NBT Bancorp Inc. — 2023 Form 10-K
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2023; it is not a standalone fourth-quarter report. NBT is a community-oriented financial holding company operating primarily through NBT Bank, with banking, wealth management, retirement-plan administration and insurance businesses across the Northeast. Assets were $13.31 billion at year-end. The August 11, 2023 acquisition of Salisbury Bancorp expanded the company’s footprint and added 13 banking offices.
Key financial metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $378.2 million | $362.2 million |
| Net interest margin, FTE | 3.29% | 3.34% |
| Noninterest income | $142.2 million | $155.6 million |
| Noninterest expense | $341.7 million | $304.5 million |
| Provision for loan losses | $25.3 million | $17.1 million |
| Net income | $118.8 million | $152.0 million |
| Diluted EPS | $2.65 | $3.52 |
| Operating net income, non-GAAP | $144.7 million; $3.23 per diluted share | $153.6 million; $3.56 per diluted share |
| Operating cash flow | $157.5 million | $183.2 million |
Total revenue, calculated as net interest income plus noninterest income, was approximately $520.4 million. Return on average assets was 0.95%, down from 1.29%; return on average equity was 9.34%, down from 12.67%.
Balance sheet and funding: Total loans were $9.65 billion, up 18.4% year over year, including $1.18 billion acquired from Salisbury. Excluding acquired loans, loans grew 3.9%. Deposits were $10.97 billion, up 15.5%, including $1.31 billion acquired; excluding those deposits, they grew 1.7%. Total stockholders’ equity was $1.43 billion. Year-end short-term borrowings were $386.7 million, long-term debt $29.8 million, subordinated debt $119.7 million and junior subordinated debt $101.2 million.
Basic Surplus liquidity was $1.54 billion, or 11.6% of assets, above the 5% minimum policy level. The company reported $2.99 billion of remaining borrowing capacity under its internal limit. Estimated uninsured deposits were $4.08 billion. The Bank was categorized as well-capitalized; company CET1 was 11.57%, total risk-based capital 14.75% and leverage ratio 9.71%.
Material changes versus the prior year
- Net income fell $33.2 million, or about 21.9%, and diluted EPS decreased $0.87. Operating net income also declined, to $144.7 million from $153.6 million.
- Net interest income rose 4.4%, but funding costs increased sharply: interest expense rose to $144.6 million from $21.9 million as deposit rates repriced and short-term borrowing increased. The FTE margin narrowed five basis points.
- Noninterest income declined 8.6%. Excluding securities losses, it fell 3.3%, principally because of an approximately $8 million reduction in card income associated with the Durbin Amendment cap and lower retirement-plan activity fees.
- Noninterest expense increased 12.2%. Excluding acquisition costs and an investment impairment, it rose 7.7%, reflecting Salisbury-related costs, compensation, technology spending, FDIC assessments and other expenses.
- Credit indicators weakened: nonperforming loans rose to $37.9 million, or 0.39% of loans, from $21.1 million, or 0.26%. Potential problem loans increased to $87.7 million from $52.0 million. Net charge-offs rose to $16.8 million from $8.3 million.
- The allowance for credit losses was $114.4 million, or 1.19% of loans, versus $100.8 million, or 1.24%, in 2022. The increase primarily reflected reserves established for acquired Salisbury loans.
Outlook, risks and unusual items
Management provided no quantified 2024 earnings or revenue guidance. It expects lower inflation could permit Federal Reserve rate cuts and sees reduced recession risk, while noting that economic indicators remain mixed. Management highlighted continued deposit competition and funding-cost pressure, possible softer loan growth, and potential pressure on net interest income if short-term rates fall and floating-rate assets reprice downward. Its interest-rate sensitivity model projected net interest income changes over 12 months of -0.06% for a 200-basis-point rise, +0.27% for a 100-basis-point rise and -0.36% for a 200-basis-point decline.
The company expects the Salisbury acquisition to support earnings and growth, while identifying integration, customer retention, personnel and regulatory challenges as ongoing risks. Other material risk areas include commercial and commercial-real-estate credit exposure, local economic conditions, deposit outflows and liquidity, interest-rate movements, securities valuation, cyber incidents and third-party service providers. Commercial and industrial, agricultural, construction and commercial real estate loans together represented approximately 52% of the portfolio. Office loans were 5% of total loans; management said they were mainly to suburban medical and professional tenants.
Unusual 2023 items included $9.3 million of net securities losses, including the sale of subordinated securities and write-off of a security tied to a failed financial institution; $10.0 million of Salisbury acquisition expenses; a $4.8 million impairment of a minority equity investment; and $8.8 million of acquisition-related loan-loss provision. The company also reported $184.3 million of gross unrealized losses on available-for-sale securities and $91.0 million on held-to-maturity securities, primarily attributed to interest rates rather than credit concerns. Management stated it did not intend, and was not more likely than not required, to sell the securities before recovery of amortized cost.
Management and KPMG reported effective internal control over financial reporting, and KPMG issued unqualified opinions on the financial statements and controls. The audit identified critical audit matters relating to the collective loan-loss allowance and fair-value estimates for Salisbury’s acquired loans. The filing reports no material legal proceedings beyond ordinary business litigation and no significant cybersecurity impact in the prior fiscal year; it cautions that future incidents cannot be ruled out.
Important facts for investors to verify
- How much of loan and deposit growth, earnings and future cost savings is attributable to Salisbury, and whether integration benefits materialize.
- Whether deposit retention and pricing stabilize, given higher interest expense, $4.08 billion of estimated uninsured deposits and continued competition for funding.
- Trends in nonperforming and potential problem loans, especially CRE exposures, and the adequacy of reserves under changing economic forecasts.
- The sensitivity of net interest income and earnings to actual rate moves, deposit repricing and asset yields versus management’s modeled scenarios.
- The timing and potential earnings effect of securities losses, acquisition-related costs, the minority-investment impairment and other non-GAAP adjustments.
- Capital, liquidity and dividend capacity, including the Bank’s $106.6 million of dividends available to the parent without prior OCC approval at year-end.