NBT Bancorp Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated results. Amounts below are in U.S. dollars; financial amounts are in millions unless otherwise noted.
Business context
NBT is a community-oriented financial holding company headquartered in Norwich, New York. Through its subsidiaries, it provides commercial and retail banking and wealth management services across parts of the Northeast.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $77.7 | $77.9 | $235.9 | $235.6 |
| Noninterest income | $40.3 | $37.7 | $116.7 | $108.2 |
| Noninterest expense | $72.9 | $66.3 | $212.2 | $202.5 |
| Net income | $37.4 | $35.1 | $117.6 | $70.2 |
| Diluted EPS | $0.86 | $0.80 | $2.69 | $1.60 |
- Q3 net income was down $2.9 million sequentially from Q2 2021; diluted EPS declined from $0.92.
- Q3 FTE net interest margin was 2.88%, down 29 basis points year over year. Nine-month FTE margin was 3.01%, versus 3.35% in 2020. Lower asset yields were partly offset by lower funding costs.
- Provision for loan losses was a benefit of $3.3 million in Q3 and $11.4 million for the first nine months, compared with expense of $3.3 million and $51.7 million, respectively, in 2020. The filing attributes the major year-over-year earnings improvement to the more favorable credit outlook and reduced reserve provisioning versus pandemic-era reserve building.
- For the nine months, operating cash flow was $135.3 million, investing cash outflow $430.0 million, and financing cash inflow $968.2 million. Cash and cash equivalents increased $673.4 million to $1.346 billion.
Financial position, liquidity and capital
- Total assets were $11.994 billion at September 30, 2021, up from $10.933 billion at December 31, 2020. Total loans were $7.566 billion, up $67.6 million; excluding PPP loans, loans increased $222.2 million.
- Deposits rose 12.3% from year-end to $10.195 billion. Cash and short-term interest-bearing accounts totaled approximately $1.346 billion.
- Allowance for loan losses was $93.0 million, or 1.23% of loans (1.28% excluding PPP loans), versus $110.0 million and 1.47% at year-end. Nonperforming assets were $39.5 million, 0.33% of assets, down from $49.3 million at year-end. Potential problem loans were $105.7 million.
- At September 30, short-term borrowings were $99.7 million, long-term debt $14.0 million, subordinated debt net $98.4 million and junior subordinated debt $101.2 million. Long-term debt declined from $39.1 million at year-end.
- Stockholders’ equity was $1.241 billion, 10.35% of assets. Regulatory capital ratios remained above “well-capitalized” thresholds: CET1 12.20%, Tier 1 13.39%, total risk-based capital 15.74%, and leverage 9.47%.
- Management reported a $3.5 billion Basic Surplus liquidity measure, or 29.4% of assets, above its 5% policy minimum; additional borrowing capacity was also available.
Material changes and management commentary
- Fee income increased 7.9% year over year for the first nine months, led by ATM/debit-card, wealth-management and retirement-plan administration fees. Expenses increased 4.8%, including higher compensation, technology and other operating costs.
- PPP loans outstanding were $276.2 million at quarter-end, down from $430.8 million at year-end, as forgiveness outpaced originations. The company reported $449.8 million of SBA payments on forgiven loans during the first nine months.
- Accumulated other comprehensive income moved to a $14.5 million loss from $0.4 million of income at year-end, principally reflecting unrealized available-for-sale securities losses. Management attributed securities losses primarily to interest-rate changes, not credit deterioration.
- The company repurchased 119,342 shares in Q3 at an average $35.30 per share. The board approved a Q4 dividend of $0.28 per share.
Outlook, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Management’s CECL baseline assumed pandemic abatement in November 2021, additional legislation by year-end, and full employment by the end of 2022; these are modeling assumptions, not company guidance.
- Management warned that pandemic effects remain uncertain and that stimulus support may have delayed credit deterioration. It cited possible worsening credit metrics as support programs end, as well as risks from new COVID-19 developments, economic conditions, inflation, interest rates, borrower performance and competition.
- Interest-rate modeling projected 12-month net interest income changes of +6.93% under a gradual 200-basis-point rise, +3.22% under a 100-basis-point rise, and -0.84% under a 50-basis-point decline. Management noted deposit-rate floors and competition could constrain its ability to preserve asset yields and margins.
- Q3 expenses included $2.3 million of nonrecurring costs, primarily an estimated settlement related to pending litigation over deposit products and disclosures. Management said it did not anticipate further material accruals. The filing otherwise reports no material change to previously disclosed risk factors and no material legal proceedings beyond routine matters and the described lawsuit.
- COVID-related loan modifications outstanding were $2.0 million at quarter-end, compared with $106.0 million at December 31, 2020. The company also identified 8.7% of loans as being in industries it considered higher risk due to the pandemic.
Investor verification points
- Verify whether the improving economic outlook and reserve releases remain justified, particularly against $105.7 million of potential problem loans and the filing’s identified higher-risk industries.
- Monitor loan delinquencies, charge-offs, criticized/classified credits, and the small remaining pool of pandemic deferrals as government support recedes.
- Assess the effect of excess deposits and lower asset yields on net interest margin, including actual rate sensitivity versus management’s modeled scenarios.
- Track unrealized securities losses and their potential effects on accumulated other comprehensive income and tangible equity.
- Confirm the final outcome and financial impact of the deposit-products litigation; the filing’s $2.3 million estimate is a Q3 accrual.