Vermont Business Magazine NBT Bancorp Inc (NASDAQ: NBTB) reported on Monday net income and diluted earnings per share for both the three and six months ended June 30, 2020. NBT Bank has branches in Northwestern Vermont.
Net income for the three months ended June 30, 2020 was $24.7 million, or $0.56 per diluted common share. Net income was up $14.3 million from the previous quarter primarily due to lower loan loss provision and lower noninterest expense and down $5.8 million from the second quarter of 2019 primarily due to higher provision for loan losses related to the deterioration of economic conditions caused by the COVID-19 pandemic. Excluding real estate repositioning charges of $0.7 million, net income and earnings per diluted share were $25.2 million and $0.57, respectively.
Pre-provision net revenue (“PPNR”)1 for the second quarter of 2020 was $50.7 million compared to $44.9 million in the previous quarter and $47.2 million in the second quarter of 2019 reflecting higher net interest income and lower noninterest expense than the previous quarter.
“NBT was able to grow pre-provision net revenue. Asset quality remained stable during this extraordinary quarter despite the significant challenges presented by the pandemic. Our team has demonstrated an unwavering commitment to provide superior service to our customers and participate in initiatives to support our communities during these difficult times,” said NBT President and CEO John H. Watt, Jr. “Notable during the quarter was our participation in the SBA’s Paycheck Protection Program to secure approval for approximately 3,000 loans and $547 million in relief to help retain more than 61,000 jobs at businesses and organizations in communities we serve. NBT's disciplined approach to risk management and credit practices, strong and recently enhanced capital position and liquidity continue to provide a strong foundation that will help us to meet the current challenges and to be opportunistic building our franchise.”
Second Quarter Financial Highlights
Net Interest Income / NIM
Loans and Credit Quality
- Period end total loans were $7.6 billion at June 30, 2020, compared to $7.1 billion at December 31, 2019.
- Total PPP loans as of June 30, 2020 were $510 million (net of unamortized fees); originated $547 million with an average loan size of $185,000 and an average fee of 3.2%.
- Excluding PPP loans, period end loans decreased $130 million from March 31, 2020. Commercial and industrial loans decreased $19.8 million to $1.3 billion; commercial real estate loans increased $14.4 million to $2.3 billion; and total consumer loans decreased $124.1 million to $3.5 billion, driven by managed run-off of indirect auto loans.
- Commercial line of credit utilization rate was 26% at June 30, 2020 compared to 32% at March 31, 2020 and 36% at June 30, 2019.
- Average total deposits in the second quarter of 2020 were $8.6 billion, compared to $7.7 billion in the first quarter of 2020, primarily due to increases in non-interest bearing demand and money market deposit accounts.
- Loan to deposit ratio of 86.5% at June 30, 2020, compared to 94.0% at December 31, 2019.
Net Interest Income and Net Interest Margin
- Net interest income for the second quarter of 2020 was $80.4 million, up $3.3 million from $77.2 million the first quarter of 2020 and up $1.8 million from $78.6 million for the second quarter of 2019.
- The net interest margin on a fully taxable equivalent (“FTE”) basis for the second quarter of 2020 was 3.38%, down 14 basis points (“bps”) from the first quarter of 2020 and down 23 bps from the second quarter of 2019. The net impact of PPP loans and excess liquidity, both of which the Company expects to be transitory, negatively impacted the NIM by 7 bps. Excluding the impact of PPP lending and excess liquidity, NIM declined 7 bps from the prior quarter primarily due to the impact of asset repricing, partly offset by lower funding costs.
- Earning asset yields for the three months ended June 30, 2020 were down 39 bps from the prior quarter and down 60 bps from the same quarter in the prior year. Earning assets grew $742.8 million or 8.4% from the prior quarter and grew $823.4 million or 9.4% from the same quarter in the prior year.
- Excess liquidity resulted in a $306 million increase in the average balances of short-term interest bearing accounts with yields declining 118 bps to 0.10%.
- Yields on investment securities declined 9 bps.
- Loan yields decreased 32 bps to 4.10%.
- Total cost of total deposits was 0.23% for the second quarter of 2020, down 25 bps from the prior quarter and down 32 bps from the same period in the prior year.
