NBT Bancorp Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. NBT Bancorp is a community-oriented financial holding company operating primarily through NBT Bank, serving markets across the Northeast. Financial statements are unaudited.
Financial performance and condition
| Metric | Q1 2023 | Comparison |
|---|---|---|
| Net interest income | $95.1 million | Up 18.3% year over year; down 4.7% from Q4 2022 |
| FTE net interest margin | 3.55% | 2.95% in Q1 2022; 3.68% in Q4 2022 |
| Noninterest income | $31.4 million | Down 26.4% year over year; includes $5.0 million securities loss |
| Noninterest expense | $79.3 million | Up 10.0% year over year; includes $0.6 million acquisition costs |
| Provision for loan losses | $3.9 million | $0.6 million in Q1 2022; $7.7 million in Q4 2022 |
| Net income / diluted EPS | $33.7 million / $0.78 | $39.1 million / $0.90 in Q1 2022 |
| Cash from operations | $21.8 million | $35.4 million in Q1 2022 |
| Loans / deposits | $8.26 billion / $9.68 billion | Loans up 5.7% annualized and deposits up 2.0% from year-end |
| Total assets / stockholders’ equity | $11.84 billion / $1.21 billion | $11.74 billion / $1.17 billion at year-end |
Q1 cash flows included $75.6 million used in investing and $86.2 million provided by financing; cash and cash equivalents increased $32.4 million to $229.8 million. At quarter-end, short-term borrowings were $475.2 million, long-term debt $29.8 million, subordinated debt net $97.0 million, and junior subordinated debt $101.2 million.
Capital ratios remained above regulatory “well capitalized” thresholds: common equity tier 1 was 12.28%, Tier 1 capital 13.34%, total risk-based capital 15.53%, and Tier 1 leverage 10.43%. Book value per share was $28.24; tangible book value per share was $21.52. The quarterly dividend was $0.30 per share.
Material changes and notable items
- Net income declined 14.0% year over year. Higher loan and securities yields lifted net interest income, but higher deposit and borrowing costs, lower fee income, increased expenses, and the securities write-off weighed on results.
- Interest expense rose to $19.1 million from $3.9 million in Q1 2022. Management reported that the cost of interest-bearing liabilities increased to 1.14%, while the yield on average interest-earning assets rose to 4.26%.
- Noninterest income excluding securities losses was $36.4 million, down 15.0% year over year. Card-services income fell about $4.0 million, principally reflecting Durbin Amendment price caps; retirement-plan and wealth-management fees also declined year over year.
- Loans grew $114.4 million from year-end, with increases in commercial real estate, auto, and residential solar lending. The allowance for credit losses was $100.3 million, or 1.21% of loans, compared with $100.8 million and 1.24% at year-end. Net charge-offs were $3.8 million, or 0.19% annualized of average loans.
- Nonperforming assets declined to $18.7 million from $21.2 million at year-end. Potential problem loans were $55.9 million, up from $52.0 million at year-end.
- Deposits increased $185.3 million during the quarter, supported in part by seasonal municipal inflows. Estimated uninsured deposits were $3.7 billion. Average deposits were down 6.8% year over year, as some larger commercial customers moved funds to higher-yielding alternatives.
- Accumulated other comprehensive loss improved to $173.9 million from $190.0 million at year-end, primarily reflecting higher market values of available-for-sale securities. At March 31, AFS securities had $196.0 million of gross unrealized losses; HTM securities had $94.6 million of gross unrealized losses and a fair value of $812.7 million versus $906.8 million amortized cost.
- Effective January 1, 2023, adoption of ASU 2022-02 increased retained earnings by $0.5 million, net of a $0.1 million deferred tax asset reduction.
Outlook, risks and contingencies
- The filing provides no formal earnings or revenue guidance. Management said net interest income will depend significantly on the path of short- and medium-term interest rates, inflation, and Federal Reserve policy. Its interest-rate model projected next-12-month net interest income changes of +2.08% under a 200-basis-point increase, +1.31% under a 100-basis-point increase, and −2.86% under a 200-basis-point decrease.
- Management reported a $1.73 billion basic surplus liquidity measure, equal to 14.6% of assets and above its 5% policy minimum. It cited approximately $2.48 billion of remaining borrowing capacity under internal policy limits, while warning that deposit outflows, higher rates, credit-line draws, or disruption in wholesale funding could weaken liquidity.
- The company added banking-industry risks to its risk factors, including potential deposit flight and liquidity pressure following recent bank failures, possible losses if securities must be sold to meet liquidity needs, and higher costs from regulatory scrutiny or FDIC assessments.
- On May 4, 2023, after quarter-end, NBT sold two regional-bank subordinated debt securities for a $4.5 million pretax loss. The filing identifies this as a subsequent event, not a Q1 income-statement charge.
- Commitments to extend credit and unused lines totaled $2.43 billion; standby letters of credit totaled $40.9 million. The filing reports no material legal proceedings outside routine litigation and no material changes to previously reported risks other than those described above.
- The filing references a pending merger with Salisbury Bancorp, Inc.; Q1 merger-related acquisition expense was $0.6 million. It provides no further transaction outlook in the supplied text.
Important facts for investors to verify
- Deposit stability and uninsured-deposit trends, particularly if rates remain elevated or confidence in regional banks weakens.
- Whether the net interest margin can stabilize as deposit and borrowing costs reprice, and how interest-rate changes affect earnings.
- Realized and unrealized securities losses, including the May post-quarter sale and the implications of any future liquidity-driven sales.
- Credit quality, especially potential problem loans, residential solar exposures, charge-offs, and assumptions supporting the $100.3 million allowance.
- Execution, costs, and timing of the pending Salisbury merger, along with recurring expense growth and fee-income trends.