NBT Bancorp (NBTB) - 2023 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Unaudited) Presents unaudited interim consolidated financial statements for Q1 2023, with balance sheets, income, cash flows, and detailed notes Consolidated Balance Sheets Metric (In thousands) | Metric (In thousands) | March 31, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Total assets | $11,839,730 | $11,739,296 | $100,434 | 0.86% | | Total liabilities | $10,628,071 | $10,565,742 | $62,329 | 0.59% | | Total stockholders' equity | $1,211,659 | $1,173,554 | $38,105 | 3.25% | | Loans, net | $8,164,328 | $8,049,347 | $114,981 | 1.43% | | Total deposits | $9,681,205 | $9,495,933 | $185,272 | 1.95% | Consolidated Statements of Income Metric (In thousands, except per share data) | Metric (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change | % Change | | :------------------------------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Total interest, fee and dividend income | $114,192 | $84,201 | $29,991 | 35.62% | | Total interest expense | $19,126 | $3,853 | $15,273 | 396.39% | | Net interest income | $95,066 | $80,348 | $14,718 | 18.32% | | Provision for loan losses | $3,909 | $596 | $3,313 | 555.87% | | Total noninterest income | $31,409 | $42,659 | $(11,250)| -26.37% | | Total noninterest expense | $79,322 | $72,143 | $7,179 | 9.95% | | Net income | $33,658 | $39,126 | $(5,468) | -13.98% | | Basic EPS | $0.78 | $0.91 | $(0.13) | -14.29% | | Diluted EPS | $0.78 | $0.90 | $(0.12) | -13.33% | Consolidated Statements of Comprehensive Income (Loss) Metric (In thousands) | Metric (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net income | $33,658 | $39,126 | $(5,468) | | Total other comprehensive income (loss) | $16,116 | $(68,031) | $84,147 | | Comprehensive income (loss) | $49,774 | $(28,905) | $78,679 | - Total other comprehensive income (loss) significantly improved, moving from a loss of $68.0 million in Q1 2022 to a gain of $16.1 million in Q1 2023, primarily due to unrealized net holding gains on available-for-sale securities[11] Consolidated Statements of Changes in Stockholders' Equity Metric (In thousands) | Metric (In thousands) | Balance at December 31, 2022 | Balance at March 31, 2023 | Change | | :-------------------- | :--------------------------- | :------------------------ | :----- | | Total stockholders' equity | $1,173,554 | $1,211,659 | $38,105 | | Retained earnings | $958,433 | $979,722 | $21,289 | | Accumulated other comprehensive loss | $(190,034) | $(173,918) | $16,116 | | Cash dividends | - | $(12,871) | $(12,871)| - Stockholders' equity increased by $38.1 million from December 31, 2022, primarily driven by net income and a significant increase in accumulated other comprehensive income, partially offset by cash dividends[12] Consolidated Statements of Cash Flows Cash Flow Activity (In thousands) | Cash Flow Activity (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net cash provided by operating activities | $21,847 | $35,404 | $(13,557)| | Net cash used in investing activities | $(75,560) | $(383,207) | $307,647 | | Net cash provided by financing activities | $86,158 | $172,912 | $(86,754)| | Net increase (decrease) in cash and cash equivalents | $32,445 | $(174,891) | $207,336 | | Cash and cash equivalents at end of period | $229,795 | $1,094,180 | $(864,385)| - Net cash used in investing activities significantly decreased from $383.2 million in Q1 2022 to $75.6 million in Q1 2023, primarily due to reduced purchases of securities held to maturity and available for sale[14] - Cash and cash equivalents at the end of the period decreased substantially from $1.09 billion in Q1 2022 to $229.8 million in Q1 2023[14] Notes to Unaudited Interim Consolidated Financial Statements 1. Description of Business - NBT Bancorp Inc. is a Delaware-incorporated financial holding company, primarily operating through NBT Bank, National Association, offering commercial banking, retail banking, and wealth management services in central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine, and central Connecticut[18][19] 2. Summary of Significant Accounting Policies - The interim consolidated financial statements are unaudited and include NBT Bancorp Inc. and its wholly-owned subsidiaries, prepared in accordance with GAAP and SEC instructions, with all material intercompany transactions eliminated[20] - The preparation of financial statements requires management to make estimates and