NBT Bancorp Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; quarterly comparisons are included for the fourth quarter. NBT Bancorp is a community-oriented bank holding company operating primarily in upstate and central New York and neighboring northeastern states. Its principal business is commercial banking, supplemented by insurance, trust and retirement-plan services.
Financial performance and condition
| Metric | 2015 | 2014 |
|---|---|---|
| Total assets, year-end | $8.263 billion | $7.807 billion |
| Loans, year-end | $5.883 billion | $5.595 billion |
| Deposits, year-end | $6.605 billion | $6.300 billion |
| Borrowings, year-end | $674.1 million | $548.9 million |
| Stockholders’ equity, year-end | $882.0 million | $864.2 million |
| Net interest income | $252.6 million | $251.9 million |
| Provision for loan losses | $18.3 million | $19.5 million |
| Noninterest income | $118.5 million | $126.0 million |
| Noninterest expense | $236.2 million | $246.1 million |
| Net income | $76.4 million | $75.1 million |
| Diluted earnings per share | $1.72 | $1.69 |
| Net interest margin (FTE) | 3.50% | 3.61% |
| Return on average assets / equity | 0.96% / 8.70% | 0.97% / 8.84% |
Loans grew 5.1% year over year, while deposits grew 4.8% at year-end. Noninterest-bearing demand deposits increased 8.7%. The loan portfolio included $1.431 billion in commercial real estate loans and $1.568 billion in consumer loans; approximately 44% of loans were commercial and related categories, and about 59% were secured by real estate.
Cash flow: Operating activities provided $124.5 million; investing activities used $504.0 million; and financing activities provided $373.1 million. Cash and cash equivalents ended the year at $140.3 million, down $6.3 million.
Liquidity and debt: The Company’s basic surplus liquidity measure was 18.6% of assets, or $1.5 billion, above its 5% policy minimum. It reported approximately $2.0 billion of unused lines and brokered-deposit access, plus $823 million borrowing capacity under the Federal Reserve Borrower-in-Custody program. Year-end borrowings comprised $442.5 million short-term borrowings, $130.4 million long-term debt and $101.2 million junior subordinated debt. The Bank had $81.9 million available for dividends to the parent without prior OCC approval.
Capital: At year-end, the Company reported a 10.20% Common Equity Tier 1 ratio, 11.73% Tier 1 risk-based capital ratio, 12.74% total risk-based capital ratio and 9.44% leverage ratio. The Bank was categorized as well capitalized.
Changes versus the prior comparable period
- Net income rose 1.8% and diluted EPS increased from $1.69 to $1.72, despite lower net interest margin.
- FTE net interest margin declined 11 basis points to 3.50%. Earning-asset yields fell, including a 20-basis-point decrease in average loan yield, while lower funding costs and loan growth largely offset the pressure on net interest income.
- Noninterest income declined 6.0%, primarily because the 2014 Springstone investment-sale gain was $19.4 million versus $4.2 million in 2015. Excluding those gains, noninterest income increased 7.2%.
- Noninterest expense fell $9.9 million, mainly because 2014 included $17.9 million of long-term debt prepayment penalties. Excluding those penalties, expense increased 3.5%, including higher compensation and branch-reorganization costs.
- Asset-quality measures improved: nonperforming loans were 0.64% of loans versus 0.82%; net charge-offs were 0.38% of average loans versus 0.41%; and nonperforming assets were $42.1 million versus $50.0 million.
- For the fourth quarter, net income was $19.1 million and diluted EPS was $0.43, compared with $18.5 million and $0.42 a year earlier. Quarterly NIM was 3.42%, versus 3.61% in fourth-quarter 2014.
Outlook, risks and unusual items
Management expected further margin compression in 2016 from reinvestment of maturing or prepaid assets at lower yields and limited room to reduce already-low deposit and borrowing rates. It planned to focus on loan and earning-asset growth, asset mix, funding costs and fee-income growth, particularly organic growth in wealth-management businesses. The filing provides no specific numerical earnings or growth guidance.
- Rate and funding exposure: Interest-rate simulations projected net interest income declines of 3.27% under a gradual 200-basis-point rise and 1.88% under a 100-basis-point decline over 12 months. Management warned that deposit competition or loan growth exceeding deposit growth could pressure liquidity or funding costs.
- Credit and concentration risk: The bank’s lending is concentrated in its regional footprint, and commercial lending and real-estate collateral expose it to local economic and property-market deterioration. Management identified $73.8 million of potential problem loans. It considered the $63.0 million allowance adequate, but noted that estimates and collateral values could change.
- Regulatory and operating risks: The filing cites regulatory compliance costs, competition, cybersecurity and technology risks, and potential heightened requirements if consolidated assets exceed $10 billion.
- Unusual items: 2015 included a $4.2 million Springstone-related gain, a $3.0 million equity-investment sale gain, $1.5 million in acquired-loan charge-off recoveries, a $1.6 million favorable settlement of a prior accrual, and $3.8 million in branch-reorganization expenses. The Company acquired retirement-plan administrator TPA, Inc. for $4.1 million.
- Contingencies and assurance: Management reported no material legal proceedings beyond ordinary routine litigation. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether continued NIM compression can be offset by loan growth and lower-cost deposit funding, and how actual results compare with management’s qualitative 2016 outlook.
- Allowance adequacy and trends in potential problem, impaired and nonperforming loans, including the commercial real-estate and consumer portfolios.
- How much of reported earnings depends on investment-sale gains and other nonrecurring items, and whether underlying fee income and expenses are developing as described.
- Whether loan growth remains supported by core deposits and whether liquidity and capital remain comfortably above internal and regulatory thresholds.
- Any costs or operational changes arising from regulatory requirements, future asset growth toward the $10 billion threshold, and the TPA acquisition.