NBT Bancorp (NBTB) - 2021 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION NBT Bancorp Inc.'s unaudited interim consolidated financial statements for the period ended June 30, 2021 are presented Item 1: Financial Statements This section presents NBT Bancorp Inc.'s unaudited interim consolidated financial statements for the period ended June 30, 2021 Consolidated Balance Sheet Highlights (Unaudited, In Thousands) | Metric (In Thousands) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $11,574,947 | $10,932,906 | | Net Loans | $7,419,127 | $7,388,885 | | Total Deposits | $9,785,257 | $9,081,692 | | Total Liabilities | $10,349,891 | $9,745,288 | | Total Stockholders' Equity | $1,225,056 | $1,187,618 | Consolidated Income Statement Highlights (Unaudited, In Thousands, Except Per Share Data) | Metric (In Thousands, Except Per Share Data) | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net Interest Income | $79,178 | $158,233 | | Provision for Loan Losses | $(5,216) | $(8,012) | | Net Income | $40,296 | $80,142 | | Diluted EPS | $0.92 | $1.83 | Consolidated Cash Flow Highlights (Unaudited, In Thousands) | Metric (In Thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $95,687 | $77,042 | | Net cash used in investing activities | $(266,980) | $(572,155) | | Net cash provided by financing activities | $565,555 | $977,762 | | Net increase in cash and cash equivalents | $394,262 | $482,649 | - The Allowance for Credit Losses (ACL) decreased from $110.0 million at year-end 2020 to $98.5 million at June 30, 2021, primarily due to an improved macroeconomic forecast. The ACL as a percentage of loans was 1.31% at June 30, 2021[33][42] - As of June 30, 2021, the company had $32.3 million in loans under modification programs related to COVID-19. These modifications are generally not accounted for as Troubled Debt Restructurings (TDRs) under the CARES Act provisions[40][60] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the company's financial performance, condition, and key trends, including COVID-19 impact and asset quality Overview and COVID-19 Response Strong Q2 2021 results are highlighted, detailing the company's COVID-19 response and PPP participation Q2 2021 Performance Highlights | Metric | Q2 2021 | Change from Q2 2020 | | :--- | :--- | :--- | | Net Income | $40.3 million | +$15.6 million | | Diluted EPS | $0.92 | +$0.36 | | Period End Loans | $7.5 billion | +1% annualized from YE2020 | | Net Charge-offs to Avg Loans | 0.07% | - | | Tangible Book Value/Share | $21.50 | +10% | - The company has been an active participant in the PPP, processing approximately 3,100 loans totaling $287 million in the first six months of 2021. As of June 30, 2021, $365.1 million in PPP loans had been forgiven by the SBA[119] - In response to the pandemic, the company provided payment relief for customers, offered special lending programs, and established a committee to ensure employee and customer safety across its operations[118][123] Results of Operations Q2 2021 operational results detail net income growth, stable net interest income, and increased noninterest income and expenses Key Performance Ratios (Annualized) | Ratio | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Return on Average Assets | 1.39% | 0.94% | | Return on Average Equity | 13.42% | 8.76% | | Return on Avg Tangible Common Equity | 17.93% | 12.14% | - Net interest income for Q2 2021 was $79.2 million, down 1.6% from Q2 2020. The fully taxable equivalent (FTE) net interest margin decreased by 38 basis points to 3.00%, primarily due to a 50 bps decline in the yield on average interest-earning assets[130] - Noninterest income for Q2 2021 increased by $4.3 million (12.3%) compared to Q2 2020, driven by higher ATM/debit card fees, wealth management fees, and retirement plan administration fees[141] - Noninterest expense for Q2 2021 rose by $6.1 million (9.3%) from Q2 2020, attributed to higher salaries, increased technology-related equipment expenses, and $1.9 million in non-recurring costs, including a legal settlement charge[144] Analysis of Financial Condition Analysis of financial condition covers asset growth, loan portfolio changes, improved asset quality, and reduced credit loss allowance - Total loans increased by $18.7 million from December 31, 2020. Excluding PPP loans, which decreased to $359.7 million, total loans grew by $89.8 million, driven by commercial and residential real estate[151] - The allowance for credit losses decreased to $98.5 million at June 30, 2021, from $113.5 million a year prior, primarily due to improved economic conditions in the CECL forecast. This