assumptions, which may differ from actual results[21] 3. Recent Accounting Pronouncements - The Company adopted ASU 2022-02 (Financial Instruments - CECL Losses) on January 1, 2023, using the modified retrospective method, which eliminated Troubled Debt Restructuring (TDR) guidance and resulted in a net increase to retained earnings of $0.5 million[22] 4. Securities Available for Sale (AFS) Securities (In thousands) | Metric | March 31, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Amortized Cost | $1,707,940 | $1,743,882 | $(35,942)| -2.06% | | Estimated Fair Value | $1,512,008 | $1,527,225 | $(15,217)| -0.99% | | Total Unrealized Losses | $(195,991) | $(216,695) | $20,704 | -9.55% | Held to Maturity (HTM) Securities (In thousands) | Metric | March 31, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Amortized Cost | $906,824 | $919,517 | $(12,693)| -1.38% | | Estimated Fair Value | $812,664 | $812,647 | $17 | 0.00% | | Total Unrealized Losses | $(94,584) | $(107,079) | $12,495 | -11.67% | - During Q1 2023, the Company incurred a $5.0 million loss on the write-off of an AFS corporate debt security from a failed bank, reclassified from AOCI into net securities losses[25] - The majority of AFS and HTM securities in an unrealized loss position are issued by U.S. government agencies or government-sponsored enterprises, considered 'risk-free' with zero credit losses, and the losses are primarily due to interest rate changes, not credit quality[35][37] 5. Allowance for Credit Losses and Credit Quality of Loans Allowance for Credit Losses (In thousands) | Metric | March 31, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Total allowance for credit losses | $100,250 | $100,800 | $(550) | -0.55% | | Allowance for credit losses as % of loans | 1.21% | 1.24% | -0.03% | -2.42% | Allowance for Credit Losses Activity (In thousands) | Metric | Q1 2023 | Q1 2022 | | :-------------------- | :------ | :------ | | Provision for loan losses | $3,909 | $596 | | Charge-offs | $(5,850)| $(4,491)| | Recoveries | $2,039 | $1,895 | | Net Charge-offs | $(3,811)| $(2,596)| - The Company adopted ASU 2022-02 on January 1, 2023, eliminating TDR guidance and resulting in a $0.6 million decrease in the allowance for credit loss on TDR loans[38] - The allowance for credit losses decreased slightly due to reduced expected losses in residential solar portfolios, improved economic forecasts, and the ASU 2022-02 adoption, partially offset by increased loan balances and declining prepayment speeds[45] - The quantitative model for credit losses as of March 31, 2023, equally weights a baseline economic outlook (unemployment below pre-COVID-19 levels, Northeast GDP growth) and an alternative downside scenario (Northeast unemployment rising to 7.1% by Q2 2024)[41] 6. Defined Benefit Post-Retirement Plans - The Company offers a qualified, noncontributory defined benefit pension plan and supplemental retirement plans for executives, along with post-retirement health care benefits for employees hired on or before January 1, 2000[71] Components of Net Periodic Cost (Benefit) (In thousands) | Metric | Pension Benefits (Q1 2023) | Pension Benefits (Q1 2022) | Other Benefits (Q1 2023) | Other Benefits (Q1 2022) | | :-------------------- | :------------------------- | :------------------------- | :----------------------- | :----------------------- | | Service cost | $482 | $534 | $1 | $2 | | Interest cost | $1,010 | $694 | $56 | $41 | | Expected return on plan assets | $(1,853) | $(2,228) | - | - | | Net amortization | $670 | $185 | $(21) | $1 | | Total net periodic cost (benefit) | $309 | $(815) | $36 | $44 | 7. Earnings Per Share Earnings Per Share (In thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income available to common stockholders | $33,658 | $39,126 | | Basic EPS | $0.78 | $0.91 | | Diluted EPS | $0.78 | $0.90 | | Weighted average common shares outstanding | 42,894 | 43,141 | | Dilutive effect of common stock options and restricted stock | 232 | 244 | 8. Reclassification Adjustments Out of Other Comprehensive Income (Loss) Total Reclassifications from AOCI, Net of Tax (In thousands) | Period | Amount | | :-------------------- | :----- | | Three Months Ended March 31, 2023 | $4,322 | | Three Months Ended March 31, 2022 | $241 | - Reclassification adjustments out of AOCI significantly increased from $241 thousand in Q1 2022 to $4.3 million in Q1 2023, primarily driven by $5.0 million in losses on AFS securities (pre-tax) in