liabilities
(as
well as certain nonfinancial instruments that are similar to financial
instruments) at fair value (the “fair value option”). The election is
made on an instrument-by-instrument basis and is irrevocable. If the
fair value option is elected for an instrument, the Statement specifies that
all
subsequent changes in fair value for that instrument shall be reported in
earnings. The Statement is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007. The
Company is assessing the effect that SFAS 159 will have on our consolidated
financial position, results of operations and cash flows.
Note
4. Business
Combination
On
February 10, 2006, the Company completed the acquisition through merger of
CNB
Bancorp, Inc. (“CNB”). CNB was a bank holding company for City National Bank and
Trust Company (“CNB Bank”) and Hathaway Agency, Inc. (“Hathaway”), headquartered
in Gloversville, NY. CNB Bank conducted business from nine community
bank offices in four upstate New York counties—Fulton, Hamilton, Montgomery and
Saratoga. The stockholders of CNB received approximately $39 million in cash
and
2,058,661 shares of NBT common stock. The aggregate transaction value was
approximately $89.0 million. The transaction was accounted for under the
purchase method of accounting. CNB had total assets of $399.0 million, loans
of
$197.6 million, deposits of $335.0 million and shareholders equity of $40.1
million. As part of the merger, the Company recorded approximately
$65.6 million in goodwill and identifiable intangibles. CNB was
merged with and into the Company, CNB Bank was merged with and into NBT Bank
and
Hathaway became a direct subsidiary of the Company. The results of operations
are included in the consolidated financial statements from the date of
acquisition, February 10, 2006.
Note
5. Use
of Estimates
Preparing
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period, as well as the disclosures provided. Actual results could differ
from
those estimates. Estimates associated with the allowance for loan losses,
pension expense, fair values of financial instruments and status of
contingencies are particularly susceptible to material change in the near
term.
The
allowance for loan and lease losses is the amount which, in the opinion of
management, is necessary to absorb probable losses inherent in the loan and
lease portfolio. The allowance is determined based upon numerous considerations,
including local economic conditions, the growth and composition of the loan
portfolio with respect to the mix between the various types of loans and
their
related risk characteristics, a review of the value of collateral supporting
the
loans, comprehensive reviews of the loan portfolio by the independent loan
review staff and management, as well as consideration of volume and trends
of
delinquencies, nonperforming loans, and loan charge-offs. As a result of
the
test of adequacy, required additions to the allowance for loan and lease
losses
are made periodically by charges to the provision for loan and lease
losses.
The
allowance for loan and lease losses related to impaired loans is based on
discounted cash flows using the loan’s initial effective interest rate or the
fair value of the collateral for certain loans where repayment of the loan
is
expected to be provided solely by the underlying collateral (collateral
dependent loans). The Company’s impaired loans are generally collateral
dependent. The Company considers the estimated cost to sell, on a discounted
basis, when determining the fair value of collateral in the measurement of
impairment if those costs are expected to reduce the cash flows available
to
repay or otherwise satisfy the loans.
Management
believes that the allowance for loan and lease losses is adequate. While
management uses available information to recognize loan and lease losses,
future
additions to the allowance for loan and lease losses may be necessary based
on
changes in economic conditions or changes in the values of properties securing
loans in the process of foreclosure. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Company’s allowance for loan and lease losses. Such agencies may require the
Company to recognize additions to the allowance for loan and lease losses
based
on their judgments about information available to them at the time of their
examination which may not be currently available to management.
Other
real estate owned (“OREO”) consists of properties acquired through foreclosure
or by acceptance of a deed in lieu of foreclosure. These assets are recorded
at
the lower of fair value of the asset acquired less estimated costs to sell
or
“cost” (defined as the fair value at initial foreclosure). At the time of
foreclosure, or when foreclosure occurs in-substance, the excess, if any,
of the
loan over the fair value of the assets received, less estimated selling costs,
is charged to the allowance for loan and lease losses and any subsequent
valuation write-downs are charged to other expense. Operating costs associated
with the properties are charged to expense as incurred. Gains on the sale
of
OREO are included in income when title has passed and the sale has met the
minimum down payment requirements prescribed by GAAP.
Income
taxes are accounted for under the asset and liability method. The Company
files
consolidated tax returns on the accrual basis. Deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in
which those temporary differences are expected to be recovered or settled.
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
available carryback period. A valuation allowance is provided when it is
more
likely than not that some portion of the deferred tax asset will not be
realized. Based on available evidence, gross deferred tax assets will ultimately
be realized and a valuation allowance was not deemed necessary at June 30,
2007
and 2006, or December 31, 2006. The effect on deferred taxes of a change
in tax
rates is recognized in income in the period that includes the enactment
date.
Note
6. Commitments
and Contingencies
The
Company is a party to financial instruments in the normal course of business
to
meet financing needs of its customers and to reduce its own exposure to
fluctuating interest rates. These financial instruments include commitments
to
extend credit, unused lines of credit, and standby letters of credit. Exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans and standby letters of
credit
is represented by the contractual amount of those instruments. The Company
uses
the same credit policy to make such commitments as it uses for on-balance-sheet
items. Commitments to extend credit and unused lines of credit totaled $514.1
million at June 30, 2007 and $536.3 million at December 31,
2006. Since commitments to extend credit and unused lines of credit
may expire without being fully drawn upon, this amount does not necessarily
represent future cash commitments. Collateral obtained upon exercise of the
commitment is determined using management’s credit evaluation of the borrower
and may include accounts receivable, inventory, property, land and other
items.
The
Company guarantees the obligations or performance of customers by issuing
stand-by letters of credit to third parties. These stand-by letters of credit
are frequently issued in support of third party debt, such as corporate debt
issuances, industrial revenue bonds and municipal securities. The risk involved
in issuing stand-by letters of credit is essentially the same as the credit
risk
involved in extending loan facilities to customers, and they are subject
to the
same credit origination, portfolio maintenance and management procedures
in
effect to monitor other credit and off-balance sheet products. Typically,
these
instruments have terms of five years or less and expire unused; therefore,
the
total amounts do not necessarily represent future cash requirements. Standby
letters of credit totaled $36.0 million at June 30, 2007 and $30.8 million
at
December 31, 2006. As of June 30, 2007, the fair value of standby letters
of
credit was not significant to the Company’s consolidated financial
statements.
Note
7. Earnings
Per Share
Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock
were exercised or converted into common stock or resulted in the issuance
of
common stock that then shared in the earnings of the entity (such as the
Company’s dilutive stock options).
The
following is a reconciliation of basic and diluted earnings per share for
the
periods presented in the consolidated statements of income.
Three
months ended June 30,
|
|
2007
|
|
|
2006
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
Basic
EPS:
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
33,694
|
|
|
|
34,164
|
|
Net
income available to common shareholders
|
|
$ |
12,064
|
|
|
$ |
14,169
|
|
Basic
EPS
|
|
$ |
0.36
|
|
|
$ |
0.41
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
33,694
|
|
|
|
34,164
|
|
Dilutive
effect of common stock options and restricted stock
|
|
|
242
|
|
|
|
307
|
|
Weighted
average common shares and common share equivalents
|
|
|
33,936
|
|
|
|
34,471
|
|
Net
income available to common shareholders
|
|
$ |
12,064
|
|
|
$ |
14,169
|
|
Diluted
EPS
|
|
$ |
0.36
|
|
|
$ |
0.41
|
|
Six
months ended June 30,
|
|
2007
|
|
|
2006
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
Basic
EPS:
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
33,934
|
|
|
|
33,795
|
|
Net
income available to common shareholders
|
|
$ |
26,196
|
|
|
$ |
27,757
|
|
Basic
EPS
|
|
$ |
0.77
|
|
|
$ |
0.82
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
33,934
|
|
|
|
33,795
|
|
Dilutive
effect of common stock options and restricted stock
|
|
|
261
|
|
|
|
316
|
|
Weighted
average common shares and common share equivalents
|
|
|
34,195
|
|
|
|
34,111
|
|
Net
income available to common shareholders
|
|
$ |
26,196
|
|
|
$ |
27,757
|
|
Diluted
EPS
|
|
$ |
0.77
|
|
|
$ |
0.81
|
|
There
were 620,788 stock options for the quarter ended June 30, 2007 and 690,941
stock
options for the quarter ended June 30, 2006 that were not considered in the
calculation of diluted earnings per share since the stock options’ exercise
price was greater than the average market price during these
periods.
There
were 298,693 stock options for the six months ended June 30, 2007 and 382,016
stock options for the six months ended June 30, 2006 that were not considered
in
the calculation of diluted earnings per share since the stock options’ exercise
price was greater than the average market price during these
periods.
Note
8. Nonperforming
Loans
The
following table sets forth information with regard to nonperforming
loans:
|
|
June
30,
|
|
|
December
31,
|
|
|
June
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
Loans
in nonaccrual status
|
|
$ |
33,730
|
|
|
$ |
13,665
|
|
|
$ |
12,277
|
|
Loans
contractually past due 90 days or more and still accruing
interest
|
|
|
689
|
|
|
|
1,642
|
|
|
|
580
|
|
Total
nonperforming loans
|
|
$ |
34,419
|
|
|
$ |
15,307
|
|
|
$ |
12,857
|
|
There
were no material commitments to extend further credit to borrowers with
nonperforming loans. There are no loans classified as troubled debt restructures
at June 30, 2007, December 31, 2006 and June 30, 2006.
Accumulated
interest on the above nonaccrual loans of approximately $0.7 million and
$0.3
million would have been recognized as income for the six month periods ending
at
June 30, 2007 and June 30, 2006, respectively, had these loans been in accrual
status. Accumulated interest on the above nonaccrual loans of
approximately $0.5 million and $0.2 million would have been recognized as
income
for the three month periods ending at June 30, 2007 and June 30, 2006,
respectively, had these loans been in accrual status. Approximately
$0.5 million and $0.3 million of interest on the above nonaccrual loans was
collected for the six month periods ending June 30, 2007 and June 30, 2006,
respectively. Approximately $0.3 million and $0.2 million of interest
on the above nonaccrual loans was collected for the three month periods ending
June 30, 2007 and June 30, 2006, respectively.
Impaired
loans, which primarily consist of nonaccruing commercial, small business
and
agricultural loans, totaled $29.3 million at June 30, 2007, $9.3 million
at
December 31, 2006, and $8.4 million at June 30, 2006. At June 30,
2007, $20.3 million of the total impaired loans had a specific reserve
allocation of $8.3 million or 41.2%, as compared with $2.2 million of total
impaired loans at December 31, 2006 which had a specific reserve allocation
of
$0.2 million or 9.6%. There was no specific reserve allocation for
the impaired loans at June 30, 2006.
