NBT Bancorp Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Financial amounts are in U.S. dollars; millions are used below unless stated otherwise. NBT is a community banking and financial services holding company operating across upstate New York and neighboring northeastern markets.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net interest income | $62.2m | $52.6m | $176.0m | $151.8m |
| Provision for loan losses | $5.2m | $4.8m | $17.3m | $13.3m |
| Noninterest income | $27.1m | $21.6m | $77.9m | $65.4m |
| Noninterest expense | $56.3m | $49.4m | $173.4m | $145.3m |
| Net income | $19.3m | $14.5m | $43.8m | $41.4m |
| Diluted EPS | $0.44 | $0.43 | $1.05 | $1.23 |
- Q3 net income rose approximately 32%; nine-month net income increased approximately 6%. Nine-month diluted EPS fell, reflecting a substantially larger share count after the Alliance acquisition.
- Management’s non-GAAP core net income was $19.4m for Q3 and $51.5m for nine months, versus $14.4m and $41.2m, respectively. Core diluted EPS was $0.44 for Q3 and $1.23 year to date; the latter was unchanged from 2012. Core measures exclude specified items and are not GAAP results.
- Fully taxable-equivalent net interest margin was 3.65% in Q3, down from 3.90% a year earlier and 3.69% in Q2. The nine-month margin was 3.67%, versus 3.87% in 2012. Management attributed pressure to falling loan and securities yields, partly offset by lower funding costs.
Financial condition, cash flow and liquidity
- At September 30, 2013, total assets were $7.67bn, loans $5.37bn, deposits $6.00bn and stockholders’ equity $795.6m. Loans and deposits each increased about 25% from year-end 2012, largely because of Alliance.
- The allowance for loan losses was $70.2m, or 1.31% of loans (1.60% excluding acquired loans with no related allowance). Nine-month net charge-offs were $16.4m, or 0.44% of average loans, compared with $13.9m and 0.47% in the prior-year period.
- For the first nine months, operating cash flow was $86.3m; investing activities used $135.7m and financing activities provided $94.0m. Cash and cash equivalents ended the period at $208.2m.
- Short-term borrowings were $373.2m and long-term debt $309.0m at quarter-end; junior subordinated debt was $101.2m. Long-term borrowings declined from year-end as debt matured or was repaid, while short-term borrowings increased.
- Management reported a Basic Surplus liquidity measure of $678m, or 8.9% of assets, above its 5% policy minimum. Additional borrowing capacity included approximately $600m from the FHLB and $707m from unused Federal Reserve collateral.
- Regulatory capital ratios were 8.79% Tier 1 leverage, 11.46% Tier 1 capital and 12.71% total risk-based capital. The company reported it remained well capitalized.
Material changes, outlook and risks
- Alliance acquisition: Completed March 8, 2013 for approximately $226m in NBT shares; it added 26 branches and acquired loans of approximately $904m and deposits of approximately $1.11bn. The transaction generated $113.5m of goodwill. Nine-month merger expenses were $12.3m.
- Organic loan growth was approximately 5.8% annualized during the first nine months. Management cited acquisition-related growth in net interest income and fee revenue, while warning that continued low rates and asset-yield repricing could further compress margins.
- Interest-rate simulations projected net interest income decreases of 3.33% under a gradual 200-basis-point increase and 1.60% under a 100-basis-point decrease, versus the flat-rate case over 12 months. Both were within internal policy limits.
- Nonperforming assets were $48.3m, or 0.63% of assets, versus $44.4m and 0.73% at year-end. Potential problem loans increased to $100.3m from $79.6m, primarily due to acquired classified loans and a downgrade. Management cautioned that further deterioration could increase nonaccrual loans, provisions or charge-offs.
- Available-for-sale securities had $24.1m of unrealized losses at quarter-end; management considered the declines temporary and reported no other-than-temporary impairment losses. A pension plan merger produced a $2.4m adjustment to accumulated other comprehensive income.
- New Basel III-related capital rules were scheduled to begin applying in 2015, with transition provisions. Management was assessing the impact and expected to remain above well-capitalized requirements after full phase-in. No specific earnings or revenue guidance was provided.
- Other disclosed risks include competition, regional and national economic conditions, credit quality, interest-rate movements, regulatory and legislative changes, litigation, and successful integration of acquisitions. The filing reported no material change to the risk factors in the 2012 Form 10-K and no material legal proceedings beyond routine litigation.
Important facts for investors to verify
- How Alliance integration, cost savings and acquired-loan performance develop, and whether acquisition-related costs decline.
- Whether net interest margin stabilizes as asset yields fall and deposit rates approach their floors.
- Trends in potential problem loans, nonperforming assets, charge-offs and allowance coverage, especially in commercial real estate and commercial lending.
- The effect of share issuance and repurchases on per-share earnings, tangible book value and capital; tangible book value was $11.64 per share versus $12.23 at year-end 2012.
- Potential sensitivity of securities values, capital and earnings to interest rates, and the company’s readiness for phased-in capital rules.