Q1 2023[77] 9. Derivative Instruments and Hedging Activities - The Company uses interest rate derivatives, primarily interest rate swaps, to facilitate customer transactions and manage economic risks, but these are not designated as hedging instruments[78][79] Derivatives Not Designated as Hedging Instruments (In thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Total derivatives not designated as hedging instruments (Fair Value) | $94,228 | $117,294 | | Net derivatives in the balance sheet (Fair Value) | $74,246 | $93,185 | | Notional Amount (Interest rate derivatives) | $1,295,719 | $1,275,708 | - The Company manages a matched book for derivatives to minimize net risk exposure and clears certain transactions through the CME, requiring initial and variation margin payments[78][80] 10. Fair Value Measurements and Fair Value of Financial Instruments - Fair value measurements are categorized into a three-level hierarchy based on input observability: Level 1 (quoted prices in active markets), Level 2 (quoted prices for similar assets/liabilities or observable inputs), and Level 3 (unobservable inputs)[86][87] Financial Assets Measured at Fair Value (In thousands) | Asset Type | Level 1 (March 31, 2023) | Level 2 (March 31, 2023) | Level 3 (March 31, 2023) | Total (March 31, 2023) | | :-------------------- | :----------------------- | :----------------------- | :----------------------- | :--------------------- | | AFS securities | $123,579 | $1,388,429 | - | $1,512,008 | | Equity securities | $31,807 | $1,000 | - | $32,807 | | Derivatives | - | $94,228 | - | $94,228 | | Total Assets | $155,386 | $1,483,657 | - | $1,639,043 | Financial Liabilities Measured at Fair Value (In thousands) | Liability Type | Level 1 (March 31, 2023) | Level 2 (March 31, 2023) | Level 3 (March 31, 2023) | Total (March 31, 2023) | | :-------------------- | :----------------------- | :----------------------- | :----------------------- | :--------------------- | | Derivatives | - | $94,184 | - | $94,184 | | Total Liabilities | - | $94,184 | - | $94,184 | - Non-recurring fair value measurements for collateral-dependent loans individually evaluated for expected credit losses were $1.0 million at March 31, 2023, classified as Level 3[92] 11. Commitments and Contingencies Commitments and Contingencies (In millions) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Commitments to extend credit and unused lines of credit | $2,430 | $2,420 | | Standby letters of credit | $40.9 | $53.3 | - The Company is exposed to off-balance sheet risk through financial instruments like loan commitments and standby letters of credit, with credit risk managed similarly to direct loans[103] 12. Subsequent Event - On May 4, 2023, the Company sold two subordinated debt securities from its AFS portfolio for a $4.5 million pre-tax loss, following downgrades and significant declines in equity market capitalizations of the issuing regional financial institutions[106] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's analysis of NBT Bancorp Inc.'s Q1 2023 financial condition and results, focusing on key indicators and critical estimates Forward-Looking Statements - The report contains forward-looking statements, subject to various factors beyond the Company's control that could cause actual results to differ materially, including economic conditions, interest rate policies, and regulatory changes[109] Non-GAAP Measures - The report includes non-GAAP financial measures, which management believes provide useful information for understanding core business results and industry standards, with reconciliations to comparable GAAP measures provided[113] Critical Accounting Estimates - The allowance for credit losses (ACL) is identified as a critical accounting estimate due to significant estimation uncertainty and its material impact on financial results, requiring judgment on expected credit losses over the loan portfolio's life[114][116] - The CECL approach estimates credit losses over the life of an exposure, based on past events, current conditions, and reasonable forecasts, with historical loss experience as a starting point[115] - A 10% increase in the downside scenario weighting (to 60%) for macroeconomic forecasts would result in a 3% increase in the overall estimated allowance for credit losses, while a 100% downside weighting would increase it by 17%[118] Overview Key Financial Highlights (Q1 2023 vs. Q4 2022 & Q1 2022) | Metric | Q1 