The
following provides additional information on impaired loans for the periods
presented:
|
|
June
30,
|
|
|
December
31,
|
|
|
June
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
Average
recorded investment on impaired loans
|
|
$ |
16,495
|
|
|
$ |
9,644
|
|
|
$ |
9,427
|
|
Interest
income recognized on impaired loans
|
|
|
216
|
|
|
|
384
|
|
|
|
152
|
|
Cash
basis interest income recognized on impaired loans
|
|
|
216
|
|
|
|
384
|
|
|
|
152
|
|
Note
9. Defined
Benefit Postretirement Plans
The
Company has a qualified, noncontributory, defined benefit pension plan covering
substantially all of its employees at June 30, 2007. 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.
In
addition to the pension plan, the Company also provides supplemental employee
retirement plans to certain current and former executives. These
supplemental employee retirement plans and the defined benefit pension plan
are
collectively referred to herein as “Pension Benefits.”
Also,
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. Eligibility is contingent upon the direct transition
from active employment status to retirement without any break in employment
from
NBT. Employees also must be participants in the Company’s medical
plan prior to their retirement. 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. These postretirement benefits are referred to herein as “Other
Benefits.”
The
Components of pension expense and postretirement expense are set forth below
(in
thousands):
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
Three
months ended June 30,
|
|
|
Three
months ended June 30,
|
|
Components
of net periodic benefit cost:
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
Cost
|
|
$ |
527
|
|
|
$ |
536
|
|
|
$ |
6
|
|
|
$ |
1
|
|
Interest
Cost
|
|
|
740
|
|
|
|
606
|
|
|
|
53
|
|
|
|
51
|
|
Expected
return on plan assets
|
|
|
(1,403 |
) |
|
|
(980 |
) |
|
|
-
|
|
|
|
-
|
|
Net
amortization
|
|
|
163
|
|
|
|
182
|
|
|
|
(14 |
) |
|
|
(24 |
) |
Total
|
|
$ |
27
|
|
|
$ |
344
|
|
|
$ |
45
|
|
|
$ |
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
Six
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
Components
of net periodic benefit cost:
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
Cost
|
|
$ |
1,053
|
|
|
$ |
1,053
|
|
|
$ |
12
|
|
|
$ |
2
|
|
Interest
Cost
|
|
|
1,480
|
|
|
|
1,161
|
|
|
|
107
|
|
|
|
102
|
|
Expected
return on plan assets
|
|
|
(2,746 |
) |
|
|
(1,885 |
) |
|
|
-
|
|
|
|
-
|
|
Net
amortization
|
|
|
268
|
|
|
|
364
|
|
|
|
(29 |
) |
|
|
(48 |
) |
Total
|
|
$ |
55
|
|
|
$ |
693
|
|
|
$ |
90
|
|
|
$ |
56
|
|
The
Company is not required to make contributions to the Plan in the remainder
of
2007. The Company recorded approximately $143,000, net of tax, as
amortization of previously recognized pension amounts in Accumulated Other
Comprehensive Income as of June 30, 2007.
Note
10. Trust
Preferred Debentures
CNBF
Capital Trust I is a Delaware statutory business trust formed in 1999, for
the
purpose of issuing $18 million in trust preferred securities and lending
the
proceeds to the Company. NBT Statutory Trust I is a Delaware statutory business
trust formed in 2005, for the purpose of issuing $5 million in trust preferred
securities and lending the proceeds to the Company. NBT Statutory Trust II
is a
Delaware statutory business trust formed in 2006, for the purpose of issuing
$50
million in trust preferred securities and lending the proceeds to the Company
to
provide funding for the acquisition of CNB Bancorp, Inc. These three statutory
business trusts are collectively referred herein as “the Trusts.” 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, which was
implemented in the first quarter of 2004, the accounts of the Trusts are
not
included in the Company’s consolidated financial statements.
As
of
June 30, 2007, the Trusts had the following issues of trust preferred
debentures, all held by the Trusts, outstanding (dollars in
thousands):
Description
|
Issuance
Date
|
|
Trust
Preferred Securities Outstanding
|
|
Interest
Rate
|
|
Trust
Preferred Debt Owed To Trust
|
|
Final
Maturity date
|
CNBF
Capital Trust I
|
August-99
|
|
|
18,000
|
|
3-month
LIBOR
plus
2.75%
|
|
|
18,720
|
|
August-29
|
|
|
|
|
|
|
|
|
|
|
|
|
NBT
Statutory Trust I
|
November-05
|
|
|
5,000
|
|
6.30%
Fixed *
|
|
|
5,155
|
|
December-35
|
|
|
|
|
|
|
|
|
|
|
|
|
NBT
Statutory Trust II
|
February-06
|
|
|
50,000
|
|
6.195%
Fixed *
|
|
|
51,547
|
|
March-36
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Fixed for 5 years, converts to floating at 3-month LIBOR plus 140
basis
points (“bp”).
|
The
Company owns all of the common stock of the three business trusts, which
have
issued trust preferred securities in conjunction with the Company issuing
trust
preferred debentures to the Trusts. The terms of the trust preferred debentures
are substantially the same as the terms of the trust preferred 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 Company does not expect that the quantitative limits
will preclude it from including the 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.
Note
11. Income
Taxes
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (“FIN 48”), on January 1,
2007. As a result of the implementation of FIN 48, the Company was
not required to recognize any change in the liability for unrecognized tax
benefits. The total unrecognized tax benefits upon adoption were
approximately $2.6 million. Included in this amount is $1.2 million
which would impact the effective rate if recognized or reversed and $0.4
million
which would impact goodwill.
The
Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction, New York State, Pennsylvania and certain other
states. The Company settled its examination of tax years 2004 and
2005 with the Internal Revenue Service during the second quarter of
2007. The settlement of the exam did not result in a material change
in the liability for unrecognized tax benefits. All prior year
federal returns are closed under the statute of limitations. The Company
is also
currently under examination by New York State for tax years 2000 through
2002. It is reasonably possible that a reduction in the unrecognized
tax benefits may occur; however, quantification of an estimated range cannot
be
made at this time.
The
Company’s policy is to accrue interest and penalties as part of income tax
expense. As of the date of adoption of FIN 48, the Company had accrued $0.5
million of interest. Interest accrued as of June 30, 2007 is $0.6
million.
Item
2 --MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The
purpose of this discussion and analysis is to provide the reader with a concise
description of the financial condition and results of operations of NBT Bancorp
Inc. (Bancorp) and its wholly owned subsidiaries, NBT Bank, N.A. (the Bank),
NBT
Financial Services, Inc. (NBT Financial), Hathaway Agency, Inc., CNBF Capital
Trust I, NBT Statutory Trust I and NBT Statutory Trust II (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 2006 Form
10-K
for an understanding of the following discussion and analysis.
FORWARD
LOOKING STATEMENTS
Certain
statements in this filing and future filings by the Company with the Securities
and Exchange Commission, in the Company’s press releases or other public or
shareholder communications, contain forward-looking statements, as defined
in
the Private Securities Litigation Reform Act. These statements may be identified
by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,”
“projects,” or other similar terms. There are a number of
factors, many of which are beyond the Company’s control that could cause actual
results to differ materially from those contemplated by the forward looking
statements. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others,
the
following possibilities: (1) competitive pressures among depository and other
financial institutions may increase significantly; (2) revenues may be lower
than expected; (3) changes in the interest rate environment may affect interest
margins; (4) general economic conditions, either nationally or regionally,
may
be less favorable than expected, resulting in, among other things, a
deterioration in credit quality and/or a reduced demand for credit; (5)
legislative or regulatory changes, including changes in accounting standards
or
tax laws, may adversely affect the businesses in which the Company is engaged;
(6) competitors may have greater financial resources and develop products
that
enable such competitors to compete more successfully than the Company; (7)
adverse changes may occur in the securities markets or with respect to
inflation; (8) acts of war or terrorism; (9) the costs and effects of litigation
and of unexpected or adverse outcomes in such litigation; (10) internal control
failures; and (11) the Company’s success in managing the risks involved in the
foregoing.
The
Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, and to
advise
readers that various factors, including those described above and other factors
discussed in the Company’s annual and quarterly reports previously filed with
the Securities and Exchange Commission, could affect the Company’s financial
performance and could cause the Company’s actual results or circumstances for
future periods to differ materially from those anticipated or
projected.
Unless
required by law, the Company does not undertake, and specifically disclaims
any
obligations to publicly release the result of any revisions that may be made
to
any forward-looking statements to reflect statements to the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
Critical
Accounting Policies
Management
of the Company considers the accounting policy relating to the allowance
for
loan and lease losses to be a critical accounting policy given the uncertainty
in evaluating the level of the allowance required to cover credit losses
inherent in the loan and lease portfolio and the material effect that such
judgments can have on the results of operations. While management’s current
evaluation of the allowance for loan and lease losses indicates that the
allowance is adequate, under adversely different conditions or assumptions,
the
allowance would need to be increased. For example, if historical loan and
lease
loss experience significantly worsened or if current economic conditions
significantly deteriorated, additional provisions for loan and lease losses
would be required to increase the allowance. In addition, the assumptions
and
estimates used in the internal reviews of the Company’s 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 evaluations were significantly lowered,
the
Company’s allowance for loan and lease policy would also require additional
provisions for loan and lease losses.
Management
of the Company considers the accounting policy relating to pension accounting
to
be a critical accounting policy. 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 and AAA 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.
Overview
The
Company earned net income of $26.2 million ($0.77 diluted earnings per share)
for the six months ended June 30, 2007 compared to net income of $27.8 million
($0.81 diluted earnings per share) for the six months ended June 30, 2006.
The
decrease in net income from 2006 to 2007 was primarily the result of an $8.4
million increase in provision for loan and lease losses compared to the same
period last year. The increase in provision for loan and lease losses
was partially offset by an increase in noninterest income of $2.9 million
and a
decrease in noninterest expense of $3.3 million. Although net
interest margin declined by 17 bp from 3.80% to 3.63% for the six months
ended
June 30, 2007 compared to June 30, 2006, net interest income remained relatively
flat due to an increase in average earning assets of $258.5
million. Included in noninterest income for the six months ended June
30, 2006 were $0.9 million in net losses from investment securities sales.
Excluding the effect of these securities transactions in 2006, noninterest
income increased $2.0 million or 8.0% compared to the same period in 2006.
The
increase in noninterest income for the six months ended June 30, 2007 resulted
from increases in service charges on deposit accounts, ATM and debit card
fees,
retirement plan administration fees, trust administration fees, broker/dealer
and insurance revenue, and bank owned life insurance income. The decrease
in
total noninterest expense for the six months ended June 30, 2007 was due
primarily to a decrease of $3.1 million, or 9.7%, in salaries and employee
benefits. This decrease was due primarily to a reduction in incentive
compensation and pension expenses incurred in 2007.