- The cost of interest-bearing liabilities for the three months ended June 30, 2020 was 0.45%, down 37 bps from the prior quarter of 0.82% and down 51 bps from the second quarter of 2019 of 0.96%.
- Cost of interest-bearing deposits decreased 35 bps from the prior quarter and decreased 44 bps from the same quarter in 2019.
Credit Quality and CECL
- Asset quality metrics remained stable in the second quarter of 2020.
- Net charge-offs to total average loans of 28 bps (30 bps excluding PPP loans) compared to 32 bps in the prior quarter and 38 bps in the second quarter of 2019.
- Nonperforming assets to total assets was 0.27% (0.28% excluding PPP loans) compared to 0.35% at March 31, 2020 and 0.30% at June 30, 2019.
- Provision expense for the three months ended June 30, 2020 was $18.8 million as the economic deterioration due to COVID-19 and the related impact to expected losses continued in the second quarter while net charge-offs of $5.3 million were relatively consistent with the prior quarter. Provision expense decreased $10.8 million from the first quarter of 2020 and increased $11.6 million from the second quarter of 2019.
- The allowance for loan losses was $113.5 million or 1.49% (1.59% excluding PPP loans and related allowance) of total loans compared to 1.38% at March 31, 2020 and 1.04% June 30, 2019.
- As of July 23, 2020, 8.7% of loans (excluding PPP loans) are in payment deferral programs which is down from the second quarter 2020 peak of 14.9%.
- The reserve for unfunded loan commitments decreased $0.2 million to $5.4 million at June 30, 2020 as the increase in the allowance due to the deterioration in the economic forecast was offset by a decrease in the level of unfunded commitments.
- Total noninterest income, excluding securities gains (losses), was $34.8 million for the three months ended June 30, 2020, down $1.4 million from the prior quarter and up $0.5 million from the prior year quarter.
- Service charges on deposit accounts were lower than both prior quarter and the second quarter of 2019 due to lower overdraft charges during the COVID-19 pandemic.
- Retirement plan administration fees were higher than both prior quarter and the second quarter of 2019 due to the April 1, 2020 acquisition of Alliance Benefit Group of Illinois, Inc. (“ABG”) contributing $1.8 million in revenues during the quarter.
- Wealth management fees were down $0.5 million due to market conditions, partly offset by $0.3 million in ABG fees during the quarter.
- Insurance revenues were down compared to the prior quarter due to seasonally higher insurance revenues in the first quarter.
- The increase in other noninterest income from the prior year second quarter was driven by higher swap fees.
- Total noninterest expense for the second quarter of 2020 was down 7.8% from the previous quarter and down 1.3% from the second quarter of 2019.
- Significant variances to the prior quarter:
- Salaries and benefits declined due to decreased medical expenses during the COVID-19 pandemic ($1.1 million) and lower stock-based compensation expenses ($1.0 million), partly offset by increased salaries due to the ABG acquisition ($0.9 million).
- Occupancy expense was $0.9 million lower due to seasonal maintenance in the prior quarter and lower expenses during the COVID-19 pandemic due to limited on-site personnel.
- Professional fees and outside services were down $0.5 million primarily due to the timing of expenses as a result of the COVID-19 pandemic.
- FDIC expense was higher as the remaining portion of the FDIC insurance assessment small bank credit was used in the first quarter of 2020.
- Other noninterest expense was lower in the second quarter of 2020 due primarily to a $2.0 million expense in the first quarter for the allowance for unfunded loan commitments, along with lower travel and training expenses during the pandemic. The Company recorded a $0.2 million provision credit in the second quarter of 2020 to reduce the reserve for unfunded commitments.
- Other noninterest expense included $0.7 million in non-recurring real estate repositioning charges for the second quarter.
- Significant variances to the second quarter of 2019:
- Higher salaries and benefits primarily driven by the ABG acquisition partly offset by lower medical costs ($0.6 million).
- Data processing and communication expense down due to lower transaction volumes as a result of the COVID-19 pandemic.
- Other expenses decreased $0.7 million due to lower travel and training expenses during the pandemic and lower pension costs.
- Effective tax rate was 21.0% for the second quarter of 2020 compared to 14.2% in the first quarter of 2020 and 22.4% in the second quarter 2019. The higher effective tax rate compared to the first quarter of 2020 was due to higher level of taxable income relative to total income and included a true-up of tax expense to bring the full year estimated effective tax rate to 19.5%. The lower effective tax rate compared to the second quarter of 2019 was due to a lower level of taxable income relative to total income.