2023 | Q4 2022 | Q1 2022 | | :-------------------- | :------ | :------ | :------ | | Net income (millions) | $33.7 | $36.1 | $39.1 | | Diluted EPS | $0.78 | $0.84 | $0.90 | | Net interest income (millions) | $95.1 | $99.8 | $80.3 | | Noninterest income (excl. securities losses) (millions) | $36.4 | $34.3 | $42.8 | | Noninterest expense (excl. acquisition expenses) (millions) | $78.7 | $78.5 | $72.1 | | Period end loans (billions) | $8.26 | $8.15 | $7.65 | | Period end deposits (billions) | $9.68 | $9.50 | $9.50 | | Book value per share | $28.24 | $27.38 | $27.96 | | Tangible book value per share | $21.52 | $20.65 | $21.25 | - Net income for Q1 2023 was $33.7 million ($0.78 diluted EPS), down from $36.1 million in Q4 2022 and $39.1 million in Q1 2022[121] - The Company incurred a $5.0 million securities loss in Q1 2023 due to the write-off of a subordinated debt security from a failed bank[122] Results of Operations Net Interest Income Net Interest Income & Margin Trends | Metric | Q1 2023 | Q4 2022 | Q1 2022 | | :-------------------- | :------ | :------ | :------ | | Net interest income (millions) | $95.1 | $99.8 | $80.3 | | FTE Net interest margin | 3.55% | 3.68% | 2.95% | | Yield on average interest-earning assets | 4.26% | 4.02% | 3.09% | | Cost of interest-bearing liabilities | 1.14% | 0.57% | 0.23% | - Net interest income decreased by $4.7 million (4.7%) QoQ but increased by $14.7 million (18.3%) YoY, driven by higher yields on earning assets partially offset by increased cost of interest-bearing liabilities[127][128] - The FTE net interest margin decreased 13 bps QoQ to 3.55% but increased 60 bps YoY, reflecting a significant rise in interest expense (up 396.4% YoY) due to higher deposit costs and short-term borrowings[127][128] Noninterest Income Noninterest Income (In thousands) | Category | Q1 2023 | Q1 2022 | Change | % Change | | :-------------------- | :------ | :------ | :----- | :------- | | Service charges on deposit accounts | $3,548 | $3,688 | $(140) | -3.80% | | Card services income | $4,845 | $8,695 | $(3,850)| -44.28% | | Retirement plan administration fees | $11,462 | $13,279 | $(1,817)| -13.68% | | Wealth management | $8,087 | $8,640 | $(553) | -6.40% | | Insurance services | $3,931 | $3,788 | $143 | 3.78% | | Bank owned life insurance income | $1,878 | $1,654 | $224 | 13.54% | | Net securities (losses) | $(4,998)| $(179) | $(4,819)| 2691.90% | | Other | $2,656 | $3,094 | $(438) | -14.16% | | Total noninterest income | $31,409 | $42,659 | $(11,250)| -26.37%| - Total noninterest income decreased by $11.3 million (26.4%) YoY, primarily due to a $5.0 million securities loss and lower card services income (down $4.0 million due to Durbin Amendment impact)[136] - Excluding net securities losses, noninterest income was $36.4 million in Q1 2023, up 6.1% QoQ due to seasonal retirement plan administration fees, but down 15.0% YoY[136] Noninterest Expense Noninterest Expense (In thousands) | Category | Q1 2023 | Q1 2022 | Change | % Change | | :-------------------- | :------ | :------ | :----- | :------- | | Salaries and employee benefits | $48,155 | $45,508 | $2,647 | 5.82% | | Technology and data services | $9,007 | $8,547 | $460 | 5.38% | | Occupancy | $7,220 | $6,793 | $427 | 6.29% | | FDIC assessment | $1,396 | $802 | $594 | 74.06% | | Acquisition expenses | $618 | - | $618 | N/A | | Other | $5,080 | $3,119 | $1,961 | 62.88% | | Total noninterest expense | $79,322 | $72,143 | $7,179 | 9.95% | - Total noninterest expense increased by $7.2 million (10.0%) YoY, driven by higher salaries and employee benefits, technology investments, increased occupancy costs, and a statutory increase in FDIC assessment rates[138] - Excluding acquisition expenses, noninterest expense was $78.7 million in Q1 2023, comparable QoQ but up 9.1% YoY[138] Income Taxes Income Tax Expense & Effective Tax Rate | Metric | Q1 2023 | Q4 2022 | Q1 2022 | | :-------------------- | :------ | :------ | :------ | | Income tax expense (millions) | $9.6 | $10.6 | $11.1 | | Effective tax rate | 22.2% | 22.6% | 22.2% | - Income tax expense decreased by $1.0 million QoQ and $1.6 million YoY, with the effective tax rate remaining stable at 22.2% in Q1 2023[139] ANALYSIS OF FINANCIAL CONDITION Securities - Total securities decreased by $25.9 million (1.0%) from December 31, 2022, representing 20.7% of total assets at March 31, 2023[141] Securities Portfolio Composition (March 31, 2023) | Category | % of Total | | :-------------------- | :--------- | | Mortgage-backed securities (15 years or less) | 13% | | Mortgage-backed securities (greater than 15 years) | 11% | | Collateral mortgage obligations | 37% | | Municipal securities | 15% | | U.S. agency notes | 21% | | Corporate | 2% | | Equity securities | 1% | Loans Loan Portfolio Composition (In thousands) | Category | March 31, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Commercial & industrial | $1,278,291 | $1,266,031 | $12,260 | 0.97% | | Commercial real estate | $2,845,631 | $2,807,941 | $37,690 | 1.34% | | Residential real estate | $1,651,918 | $1,649,870 | $2,048 | 0.12% | | Indirect auto | $1,031,315 | $989,587 | $41,728 | 4.22% | | Residential solar | $920,084 | $856,798 | $63,286 | 7.39% | | Home equity | $308,219 | $314,124 | $(5,905) | -1.88% | | Other consumer | $229,120 | $265,796 | $(36,676)| -13.80% | | Total loans | $8,264,578 | $8,150,147 | $114,431| 1.40% | - Total loans increased by $114.4 million (5.7% annualized) from December 31, 2022, with significant growth in residential solar and indirect auto loans[144] Allowance for Credit Losses, Provision for Loan Losses and Nonperforming Assets Allowance for Credit Losses & Nonperforming Assets | Metric | March 31, 2023 | December 31, 2022 | March 31, 2022 | | :-------------------- | :------------- | :---------------- | :------------- | | Allowance for credit losses (millions) | $100.3 | $100.8 | $90.0 | | Allowance for credit losses as % of loans | 1.21% | 1.24% | 1.18% | | Allowance for credit losses as % of nonperforming loans | 538.63% | 478.72% | 324.25% | | Total nonperforming assets (millions) | $18.7 | $21.2 | $27.8 | | Total nonperforming loans (millions) | $18.6 | $21.1 | $27.8 | | Total nonaccrual loans (millions) | $16.3 | $17.2 | $25.8 | | Provision for loan losses (millions) | $3.9 | $7.7 | $0.6 | | Net charge-offs (millions) | $3.8 | $3.7 | $2.6 | | Net charge-offs to average loans (annualized) | 0.19% | 0.18% | 0.14% | - Nonperforming assets decreased to $18.7 million at March 31, 2023, from $21.2 million at December 31, 2022, and $27.8 million at March 31, 2022, driven by reductions in consumer past due loans and commercial nonaccrual loans[159] - Provision for loan losses decreased QoQ to $3.9 million but increased significantly YoY from $0.6 million, reflecting higher net charge-offs and stable economic conditions compared to improved conditions in the prior year's forecast[155] - Potential problem loans (substandard grade) increased to $55.9 million at March 31, 2023, from $52.0 million at December 31, 2022, but decreased from $66.7 million at March 31, 2022, with 8.4% of outstanding loans in higher-risk industries[160] Deposits Total Deposits (In billions) | Metric | March 31, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Total deposits | $9.68 | $9.50 | $0.185 | 1.95% | - Total deposits increased by $185.3 million (2.0%) from December 31, 2022, primarily in time and money market accounts due to seasonal municipal deposit inflows[161] - Total average deposits decreased by $0.70 billion (6.8%) YoY, driven by larger commercial customers seeking higher-yielding investment opportunities[161] - Estimated uninsured deposits were $3.7 billion at March 31, 2023, up from $3.6 billion at December 31, 2022[161] Borrowed Funds Borrowed Funds (In millions) | Metric | March 31, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Short-term borrowings | $475.2 | $585.0 | $(109.8)| -18.77% | | Long-term debt | $29.8 | $4.8 | $25.0 | 520.83% | Subordinated Debt - The Company has $100.0 million of 5.00% fixed-to-floating rate subordinated notes due 2030, qualifying as Tier 2 capital, with interest payable semi-annually until October 1, 2025, then quarterly at SOFR plus 4.85%[164] Capital Resources Capital Ratios & Metrics | Metric | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Stockholders' equity to total assets | 10.23% | 10.00% | | Tier 1 leverage ratio | 10.43% | 10.32% | | Common equity tier 1 capital ratio | 12.28% | 12.12% | | Tier 1 capital ratio | 13.34% | 13.19% | | Total risk-based capital ratio | 15.53% | 15.38% | | Book value per share | $28.24 | $27.38 | | Tangible book value per share | $21.52 | $20.65 | - Stockholders' equity increased by $38.1 million from December 31, 2022, driven by net income and a $16.1 million increase in accumulated other comprehensive income, partially offset by dividends[165] - The Company remained 'well capitalized' at March 31, 