The
Company earned net income of $12.1 million ($0.36 diluted earnings per share)
for the three months ended June 30, 2007 compared to net income of $14.2
million
($0.41 diluted earnings per share) for the three months ended June 30, 2006.
The
decrease in net income from 2006 to 2007 was primarily the result of an $8.1
million increase in provision for loan and lease losses compared to the same
period last year. The increase in provision for loan and lease losses
was partially offset by an increase in noninterest income of $1.4 million
and a
decrease in noninterest expense of $3.7 million, while net interest income
remained relatively flat at $41.4 million. Although net interest
margin declined by 10 bp from 3.73% to 3.63% for the three months ended June
30,
2007 compared to June 30, 2006, net interest income remained relatively flat
due
to an increase in average earning assets of $158.3 million. The
increase in noninterest income resulted from increases in service charges
on
deposit accounts, ATM and debit card fees, retirement plan administration
fees,
trust administration fees, broker/dealer and insurance revenue, and bank
owned
life insurance income. The decrease in total noninterest expense was due
primarily to a decrease of $3.3 million, or 20.3%, in salaries and employee
benefits. This decrease was due primarily to a reduction in incentive
compensation and pension expenses incurred in 2007. Office expenses,
such as supplies and postage, occupancy, equipment and data processing and
communications charges, decreased by $0.3 million, or 3.6%, for the three
months
ended June 30, 2007, compared with the same period in 2006. Income
tax expense for the three months ended June 30, 2007, was $5.5 million, down
from $6.4 million for the same period in 2006.
Table
1
depicts several annualized measurements of performance using GAAP net income.
Returns on average assets and equity measure how effectively an entity utilizes
its total resources and capital, respectively. Net interest margin, which
is the
net FTE interest income divided by average earning assets, is a measure of
an
entity's ability to utilize its earning assets in relation to the cost of
funding. Interest income for tax-exempt securities and loans is adjusted
to a
taxable equivalent basis using the statutory Federal income tax rate of
35%.
Table
1 - Performance Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Six
|
|
2007
|
|
Quarter
|
|
|
Quarter
|
|
|
Months
|
|
Return
on average assets (ROAA)
|
|
|
1.13 |
% |
|
|
0.95 |
% |
|
|
1.04 |
% |
Return
on average equity (ROAE)
|
|
|
14.06 |
% |
|
|
11.90 |
% |
|
|
12.98 |
% |
Net
Interest Margin
|
|
|
3.63 |
% |
|
|
3.63 |
% |
|
|
3.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (ROAA)
|
|
|
1.18 |
% |
|
|
1.15 |
% |
|
|
1.17 |
% |
Return
on average equity (ROAE)
|
|
|
15.11 |
% |
|
|
14.71 |
% |
|
|
14.93 |
% |
Net
Interest Margin
|
|
|
3.86 |
% |
|
|
3.73 |
% |
|
|
3.80 |
% |
Net
Interest Income
Net
interest income is the difference between interest income on earning assets,
primarily loans and securities, and interest expense on interest-bearing
liabilities, primarily deposits and borrowings. Net interest income is affected
by the interest rate spread, the difference between the yield on earning
assets
and cost of interest-bearing liabilities, as well as the volumes of such
assets
and liabilities. Net
interest income is one of the major determining factors in a financial
institution’s performance as it is the principal source of earnings.
Table 2 represents an analysis of net interest income on a federal
taxable equivalent basis.
FTE
net
interest income increased $0.5 million during the six months ended June 30,
2007, compared to the same period of 2006. The increase in FTE net interest
income resulted primarily from 5.8% growth in average earning assets. The
Company’s interest rate spread declined 24 bp during the six months ended June
30, 2007 compared to the same period in 2006. The yield on earning
assets for the period increased 26 bp, to 6.62% for the six months ended
June
30, 2007 from 6.36% for the same period in 2006. Meanwhile, the rate paid
on
interest-bearing liabilities increased 50 bp, to 3.53% for the six months
ended
June 30, 2007 from 3.03% for the same period in 2006.
FTE
net
interest income decreased nominally during the three months ended June 30,
2007,
compared to the same period of 2006. The Company’s interest rate spread declined
18 bp during the three months ended June 30, 2007 compared to the same period
in
2006. The yield on earning assets for the period increased 20 bp, to
6.60% for the three months ended June 30, 2007 from 6.40% for the same period
in
2006, while average earning assets increased by 3.5%. Meanwhile, the
rate paid on interest-bearing liabilities increased 38 bp, to 3.52% for the
three months ended June 30, 2007 from 3.14% for the same period in
2006.
For
the
six months ended June 30, 2007, total interest expense increased $13.3 million,
primarily the result of the 100 bp increase in the Federal Funds target rate
since January 1, 2006, which impacts the Company’s short-term borrowing, money
market account and time deposit rates. Additionally, average interest-bearing
liabilities increased $227.5 million for the six months ended June 30, 2007
when
compared to the same period in 2006, principally from organic deposit growth
as
well as deposits assumed from the CNB transaction. Total average
interest-bearing deposits increased $350.9 million for the six months ended
June
30, 2007 when compared to the same period in 2006. The rate paid on average
interest-bearing deposits increased 63 bp from 2.63% for the six months ended
June 30, 2006 to 3.26% for the same period in 2007. The increase in
average interest-bearing deposits resulted from organic deposit growth as
well
as the previously mentioned deposits assumed from the CNB
transaction. For the six months ended June 30, 2007, the Company
experienced a shift in its deposit mix from savings and NOW accounts to money
market and time deposit accounts, as interest sensitive customers shifted
funds
into higher paying interest bearing accounts. Savings and NOW accounts
collectively decreased approximately $41.8 million and money market and time
deposit accounts collectively increased approximately $392.8 million (time
deposits was the primary driver of the increase).
For
the
three months ended June 30, 2007, total interest expense increased $4.7
million. Average interest-bearing liabilities increased $120.7
million for the three months ended June 30, 2007 when compared to the same
period in 2006, from organic deposit growth. Total average
interest-bearing deposits increased $267.3 million for the three months ended
June 30, 2007 when compared to the same period in 2006. The rate paid on
average
interest-bearing deposits increased 52 bp from 2.75% for the three months
ended
June 30, 2006 to 3.27% for the same period in 2007. The increase in
average interest-bearing deposits resulted from organic deposit growth. For
the
three months ended June 30, 2007, the Company experienced a shift in its
deposit
mix from savings and NOW accounts to money market and time deposit accounts,
as
interest sensitive customers shifted funds into higher paying interest bearing
accounts. Savings and NOW accounts collectively decreased approximately $39.7
million and money market and time deposit accounts collectively increased
approximately $307.0 million (time deposits was the primary driver of the
increase). If short-term rates continue to rise, the Company anticipates
that
this trend will continue placing greater pressure on the net interest
margin.
Total
average borrowings, including trust preferred debentures, decreased $123.4
million for the six months ended June 30, 2007 compared with the same period
in
2006. Average short-term borrowings decreased by $101.4 million, from
$359.0 million for the six months ended June 30, 2006 to $257.7 million for
the
six months ended June 30, 2007. Despite this 28.2% decrease, interest
expense from short-term borrowings only decreased $2.0 million, or
25.3%. The rate paid on short-term borrowings increased from 4.53%
for the six months ended June 30, 2006 to 4.70% for the same period in
2007. Average trust preferred debentures increased $10.8 million for
the six months ended June 30, 2007, compared with the same period in 2006,
primarily from the issuance of $51.5 million in trust preferred debentures
in
February 2006 to fund the cash portion of the CNB transaction and to provide
regulatory capital. The rate paid on trust preferred debentures
increased to 6.79% for the six months ended June 30, 2007, compared with
6.69%
for the same period in 2006, driven primarily by $51.5 million in trust
preferred debentures issued in February 2006 with a fixed rate of 6.195%
and
$18.7 million in trust preferred debentures that reprice quarterly at 3-month
LIBOR plus 275 bp.
Total
average borrowings, including trust preferred debentures, decreased $146.6
million for the three months ended June 30, 2007 compared with the same period
in 2006. Average short-term borrowings decreased by $96.5 million,
from $346.6 million for the three months ended June 30, 2006 to $250.1 million
for the three months ended June 30, 2007. Interest expense from
short-term borrowings decreased $1.2 million, or 29.0%. The rate paid
on short-term borrowings decreased from 4.76% for the three months ended
June
30, 2006 to 4.68% for the same period in 2007. Average trust
preferred debentures remained consistent at $75.4 million for the three months
ended June 30, 2007 and June 30, 2006. The rate paid on trust
preferred debentures increased to 6.76% for the three months ended June 30,
2007, compared with 6.67% for the same period in 2006, driven primarily by
$51.5
million in trust preferred debentures issued in February 2006 with a fixed
rate
of 6.195% and $18.7 million in trust preferred debentures that reprice quarterly
at 3-month LIBOR plus 275 bp.
Another
important performance measurement of net interest income is the net interest
margin. Despite a 24 bp decrease in the Company’s net interest
spread, the net interest margin only declined by 17 bp to 3.63% for the six
months ended June 30, 2007, compared with 3.80% for the same period in 2006.
The
Company thus far has mitigated some of the margin pressure by growing
noninterest bearing demand deposit accounts. Average demand deposits increased
$19.5 million or 3.2% for the six months ended June 30, 2007, compared to
the
same period in 2006.
Despite
an 18 bp decrease in the Company’s net interest spread, the net interest margin
only declined by 10 bp to 3.63% for the three months ended June 30, 2007,
compared with 3.73% for the same period in 2006. The Company thus far has
mitigated some of the margin pressure by growing noninterest bearing demand
deposit accounts. Average demand deposits increased $13.1 million or 2.1%
for
the three months ended June 30, 2007, compared to the same period in
2006.
Table
2
Average
Balances and Net Interest Income
The
following tables include the condensed consolidated average balance sheet,
an
analysis of interest income/expense and average yield/rate for each major
category of earning assets and interest bearing liabilities on a taxable
equivalent basis. Interest income for tax-exempt securities and loans has
been
adjusted to a taxable-equivalent basis using the statutory Federal income
tax
rate of 35%.
