NBT Bancorp Inc. — FY 2021 Form 10-K
Business context and reporting period. Annual report for the year ended December 31, 2021, with comparisons to FY 2020. NBT Bancorp is a community-focused financial holding company serving central and upstate New York and parts of Pennsylvania and New England. Its businesses include commercial and retail banking, wealth management, retirement plan administration, and insurance. Year-end assets were $12.0 billion.
Key financial metrics
| Metric | FY 2021 / year-end | FY 2020 / prior year-end |
|---|---|---|
| Net income | $154.9 million | $104.4 million |
| Diluted EPS | $3.54 | $2.37 |
| Net interest income | $321.1 million | $315.7 million |
| Net interest margin, FTE | 3.03% | 3.31% |
| Noninterest income | $157.8 million | $146.3 million |
| Noninterest expense | $287.3 million | $277.7 million |
| Total assets | $12.01 billion | $10.93 billion |
| Total deposits | $10.23 billion | $9.08 billion |
| Total loans | $7.50 billion | $7.50 billion |
| Allowance for loan losses | $92.0 million; 1.23% of loans | $110.0 million; 1.47% of loans |
| Operating cash flow | $157.6 million | $142.4 million |
FY 2021 cash flows included $546.1 million used in investing activities and $984.8 million provided by financing activities. Cash and cash equivalents ended the year at $1.27 billion. Return on average assets was 1.33%, versus 0.99%; return on average equity was 12.71%, versus 9.09%. Book value per share was $28.97. Tangible book value per share, a non-GAAP measure, was $22.26, up 8%.
Regulatory capital remained above required thresholds: the Company reported a 12.25% common equity Tier 1 ratio and a 15.73% total risk-based capital ratio. Year-end total liabilities included $97.8 million of short-term borrowings, $14.0 million of long-term debt, $98.5 million of subordinated debt, and $101.2 million of junior subordinated debt. The Bank was categorized as well-capitalized.
Material changes versus FY 2020
- Net income rose 48.4%, primarily reflecting a swing in the provision for loan losses from a $51.1 million expense in 2020 to an $8.3 million benefit in 2021. Management attributed the lower provision to improving economic forecasts, partly offset by loan growth.
- Net interest income increased 1.7%, but FTE net interest margin declined 28 basis points to 3.03%. Lower asset yields were partly offset by lower funding costs.
- Noninterest income increased 7.9%, led by retirement plan administration, wealth management, and ATM and debit card fees. Noninterest expense increased 3.4%, including higher compensation and technology costs.
- Loans were essentially flat overall, but grew 4.7% excluding PPP loans. PPP balances fell to $101.2 million from $430.8 million after substantial forgiveness and repayment.
- Nonperforming assets declined to $32.9 million from $49.3 million; net charge-offs fell to 0.13% of average loans from 0.23%.
- Deposits grew to $10.23 billion, while excess liquidity increased. The basic surplus liquidity measure was 28.5% of assets, or approximately $3.4 billion, above the 5% policy minimum.
Outlook, commentary, risks, and unusual items
- Management described the U.S. economy as positioned for above-average growth in 2022, citing consensus GDP growth estimates of approximately 4%; this is not a company earnings forecast. It identified excess liquidity as a potential constraint on loan growth and current margin, while potentially allowing slower deposit repricing and margin expansion if short-term rates rise.
- Management expected inflation and anticipated Federal Reserve tightening to benefit results if rate increases do not materially slow the economy. Its year-end interest-rate model projected net interest income increases of 6.46% under a gradual 200-basis-point rise and 3.10% under a 100-basis-point rise, and a 0.74% decline under a 50-basis-point fall, relative to the flat-rate scenario.
- COVID-19 effects remained uncertain. Management warned that stimulus and relief programs may have delayed credit deterioration; potential problem loans were $74.9 million at year-end, and 8.9% of loans were in industries it identified as higher risk due to the pandemic. Loans in COVID-related payment deferral programs had fallen to $1.4 million from $110.8 million.
- Key risks include interest-rate and margin sensitivity, local economic and real-estate conditions, commercial credit exposure, liquidity and deposit competition, cybersecurity and third-party disruptions, regulatory costs associated with exceeding $10 billion in assets, and the transition away from LIBOR. Commercial and related lending represented approximately 52% of the loan portfolio.
- Unusual items included an estimated $4.3 million litigation settlement cost in 2021 relating to a pending lawsuit over certain deposit products and disclosures. The filing reported no material legal proceedings apart from ordinary routine litigation. A new authorization permits repurchases of up to 2.0 million shares through December 31, 2023; the Company repurchased 604,637 shares in 2021.
- The independent auditor 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 because its estimate depends on forecasts, models, assumptions, and management judgment.
Most important facts for investors to verify
- How much of the earnings increase came from the provision benefit, and whether credit costs normalize as pandemic support recedes.
- Whether loan growth excluding PPP continues and excess deposits convert into earning assets without undue pressure on funding costs or margins.
- The sensitivity of net interest income and securities values to actual rate changes, deposit repricing, and prepayments.
- The adequacy of the $92.0 million loan-loss allowance given the $74.9 million of potential problem loans and the CECL forecast assumptions.
- The final cost and resolution of the deposit-products litigation matter, and progress under the new share repurchase authorization.
- The filing provides liquidity and borrowings information, but investors should review the complete notes and regulatory disclosures for funding availability, deposit concentration, and capital-distribution constraints.