resulted in a negative provision for loan losses of ($5.2) million for Q2 2021[154][155] Nonperforming Assets (In Thousands) | Metric (In Thousands) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total nonperforming loans | $43,125 | $47,796 | | OREO | $798 | $1,458 | | Total nonperforming assets | $43,923 | $49,254 | | Nonperforming assets to total assets | 0.38% | 0.45% | - As of June 30, 2021, only 0.5% of total loans (excluding PPP) were in payment deferral programs related to COVID-19, down from 1.6% at year-end 2020[161] Capital Resources The company maintains a 'well capitalized' status with strong regulatory ratios, stable equity, share repurchases, and increased dividends Regulatory Capital Ratios | Capital Ratio | June 30, 2021 | Well-Capitalized Minimum | | :--- | :--- | :--- | | Tier 1 Leverage Ratio | 9.40% | 5.00% | | Common Equity Tier 1 Capital Ratio | 12.12% | 6.50% | | Tier 1 Capital Ratio | 13.34% | 8.00% | | Total Risk-Based Capital Ratio | 15.78% | 10.00% | - The Board of Directors approved a third-quarter 2021 cash dividend of $0.28 per share, a 3.7% increase from the prior dividend[169] - During Q2 2021, the company repurchased 23,627 shares of common stock at an average price of $36.03 per share. As of June 30, 2021, 1,719,342 shares remained available for repurchase under the existing plan[168] Liquidity and Interest Rate Sensitivity Management The company's strong liquidity and interest rate sensitivity are detailed, showing resilience to rate shock scenarios Interest Rate Sensitivity Analysis (12-Month NII Change) | Change in Interest Rates (bps) | Percent Change in Net Interest Income | | :--- | :--- | | +200 | 6.07% | | +100 | 2.80% | | -50 | (0.87%) | - The company's primary liquidity measure, 'Basic Surplus,' was $3.3 billion (28.9% of total assets) at June 30, 2021, significantly exceeding the internal minimum of 5%[183] - As of June 30, 2021, the company had significant additional borrowing capacity, including approximately $1.7 billion from the FHLB and $609.2 million from the Federal Reserve's 'Borrower-in-Custody' program[184] Item 3: Quantitative and Qualitative Disclosures about Market Risk Market risk disclosures are provided within the 'Liquidity and Interest Rate Sensitivity Management' section of the MD&A - Information regarding market risk is contained in the Liquidity and Interest Rate Sensitivity Management section of the MD&A[188] Item 4: Controls and Procedures Management, including CEO and CFO, concluded disclosure controls and procedures were effective as of June 30, 2021 - Based on an evaluation by management, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[189] PART II OTHER INFORMATION This section provides additional information not covered in financial statements, including legal, risk, equity, and executive details Item 1: Legal Proceedings The company reports no material legal proceedings beyond routine litigation incidental to its business - There are no material legal proceedings to report, other than ordinary litigation incidental to the business[191] Item 1A: Risk Factors No material changes to risk factors from the 2020 Annual Report on Form 10-K are reported - No material changes to the risk factors from the 2020 Annual Report on Form 10-K are reported[192] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds Details of Q2 2021 common stock repurchases and remaining shares available under the plan are provided Share Repurchases in Q2 2021 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2021 | - | - | | May 2021 | - | - | | June 2021 | 23,627 | $36.03 | | Total Q2 2021 | 23,627 | $36.03 | - As of June 30, 2021, 1,719,342 shares were still available for repurchase under the existing plan set to expire on December 31, 2021[194] Item 5: Other Information A new employment agreement for CFO Scott A. Kingsley is reported, outlining salary, benefits, and restrictive covenants - On August 5, 2021, NBT entered into a new employment agreement with CFO Scott A. Kingsley[195] - Key terms of the agreement include: - Annual base salary of at least $500,000 - Eligibility for performance bonuses, stock plans, and other executive benefits - Customary non-competition and non-solicitation covenants effective during and for two years after employment[196][197] Item 6: Exhibits Exhibits filed with the Form 10-Q are listed, including corporate governance documents and executive agreements - The exhibits filed with this report include corporate governance documents, CEO and CFO certifications as required by the Sarbanes-Oxley Act, and the employment agreement for Scott A. Kingsley[200]