Six
months ended June 30,
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
(dollars
in thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
interest bearing accounts
|
|
$ |
8,934
|
|
|
$ |
218
|
|
|
|
4.93 |
% |
|
$ |
7,543
|
|
|
$ |
172
|
|
|
|
4.61 |
% |
Securities
available for sale (1)
|
|
|
1,126,209
|
|
|
|
28,223
|
|
|
|
5.05 |
% |
|
|
1,093,566
|
|
|
|
26,136
|
|
|
|
4.83 |
% |
Securities
held to maturity (1)
|
|
|
144,683
|
|
|
|
4,488
|
|
|
|
6.26 |
% |
|
|
99,425
|
|
|
|
3,013
|
|
|
|
6.12 |
% |
Investment
in FRB and FHLB Banks
|
|
|
33,684
|
|
|
|
1,241
|
|
|
|
7.43 |
% |
|
|
40,357
|
|
|
|
1058
|
|
|
|
5.30 |
% |
Loans
and leases (2)
|
|
|
3,410,928
|
|
|
|
120,879
|
|
|
|
7.15 |
% |
|
|
3,225,053
|
|
|
|
110,291
|
|
|
|
6.91 |
% |
Total
interest earning assets
|
|
|
4,724,438
|
|
|
|
155,049
|
|
|
|
6.62 |
% |
|
|
4,465,944
|
|
|
|
140,670
|
|
|
|
6.36 |
% |
Other
assets
|
|
|
359,215
|
|
|
|
|
|
|
|
|
|
|
|
336,389
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
5,083,653
|
|
|
|
|
|
|
|
|
|
|
$ |
4,802,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market deposit accounts
|
|
$ |
650,693
|
|
|
|
11,113
|
|
|
|
3.44 |
% |
|
$ |
493,194
|
|
|
|
7,591
|
|
|
|
3.11 |
% |
NOW
deposit accounts
|
|
|
447,886
|
|
|
|
1,805
|
|
|
|
0.81 |
% |
|
|
436,799
|
|
|
|
1377
|
|
|
|
0.64 |
% |
Savings
deposits
|
|
|
496,670
|
|
|
|
2,262
|
|
|
|
0.92 |
% |
|
|
549,594
|
|
|
|
2,260
|
|
|
|
0.83 |
% |
Time
deposits
|
|
|
1,681,119
|
|
|
|
37,754
|
|
|
|
4.53 |
% |
|
|
1,445,854
|
|
|
|
26,866
|
|
|
|
3.75 |
% |
Total
interest bearing deposits
|
|
|
3,276,368
|
|
|
|
52,934
|
|
|
|
3.26 |
% |
|
|
2,925,441
|
|
|
|
38,094
|
|
|
|
2.63 |
% |
Short-term
borrowings
|
|
|
257,687
|
|
|
|
6,010
|
|
|
|
4.70 |
% |
|
|
359,039
|
|
|
|
8,048
|
|
|
|
4.53 |
% |
Trust
preferred debentures
|
|
|
75,422
|
|
|
|
2,540
|
|
|
|
6.79 |
% |
|
|
64,600
|
|
|
|
2138
|
|
|
|
6.69 |
% |
Long-term
debt
|
|
|
390,233
|
|
|
|
8,483
|
|
|
|
4.38 |
% |
|
|
423,142
|
|
|
|
8,369
|
|
|
|
4.00 |
% |
Total
interest bearing liabilities
|
|
|
3,999,710
|
|
|
|
69,967
|
|
|
|
3.53 |
% |
|
|
3,772,222
|
|
|
|
56,649
|
|
|
|
3.03 |
% |
Demand
deposits
|
|
|
622,083
|
|
|
|
|
|
|
|
|
|
|
|
602,632
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
54,732
|
|
|
|
|
|
|
|
|
|
|
|
51,821
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
407,128
|
|
|
|
|
|
|
|
|
|
|
|
375,658
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
5,083,653
|
|
|
|
|
|
|
|
|
|
|
$ |
4,802,333
|
|
|
|
|
|
|
|
|
|
Net
interest income (FTE basis)
|
|
|
|
|
|
$ |
85,082
|
|
|
|
|
|
|
|
|
|
|
$ |
84,021
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
3.09 |
% |
|
|
|
|
|
|
|
|
|
|
3.33 |
% |
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
3.63 |
% |
|
|
|
|
|
|
|
|
|
|
3.80 |
% |
Taxable
equivalent adjustment
|
|
|
|
|
|
$ |
3,095
|
|
|
|
|
|
|
|
|
|
|
$ |
2,533
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
81,987
|
|
|
|
|
|
|
|
|
|
|
$ |
81,488
|
|
|
|
|
|
|
(1)
|
Securities
are shown at average amortized
cost.
|
|
(2)
|
For
purposes of these computations, nonaccrual loans are included in
the
average loan balances outstanding.
|
Three
months ended June 30,
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
(dollars
in thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
interest bearing accounts
|
|
$ |
8,618
|
|
|
$ |
108
|
|
|
|
5.04 |
% |
|
$ |
7,346
|
|
|
$ |
89
|
|
|
|
4.86 |
% |
Securities
available for sale (1)
|
|
|
1,128,973
|
|
|
|
14,167
|
|
|
|
5.03 |
% |
|
|
1,132,330
|
|
|
|
13,699
|
|
|
|
4.85 |
% |
Securities
held to maturity (1)
|
|
|
148,467
|
|
|
|
2,315
|
|
|
|
6.26 |
% |
|
|
101,481
|
|
|
|
1,549
|
|
|
|
6.12 |
% |
Investment
in FRB and FHLB Banks
|
|
|
32,576
|
|
|
|
611
|
|
|
|
7.53 |
% |
|
|
40,166
|
|
|
|
530
|
|
|
|
5.29 |
% |
Loans
and leases (2)
|
|
|
3,423,130
|
|
|
|
60,878
|
|
|
|
7.13 |
% |
|
|
3,302,136
|
|
|
|
57,275
|
|
|
|
6.96 |
% |
Total
interest earning assets
|
|
|
4,741,764
|
|
|
|
78,079
|
|
|
|
6.60 |
% |
|
|
4,583,459
|
|
|
|
73,142
|
|
|
|
6.40 |
% |
Other
assets
|
|
|
356,885
|
|
|
|
|
|
|
|
|
|
|
|
353,548
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
5,098,649
|
|
|
|
|
|
|
|
|
|
|
$ |
4,937,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market deposit accounts
|
|
$ |
658,394
|
|
|
|
5,647
|
|
|
|
3.44 |
% |
|
$ |
534,112
|
|
|
|
4,352
|
|
|
|
3.27 |
% |
NOW
deposit accounts
|
|
|
454,468
|
|
|
|
860
|
|
|
|
0.76 |
% |
|
|
442,037
|
|
|
|
731
|
|
|
|
0.66 |
% |
Savings
deposits
|
|
|
501,246
|
|
|
|
1,142
|
|
|
|
0.91 |
% |
|
|
553,393
|
|
|
|
1,184
|
|
|
|
0.86 |
% |
Time
deposits
|
|
|
1,693,133
|
|
|
|
19,301
|
|
|
|
4.57 |
% |
|
|
1,510,373
|
|
|
|
14,602
|
|
|
|
3.88 |
% |
Total
interest bearing deposits
|
|
|
3,307,241
|
|
|
|
26,950
|
|
|
|
3.27 |
% |
|
|
3,039,915
|
|
|
|
20,869
|
|
|
|
2.75 |
% |
Short-term
borrowings
|
|
|
250,112
|
|
|
|
2,918
|
|
|
|
4.68 |
% |
|
|
346,585
|
|
|
|
4,111
|
|
|
|
4.76 |
% |
Trust
preferred debentures
|
|
|
75,422
|
|
|
|
1,272
|
|
|
|
6.76 |
% |
|
|
75,422
|
|
|
|
1255
|
|
|
|
6.67 |
% |
Long-term
debt
|
|
|
374,042
|
|
|
|
3,997
|
|
|
|
4.29 |
% |
|
|
424,176
|
|
|
|
4,227
|
|
|
|
4.00 |
% |
Total
interest bearing liabilities
|
|
|
4,006,817
|
|
|
|
35,137
|
|
|
|
3.52 |
% |
|
|
3,886,098
|
|
|
|
30,462
|
|
|
|
3.14 |
% |
Demand
deposits
|
|
|
627,172
|
|
|
|
|
|
|
|
|
|
|
|
614,049
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
57,919
|
|
|
|
|
|
|
|
|
|
|
|
50,677
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
406,741
|
|
|
|
|
|
|
|
|
|
|
|
386,183
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
5,098,649
|
|
|
|
|
|
|
|
|
|
|
$ |
4,937,007
|
|
|
|
|
|
|
|
|
|
Net
interest income (FTE basis)
|
|
|
|
|
|
$ |
42,942
|
|
|
|
|
|
|
|
|
|
|
$ |
42,680
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
3.26 |
% |
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
3.63 |
% |
|
|
|
|
|
|
|
|
|
|
3.73 |
% |
Taxable
equivalent adjustment
|
|
|
|
|
|
$ |
1,584
|
|
|
|
|
|
|
|
|
|
|
$ |
1,311
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
41,358
|
|
|
|
|
|
|
|
|
|
|
$ |
41,369
|
|
|
|
|
|
|
(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
following table presents changes in interest income and interest expense
attributable to changes in volume (change in average balance multiplied by
prior
year rate), changes in rate (change in rate multiplied by prior year volume),
and the net change in net interest income. The net change attributable to
the
combined impact of volume and rate has been allocated to each in proportion
to
the absolute dollar amounts of change.
