NBT Bancorp Inc. 10-Q Summary
Business context and reporting period
NBT Bancorp is a community-focused financial holding company headquartered in Norwich, New York, with banking and wealth-management operations across the Northeast. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023. Unless noted, amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q2 2023 | Comparable period / balance |
|---|---|---|
| Net interest income | $89.1 million | Up 1.7% from Q2 2022; down 6.3% from Q1 2023 |
| Net interest margin, fully taxable equivalent | 3.27% | Up 6 basis points year over year; down 28 basis points sequentially |
| Noninterest income | $32.0 million | $41.7 million in Q2 2022; includes $4.6 million of securities losses |
| Noninterest expense | $78.8 million | $76.1 million in Q2 2022; includes $1.2 million of acquisition expenses |
| Net income / diluted EPS | $30.1 million / $0.70 | $37.8 million / $0.88 in Q2 2022 |
| Total assets | $11.89 billion | $11.74 billion at December 31, 2022 |
| Loans / deposits | $8.36 billion / $9.53 billion | Loans up 5.1% annualized and deposits up 0.4% from year-end |
For the six months ended June 30, net income was $63.7 million and diluted EPS was $1.48, versus $76.9 million and $1.78 in the first half of 2022. Net interest income rose 9.7% to $184.2 million, while noninterest income fell to $63.5 million from $84.3 million. Management reported first-half diluted EPS of $1.68 excluding securities losses and acquisition expenses, versus $1.80 a year earlier; this is a non-GAAP measure.
Six-month cash flows were $67.2 million provided by operating activities, $159.0 million used in investing activities, and $96.3 million provided by financing activities. Cash and cash equivalents ended the period at $201.9 million, compared with $523.6 million a year earlier.
Financial condition, capital and credit
- Stockholders’ equity was $1.21 billion, or 10.18% of assets. At June 30, regulatory capital ratios included 12.29% common equity tier 1, 13.35% tier 1, and 15.50% total risk-based capital; the company reported that it remained well capitalized.
- Allowance for loan losses was $100.4 million, or 1.20% of loans. First-half provision expense was $7.5 million, compared with $5.0 million in the first half of 2022. First-half net charge-offs increased to $7.3 million from $3.4 million.
- Nonperforming assets were $19.9 million, or 0.17% of assets, down from $21.2 million at year-end 2022. Potential problem loans increased to $90.6 million from $52.0 million; management attributed much of the increase to a $15.7 million commercial real estate relationship classified as substandard and described as adequately collateralized.
- Deposits included $242.0 million of brokered time deposits, versus $19.4 million at year-end. Estimated uninsured deposits were $3.5 billion. Management cited migration from lower-cost checking and savings balances to higher-cost deposits.
- Short-term borrowings were $652.4 million and long-term debt was $29.8 million, compared with $585.0 million and $4.8 million, respectively, at year-end. The company’s Basic Surplus liquidity measure was $1.66 billion, or 13.9% of assets, above its 5% policy minimum. It reported $2.27 billion of remaining available borrowing capacity under its internal policy.
Material changes, outlook and risks
- Higher funding costs weighed on profitability: Q2 interest expense rose to $31.5 million from $3.9 million a year earlier, driven by higher deposit pricing and short-term borrowings. Management said net interest income was also pressured sequentially by continued funding-cost increases.
- Q2 included a $4.5 million loss on the sale of two available-for-sale subordinated debt securities. Q1 included a $5.0 million write-off of a subordinated debt security associated with a failed bank. The filing says unrealized securities losses were primarily due to interest rates, and management did not intend, or expect to be required, to sell the securities before recovery of amortized cost.
- Card-services revenue was lower year over year, including an estimated $4.0 million quarterly impact from Durbin Amendment price caps. Retirement-plan administration fees also declined. Expense increases reflected compensation, technology investment, occupancy costs and higher FDIC assessments.
- Management gave no specific earnings or financial guidance. It said net interest income will depend materially on the path of short- and medium-term rates; it expects near-term short-term rates to normalize around prevailing levels as inflation moderates. Its modeled 12-month net interest income changes were +1.57% under a 200-basis-point increase, +1.06% under a 100-basis-point increase and -2.11% under a 200-basis-point decrease.
- Liquidity risks cited include deposit outflows as customers seek higher yields, increased lending-related funding needs, and disruption or greater competition in wholesale funding markets. The filing also identifies interest rates, economic conditions, credit quality, inflation, banking-sector stress, and merger integration as risks.
- NBT announced that regulatory approvals for its acquisition of Salisbury Bancorp had been received. The companies anticipated closing on August 11, 2023, subject to customary conditions; this was subsequent to the reporting date. Salisbury reported June 30 assets of $1.56 billion, deposits of $1.36 billion and net loans of $1.24 billion.
Most important facts for investors to verify
- Whether deposit pricing and the use of borrowings continue to pressure net interest margin and earnings.
- Trends in potential problem loans, consumer-loan charge-offs, and the allowance under changing economic forecasts.
- Deposit stability, uninsured and brokered deposit levels, and available contingent liquidity.
- Realization and duration of securities-related losses, including the effects of interest rates on securities fair values and accumulated other comprehensive loss.
- Completion and integration of the Salisbury acquisition, including resulting costs, funding needs and expected benefits.