NBT Bancorp Inc. — 2022 Form 10-K Summary
Business context and reporting period. NBT Bancorp is a community-focused financial holding company operating primarily through NBT Bank, with commercial and retail banking, wealth management, retirement-plan administration and insurance businesses across the Northeast. This annual report covers the fiscal year ended December 31, 2022; balance-sheet comparisons are to December 31, 2021. The company reported $11.74 billion of assets and $1.17 billion of stockholders’ equity at year-end.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Net income | $152.0 million | $154.9 million |
| Diluted earnings per share | $3.52 | $3.54 |
| Net interest income (GAAP) | $362.2 million | $321.1 million |
| Net interest margin (FTE) | 3.34% | 3.03% |
| Noninterest income | $155.6 million | $157.8 million |
| Noninterest expense | $304.5 million | $287.3 million |
| Provision for loan losses | $17.1 million | ($8.3 million) benefit |
| Net cash from operating activities | $183.2 million | $159.2 million |
- Revenue and earnings: Total revenue, calculated as GAAP net interest income plus noninterest income, was approximately $517.8 million, up 8.1% year over year. Management reported positive operating leverage of $21.7 million. Return on average assets was 1.29%; return on average equity was 12.67%.
- Loans and credit: Loans ended the year at $8.15 billion, up 8.7% (10.2% excluding PPP loans). The allowance for loan losses was $100.8 million, or 1.24% of loans. Net charge-offs were 0.11% of average loans. Nonperforming assets were $21.2 million, 0.18% of assets, compared with $32.9 million, or 0.27%, in 2021.
- Deposits, liquidity and borrowings: Deposits were $9.50 billion, down from $10.23 billion. Short-term borrowings rose to $585.0 million from $97.8 million; FHLB advances outstanding were $443.8 million. Basic Surplus liquidity was $1.55 billion, or 13.2% of assets, above the 5% policy minimum. Management reported $2.41 billion of remaining borrowing capacity under its internal limit.
- Capital and book value: The Bank qualified as well-capitalized. Company CET1, Tier 1 and total risk-based capital ratios were 12.12%, 13.19% and 15.38%, respectively. Book value per share was $27.38; tangible book value per share was $20.65.
- Cash flows: Operating activities provided $183.2 million; investing activities used $926.2 million, primarily reflecting loan growth and securities activity; financing activities used $328.7 million, including a $738.5 million net deposit decline, partly offset by increased short-term borrowings. Cash and cash equivalents ended at $197.4 million, versus $1.27 billion a year earlier.
- Debt: Year-end balances included $96.9 million of subordinated debt, net, and $101.2 million of junior subordinated debt. The company repurchased $2.0 million of subordinated notes in 2022.
Material changes versus 2021
- Net interest income rose 12.8% as higher asset yields and earning-asset growth outweighed increased funding costs and lower PPP income. The Federal Reserve raised its target rate by 425 basis points during 2022.
- Net income declined about 1.9%. A $17.1 million loan-loss provision replaced the prior-year $8.3 million provision benefit; 2021 had benefited from improved economic forecasts.
- Noninterest income fell 1.4%, including an approximately $8 million reduction in card income associated with becoming subject to Durbin Amendment interchange-fee limits in July 2022. Retirement-plan administration fees increased.
- Noninterest expense increased 6.0%, mainly due to salaries and benefits, technology investment and strategic initiatives. 2022 included $1.0 million of merger expenses; 2021 included a $4.3 million estimated litigation settlement cost.
- Deposits declined and the company shifted from excess liquidity to short-term borrowing. Accumulated other comprehensive loss widened to $190.0 million from $23.3 million, largely reflecting unrealized losses on available-for-sale securities as interest rates rose. Stockholders’ equity decreased to $1.17 billion from $1.25 billion.
Outlook, commentary and risks
- Outlook: Management did not provide numerical earnings guidance. It cited possible recession, persistent inflation, yield-curve inversion, slower loan growth, deposit outflows and higher deposit costs as factors that could affect 2023 results. The balance sheet was described as asset-sensitive; modeled 12-month net interest income increased 2.83% under a +200-basis-point scenario and decreased 3.99% under a −200-basis-point scenario.
- Salisbury transaction: NBT agreed in December 2022 to acquire Salisbury Bancorp, which had $1.54 billion of assets at year-end. Salisbury shareholders are to receive 0.7450 NBT shares per share. Closing was expected in the second quarter of 2023, subject to shareholder and regulatory approvals. Integration costs, execution and realization of expected benefits are uncertainties.
- Principal risks: Interest-rate and deposit competition; economic deterioration and credit losses, particularly in commercial lending and real estate; liquidity and funding pressures; cybersecurity, fraud and third-party service-provider risks; regulatory requirements associated with assets exceeding $10 billion; and merger approval, integration and cost risks. Residential solar loans grew substantially, to $856.8 million from $440.0 million.
- Unusual balance-sheet item: Available-for-sale securities had $216.7 million of gross unrealized losses at year-end, primarily attributed by management to interest rates rather than credit quality. Management stated it did not intend, and was not more likely than not required, to sell the securities before recovery of amortized cost.
- Audit and controls: KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The allowance for credit losses was identified as a critical audit matter; the filing emphasizes the estimation uncertainty in economic forecasts, model assumptions and qualitative adjustments.
Investor verification priorities
- Track deposit balances, uninsured deposits (estimated at $3.56 billion), deposit pricing and reliance on short-term/FHLB funding as liquidity conditions evolve.
- Review securities marks, AOCI and capital effects, including whether securities are sold or held through recovery.
- Assess loan growth and credit trends, especially solar, consumer, commercial real estate and the $52.0 million of identified potential problem loans.
- Confirm Salisbury merger approvals, closing timing, share issuance, integration costs and realized benefits.
- Compare actual net interest margin and funding costs with management’s rate-sensitivity assumptions and the 2023 risks described in the filing.