NBT Bancorp (NBTB) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited statements show total assets at $11.89 billion, with Q2 net income falling to $30.1 million Consolidated Balance Sheets Total assets grew to $11.89 billion, driven by a rise in net loans to $8.26 billion Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $11,890,497 | $11,739,296 | $151,201 | | Net Loans | $8,257,724 | $8,049,347 | $208,377 | | Securities (AFS & HTM) | $2,366,802 | $2,446,742 | ($79,940) | | Total Deposits | $9,529,919 | $9,495,933 | $33,986 | | Total Liabilities | $10,680,004 | $10,565,742 | $114,262 | | Total Stockholders' Equity | $1,210,493 | $1,173,554 | $36,939 | Consolidated Statements of Income Q2 2023 net income fell 20.4% to $30.1 million due to higher interest expense and securities losses Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $89,085 | $87,585 | $184,151 | $167,933 | | Provision for Loan Losses | $3,606 | $4,390 | $7,515 | $4,986 | | Total Noninterest Income | $32,045 | $41,656 | $63,454 | $84,315 | | Total Noninterest Expense | $78,794 | $76,119 | $158,116 | $148,262 | | Net Income | $30,072 | $37,775 | $63,730 | $76,901 | | Diluted EPS | $0.70 | $0.88 | $1.48 | $1.78 | - Card services income decreased significantly to $5.1 million in Q2 2023 from $9.8 million in Q2 2022[9] - Net securities losses widened to $(4.6) million in Q2 2023 and $(9.6) million for the first six months of 2023[9] Consolidated Statements of Comprehensive Income (Loss) Comprehensive income recovered to $63.7 million for the first half of 2023 from a loss in 2022 Comprehensive Income (Loss) Summary (in thousands) | Metric | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $30,072 | $37,775 | $63,730 | $76,901 | | Other Comprehensive (Loss) | $(16,182) | $(33,406) | $(66) | $(101,437) | | Comprehensive Income (Loss) | $13,890 | $4,369 | $63,664 | $(24,536) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $1.21 billion, driven by net income offset by dividends and buybacks - For the six months ended June 30, 2023, the company declared cash dividends of $0.60 per share, totaling $25.7 million[13] - The company purchased 87,000 treasury shares for $2.8 million during the first six months of 2023[13] Consolidated Statements of Cash Flows Operating cash flow decreased while financing activities provided cash, reversing the prior year's trend Cash Flow Summary (in thousands) | Activity | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $67,171 | $104,096 | | Net Cash from Investing Activities | $(158,958) | $(557,815) | | Net Cash from Financing Activities | $96,325 | $(291,736) | | Net (Decrease) in Cash | $4,538 | $(745,455) | | Cash at End of Period | $201,888 | $523,616 | Notes to Unaudited Interim Consolidated Financial Statements Notes detail accounting policies, including the adoption of new TDR guidance and credit loss allowances - The company adopted ASU 2022-02, eliminating Troubled Debt Restructuring accounting and increasing retained earnings by $0.5 million[20][33][60] - The company's business consists of providing commercial banking, retail banking, and wealth management services[16][17] Management's Discussion and Analysis of Financial Condition and Results of Operations Net income fell to $30.1 million in Q2 2023 due to funding costs, while the Salisbury acquisition proceeds Overview and Key Performance Metrics Q2 2023 net income was $30.1 million, impacted by securities losses and acquisition expenses Q2 2023 Performance Highlights | Metric | Q2 2023 | Q2 2022 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Income (in millions) | $30.1 | $37.8 | $33.7 | | Diluted EPS | $0.70 | $0.88 | $0.78 | | Return on Average Assets | 1.02% | 1.28% | 1.16% | | Return on Average Equity | 9.91% | 12.73% | 11.47% | | Tangible Book Value/Share | $21.55 | $20.99 | $21.52 | - The company received regulatory approvals for its acquisition of Salisbury Bancorp, Inc, expected to close on August 11, 2023[114] - The company incurred a $4.5 million securities loss and $1.2 million in acquisition expenses in Q2 2023[117] Net