NBT Bancorp Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions unless stated otherwise. The interim financial statements are unaudited.
Business context
NBT Bancorp is a community-oriented financial holding company headquartered in Norwich, New York. Through its bank and other subsidiaries, it provides commercial and retail banking, wealth management, insurance, and retirement plan services across parts of the Northeast.
Financial performance and condition
| Metric | Q2 2021 / June 30, 2021 | Comparable period / prior date |
|---|---|---|
| Net income | $40.3 million | $24.7 million in Q2 2020; $80.1 million for H1 2021 versus $35.1 million in H1 2020 |
| Diluted EPS | $0.92 | $0.56 in Q2 2020; $1.83 for H1 2021 versus $0.80 in H1 2020 |
| Net interest income | $79.2 million; FTE net interest margin 3.00% | NII down 1.6% year over year; margin down 38 basis points. H1 NII was $158.2 million, up 0.4%, while FTE margin was 3.08% versus 3.45% |
| Noninterest income / expense | $39.3 million / $71.4 million | Q2 noninterest income rose 12.3% and expense rose 9.3% year over year |
| Loans / allowance | $7.52 billion gross loans; $98.5 million allowance, or 1.31% of loans | Loans up 1% annualized from year-end 2020; allowance was $110.0 million, or 1.47%, at year-end |
| Deposits / liquidity | $9.79 billion deposits; $1.07 billion cash and cash equivalents | Deposits up $703.6 million, or 7.7%, from year-end 2020 |
| Assets / equity | $11.57 billion assets; $1.23 billion stockholders’ equity | Assets were $10.93 billion and equity $1.19 billion at year-end 2020 |
| Debt and borrowings | $90.6 million short-term borrowings; $14.0 million long-term debt; $98.3 million subordinated debt, net; $101.2 million junior subordinated debt | Short- and long-term debt were $168.4 million and $39.1 million, respectively, at year-end 2020 |
| Cash flow, H1 2021 | $95.7 million operating; $(267.0) million investing; $565.6 million financing; cash increased $394.3 million | Cash and cash equivalents ended H1 at $1.07 billion |
Changes and drivers
- Q2 earnings increased $15.6 million year over year, with the principal swing coming from a $5.2 million provision benefit in Q2 2021 versus $18.8 million of provision expense in Q2 2020. Management attributed the lower provision to an improved economic forecast.
- Net interest margin remained under pressure: lower asset yields more than offset the benefit of lower funding costs. Excess liquidity and a larger securities portfolio increased average earning assets.
- Fee income gains reflected higher ATM/debit-card activity, wealth-management fees, and retirement-plan administration fees. Salary and benefit costs, technology-related expenses, and professional fees contributed to higher operating expenses.
- Loans increased $18.7 million from year-end, or $89.8 million excluding PPP loans. PPP balances declined to $359.7 million after $365.1 million of forgiveness in H1.
- Nonperforming assets were $43.9 million, down from $49.3 million at year-end but above $29.4 million at June 2020. Nonperforming loans were 0.57% of loans, versus 0.64% at year-end.
- Stockholders’ equity increased from year-end. H1 net income was partly offset by $23.5 million of dividends, $9.9 million of share repurchases, and a $9.7 million other comprehensive loss, primarily reflecting securities valuation changes.
Outlook, risks, and unusual items
- The filing gives no formal earnings or financial guidance. Management said economic uncertainty remained elevated and volatility was expected to continue in 2021.
- COVID-19 remains a key uncertainty. Management cautioned that government stimulus and relief programs may have delayed or mitigated credit deterioration; loan losses could emerge as support ends. At June 30, $32.3 million of loans were in COVID-related modification programs, and 0.5% of loans excluding PPP were in payment deferral programs.
- Potential problem loans totaled approximately $120.5 million, and 8.9% of loans were in industries identified as higher risk due to the pandemic. Management noted that these performing loans could later become nonperforming or require additional reserves.
- The allowance estimate depends on economic forecasts, scenario weightings, borrower performance, and management judgment. The allowance declined as the forecast improved; materially different conditions could require higher reserves and reduce earnings.
- Interest-rate risk is significant. The company’s modeled 12-month net interest income changes were +6.07% for a 200-basis-point rise, +2.80% for a 100-basis-point rise, and −0.87% for a 50-basis-point decline. Management noted competitive limits on asset yields and limited room for further deposit-rate reductions.
- Liquidity was reported as strong: the “Basic Surplus” measure was 28.9% of assets, or approximately $3.3 billion, versus a 5% policy minimum. Management nevertheless identified possible deposit outflows, higher credit-line draws, and wholesale-funding disruption as risks.
- Q2 noninterest expense included $1.9 million of nonrecurring costs, including an estimated legal settlement charge. The filing does not provide a clear settlement amount separate from that aggregate charge.
- After quarter-end, the company approved a third-quarter dividend of $0.28 per share, a 3.7% increase. An August 5, 2021 CFO employment agreement set annual base salary at $500,000, subject to annual adjustment.
Key facts for investors to verify
- Whether loan performance and criticized/problem-loan trends remain stable as pandemic-related support and deferrals unwind.
- How reserve levels and provision expense respond to changes in economic forecasts, charge-offs, and PPP loan runoff.
- Whether fee growth and expense trends can offset margin pressure and higher operating costs.
- Deposit stability, liquidity sources, and the company’s sensitivity to interest-rate and funding-market changes.
- The nature and final cost of the estimated legal settlement charge, and the effect of securities valuation changes on equity.