NBT Bancorp Inc. — Q1 2016 Form 10-Q
Business context and reporting period. NBT Bancorp is a community-oriented financial holding company serving markets across parts of New York and neighboring northeastern states. This unaudited filing covers the three months ended March 31, 2016; balance-sheet comparisons are to December 31, 2015. Financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2016 / March 31, 2016 | Comparable period / prior year-end |
|---|---|---|
| Net income | $18.9 million | $18.2 million in Q1 2015 |
| Diluted earnings per share | $0.43 | $0.41 in Q1 2015 |
| Net interest income | $64.6 million | $62.2 million in Q1 2015 |
| FTE net interest margin | 3.47% | 3.60% in Q1 2015; 3.42% in Q4 2015 |
| Total assets | $8.47 billion | $8.26 billion at Dec. 31, 2015 |
| Total loans | $5.97 billion | $5.88 billion at Dec. 31, 2015 |
| Total deposits | $6.91 billion | $6.60 billion at Dec. 31, 2015 |
| Stockholders’ equity | $881.7 million; 10.41% of assets | $882.0 million; 10.67% at Dec. 31, 2015 |
| Allowance for loan losses | $64.3 million; 1.08% of loans | $63.0 million; 1.07% at Dec. 31, 2015 |
Revenue, expenses and margins. Total interest, fee and dividend income was $70.0 million, versus $67.2 million a year earlier. Noninterest income rose to $28.4 million from $26.5 million, led by insurance and financial services, retirement plan administration, ATM/debit-card fees and other income. Noninterest expense increased to $58.2 million from $57.7 million, principally reflecting higher salaries and benefits. The provision for loan losses rose to $6.1 million from $3.6 million. Income before tax was $28.6 million; tax expense was $9.7 million, an effective rate of 34.0% versus 33.6%.
Cash flow. Operating activities provided $29.3 million, compared with $30.0 million in Q1 2015. Investing activities used $190.3 million, including $90.3 million of net loan growth and $45.0 million for purchases of bank-owned life insurance. Financing activities provided $176.2 million, including $300.2 million of deposit growth, partly offset by a $94.6 million reduction in short-term borrowings, share repurchases and dividends. Cash and cash equivalents ended the quarter at $155.5 million.
Debt, liquidity and capital. Short-term borrowings were $347.9 million, down from $442.5 million at year-end; long-term debt was $130.4 million and junior subordinated debt was $101.2 million. The company reported a $1.3 billion Basic Surplus liquidity measure, or 15.8% of assets, above its 5% minimum. Additional borrowing capacity included approximately $1.2 billion from the FHLB and $810 million from unused Federal Reserve collateral. The company remained well capitalized: Tier 1 leverage 9.15%, common equity Tier 1 9.79%, Tier 1 capital 11.28%, and total risk-based capital 12.29%.
Material changes versus comparable periods
- Net income increased 4.0% year over year, and diluted EPS rose from $0.41 to $0.43. Annualized return on average assets was 0.92%, compared with 0.94%; return on average tangible common equity was 13.17%, compared with 13.08%.
- Net interest income increased 3.9% year over year, while FTE margin declined 13 basis points. Management attributed the year-over-year income gain primarily to higher average earning-asset balances; loan yield pressure offset part of the volume benefit.
- Loans grew $84.7 million, or 1.4%, from year-end (5.8% annualized). Consumer, commercial and residential portfolios contributed; consumer growth included approximately $30 million of LendingClub loans.
- Deposits increased $300.2 million, or 4.5%, from year-end, primarily due to seasonal municipal deposits. Average demand deposits were up 11.3% year over year.
- Asset-quality measures were mixed: past-due loans improved to 0.50% of loans from 0.62% at year-end, and annualized net charge-offs were 0.33% versus 0.38% for full-year 2015. Nonperforming loans rose to 0.69% from 0.64% at year-end. Nonperforming assets were $43.8 million, versus $42.1 million.
- The company repurchased 675,535 shares for $17.2 million at an average $25.45 per share. Equity was broadly flat, with earnings offset by dividends and buybacks; regulatory capital ratios declined from year-end.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management noted that persistently low rates may continue to compress margins: deposit rates are near floors while asset yields continue to reprice. Its 12-month simulation projected net interest income down 3.31% under a gradual 200-basis-point increase and down 2.10% under a gradual 100-basis-point decrease, relative to a flat-rate scenario; both were within internal limits.
- Credit quality remains subject to economic conditions, borrower performance and collateral values. Management identified approximately $70.6 million of potential problem loans, down from $73.8 million at year-end, and warned that some could become nonperforming or require additional reserves.
- Unrealized securities losses were attributed to higher market interest rates; management stated it intended and was able to hold the securities long enough to recover cost and recorded no other-than-temporary impairment loss in the quarter.
- Off-balance-sheet commitments to extend credit and unused lines totaled $1.4 billion; standby letters of credit totaled $42.0 million. These amounts do not necessarily represent future cash requirements. The company reported no material commitments to extend additional credit to borrowers with nonperforming loans.
- The board authorized a new repurchase plan for up to 1 million additional shares, expiring December 31, 2017; 277,313 shares remained under the prior plan at quarter-end. A $0.22-per-share second-quarter dividend was approved after quarter-end.
- Management reported effective disclosure controls as of March 31, 2016, no material changes to internal control over financial reporting, and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether loan growth and deposit growth continue, and how much deposit growth is seasonal municipal funding.
- Whether margin pressure, particularly under rising rates, affects net interest income and profitability as modeled.
- Trends in nonperforming loans, potential problem loans, net charge-offs and the adequacy of the loan-loss allowance.
- The contribution and credit performance of LendingClub-related consumer loans and other acquired or purchased loan portfolios.
- How ongoing repurchases and dividends affect regulatory capital, liquidity and per-share results.