Analysis
of Changes in Taxable Equivalent Net Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
|
|
|
|
2007
over 2006
|
|
(in
thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
interest bearing accounts
|
|
$ |
16
|
|
|
$ |
3
|
|
|
$ |
19
|
|
Securities
available for sale
|
|
|
(41 |
) |
|
|
509
|
|
|
|
468
|
|
Securities
held to maturity
|
|
|
732
|
|
|
|
34
|
|
|
|
766
|
|
Investment
in FRB and FHLB Banks
|
|
|
(113 |
) |
|
|
194
|
|
|
|
81
|
|
Loans
and leases
|
|
|
2,130
|
|
|
|
1,473
|
|
|
|
3,603
|
|
Total
interest income
|
|
|
2,568
|
|
|
|
2,369
|
|
|
|
4,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market deposit accounts
|
|
|
1,056
|
|
|
|
239
|
|
|
|
1,295
|
|
NOW
deposit accounts
|
|
|
21
|
|
|
|
108
|
|
|
|
129
|
|
Savings
deposits
|
|
|
(116 |
) |
|
|
74
|
|
|
|
(42 |
) |
Time
deposits
|
|
|
1,894
|
|
|
|
2,805
|
|
|
|
4,699
|
|
Short-term
borrowings
|
|
|
(1,127 |
) |
|
|
(66 |
) |
|
|
(1,193 |
) |
Trust
preferred debentures
|
|
|
-
|
|
|
|
17
|
|
|
|
17
|
|
Long-term
debt
|
|
|
(522 |
) |
|
|
292
|
|
|
|
(230 |
) |
Total
interest expense
|
|
|
970
|
|
|
|
3,705
|
|
|
|
4,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in FTE net interest income
|
|
$ |
1,598
|
|
|
$ |
(1,336 |
) |
|
$ |
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
|
|
|
|
2007
over 2006
|
|
(in
thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
interest bearing accounts
|
|
$ |
33
|
|
|
$ |
13
|
|
|
$ |
46
|
|
Securities
available for sale
|
|
|
795
|
|
|
|
1,292
|
|
|
|
2,087
|
|
Securities
held to maturity
|
|
|
1,402
|
|
|
|
73
|
|
|
|
1,475
|
|
Investment
in FRB and FHLB Banks
|
|
|
(195 |
) |
|
|
378
|
|
|
|
183
|
|
Loans
and leases
|
|
|
6,498
|
|
|
|
4,090
|
|
|
|
10,588
|
|
Total
interest income
|
|
|
8,340
|
|
|
|
6,039
|
|
|
|
14,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market deposit accounts
|
|
|
2,622
|
|
|
|
900
|
|
|
|
3,522
|
|
NOW
deposit accounts
|
|
|
36
|
|
|
|
392
|
|
|
|
428
|
|
Savings
deposits
|
|
|
(229 |
) |
|
|
231
|
|
|
|
2
|
|
Time
deposits
|
|
|
4,771
|
|
|
|
6,117
|
|
|
|
10,888
|
|
Short-term
borrowings
|
|
|
(2,352 |
) |
|
|
314
|
|
|
|
(2,038 |
) |
Trust
preferred debentures
|
|
|
364
|
|
|
|
38
|
|
|
|
402
|
|
Long-term
debt
|
|
|
(679 |
) |
|
|
793
|
|
|
|
114
|
|
Total
interest expense
|
|
|
3,567
|
|
|
|
9,751
|
|
|
|
13,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in FTE net interest income
|
|
$ |
4,773
|
|
|
$ |
(3,712 |
) |
|
$ |
1,061
|
|
Noninterest
Income
Noninterest
income is a significant source of revenue for the Company and an important
factor in the Company’s results of operations. The following table
sets forth information by category of noninterest income for the years
indicated:
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
$ |
4,936
|
|
|
$ |
4,493
|
|
|
$ |
9,405
|
|
|
$ |
8,712
|
|
Broker/dealer
and insurance fees
|
|
|
1,093
|
|
|
|
967
|
|
|
|
2,176
|
|
|
|
1,875
|
|
Trust
|
|
|
1,792
|
|
|
|
1,459
|
|
|
|
3,229
|
|
|
|
2,817
|
|
Net
securities gains (losses)
|
|
|
21
|
|
|
|
22
|
|
|
|
16
|
|
|
|
(912 |
) |
Bank
owned life insurance income
|
|
|
450
|
|
|
|
392
|
|
|
|
884
|
|
|
|
773
|
|
ATM
fees
|
|
|
2,041
|
|
|
|
1,789
|
|
|
|
3,937
|
|
|
|
3,434
|
|
Retirement
plan administration fees
|
|
|
1,601
|
|
|
|
1,431
|
|
|
|
3,193
|
|
|
|
2,662
|
|
Other
|
|
|
2,058
|
|
|
|
2,003
|
|
|
|
3,842
|
|
|
|
4,419
|
|
Total
noninterest income
|
|
$ |
13,992
|
|
|
$ |
12,556
|
|
|
$ |
26,682
|
|
|
$ |
23,780
|
|
Noninterest
income for the three months ended June 30, 2007, was $14.0 million, up $1.4
million or 11.4% from $12.6 million for the same period in 2006. Fees
from service charges on deposit accounts and ATM and debit cards collectively
increased $0.7 million from growth in our debit card base as well as growth
in
our demand deposit accounts. Retirement plan administration fees for
the three months ended June 30, 2007, increased $0.2 million, compared with
the
same period in 2006, as a result of our growing client
base. Broker/dealer and insurance revenue for the three months ended
June 30, 2007, increased $0.1 million in large part due to the growth in
brokerage income from retail financial services. Bank-owned life
insurance income for the three months ended June 30, 2007, increased $0.1
million, compared with the same period in 2006. Trust administration income
increased $0.3 million for the three months ended June 30, 2007, compared
with
the same period in 2006. This increase stems from market appreciation
of existing accounts and an increase in customer accounts resulting from
successful business development.
Noninterest
income for the six months ended June 30, 2007, was $26.7 million, up $2.9
million or 12.2% from $23.8 million for the same period in 2006. Fees
from service charges on deposit accounts and ATM and debit cards collectively
increased $1.2 million from growth in our debit card base as well as growth
in
our demand deposit accounts. Retirement plan administration fees for
the six months ended June 30, 2007, increased $0.5 million, compared with
the
same period in 2006, as a result of our growing client
base. Broker/dealer and insurance revenue for the six months ended
June 30, 2007, increased $0.3 million in large part due to the growth in
brokerage income from retail financial services as well as the addition of
Hathaway Insurance Agency as part of the acquisition of
CNB. Bank-owned life insurance income for the six months ended June
30, 2007, increased $0.1 million, compared with the same period in
2006. This increase was due in large part to the acquisition of
CNB. Trust administration income increased $0.4 million for the six
months ended June 30, 2007, compared with the same period in
2006. This increase stems from market appreciation of existing
accounts and an increase in customer accounts resulting from successful business
development. Other noninterest income for the six months ended June
30, 2007, decreased $0.6 million, compared with the same period in 2006,
primarily as a result of a gain on the sale of a branch in 2006. Net
securities gains for the six months ended June 30, 2007, were nominal, compared
with net securities losses of $0.9 million for the six months ended June
30,
2006. Excluding the effect of these securities transactions,
noninterest income increased $2.0 million, or 8.0%, for the six months ended
June 30, 2007, compared with the same period in 2006.
Noninterest
Expense
Noninterest
expenses are also an important factor in the Company’s results of
operations. The following table sets forth the major components of
noninterest expense for the periods indicated:
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$ |
13,022
|
|
|
$ |
16,335
|
|
|
$ |
28,986
|
|
|
$ |
32,083
|
|
Occupancy
|
|
|
2,585
|
|
|
|
2,747
|
|
|
|
5,754
|
|
|
|
5,735
|
|
Equipment
|
|
|
1,837
|
|
|
|
2,067
|
|
|
|
3,770
|
|
|
|
4,223
|
|
Data
processing and communications
|
|
|
2,845
|
|
|
|
2,649
|
|
|
|
5,722
|
|
|
|
5,351
|
|
Professional
fees and outside services
|
|
|
1,926
|
|
|
|
1,800
|
|
|
|
3,584
|
|
|
|
3,632
|
|
Office
supplies and postage
|
|
|
1,334
|
|
|
|
1,456
|
|
|
|
2,630
|
|
|
|
2,637
|
|
Amortization
of intangible assets
|
|
|
410
|
|
|
|
466
|
|
|
|
819
|
|
|
|
789
|
|
Loan
collection and other real estate owned
|
|
|
228
|
|
|
|
289
|
|
|
|
605
|
|
|
|
500
|
|
Other
|
|
|
3,827
|
|
|
|
3,885
|
|
|
|
7,016
|
|
|
|
7,216
|
|
Total
noninterest expense
|
|
$ |
28,014
|
|
|
$ |
31,694
|
|
|
$ |
58,886
|
|
|
$ |
62,166
|
|
Noninterest
expense for the three months ended June 30, 2007, was $28.0 million, down
from
$31.7 million for the same period in 2006. This decrease was principally
the
result of a decrease of $3.3 million, or 20.3%, in salaries and employee
benefits. This decrease was due primarily to a reduction in incentive
compensation and pension expenses incurred during the period, as well as
a
reduction in full-time equivalent employees. Office expenses, such as
supplies and postage, occupancy, equipment and data processing and
communications charges, decreased collectively by $0.3 million, or 3.6%,
for the
three months ended June 30, 2007, compared with the same period in 2006 as
the
Company focused on cost structure and improving efficiency.
Noninterest
expense for the six months ended June 30, 2007, was $58.9 million, down from
$62.2 million for the same period in 2006. This decrease was
principally the result of a decrease of $3.1 million, or 9.7%, in salaries
and
employee benefits. This decrease was due primarily to a reduction in
incentive compensation and a reduction in pension expenses due to a $15 million
contribution to the defined benefit plan in 2006. Office expenses,
such as supplies and postage, occupancy, equipment and data processing and
communications charges, decreased collectively by $0.1 million, or 0.4%,
for the
six months ended June 30, 2007, compared with the same period in
2006. Loan collection and other real estate owned expenses increased
$0.1 million for the six months ended June 30, 2007, over the same period
in
2006. This increase was due primarily to an increase in the amount of
real estate taxes paid on foreclosures in 2007 compared with 2006. Other
operating expense for the six months ended June 30, 2007, decreased $0.2
million, or 2.8%, compared with the same period in 2006.
Income
Taxes
Income
tax expense for the three months ended June 30, 2007, was $5.5 million, down
from $6.4 million for the same period in 2006. The effective rate for
the three months ended June 30, 2007 was 31.3%, as compared with 31.0% for
the
same period in 2006. Income tax expense for the six months ended June
30, 2007, was $11.7 million, down from $11.9 million for the same period
in
2006. The effective rate for the six months ended June 30, 2007, was
30.9%, up from 30.0% for the same period in 2006. The increase in the effective
tax rate for the six months ended June 30, 2007, versus the same period in
2006
resulted primarily from a tax refund received in the first quarter of
2006.
