NBT Bancorp Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. NBT is a community-oriented financial holding company providing commercial and retail banking and wealth management services across the northeastern United States. Results are unaudited and are not necessarily indicative of full-year performance.
Financial performance and condition
| Metric | Q1 2024 | Comparable period / change |
|---|---|---|
| Net interest income | $95.2 million | Up 0.1% year over year; down 4.0% from Q4 2023 |
| Net interest margin, FTE | 3.14% | Down 41 basis points year over year; down 1 basis point sequentially |
| Noninterest income | $45.4 million | Up 44.5% year over year, including a $2.2 million securities gain versus a $5.0 million loss in Q1 2023 |
| Noninterest expense | $91.8 million | Up 15.7% year over year |
| Provision for loan losses | $5.6 million | Compared with $3.9 million in Q1 2023 |
| Net income / diluted EPS | $33.8 million / $0.71 | Net income was up $0.2 million year over year; diluted EPS was $0.78 in Q1 2023 |
| Operating net income / diluted EPS, non-GAAP | $32.1 million / $0.68 | $38.0 million / $0.88 in Q1 2023 |
| Return on average assets / equity | 1.02% / 9.52% | 1.16% / 11.47% in Q1 2023 |
| Total assets | $13.44 billion | $13.31 billion at December 31, 2023 |
| Total loans / deposits | $9.69 billion / $11.20 billion | Loans up $37.4 million; deposits up $226.3 million from year-end |
| Allowance for loan losses | $115.3 million; 1.19% of loans | $114.4 million and 1.19% at year-end |
| Cash and cash equivalents | $319.1 million | Cash flows increased the balance by $113.9 million during the quarter |
Operating cash flow was $36.7 million, investing cash use was $13.1 million, and financing cash inflow was $90.3 million. Stockholders’ equity was $1.44 billion, or 10.73% of assets. The CET1 ratio was 11.68%, the Tier 1 leverage ratio 10.09%, and the total risk-based capital ratio 14.87%; the Company reported that it remained well capitalized.
At March 31, short-term borrowings were $267.1 million, long-term debt $29.8 million, subordinated debt net $120.1 million, and junior subordinated debt $101.2 million. Total deposits were $11.20 billion, including $3.36 billion of noninterest-bearing demand deposits.
Material changes and management commentary
- Net income was broadly unchanged year over year, while diluted EPS declined partly as weighted-average common shares rose to 47.1 million from 42.9 million, reflecting the larger share base following the Salisbury acquisition.
- Higher loan yields and balances increased interest income year over year, but higher deposit and other funding costs largely offset the increase. The Company cited a 138-basis-point rise in the cost of interest-bearing liabilities and a 158-basis-point rise in interest-bearing deposit costs.
- Noninterest income benefited from growth in retirement plan administration, wealth management and insurance services, including acquisition contributions and market performance. The prior-year comparison also includes a $5.0 million loss on a failed financial institution’s subordinated debt security; NBT sold that previously written-off security in Q1 2024 and recognized a $2.3 million gain.
- Expense growth reflected the Salisbury acquisition, higher salaries and benefits, technology, occupancy and intangible amortization. Q1 2024 had no acquisition expense; Q1 2023 included $0.6 million.
- Loans grew 1.6% annualized from year-end; excluding residential solar and other consumer portfolios in planned runoff, loans rose 3.6% annualized. Deposits increased mainly from seasonal municipal inflows, while customers continued moving from lower-cost accounts to higher-cost money market and time deposits.
- Net charge-offs were $4.7 million, or 0.19% of average loans annualized. Nonperforming loans were $37.8 million, 0.39% of loans, roughly unchanged from year-end but above $18.6 million, or 0.23%, a year earlier. Potential problem loans increased to $112.7 million from $87.7 million at year-end, primarily reflecting several commercial real estate relationships.
Outlook, risks and contingencies
- The filing provides no formal earnings or financial guidance. Management says net interest income will depend significantly on the timing and path of interest rates, inflation and Federal Reserve policy. Its credit-loss baseline forecast assumed three 25-basis-point rate cuts in 2024; a downside scenario assumed national unemployment peaking at 7.7% in Q2 2025.
- Interest-rate sensitivity modeling projected next-12-month net interest income changes of negative 0.15% under a +200-basis-point scenario, positive 0.22% under +100 basis points, and negative 0.22% under -200 basis points. Management described exposure as near neutral and within internal limits.
- Liquidity was reported as strong: the Basic Surplus measure was $2.18 billion, or 16.2% of assets, versus a 5% policy minimum. Available borrowing capacity under the Company’s stated measure was $3.13 billion. Management nevertheless identified possible liquidity pressure from deposit outflows, higher rates, credit-line draws or disruption in wholesale funding markets; enhanced liquidity monitoring continues.
- Commercial real estate remains a risk area. Office loans were 5% of total loans; 12% of office CRE loans were scheduled to mature within two years. Potential problem loans increased amid construction delays, rising costs and slower leasing. A diversified, multi-tenant CRE development relationship was nonaccrual; management said appraisals supported carrying value and no specific reserve was established.
- Unrealized losses on AFS securities were $189.6 million and on HTM securities $97.6 million. Management attributed losses primarily to interest rates, stated it did not intend to sell and was not more likely than not to be required to sell before recovery, and recorded no securities credit-loss allowance.
- Commitments to extend credit and unused lines totaled $2.73 billion; standby letters of credit totaled $42.0 million. The filing reported no material legal proceedings beyond routine litigation and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether deposit pricing and funding costs stabilize enough to support net interest margin, which was 3.14% and down 41 basis points year over year.
- Whether potential problem CRE loans, nonperforming loans and charge-offs worsen, and how reserve assumptions respond to economic conditions.
- Whether the $112.7 million of potential problem loans migrate to nonaccrual status or require additional provisions.
- How much reported noninterest income and expenses reflect recurring operations versus acquisition effects and unusual securities gains or prior-period losses; compare GAAP results with the Company’s non-GAAP operating measures.
- Whether seasonal deposit growth persists, uninsured deposits remain stable (estimated at $4.1 billion), and reported borrowing capacity remains accessible under stressed conditions.
- How securities’ unrealized losses and interest-rate changes affect capital, liquidity and future earnings.