Interest Income Q2 2023 net interest margin compressed to 3.27% due to a rapid increase in funding costs Net Interest Margin Analysis | Period | Net Interest Income (FTE, in millions) | Net Interest Margin (FTE) | | :--- | :--- | :--- | | Q2 2023 | $89.5 | 3.27% | | Q1 2023 | $95.5 | 3.55% | | Q2 2022 | $87.9 | 3.21% | - A sharp rise in interest expense to $31.5 million in Q2 2023 from $3.9 million in Q2 2022 was the primary driver of margin compression[122][133] Noninterest Income Noninterest income fell 23.1% in Q2 2023, driven by securities losses and lower card services income Noninterest Income Breakdown (in thousands) | Category | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Card services income | $5,121 | $9,751 | (47.5%) | | Retirement plan admin fees | $11,735 | $12,676 | (7.4%) | | Net securities (losses) | $(4,641) | $(587) | (690.6%) | | Total Noninterest Income | $32,045 | $41,656 | (23.1%) | - For the first six months of 2023, noninterest income declined due to an $8.0 million impact from the Durbin Amendment on card services income[135] Noninterest Expense Noninterest expense rose 3.5% year-over-year, driven by technology costs and higher FDIC assessments Noninterest Expense Breakdown (in thousands) | Category | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $46,834 | $46,716 | 0.3% | | Technology and data services | $9,305 | $8,945 | 4.0% | | FDIC assessment | $1,344 | $810 | 65.9% | | Acquisition expenses | $1,189 | $0 | N/A | | Total Noninterest Expense | $78,794 | $76,119 | 3.5% | Income Taxes The effective tax rate remained stable at 22.4% for Q2 2023 and 22.3% for the first half of the year - The effective tax rate was 22.4% for Q2 2023, compared to 22.5% for Q2 2022[140] - For the six months ended June 30, 2023, the effective tax rate was 22.3%, identical to the prior-year period[141] Analysis of Financial Condition Financial condition remains solid with 5.1% annualized loan growth and strong capital ratios - Total loans increased by $208.0 million (5.1% annualized) since year-end 2022[145] - The allowance for credit losses was $100.4 million, or 1.20% of total loans[154] - Nonperforming assets decreased to $19.9 million (0.17% of total assets) from $21.2 million at year-end 2022[159] - Total deposits increased slightly, with a shift to higher-cost time deposits including $242.0 million in brokered deposits[161] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk and maintains robust liquidity with a surplus of $1.66 billion Interest Rate Sensitivity Analysis (as of June 30, 2023) | Change in Interest Rates (bps) | Percent Change in Net Interest Income | | :--- | :--- | | +200 | 1.57% | | +100 | 1.06% | | -200 | (2.11%) | - The company's 'Basic Surplus' liquidity was $1.66 billion (13.9% of total assets), well above the 5% policy minimum[181] - The company had additional borrowing capacity of approximately $924.5 million from the FHLB and $1.02 billion from unpledged securities[182] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023 - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[188] PART II OTHER INFORMATION Legal Proceedings The company is not a party to any material legal proceedings outside of ordinary routine litigation - There are no material legal proceedings against the company[190] Risk Factors No material changes to previously disclosed risk factors were reported during the quarter - No material changes to risk factors were reported for the quarter[191] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 87,000 shares in Q2 2023, with 1.51 million shares remaining under the plan Share Repurchase Activity (Q2 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2023 | - | $ - | | May 2023 | - | $ - | | June 2023 | 87,000 | $31.94 | | Total | 87,000 | $31.94 | - As of June 30, 2023, 1,513,000 shares were available for repurchase under the existing plan expiring December 31, 2023[192] Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans this quarter - No Rule 10b5-1 plans were adopted, modified, or terminated by any director or officer during the quarter[193]