ANALYSIS
OF FINANCIAL CONDITION
Loans
and Leases
A
summary
of loans and leases, net of deferred fees and origination costs, by category
for
the periods indicated follows:
(In
thousands)
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
|
June
30, 2006
|
|
Residential
real estate mortgages
|
|
$ |
726,256
|
|
|
$ |
739,607
|
|
|
$ |
736,601
|
|
Commercial
|
|
|
626,198
|
|
|
|
658,647
|
|
|
|
652,577
|
|
Commercial
real estate mortgages
|
|
|
592,676
|
|
|
|
581,736
|
|
|
|
600,483
|
|
Real
estate construction and development
|
|
|
78,859
|
|
|
|
94,494
|
|
|
|
89,584
|
|
Agricultural
and agricultural real estate mortgages
|
|
|
120,476
|
|
|
|
118,278
|
|
|
|
117,106
|
|
Consumer
|
|
|
628,264
|
|
|
|
586,922
|
|
|
|
539,494
|
|
Home
equity
|
|
|
572,779
|
|
|
|
546,719
|
|
|
|
528,588
|
|
Lease
financing
|
|
|
86,792
|
|
|
|
86,251
|
|
|
|
83,443
|
|
Total
loans and leases
|
|
$ |
3,432,300
|
|
|
$ |
3,412,654
|
|
|
$ |
3,347,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate construction and development loans presented in June 2006
have been
reclassified to conform with current year presentation which represents
the conversion of construction loans to permanent financing
|
Total
loans and leases were $3.4 billion, or 67.0% of assets, at June 30, 2007,
$3.4
billion, or 67.1% of assets, at December 31, 2006, and $3.3 billion, or 67.0%,
at June 30, 2006. Total loans and leases increased slightly by $19.6 million
or
0.6% from December 31, 2006 to June 30, 2007. This increase was due
primarily to a 7.0% increase in consumer loans, most notably indirect
installment loans, as a result of expansion of our dealer
network. Home equity loans increased $26.1 million, or 4.8%, from
December 31, 2006 to June 30, 2007 as the Company promoted the home equity
products through promotions in 2007. The above mentioned increases
were partially offset by a decrease in commercial loans of 4.9% at June 30,
2007
as compared with December 31, 2006.
Securities
The
Company classifies its securities at date of purchase as available for sale,
held to maturity or trading. Held to maturity debt securities are
those that the Company has the ability and intent to hold until
maturity. Available for sale securities are recorded at fair
value. Unrealized holding gains and losses, net of the related tax
effect, on available for sale securities are excluded from earnings and are
reported in stockholders’ equity as a component of accumulated other
comprehensive income or loss. Held to maturity securities are
recorded at amortized cost. Trading securities are recorded at fair
value, with net unrealized gains and losses recognized currently in
income. Transfers of securities between categories are recorded at
fair value at the date of transfer. A decline in the fair value of
any available for sale or held to maturity security below cost that is deemed
other-than-temporary is charged to earnings resulting in the establishment
of a
new cost basis for the security. Securities with an
other-than-temporary impairment are generally placed on nonaccrual
status.
Average
total earning securities increased $77.9 million for the six months ended
June
30, 2007 when compared to the same period in 2006. The average balance of
securities available for sale increased $32.6 million for the six months
ended
June 30, 2007 when compared to the same period in 2006. The average
balance of securities held to maturity increased $45.3 million for the six
months ended June 30, 2007, compared to the same period in 2006. The average
total securities portfolio represents 26.9% of total average earning assets
for
the six months ended June 30, 2007, up from 26.7% for the same period in
2006.
Average
total earning securities increased $43.6 million for the three months ended
June
30, 2007 when compared to the same period in 2006. The average balance of
securities available for sale decreased $3.4 million for the three months
ended
June 30, 2007 when compared to the same period in 2006. The average
balance of securities held to maturity increased $47.0 million for the three
months ended June 30, 2007, compared to the same period in 2006. The average
total securities portfolio represents 26.9% of total average earning assets
for
the three months ended June 30, 2007 and June 30, 2006.
The
following details the composition of securities available for sale, securities
held to maturity and regulatory investments for the periods
indicated:
|
|
At
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
Mortgage-backed
securities:
|
|
|
|
|
|
|
With
maturities 15 years or less
|
|
|
24 |
% |
|
|
30 |
% |
With
maturities greater than 15 years
|
|
|
3 |
% |
|
|
4 |
% |
Collateral
mortgage obligations
|
|
|
20 |
% |
|
|
18 |
% |
Municipal
securities
|
|
|
19 |
% |
|
|
17 |
% |
US
agency notes
|
|
|
30 |
% |
|
|
27 |
% |
Other
|
|
|
4 |
% |
|
|
4 |
% |
Total
|
|
|
100 |
% |
|
|
100 |
% |
Allowance
for Loan and Lease Losses, Provision for Loan and Lease Losses, and
Nonperforming Assets
The
allowance for loan and lease losses is maintained at a level estimated by
management to provide adequately for risk of probable losses inherent in
the
current loan and lease portfolio. The adequacy of the allowance for
loan and lease losses is continuously monitored. It is assessed for adequacy
using a methodology designed to ensure the level of the allowance reasonably
reflects the loan portfolio’s risk profile. It is evaluated to ensure that it is
sufficient to absorb all reasonably estimable credit losses inherent in the
current loan and lease portfolio.
Management
considers the accounting policy relating to the allowance for loan and lease
losses to be a critical accounting policy given the inherent uncertainty
in
evaluating the levels of the allowance required to cover credit losses in
the
portfolio and the material effect that such judgements can have on the
consolidated results of operations.
For
purposes of evaluating the adequacy of the allowance, the Company considers
a
number of significant factors that affect the collectibility of the
portfolio. For individually analyzed loans, these include estimates
of loss exposure, which reflect the facts and circumstances that affect the
likelihood of repayment of such loans as of the evaluation date. For
homogeneous pools of loans and leases, estimates of the Company’s exposure to
credit loss reflect a thorough current assessment of a number of factors,
which
could affect collectibility. These factors include: past loss experience;
the
size, trend, composition, and nature of the loans and leases; changes in
lending
policies and procedures, including underwriting standards and
collection, charge-off and recovery practices; trends experienced in
nonperforming and delinquent loans and leases; current economic conditions
in
the Company’s market; portfolio concentrations that may affect loss experienced
across one or more components of the portfolio; the effect of external factors
such as competition, legal and regulatory requirements; and the experience,
ability, and depth of lending management and staff. In addition,
various regulatory agencies, as an integral component of their examination
process, periodically review the Company’s allowance for loan and lease
losses. Such agencies may require the Company to recognize additions
to the allowance based on their judgment about information available to them
at
the time of their examination, which may not be currently available to
management.
After
a
thorough consideration and validation of the factors discussed above, required
additions to the allowance for loan and lease losses are made periodically
by
charges to the provision for loan and lease losses. These charges are
necessary to maintain the allowance at a level which management believes
is
reasonably reflective of overall inherent risk of probable loss in the
portfolio. While management uses available information to recognize
losses on loans and leases, additions to the allowance may fluctuate from
one
reporting period to another. These fluctuations are reflective of
changes in risk associated with portfolio content and/or changes in management’s
assessment of any or all of the determining factors discussed
above. The allowance for loan and lease losses to outstanding loans
and leases at June 30, 2007 was 1.66% compared with 1.48% at December 31,
2006,
and 1.50% at June 30, 2006. This increase was due to the increase in
the provision for loan losses as discussed in the following
pages. Management considers the allowance for loan losses to be
adequate based on evaluation and analysis of the loan portfolio.
Table
4
reflects changes to the allowance for loan and lease losses for the periods
presented. The allowance is increased by provisions for losses charged to
operations and is reduced by net charge-offs. Charge-offs are made when the
ability to collect loan principal within a reasonable time is unlikely. Any
recoveries of previously charged-off loans are credited directly to the
allowance for loan and lease losses.
Table
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
For Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30,
|
|
(dollars
in thousands)
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
Balance,
beginning of period
|
|
$ |
50,554
|
|
|
|
|
|
$ |
49,818
|
|
|
|
|
Recoveries
|
|
|
1,161
|
|
|
|
|
|
|
1,091
|
|
|
|
|
Chargeoffs
|
|
|
(4,427 |
) |
|
|
|
|
|
(2,464 |
) |
|
|
|
Net
chargeoffs
|
|
|
(3,266 |
) |
|
|
|
|
|
(1,373 |
) |
|
|
|
Provision
for loan losses
|
|
|
9,770
|
|
|
|
|
|
|
1,703
|
|
|
|
|
Balance,
end of period
|
|
$ |
57,058
|
|
|
|
|
|
$ |
50,148
|
|
|
|
|
Composition
of Net Chargeoffs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and agricultural
|
|
$ |
(1,910 |
) |
|
|
58 |
% |
|
$ |
(646 |
) |
|
|
47 |
% |
Real
estate mortgage
|
|
|
(180 |
) |
|
|
6 |
% |
|
|
(64 |
) |
|
|
5 |
% |
Consumer
|
|
|
(1,176 |
) |
|
|
36 |
% |
|
|
(663 |
) |
|
|
48 |
% |
Net
chargeoffs
|
|
$ |
(3,266 |
) |
|
|
100 |
% |
|
$ |
(1,373 |
) |
|
|
100 |
% |
Annualized
net chargeoffs to average loans and leases
|
|
|
0.32 |
% |
|
|
|
|
|
|
0.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
For Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30,
|
|
(dollars
in thousands)
|
|
2007
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
Balance,
beginning of period
|
|
$ |
50,587
|
|
|
|
|
|
|
$ |
47,455
|
|
|
|
|
|
Recoveries
|
|
|
2,605
|
|
|
|
|
|
|
|
2,266
|
|
|
|
|
|
Chargeoffs
|
|
|
(8,000 |
) |
|
|
|
|
|
|
(5,414 |
) |
|
|
|
|
Net
chargeoffs
|
|
|
(5,395 |
) |
|
|
|
|
|
|
(3,148 |
) |
|
|
|
|
Allowance
related to purchase acquisition
|
|
|
-
|
|
|
|
|
|
|
|
2,410
|
|
|
|
|
|
Provision
for loan losses
|
|
|
11,866
|
|
|
|
|
|
|
|
3,431
|
|
|
|
|
|
Balance,
end of period
|
|
$ |
57,058
|
|
|
|
|
|
|
$ |
50,148
|
|
|
|
|
|
Composition
of Net Chargeoffs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and agricultural
|
|
$ |
(2,611 |
) |
|
|
48 |
% |
|
$ |
(1,504 |
) |
|
|
48 |
% |
Real
estate mortgage
|
|
|
(487 |
) |
|
|
9 |
% |
|
|
(135 |
) |
|
|
4 |
% |
Consumer
|
|
|
(2,297 |
) |
|
|
43 |
% |
|
|
(1,509 |
) |
|
|
48 |
% |
Net
chargeoffs
|
|
$ |
(5,395 |
) |
|
|
100 |
% |
|
$ |
(3,148 |
) |
|
|
100 |
% |
Annualized
net chargeoffs to average loans and leases
|
|
|
0.32 |
% |
|
|
|
|
|
|
0.20 |
% |
|
|
|
|
Nonperforming
assets consist of nonaccrual loans, loans 90 days or more past due and still
accruing, restructured loans, OREO, and nonperforming securities. Loans are
generally placed on nonaccrual when principal or interest payments become
ninety
days past due, unless the loan is well secured and in the process of collection.
