NBT Bancorp Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. NBT Bancorp is a community-focused financial holding company operating primarily through NBT Bank, serving customers across upstate and central New York and several nearby states.
Financial performance and condition
Amounts below are in millions, except per-share data and ratios.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $94.5 | $77.7 | $262.4 | $235.9 |
| Provision for loan losses | $4.5 | $(3.3) benefit | $9.5 | $(11.4) benefit |
| Noninterest income | $37.2 | $40.3 | $121.5 | $116.7 |
| Noninterest expense | $76.7 | $72.9 | $225.0 | $212.2 |
| Net income | $39.0 | $37.4 | $115.9 | $117.6 |
| Diluted EPS | $0.90 | $0.86 | $2.68 | $2.69 |
- Q3 FTE net interest margin was 3.51%, up 63 basis points year over year; nine-month margin was 3.22%, up 21 basis points. Higher asset yields, including loan yields, drove much of the improvement.
- Q3 return on average assets was 1.33%, return on average equity 12.87%, and return on average tangible common equity 17.12%. Nine-month figures were 1.31%, 12.79%, and 17.00%, respectively.
- At September 30, total assets were $11.64 billion, loans $7.90 billion, deposits $9.92 billion, and stockholders’ equity $1.16 billion. Loans rose 7.2% annualized from year-end (9.1% excluding PPP loans); deposits declined 3.1%.
- Nine-month operating cash flow was $153.5 million, versus $136.8 million a year earlier. Investing and financing activities used $698.9 million and $402.6 million, respectively; cash and cash equivalents fell $948.0 million to $321.1 million, primarily amid loan growth, securities investment, and deposit outflows.
- Borrowings included $74.6 million of short-term borrowings, $3.3 million of long-term debt, $98.8 million of subordinated debt net of issuance costs, and $101.2 million of junior subordinated debt.
- Regulatory capital remained above “well-capitalized” thresholds: common equity tier 1 was 12.17%, tier 1 capital 13.27%, total risk-based capital 15.50%, and tier 1 leverage 10.21%.
Material changes and notable items
- Q3 net income rose 4.1% year over year, while nine-month net income declined 1.4%. Nine-month net interest income increased 11.2%, but the comparison also reflects a shift from a prior-year provision benefit to a 2022 provision expense.
- Q3 noninterest income declined 7.8% year over year, mainly due to lower card-services income, including a $3.8 million impact from Durbin Amendment price-cap provisions, and weaker wealth-management activity. Nine-month noninterest income increased 4.1%, led by retirement-plan administration fees and deposit service charges.
- Noninterest expense increased 5.2% in Q3 and 6.0% over nine months, mainly from compensation and technology investment. Prior-year expense comparisons included estimated litigation settlement costs.
- Stockholders’ equity fell $93.9 million from December 31, 2021. A $160.2 million increase in accumulated other comprehensive loss—primarily from lower fair values of available-for-sale securities—more than offset retained earnings growth. Gross unrealized losses were $222.1 million on available-for-sale securities and $115.4 million on held-to-maturity securities; management attributed these principally to interest-rate changes, not credit deterioration, and stated it did not intend or expect to be required to sell the securities before recovery.
- The allowance for credit losses was $96.8 million, or 1.22% of loans, versus $92.0 million and 1.23% at year-end 2021. Nonperforming assets declined to $21.8 million from $32.9 million at year-end; nonperforming loans were 0.28% of loans. Net charge-offs were 0.07% of average loans annualized in Q3.
Outlook, risks, and contingencies
- The filing gives no specific earnings or revenue guidance. Management said net interest income will depend on economic conditions, inflation, and Federal Reserve policy. Its September 30 interest-rate model projected net interest income changes over 12 months of +3.78% with rates up 200 basis points, +2.02% with rates up 100 basis points, and -5.72% with rates down 200 basis points.
- Management’s credit-loss forecast assigned 50% weight to its baseline and 50% to downside scenario, with no weight to upside. It cited further rate increases and inflation-related uncertainty; a 10-percentage-point shift from baseline to downside would increase the estimated allowance by 3%, all else equal.
- Liquidity remained above policy minimums: Basic Surplus was $2.22 billion, or 19.1% of assets, versus $3.43 billion, or 28.5%, at year-end. Remaining available borrowing capacity under internal policy was $2.88 billion. Management cautioned that higher rates could prompt deposit outflows, while credit-line draws or funding-market disruption could pressure liquidity and raise funding costs.
- Off-balance-sheet commitments to extend credit and unused lines totaled $2.40 billion; standby letters of credit totaled $54.3 million. The reserve for unfunded commitments was $5.3 million. These amounts are not necessarily expected future cash outflows.
- Potential problem loans totaled $58.4 million. Management noted that worsening economic conditions could result in additional delinquencies, nonaccruals, or provision needs. COVID-19 disruption had become less pronounced, but uncertainty remained; 8.5% of loans were in industries identified as higher risk due to the pandemic.
- The board approved a Q4 2022 dividend of $0.30 per share, payable December 15, 2022. The company repurchased 400,000 shares during the first half of 2022 and had 1.6 million shares remaining under its authorization at quarter-end.
- No material changes to previously reported risk factors or material legal proceedings were reported; routine litigation remains possible.
Key facts for investors to verify
- Whether loan and deposit pricing trends sustain the improved net interest margin as rates rise and deposit competition increases.
- Whether loan growth, credit quality, and the allowance remain appropriate under the downside economic scenario.
- The effect of unrealized securities losses and any further rate moves on accumulated other comprehensive loss, tangible book value, and capital.
- Whether deposit outflows, borrowing needs, and liquidity measures remain within management’s stated policy limits.
- Whether card-services pressure, compensation growth, and technology spending affect future fee income and expense trends.