2023, with all capital ratios exceeding regulatory minimum guidelines[167] - The Company adopted the CECL capital transition relief over a five-year period, phasing in the regulatory capital impact of the allowance for credit losses[170] Liquidity and Interest Rate Sensitivity Management Market Risk - Interest rate risk is the most significant market risk, managed by the ALCO through monitoring asset/liability positions, loan/deposit pricing, and securities portfolio, aiming to minimize net interest margin compression[172][174][175] - The primary tool for managing interest rate risk is earnings at risk modeling, simulating net interest income changes under various rate scenarios (+200 bps, +100 bps, -200 bps) over a 12-month period[176] Interest Rate Sensitivity Analysis (12-month period) | Change in interest rates (in bps) | Percent change in net interest income | | :-------------------------------- | :------------------------------------ | | +200 | 2.08% | | +100 | 1.31% | | -200 | (2.86%) | Liquidity Risk - The Company's primary liquidity measurement, 'Basic Surplus,' was 14.6% of total assets ($1.73 billion) at March 31, 2023, exceeding the minimum policy level of 5%[180] - Available borrowing capacity includes $1.16 billion from FHLB, $835.7 million from unpledged securities, $1.87 billion from brokered time deposits/other bank facilities, and $654.2 million from the FRB's Borrower-in-Custody program[181] - Potential adverse impacts on liquidity include deposit declines due to higher interest rates, increased asset growth from line of credit draws, and heightened competition for deposits in wholesale funding markets[182] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refers to the detailed discussion on market risk, primarily interest rate risk, within the MD&A - Information regarding quantitative and qualitative disclosures about market risk is contained within the 'Liquidity and Interest Rate Sensitivity Management' section of the MD&A[186] ITEM 4. CONTROLS AND PROCEDURES Management, including CEO and CFO, confirmed effective disclosure controls and procedures as of March 31, 2023 - As of March 31, 2023, the Company's disclosure controls and procedures were evaluated and deemed effective by management, with participation from the CEO and CFO[187] PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material legal proceedings, beyond routine litigation, are reported for the Company or its subsidiaries - The Company is not a party to any material legal proceedings other than routine litigation incidental to its business[189] ITEM 1A. RISK FACTORS Highlights new risks from banking industry developments, including customer confidence, HTM securities value, and regulatory scrutiny - Recent high-profile bank failures have negatively impacted customer confidence in regional banks, potentially affecting the Company's liquidity, loan funding capacity, net interest margin, and capital[191] - Rising interest rates have decreased the value of the Company's held-to-maturity securities portfolio, and forced sales to meet liquidity needs could result in losses and impair capital[192] - Increased regulatory scrutiny and new regulations following recent banking industry events could raise the Company's operating costs and reduce profitability, with a focus on deposit composition and uninsured deposits[193] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No applicable disclosures regarding unregistered sales of equity securities and use of proceeds - This item is not applicable[194] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities are reported - There are no defaults upon senior securities[194] ITEM 4. MINE SAFETY DISCLOSURES No mine safety disclosures are reported - There are no mine safety disclosures[194] ITEM 5. OTHER INFORMATION No other information is reported - There is no other information to report[194] ITEM 6. EXHIBITS Lists exhibits filed with Form 10-Q, including organizational documents, executive certifications, and Inline XBRL - Exhibits include Restated Certificate of Incorporation, Amended and Restated Bylaws, Certificate of Designation, and certifications by the CEO and CFO[195] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are also filed[195] SIGNATURES Contains required signatures for the Form 10-Q, confirming submission by the Chief Financial Officer - The report was signed on May 10, 2023, by Scott A. Kingsley, Chief Financial Officer of NBT Bancorp Inc[196][197]