NBT Bancorp Inc. — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013; the filing also reports fourth-quarter results. NBT Bancorp is a community-focused bank holding company operating across upstate and central New York, northeastern Pennsylvania, western Massachusetts, southern New Hampshire, and the Burlington, Vermont area.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Net income | $61.7 million | $54.6 million |
| Diluted earnings per share | $1.46 | $1.62 |
| Net interest income | $238.1 million | $204.2 million |
| FTE net interest margin | 3.66% | 3.86% |
| Noninterest income | $103.2 million | $87.3 million |
| Noninterest expense | $228.9 million | $193.9 million |
| Net cash from operating activities | $119.3 million | $88.9 million |
Fourth-quarter 2013 net income was $17.9 million, or $0.41 per diluted share, versus $13.1 million, or $0.39 per diluted share, in fourth-quarter 2012.
- Balance sheet: Year-end assets were $7.65 billion, loans $5.41 billion, deposits $5.89 billion, total borrowings including junior subordinated debt about $866 million, and stockholders’ equity $816.6 million.
- Credit quality: Nonperforming loans were $53.7 million, or 0.99% of loans, versus $42.1 million, or 0.98%, in 2012. Net charge-offs were 0.44% of average loans, down from 0.55%. The allowance for loan losses was $69.4 million, 129.3% of nonperforming loans.
- Liquidity and capital: Basic Surplus was $734 million, or 9.7% of assets, above the 5% policy minimum. The Company’s leverage, Tier 1 risk-based, and total risk-based capital ratios were 8.93%, 11.74%, and 12.99%; the Bank was classified as well-capitalized.
- Cash flows: Operating activities provided $119.3 million; investing activities used $183.8 million; financing activities provided $59.7 million.
- Shareholder returns: Cash dividends paid were $0.81 per share for 2013, compared with $0.80 in 2012. The Company repurchased 584,925 shares for $12.5 million during 2013.
Material changes versus 2012
- Reported net income rose 13.2%, while diluted EPS declined to $1.46 from $1.62, reflecting a substantially higher share count following the Alliance acquisition.
- On March 8, 2013, NBT acquired Alliance Financial Corporation for approximately $226 million in consideration, primarily stock. Alliance added 26 branches and approximately $904 million of loans at acquisition. Total loans grew 26.4%, including 5.3% organic growth; assets rose about 26.6%.
- Net interest margin fell 20 basis points as earning-asset yields declined faster than funding costs. The yield on earning assets declined to 4.12% from 4.51%; interest expense fell 12.9% to $30.6 million.
- Noninterest income grew 18.2%, led by trust revenue and ATM/debit-card fees, with acquisition activity a major contributor. Noninterest expense rose 18.1%; merger expense was $12.4 million versus $2.6 million.
- Management’s non-GAAP “core” net income was $69.9 million, up 27.5%, and core diluted EPS was $1.65 versus $1.63. These measures exclude specified items, including merger expenses and securities gains.
- Nonperforming assets increased to $56.6 million from $44.4 million. The filing attributes part of nonperforming loans to acquired balances; net charge-off performance improved.
Outlook, risks, and unusual items
- Management expected further margin compression in 2014, citing lower reinvestment yields, limited room to reduce already-low deposit and borrowing costs, and industry pricing pressure. It planned to pursue loan growth and manage the loan/investment mix to support interest income.
- Management said continued asset-quality improvement could eventually reduce provisioning, but warned that economic weakness—particularly in real estate-related lending—could increase charge-offs and provisions. Potential problem loans were $89.9 million at year-end, up from $79.6 million.
- Key risks include interest-rate changes, local economic conditions, commercial and real-estate credit exposure, competition for deposits and loans, acquisition integration, regulatory and compliance costs, cybersecurity, and reliance on subsidiary distributions for parent-company dividends and debt service.
- A proposed settlement of a checking-account overdraft-fee class action received preliminary approval. The Bank accrued the full $625,000; final approval was scheduled for June 27, 2014. The filing reported no other material legal proceedings.
- Available-for-sale securities had $29.6 million of gross unrealized losses at year-end; management considered the impairments temporary and reported no other-than-temporary impairment charge. Other comprehensive loss was $10.9 million, including the effect of securities and benefit-plan items.
- The filing describes Basel III-related capital rules scheduled to begin taking effect in 2015, with a fully phased-in conservation buffer in 2019. Management believed the Company could meet the targeted requirements. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How Alliance integration, cost savings, and acquisition-related goodwill of $113.5 million perform relative to expectations.
- Whether margin compression continues and whether loan growth can offset lower asset yields without weakening underwriting or liquidity.
- Whether nonperforming loans and the $89.9 million potential-problem-loan balance improve, and whether the allowance remains adequate.
- How deposit competition, borrowing levels, and funding costs affect liquidity and earnings; year-end short-term borrowings rose to $456.0 million from $162.9 million.
- Final court approval and payment of the $625,000 overdraft-fee settlement, plus implementation costs and effects of regulatory changes.
- Future dividend capacity: Bank dividends to the parent were subject to regulatory restrictions, with $56.7 million available without prior OCC approval at year-end.