Loans may also be placed on nonaccrual when circumstances indicate that the
borrower may be unable to meet the contractual principal or interest payments.
OREO represents property acquired through foreclosure and is valued at the
lower
of the carrying amount or fair market value, less any estimated disposal
costs.
Nonperforming securities include securities which management believes are
other-than-temporarily impaired, carried at their estimated fair value and
are
not accruing interest.
Table
5
|
|
|
|
|
|
|
|
|
|
Nonperforming
Assets
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
June
30,
|
|
(Dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
Nonaccrual
loans
|
|
|
|
|
|
|
|
|
|
Commercial
and commercial real estate
|
|
$ |
20,366
|
|
|
$ |
5,942
|
|
|
$ |
5,367
|
|
Agricultural
|
|
|
8,918
|
|
|
|
3,404
|
|
|
|
3,072
|
|
Real
estate mortgages
|
|
|
2,114
|
|
|
|
2,338
|
|
|
|
2,177
|
|
Consumer
|
|
|
2,332
|
|
|
|
1,981
|
|
|
|
1,661
|
|
Total
nonaccrual loans
|
|
|
33,730
|
|
|
|
13,665
|
|
|
|
12,277
|
|
Loans
90 days or more past due and still accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and commercial real estate
|
|
|
160
|
|
|
|
128
|
|
|
|
-
|
|
Agricultural
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
Real
estate mortgages
|
|
|
-
|
|
|
|
682
|
|
|
|
-
|
|
Consumer
|
|
|
529
|
|
|
|
822
|
|
|
|
580
|
|
Total
loans 90 days or more past due and still accruing
|
|
|
689
|
|
|
|
1,642
|
|
|
|
580
|
|
Total
nonperforming loans
|
|
|
34,419
|
|
|
|
15,307
|
|
|
|
12,857
|
|
Other
real estate owned (OREO)
|
|
|
981
|
|
|
|
389
|
|
|
|
423
|
|
Total
nonperforming assets
|
|
$ |
35,400
|
|
|
$ |
15,696
|
|
|
$ |
13,280
|
|
Total
nonperforming loans to loans and leases
|
|
|
1.00 |
% |
|
|
0.45 |
% |
|
|
0.38 |
% |
Total
nonperforming assets to assets
|
|
|
0.69 |
% |
|
|
0.31 |
% |
|
|
0.27 |
% |
Total
allowance for loan and lease losses to nonperforming loans
|
|
|
165.77 |
% |
|
|
330.48 |
% |
|
|
390.04 |
% |
Total
nonperforming assets were $35.4 million at June 30, 2007, $15.7 million at
December 31, 2006, and $13.3 million at June 30, 2006. Nonaccrual
loans were $33.7 million at June 30, 2007, as compared to $13.7 million at
December 31, 2006 and $12.3 million at June 30, 2006. The increase in
nonperforming assets from June 30, 2006 to June 30, 2007 is primarily due
to one
owner-occupied commercial real estate relationship, as well as several
agricultural loans. These agricultural loans have been affected by
the recent low milk prices, which caused considerable strain on the borrowers’
cash flow and their ability to pay their loans. In addition to low
milk prices, the agricultural loans have continued to be impacted by the
record
flooding of 2006 as well as high fuel costs. On a linked quarter
basis, nonaccrual loans totaled $33.7 at June 30, 2007, $16.3 million at
March
31, 2007, and $13.7 million at December 31, 2007. The increase in
nonaccrual loans on a linked quarter basis was due to the above mentioned
owner-occupied commercial real estate relationship as well as several
agricultural loans. These agricultural loans continued to be
adversely affected by record low milk prices and were moved to nonaccrual
status
after reviewing the most recently received financial information in the second
quarter of 2007. OREO increased from $0.4 million at June 30, 2006 to
$1.0 million at June 30, 2007.
In
addition to the nonperforming loans discussed above, the Company has also
identified approximately $72.3 million in potential problem loans at June
30,
2007 as compared to $69.8 million at December 31, 2006. Potential
problem loans are loans that are currently performing, but where known
information about possible credit problems of the borrowers causes management
to
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms and which may result in disclosure of such loans
as
nonperforming at some time in the future. At the Company, potential
problem loans are typically loans that are performing but are classified
by the
Company’s loan rating system as “substandard.” At June 30, 2007,
potential problem loans primarily consisted of commercial real estate and
commercial and agricultural loans. Management cannot predict the
extent to which economic conditions may worsen or other factors which may
impact
borrowers and the potential problem loans. Accordingly, there can be
no assurance that other loans will not become 90 days or more past due, be
placed on nonaccrual, become restructured, or require increased allowance
coverage and provision for loan losses.
Net
chargeoffs totaled $5.4 million for the six months ended June 30, 2007, up
$2.3
million from the $3.1 million charged off during the same period in
2006. The provision for loan and lease losses totaled $11.9 million
for the six months ended June 30, 2007, compared with the $3.4 million provided
during the same period in 2006. This increase in the provision was
due primarily to the above mentioned owner-occupied commercial real estate
relationship.
Net
chargeoffs totaled $3.3 million for the three months ended June 30, 2007,
up
$1.9 million from the $1.4 million charged off during the same period in
2006. The increase in the net chargeoffs for this period was mainly
attributable to the banks agricultural credits. The provision for
loan and lease losses totaled $9.8 million for the three months ended June
30,
2007, compared with the $1.7 million provided during the same period in
2006. This increase in the provision was due primarily to the above
mentioned owner-occupied commercial real estate relationship.
Deposits
Total
deposits were $4.0 billion at June 30, 2007, up $162.9 million from December
31,
2006, and up $211.3 million, or 5.6%, from the same period in the prior
year. The increase in deposits compared with June 30, 2006, was
driven by organic deposit growth (driven primarily by time deposit growth).
Total average deposits for the six months ended June 30, 2007 increased $370.4
million, or 10.5%, from the same period in 2006. The Company experienced
an
increase in average time deposits of $235.3 million or 16.3%, for the six
months
ended June 30, 2007 compared to the same period in 2006. The Company
experienced a shift in its deposit mix from interest sensitive customers
into
higher paying time accounts. Average savings and NOW accounts
experienced a decrease of $41.8 million for the six month period ended June
30,
2007 as compared to the same period in 2006. This decrease was the
result of the previously mentioned shift in deposit mix from lower cost deposit
accounts to higher cost deposit accounts with more attractive interest rates
(which have increased due to the rising rate environment). Average money
market
accounts increased $157.5 million for the six months ended June 30, 2007
from
the same period in 2006. Average demand deposit accounts increased
$19.5 million for the six months ended June 30, 2007 as compared to the same
period in 2006
Borrowed
Funds
The
Company's borrowed funds consist of short-term borrowings and long-term debt.
Short-term borrowings totaled $290.4 million at June 30, 2007 compared to
$345.4
million and $320.6 million at December 31, and June 30, 2006,
respectively. Long-term debt was $352.2 million at June 30, 2007, and
was $417.7 and $421.7 million at December 31, and June 30, 2006,
respectively. For more information about the Company’s borrowing
capacity and liquidity position, see the section with the title caption of
“Liquidity Risk” on page 33 in this discussion.
Capital
Resources
Stockholders'
equity of $390.9 million represents 7.6% of total assets at June 30, 2007,
compared with $403.8 million, or 7.9% at December 31, 2006, and $377.6 million,
or 7.6% as of June 30, 2006. On July 23, 2007, the NBT Board of
Directors authorized a new repurchase program whereby NBT intends to repurchase
up to an additional 1,000,000 shares (approximately 3%) of its outstanding
common stock, as market conditions warrant in open market and privately
negotiated transactions. When this repurchase was authorized, there
were 636,780 shares remaining under previous authorizations. These
remaining shares were combined with this new authorization, increasing the
total
shares available for repurchase to 1,636,780. Under previously
mentioned stock repurchase plans, the Company purchased 1,100,367 shares
of its
common stock during the six-month period ended June 30, 2007, for a total
of
$25.0 million at an average price of $22.76 per share.
The
Board
of Directors considers the Company's earnings position and earnings potential
when making dividend decisions. The Company does not have a target
dividend pay out ratio.
As
the
capital ratios in Table 6 indicate, the Company remains “well
capitalized.” Capital measurements are significantly in excess of
regulatory minimum guidelines and meet the requirements to be considered
well
capitalized for all periods presented. Tier 1 leverage, Tier 1 capital and
Risk-based capital ratios have regulatory minimum guidelines of 3%, 4% and
8%
respectively, with requirements to be considered well capitalized of 5%,
6% and
10%, respectively.
Table
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Measurements
|
|
|
|
|
|
|
2007
|
|
March
31,
|
|
|
June
30,
|
|
Tier
1 leverage ratio
|
|
|
7.60 |
% |
|
|
7.37 |
% |
Tier
1 capital ratio
|
|
|
10.53 |
% |
|
|
10.21 |
% |
Total
risk-based capital ratio
|
|
|
11.78 |
% |
|
|
11.46 |
% |
Cash
dividends as a percentage of net income
|
|
|
46.21 |
% |
|
|
50.74 |
% |
Per
common share:
|
|
|
|
|
|
|
|
|
Book
value
|
|
$ |
11.99
|
|
|
$ |
11.72
|
|
Tangible
book value
|
|
$ |
8.61
|
|
|
$ |
8.29
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
March
31,
|
|
|
June
30,
|
|
Tier
1 leverage ratio
|
|
|
7.77 |
% |
|
|
7.27 |
% |
Tier
1 capital ratio
|
|
|
10.30 |
% |
|
|
9.90 |
% |
Total
risk-based capital ratio
|
|
|
11.56 |
% |
|
|
11.15 |
% |
Cash
dividends as a percentage of net income
|
|
|
48.20 |
% |
|
|
46.99 |
% |
Per
common share:
|
|
|
|
|
|
|
|
|
Book
value
|
|
$ |
11.22
|
|
|
$ |
11.15
|
|
Tangible
book value
|
|
$ |
7.84
|
|
|
$ |
7.72
|
|
The
accompanying Table 7 presents the high, low and closing sales price for the
common stock as reported on the NASDAQ Stock Market, and cash dividends declared
per share of common stock. The Company's price to book value ratio was 1.92
at
June 30, 2007 and 2.08 in the comparable period of the prior year. The Company's
price was 14.1 times trailing twelve months earnings at June 30, 2007, compared
to 14.3 times for the same period last year.
