NBT Bancorp Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. NBT Bancorp is a community-oriented financial holding company providing commercial and retail banking and wealth management services across the northeastern United States. Results are unaudited and interim results are not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Q1 2021 / March 31, 2021 | Comparison |
|---|---|---|
| Net interest income | $79.1 million | Up 2.4% year over year; down 1.3% from Q4 2020 |
| Noninterest income | $37.0 million | Up 4.6% year over year |
| Noninterest expense | $67.9 million | Down 4.2% year over year |
| Provision for loan losses | Credit of $2.8 million | Compared with $29.6 million expense in Q1 2020 |
| Net income / diluted EPS | $39.8 million / $0.91 | Net income up $29.5 million year over year; diluted EPS was $0.23 in Q1 2020 |
| Net interest margin, FTE | 3.17% | Down 35 basis points year over year and 3 basis points sequentially |
| Loans | $7.63 billion | Up 7.3% annualized from year-end; up 0.4% excluding PPP loans |
| Deposits | $9.82 billion | Up $734.2 million, or 8.1%, from year-end |
| Total assets / stockholders’ equity | $11.54 billion / $1.19 billion | Assets were $10.93 billion at year-end; equity was broadly stable |
| Cash and cash equivalents | $1.16 billion | Up from $672.7 million at year-end |
Net cash provided by operating activities was $42.3 million, versus $40.9 million in Q1 2020. Net cash used in investing was $174.4 million; financing provided $614.4 million, principally reflecting deposit growth. The cash-flow statement reports a $482.3 million increase in cash and cash equivalents.
Period-end allowance for credit losses was $105.0 million, or 1.38% of loans (1.48% excluding PPP loans), down from $110.0 million and 1.47% at year-end. Net charge-offs were $2.2 million, or 0.12% of average loans annualized. Nonperforming assets were $46.9 million, versus $49.3 million at year-end; nonperforming loans were 0.60% of loans.
Total short- and long-term borrowings, subordinated debt and junior subordinated debt were approximately $308.8 million, compared with approximately $406.7 million at December 31, 2020. Regulatory capital ratios remained above “well capitalized” thresholds: CET1 12.13%, Tier 1 13.38%, total risk-based capital 15.92%, and leverage 9.60%. Basic Surplus liquidity was 29.4% of assets, or about $3.4 billion, against a 5% internal minimum.
Material changes and drivers
- Year-over-year earnings improvement primarily reflected the swing from a large Q1 2020 credit-loss provision to a Q1 2021 provision release, alongside lower funding costs. Lower asset yields constrained net interest margin.
- Interest income declined year over year, but interest expense fell 57%, reflecting lower deposit and borrowing costs. Average interest-earning assets grew 14.4% year over year, partly from stimulus-related deposits and PPP lending.
- PPP loans totaled $536.5 million at quarter-end. Q1 activity included $250 million in originations, $132.8 million forgiven and $6.2 million of interest and fees recognized.
- Noninterest income increased year over year, supported by retirement-plan administration and card fees. Noninterest expenses decreased, including lower unfunded-commitment reserve expense; salaries and certain technology costs increased.
- Available-for-sale securities recorded a $17.4 million after-tax unrealized loss in other comprehensive income, primarily attributed to interest-rate changes. This reduced accumulated other comprehensive income.
- Deposits increased substantially, while short-term borrowings and long-term debt declined. The company repurchased 257,031 shares for $9.0 million and declared a $0.27-per-share dividend.
Outlook, risks, and contingencies
The filing provides no specific earnings or revenue guidance. Management described continued uncertainty around the COVID-19 recovery and noted that fiscal stimulus and relief programs appeared to have delayed material adverse credit effects. Management warned that credit metrics could deteriorate and losses could emerge as support programs expire, depending on the course of the pandemic, vaccination and economic recovery.
The credit-loss estimate incorporated improving baseline economic assumptions, a downside scenario and additional adjustments for pandemic-related factors and criticized loans. Management identified five COVID-19-impacted commercial relationships totaling $15.8 million on nonaccrual and approximately $136.7 million of potential problem loans. Payment deferrals covered 1.0% of loans excluding PPP at quarter-end. Management cautioned that future allowance and provision levels may be volatile as economic conditions and forecasts change.
Interest-rate sensitivity modeling projected next-12-month net interest income changes of +6.07% under a 200-basis-point increase, +2.77% under a 100-basis-point increase, and -0.72% under a 50-basis-point decrease. Management noted that deposit-rate floors and competitive pressures may constrain margins. Liquidity risks include possible deposit outflows, increased credit-line draws and disruption in wholesale funding markets; management reported substantial available borrowing capacity.
Off-balance-sheet commitments to extend credit and unused lines totaled $2.1 billion; standby letters of credit totaled $54.6 million. The filing reports no material legal proceedings beyond ordinary routine litigation and no material changes to previously disclosed risk factors. Disclosure controls were concluded effective as of March 31, 2021.
Important facts for investors to verify
- Whether the provision release and improved CECL forecasts are sustainable, and how credit performance evolves as pandemic support programs end.
- Trends in criticized, classified and potential problem loans, particularly the five nonaccrual commercial relationships and higher-risk industries.
- PPP forgiveness pace and the resulting effects on loan balances, interest income, fees and reported growth excluding PPP.
- Deposit retention and funding costs, alongside margin sensitivity to interest rates and the large liquidity inflows.
- Capital and shareholder-return plans, including the remaining share-repurchase authorization and dividend capacity.