NBT Bancorp Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021 unless noted. NBT Bancorp is a community-oriented financial holding company operating primarily through NBT Bank across the Northeast. Financial statement amounts below are in U.S. dollars; millions and billions are identified.
Financial performance
| Metric | Q1 2022 | Comparable period |
|---|---|---|
| Net interest income | $80.3 million | $79.1 million in Q1 2021; $85.2 million in Q4 2021 |
| Noninterest income | $42.7 million | $37.0 million in Q1 2021 |
| Total revenue (net interest income plus noninterest income) | $123.0 million | $116.1 million in Q1 2021 |
| Noninterest expense | $72.1 million | $67.9 million in Q1 2021 |
| Provision for loan losses | $0.6 million expense | $2.8 million benefit in Q1 2021 |
| Net income | $39.1 million | $39.8 million in Q1 2021; $37.3 million in Q4 2021 |
| Diluted EPS | $0.90 | $0.91 in Q1 2021; $0.86 in Q4 2021 |
| FTE net interest margin | 2.95% | 3.17% in Q1 2021; 3.08% in Q4 2021 |
Net interest income increased 1.6% year over year but declined 5.7% from Q4 2021. Lower average asset yields and reduced PPP loan interest and fees weighed on the quarter; lower funding costs provided some offset. Noninterest income rose 15.2% year over year, led by retirement-plan administration, card services, wealth management and deposit service charges. Expense growth of 6.3% year over year, particularly salaries and benefits, partly offset revenue growth. Return on average assets was 1.32%, and return on average equity was 12.78%.
Financial position, cash flow and capital
- Assets and loans: Total assets were $12.15 billion, up from $12.01 billion at year-end. Loans were $7.65 billion, up $151.4 million, or 8.2% annualized; excluding PPP loans, period-end loans increased $201.6 million.
- Deposits and borrowings: Deposits totaled $10.46 billion, up $227.2 million. Short-term borrowings were $65.0 million, down from $97.8 million; long-term debt was $14.0 million. Subordinated debt, net, was $98.6 million and junior subordinated debt was $101.2 million.
- Cash flow: Operating activities provided $35.1 million; investing activities used $382.9 million, including securities purchases and loan growth; financing activities provided $172.9 million, mainly from deposit growth. Cash and cash equivalents ended at $1.09 billion, down $174.9 million during the quarter.
- Liquidity: Management reported a $3.1 billion Basic Surplus, equal to 25.3% of assets and above its 5% policy minimum. Additional available borrowing capacity under the company’s stated facilities and policy was approximately $3.0 billion.
- Capital: Equity was $1.20 billion, or 9.90% of assets, versus $1.25 billion, or 10.41%, at year-end. Common equity Tier 1 was 12.23%; total risk-based capital was 15.64%. The company stated it remained well capitalized.
- Dividends and repurchases: The company paid $0.28 per share in dividends and repurchased 217,100 shares for $8.2 million at an average $37.55 per share.
Asset quality and material changes
- The allowance for credit losses was $90.0 million, or 1.18% of loans, versus $92.0 million, or 1.23%, at year-end. Management attributed the decrease mainly to improved economic forecasts, partly offset by loan growth.
- Net charge-offs were $2.6 million, or 0.14% of average loans annualized. Nonperforming loans were $27.8 million, 0.36% of loans, down from $32.7 million at year-end; nonperforming assets were also $27.8 million, down from $32.9 million.
- Potential problem loans totaled $66.7 million, down from $74.9 million at year-end. Management reported that 8.8% of outstanding loans were in industries considered higher risk due to the pandemic.
- Unrealized losses on available-for-sale securities increased substantially amid interest-rate changes. Other comprehensive loss was $68.0 million for the quarter, primarily reflecting after-tax AFS securities losses; accumulated other comprehensive loss widened to $91.4 million from $23.3 million. Management said the losses were primarily rate-driven, not credit-related, and stated it did not intend, nor expect to be required, to sell the securities before recovery of amortized cost.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management said the pandemic appeared to be becoming less disruptive but that economic uncertainty and volatility were expected to continue in 2022. Its allowance forecast assumed continued pandemic abatement, containment of the Russia-Ukraine conflict, further Federal Reserve rate increases and full employment by year-end. The allowance scenarios assigned 60% weight to baseline, 40% to downside and none to upside.
Interest-rate risk is a key exposure. The company’s model projected next-12-month net interest income changes of +5.64% under a 200-basis-point increase, +3.07% under a 100-basis-point increase and -1.53% under a 50-basis-point decrease. Management cautioned that deposit repricing and competitive lending conditions could affect outcomes. Liquidity risks include potential deposit outflows, higher credit-line draws and disruption or increased competition in wholesale funding markets.
Commitments to extend credit and unused lines totaled $2.2 billion; standby letters of credit totaled $54.5 million. The company reported no material legal proceedings beyond ordinary routine litigation and no material changes to the risk factors in its 2021 Form 10-K. It noted that actual results may differ due to economic conditions, rates, credit quality, regulation, litigation, technology, competition and other factors.
Important facts for investors to verify
- Whether the sharp increase in AFS unrealized losses and reduced tangible book value ($21.25 per share versus $22.26 at year-end) affect capital, liquidity or the company’s ability to hold securities to recovery.
- Whether loan growth, credit quality, potential problem loans and the allowance remain consistent with management’s forecasts as economic conditions and interest rates change.
- Whether the lower net interest margin persists and how deposit pricing, asset repricing and declining PPP-related income affect net interest income.
- Whether noninterest income growth is sustained and expense increases—especially salaries and technology-related costs—remain controlled.
- Whether deposits remain stable and reported liquidity and regulatory capital remain comfortably above internal and regulatory thresholds.