- Capital ratios remain strong with tangible common equity to tangible assets1 at 8.04%. Tangible book value per share3 grew 3% from the prior quarter and 8% from the prior year quarter to $19.46.
- June 30, 2020 CET1 capital ratio of 11.34%, total leverage ratio of 9.44% and total risk-based capital ratio of 15.15%.
- On June 23, 2020, the Company completed its public offering of $100 million 5.00% fixed-to-floating rate subordinated notes due 2030. The net proceeds were $98 million. The notes are intended to qualify as Tier 2 capital for regulatory purposes.
- The Board of Directors approved a third-quarter cash dividend of $0.27 per share at their regularly scheduled meeting held today. The dividend will be paid on September 15, 2020 to shareholders of record as of September 1, 2020.
Conference Call and Webcast
The Company will host a conference call at 8:30 a.m. Eastern Time on Tuesday, July 28, 2020, to review second quarter 2020 financial results. The audio webcast link, along with the corresponding presentation slides, will be available on the Company’s Investor Relations web page at https://stockholderinfo.nbtbancorp.com/events-calendar/upcoming-events and will be archived for twelve months.
NBT Bancorp Inc. is a financial holding company headquartered in Norwich, NY, with total assets of $10.8 billion at June 30, 2020. The Company primarily operates through NBT Bank, N.A., a full-service community bank, and through two financial services companies. NBT Bank, N.A. has 146 banking locations in New York, Pennsylvania, Vermont, Massachusetts, New Hampshire and Maine, and is currently entering Connecticut. EPIC Retirement Plan Services, based in Rochester, NY, is a full-service 401(k) plan recordkeeping firm. NBT Insurance Agency, LLC, based in Norwich, NY, is a full-service insurance agency. More information about NBT and its divisions is available online at: www.nbtbancorp.com, www.nbtbank.com, www.epicrps.com and www.nbtinsurance.com.
This news release contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms. There are a number of factors, many of which are beyond the Company’s control that could cause actual results to differ materially from those contemplated by the forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact; (2) changes in the level of nonperforming assets and charge-offs; (3) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (4) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board (“FRB”); (5) inflation, interest rate, securities market and monetary fluctuations; (6) political instability; (7) acts of war or terrorism; (8) the timely development and acceptance of new products and services and perceived overall value of these products and services by users; (9) changes in consumer spending, borrowings and savings habits; (10) changes in the financial performance and/or condition of the Company’s borrowers; (11) technological changes; (12) acquisitions and integration of acquired businesses; (13) the ability to increase market share and control expenses; (14) changes in the competitive environment among financial holding companies; (15) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply, including those under the Dodd-Frank Act, Economic Growth, Regulatory Relief, Consumer Protection Act of 2018, Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), and regulatory pronouncements around CARES Act; (16) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB”) and other accounting standard setters; (17) changes in the Company’s organization, compensation and benefit plans; (18) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; (19) greater than expected costs or difficulties related to the integration of new products and lines of business; (20) the adverse impact on the U.S. economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (“COVID-19”), global pandemic; (21) the impact of a slowing U.S. economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products; and (22) the Company’s success at managing the risks involved in the foregoing items.
Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements is the potential adverse effect of the current COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company, its customers and the global economy and financial markets. The extent to which the COVID-19 pandemic impacts the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic and its impact on the Company’s customers and demand for financial services, the actions governments, businesses and individuals take in response to the pandemic, the impact of the COVID-19 pandemic and actions taken in response to the pandemic on global and regional economies, national and local economic activity, and the pace of recovery when the COVID-19 pandemic subsides, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2019 and in our Form 10-Q for the quarter ended March 31, 2020 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.
You should not place undue reliance on any forward-looking statements, which speak only as of the date made, and you are advised that various factors including, but not limited to, those described above and other factors discussed in the Company’s annual and quarterly reports previously filed with the SEC, could affect the Company’s financial performance and could cause the Company’s actual results or circumstances for future periods to differ materially from those anticipated or projected. Unless required by law, the Company does not undertake, and specifically disclaims any obligations to, publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Source: NORWICH, NY (July 27, 2020) – NBT Bancorp Inc