Table
7
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
Common Stock and Dividend Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends
|
|
Quarter
Endings
|
|
High
|
|
|
Low
|
|
|
Close
|
|
|
Declared
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31
|
|
$ |
23.90
|
|
|
$ |
21.02
|
|
|
$ |
23.25
|
|
|
$ |
0.190
|
|
June
30
|
|
|
23.24
|
|
|
|
21.03
|
|
|
|
23.23
|
|
|
|
0.190
|
|
September
30
|
|
|
24.57
|
|
|
|
21.44
|
|
|
|
23.26
|
|
|
|
0.190
|
|
December
31
|
|
|
26.47
|
|
|
|
22.36
|
|
|
|
25.51
|
|
|
|
0.190
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31
|
|
$ |
25.81
|
|
|
$ |
21.73
|
|
|
$ |
23.43
|
|
|
$ |
0.200
|
|
June
30
|
|
$ |
23.45
|
|
|
$ |
21.80
|
|
|
$ |
22.56
|
|
|
$ |
0.200
|
|
On
July
23, 2007, NBT Bancorp Inc. announced the declaration of a regular quarterly
cash
dividend of $0.20 per share. The cash dividend will be paid on
September 15, 2007 to stockholders of record as of September 1,
2007.
Liquidity
and Interest Rate Sensitivity Management
Market
Risk
Interest
rate risk is among the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company’s business activities. Interest rate risk is defined
as an exposure to a movement in interest rates that could have an adverse
effect
on the Company’s net interest income. Net interest income is
susceptible to interest rate risk to the degree that interest-bearing
liabilities mature or reprice on a different basis than earning
assets. When interest-bearing liabilities mature or reprice more
quickly than earning assets in a given period, a significant increase in
market
rates of interest could adversely affect net interest
income. Similarly, when earning assets mature or reprice more quickly
than interest-bearing liabilities, falling interest rates could result in
a
decrease in net interest income.
In
an
attempt to manage the Company's exposure to changes in interest rates,
management monitors the Company’s interest rate risk. Management’s
Asset Liability Committee (“ALCO”) meets monthly to review the Company’s
interest rate risk position and profitability, and to recommend strategies
for
consideration by the Board of Directors. Management also reviews loan
and deposit pricing, and the Company’s securities portfolio, formulates
investment and funding strategies, and oversees the timing and implementation
of
transactions to assure attainment of the Board’s objectives in the most
effective manner. Notwithstanding the Company’s interest rate risk management
activities, the potential for changing interest rates is an uncertainty that
can
have an adverse effect on net income.
In
adjusting the Company’s asset/liability position, the Board and management
attempt to manage the Company’s interest rate risk while minimizing 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 with static balance sheets: (1)
a gradual increase of 200 bp, (2) 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 at a faster rate than interest bearing
liabilities. The inability to effectively lower deposit rates will likely
reduce
or eliminate the 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. If short-term rates
continue to increase, the Company expects competitive pressures will likely
lead
to core deposit pricing increases, which will likely continue compression
of the
net interest margin.
Net
interest income for the next 12 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 June 30, 2007 balance sheet position:
Table
8
|
|
Interest
Rate Sensitivity Analysis
|
|
Change
in interest rates
|
Percent
change in
|
(in
bp points)
|
net
interest income
|
+200
|
(4.42%)
|
-200
|
0.87%
|
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 beginning with the second quarter of 2005.
Over time, the Company has 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, the Company will continue to focus on growing noninterest bearing
demand
deposits and prudently managing deposit costs.
Liquidity
Risk
Liquidity
involves the ability to meet the cash flow requirements of customers who
may be
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. The ALCO is
responsible for liquidity management and has developed guidelines which cover
all assets and liabilities, as well as off balance sheet items that are
potential sources or uses of liquidity. Liquidity policies must also provide
the
flexibility to implement appropriate strategies and tactical actions.
Requirements change as loans and leases grow, deposits and securities mature,
and payments on borrowings are made. Liquidity management includes a focus
on
interest rate sensitivity management with a goal of avoiding widely fluctuating
net interest margins through periods of changing economic
conditions.
The
primary liquidity measurement the Company utilizes is called the Basic Surplus,
which captures the adequacy of its access to reliable sources of cash relative
to the stability of its funding mix of average liabilities. This approach
recognizes the importance of balancing levels of cash flow liquidity from
short-
and long-term securities with the availability of dependable borrowing sources
which can be accessed when necessary. At June 30, 2007, the Company’s Basic
Surplus measurement was 7.43% of total assets or $379 million, which was
above
the Company’s minimum of 5% or $256 million set forth in its liquidity
policies.
This
Basic Surplus approach enables the Company to adequately manage liquidity
from
both operational and contingency perspectives. By tempering the need for
cash
flow liquidity with reliable borrowing facilities, the Company is able to
operate with a more fully invested and, therefore, higher interest income
generating, securities portfolio. The makeup and term structure of the
securities portfolio is, in part, impacted by the overall interest rate
sensitivity of the balance sheet. Investment decisions and deposit pricing
strategies are impacted by the liquidity position. At June 30, 2007,
the Company Basic Surplus declined slightly compared to December 31, 2006,
Basic
Surplus of 7.9%.
The
Company’s primary source of funds is from its subsidiary, NBT Bank. Certain
restrictions exist regarding the ability of the Company’s subsidiary bank to
transfer funds to the Company in the form of cash dividends. The approval
of the
Office of Comptroller of the Currency (OCC) is required to pay dividends
when a
bank fails to meet certain minimum regulatory capital standards or when such
dividends are in excess of a subsidiary bank’s earnings retained in the current
year plus retained net profits for the preceding two years (as defined in
the
regulations). At June 30, 2007, approximately $49.4 million of the total
stockholders’ equity of NBT Bank was available for payment of dividends to the
Company without approval by the OCC. NBT Bank’s ability to pay dividends also is
subject to the Bank being in compliance with regulatory capital requirements.
NBT Bank is currently in compliance with these requirements. Under the State
of
Delaware Business Corporation Law, the Company may declare and pay dividends
either out of accumulated net retained earnings or capital surplus.
Item
3. Quantitative
and Qualitative Disclosure About Market Risk
Information
called for by Item 3 is contained in the Liquidity and Interest Rate Sensitivity
Management section of the Management Discussion and Analysis.
The Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer evaluated
the
effectiveness of the design and operation
of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934,
as
amended) as of June 30, 2007. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, as
of
the Evaluation Date, the Company's disclosure controls and procedures were
effective in timely alerting them to any material information relating to
the
Company and its subsidiaries required to be included in the Company's periodic
SEC filings.
There were no
changes made in the Company's internal controls over
financial reporting that occurred during the Company's most
recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect the Company's internal controls over
financial reporting.
PART
II. OTHER INFORMATION
There
are
no material legal proceedings, other than ordinary routine litigation incidental
to business to which the Company is a party or of which any of its property
is
subject.
Management
of the Company does not believe there have been any material changes in the
risk
factors that were disclosed in the Form 10-K filed with the Securities and
Exchange Commission on March 1, 2007.
Item
2– Unregistered Sales of Equity Securities and Use of
Proceeds
(c)
|
The
table below sets forth the information with respect to purchases
made by
the Company (as defined in Rule 10b-18(a)(3) under the Securities
Exchange
Act of 1934), of our common stock during the quarter ended June
30,
2007:
|
Period
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid Per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
|
|
|
Maximum
Number of Shares That May Yet be Purchased Under The Plans
(1)
|
|
4/1/07
- 4/30/07
|
|
|
17,900
|
|
|
$ |
22.55
|
|
|
|
17,900
|
|
|
|
1,345,280
|
|
5/1/07
- 5/31/07
|
|
|
319,400
|
|
|
|
22.84
|
|
|
|
319,400
|
|
|
|
1,025,880
|
|
6/1/07
- 6/30/07
|
|
|
389,100
|
|
|
|
22.58
|
|
|
|
389,100
|
|
|
|
636,780
|
|
Total
|
|
|
726,400
|
|
|
$ |
22.69
|
|
|
|
726,400
|
|
|
|
1,636,780
|
|
|
1)
|
On
July 23, 2007, the NBT Board of Directors authorized a new repurchase
program whereby NBT intends to repurchase up to an additional 1,000,000
shares (approximately 3%) of its outstanding common stock, as market
conditions warrant in open market and privately negotiated
transactions. When this repurchase was authorized, there were
636,780 shares remaining under previous authorizations. These
remaining shares were combined with this new authorization, increasing
the
total shares available for repurchase to 1,636,780. Under
previously mentioned stock repurchase plans, the Company purchased
1,100,367 shares of its common stock during the six-month period
ended
June 30, 2007, for a total of $25.0 million at an average price
of $22.76
per share. For the three-month period ended June 30, 2007, the
Company purchased 726,400 shares of its common stock for a total
of $16.5
million at an average price of $22.69 per
share.
|
Item
3–
Defaults Upon Senior Securities
None
Item
4–
Submission of Matters to a Vote of Security Holders
The
Company’s Annual Meeting of Stockholders was held on May 1, 2007. At
the Annual Meeting, stockholders approved the following:
1)
|
A
proposal to fix the number of directors to 15. There were
25,014,297 votes cast for the proposal, 409,291 votes cast against
the
proposal, and 243,459 abstentions.
|
2)
|
The
following directors were elected with terms expiring at the 2010
annual
meeting of stockholders:
|
Daryl
R.
Forsythe: 24,817,236 votes for election; 849,813 votes
withheld.
Patricia
T. Civil: 24,395,426 votes for election; 1,271,622 votes
withheld.
William
C. Gumble: 24,931,923 votes for election; 735,125 votes
withheld.
Robert
A.
Wadsworth: 25,164,663 votes for election; 502,385 votes
withheld.
William
L. Owens: 20,252,241 votes for election; 5,414,807 votes
withheld.
Continuing
directors with terms expiring in 2009: Martin A. Dietrich, Michael H.
Hutcherson, John C. Mitchell, Michael M. Murphy, and Joseph G.
Nasser.
Continuing
directors with terms expiring in 2008: Richard Chojnowski, Dr. Peter B. Gregory,
Joseph A Santangelo, Janet H. Ingraham, and Paul D. Horger.
None
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).
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1
Written Statement of the Chief Executive Officer Pursuant to Section 906
of the
Sarbanes-Oxley Act of 2002.
32.2
Written Statement of the Chief Financial Officer Pursuant to Section 906
of the
Sarbanes-Oxley Act of 2002.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized, this 9th day of August 2007.
NBT
BANCORP INC.
By:
|
/s/
Michael J. Chewens
|
|
|
Michael
J. Chewens, CPA
|
|
|
Senior
Executive Vice President
|
|
|
Chief
Financial Officer and Corporate Secretary
|
|
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).
31.1
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Written Statement of the Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Written Statement of the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
40