NORWICH, N.Y. - In 1998 NBT Bancorp president Daryl R. Forsythe decided it was time for a change. Recognizing that a slowdown in loan growth was inevitable in upstate New York, he saw that NBT must diversify to maintain its own growth pace.

"I don't think you can be a community bank in five years and have only 20% of your revenues coming from fee generation," said Mr. Forsythe, who is also chief executive officer of $2 billion-asset NBT. Overhauling the company was something "we had to do."

NBT generates about 18% of its earnings from fees, which is average for community banks but far below Mr. Forsythe's goal of 40% - the benchmark for most regional banks. To succeed, he said, his company must sell more products and services to its growing customer base, and there's only one way to do that: Buy fee-generating companies.

The transformation began in earnest last September with the establishment of NBT Financial Services, created specifically to buy asset management companies, financial planning firms, insurance agencies - anything to add "fee-income-generating pieces," said Mr. Forsythe. Six months later NBT announced it was buying M. Griffith Inc., a Utica, N.Y., broker-dealer with $800 million of assets under management.

In April, it said it was to merge with $2.2 billion-asset BSB Bancorp of Binghamton, N.Y. This deal would create one of the largest banking companies in upstate New York, bolster NBT in northern Pennsylvania and northern New York, and, obviously, give NBT more capital and resources for deals.

But NBT may have trouble finding willing sellers, given its depressed stock price. It hit a low of $9.688 last month, down from a 52-week high of $20.833 last June, and at $9.9375 on Wednesday.

Mr. Forsythe blamed the sagging stock price on his recent deal spree. After about 10 years on the sidelines, NBT has announced three bank deals in the last nine months, completing one - the purchase of Lake Ariel Bancorp of Pennsylvania - in February. The third deal would bring it $420 million-asset Pioneer American Holding Co. of Carbondale, Pa., which is to be merged with Lake Ariel Bank upon the deal's closing, slated for July.

Investors would "rather see people sell their bank and get a bigger pop for their dollar," Mr. Forsythe said. "When you add on top of it multiple mergers, it tends to raise the question of whether you can handle it."

NBT has doubled in size since Mr. Forsythe took the helm in 1995. Its banking subsidiaries, NBT Bank, with 36 branches in central and northern New York, and $570 million-asset Lake Ariel, with 22 branches in northeastern Pennsylvania, cut a wide swath in the region.

But its deal with BSB would take NBT to a new height. The combined company would rank first, second, or third in market share in eight New York and Pennsylvania counties and have $4.6 billion of assets.

External growth, however, got NBT in trouble 11 years ago. Four purchases of banks in northern New York during 1989 drained earnings, cost the bank some business, and had customers and employees alike disenchanted.

That has changed. Mr. Forsythe, who had no banking experience when he joined NBT as a director in 1988 - he had been an aerospace industry executive - focused from 1995 to 1997 on rebuilding employee and customer confidence, expanding the trust business, modernizing what was then a 35-branch network, and training its service employees, who "had limited selling skills," Mr. Forsythe said. "It was a time to refocus on community banking 101."

Mr. Forsythe said the management team he put together in just six months deserves the credit for NBT's asset growth and for bringing the bank "back into the good graces of the community."

On the strength of double-digit loan growth, NBT's net income has doubled since 1995, to $18.3 million last year. Its efficiency ratio improved from 65.92% in 1995 to 53.86%, return on assets increased to 1.38%, from 0.90%, and return on equity rose to 14.27%, from 9.18%.

Though the fledgling financial services division is expected to contribute significantly to revenues, Mr. Forsythe said NBT will continue to stress community banking. Yet he acknowledged that the company is bound to have growing pains as it absorbs three new banks and perhaps many insurance, brokerage, and asset management firms. "We're going to have to work at it," he said. "We have to be careful that we don't become like a big regional bank."

Thomas L. Thorn, acting president and CEO of BSB Bancorp, said: "I think we can be very effective against the large regional banks. We've got the size, but still have the community banking philosophy."

Kevin T. Timmons, an analyst at First Albany Corp., said there is no reason to think NBT's deal with BSB will not succeed. He conceded, however, that every deal has its challenges - including data processing system integration, conforming policies and procedures, and setting a cohesive strategy.

The combined company would have 102 branches in 19 counties. Mr. Forsythe said branch managers will have "the authority and responsibility they need. That's what made us successful, and there's no reason to tamper with that."

NBT would move its corporate headquarters to Binghamton, BSB's base, though NBT Financial Services and the trust department would remain in Norwich. As many as 100 jobs are expected to be cut, and that has created some anxiety in Norwich, a town of about 9,000.

But Mr. Forsythe insisted NBT has no plan to abandon the community it began serving nearly 145 years ago; it will remain a "solid corporate citizen," he said. "We don't want to lose sight of what got us here. In other words, we don't want our bigness to get in the way of community banking."

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