NBT Bancorp reports second quarter net income of $30.1 million

Submitted by tim on Tue, 08/01/2023 - 13:19

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Vermont Business Magazine NBT Bancorp Inc (NASDAQ: NBTB), parent of NBT Bank with branches in Vermont, has reported net income and diluted earnings per share for the three and six months ended June 30, 2023.

Net income for the three months ended June 30, 2023 was $30.1 million, or $0.70 per diluted common share, compared to $37.8 million, or $0.88 per diluted share, for the three months ended June 30, 2022, and $33.7 million, or $0.78 per diluted share, in the first quarter of 2023.

Excluding the impact of securities losses and acquisition expenses, the Company generated $0.80 per diluted share of earnings in the second quarter of 2023, compared to $0.89 per share in the second quarter of 2022 and $0.88 per share in the first quarter of 2023. Net interest income was impacted on a linked quarter basis from the continuation of higher funding costs.
In the second quarter of 2023, the Company realized $4.5 million ($0.08 per diluted share) in securities losses. In the first quarter of 2023, the Company realized a $5.0 million ($0.09 per diluted share) securities loss.
The Company incurred acquisition expenses of $1.2 million ($0.02 per diluted share) and $0.6 million ($0.01 per diluted share) related to the pending merger with Salisbury Bancorp, Inc. (“Salisbury”) in the second quarter of 2023 and the first quarter of 2023, respectively.
Period end total loans increased $208.0 million from December 31, 2022, or 5.1% annualized.

CEO Comments

“We delivered solid operating performance for the second quarter and the first half of 2023. Our results reflect the ongoing focus on our long-term strategies, the strength of our balance sheet and our diversified business model,” said NBT President and CEO John H. Watt, Jr. “We grew loans in all our core portfolios in the second quarter, and our funding sources remained resilient. Our credit performance remained consistent and favorable, and we continued to grow capital. We were also very pleased to have received all the regulatory and shareholder approvals required to proceed with our planned combination with Salisbury Bancorp. We expect the merger to close on August 11, 2023. Our integration team with representatives from NBT and Salisbury has worked diligently to ensure the best possible customer experience upon the conversion of Salisbury customer relationships,” said Watt.

Second Quarter Financial Highlights

Net Income	Net income of $30.1 million Diluted earnings per share of $0.70 Excluding acquisition expenses and securities losses, diluted earnings per share of $0.80
Net Interest Income / NIM	Net interest income on a fully taxable equivalent (“FTE”) basis was $89.5 million¹ Net interest margin (“NIM”) on an FTE basis was 3.27%¹, down 28 basis points (“bps”) from the prior quarter Earning asset yields of 4.42%, up 16 bps from the prior quarter Total cost of funds of 1.22%, up 47 bps from the prior quarter
Noninterest Income	Excluding securities losses, noninterest income was $36.7 million and was 29.2% of total revenue
Loans and Credit Quality	Period end total loans of $8.36 billion as of June 30, 2023, up $208.0 million, or 5.1%, annualized, from December 31, 2022 Net charge-offs to average loans were 0.17%, annualized Nonperforming loans to total loans was 0.24%, compared to 0.23% in the prior quarter and down from 0.33% in the second quarter of 2022 Allowance for loan losses to total loans of 1.20%
Deposits	Deposits were $9.53 billion as of June 30, 2023, up $34.0 million, or 0.4%, from December 31, 2022 Total cost of deposits was 0.85% for the second quarter of 2023, up 38 bps from the prior quarter Full cycle to-date deposit beta of 17% Deposit composition is diverse and granular with over 523,000 accounts with an average per account balance of $18,202
Capital	Stockholders’ equity was $1.21 billion as of June 30, 2023 Tangible book value per share² was $21.55 at June 30, 2023, consistent with the first quarter of 2023 and 2.7% higher than the second quarter of 2022 Tangible equity to assets of 7.95%¹ CET1 ratio of 12.29%; Leverage ratio of 10.51%

Loans

Period end total loans were $8.36 billion at June 30, 2023, $8.26 billion at March 31, 2023 and $8.15 billion at December 31, 2022.
Period end loans increased $208.0 million from December 31, 2022. Commercial and industrial loans increased $53.1 million to $1.32 billion; commercial real estate loans increased $76.3 million to $2.88 billion; and total consumer loans increased $78.6 million to $4.15 billion. Included in total consumer loans is $158 million of a portfolio of loans in a run-off status.
Commercial line of credit utilization rate was 23% at June 30, 2023, compared to 22% at March 31, 2023 and 23% at June 30, 2022.

Deposits

Total deposits at June 30, 2023 were $9.53 billion, compared to $9.50 billion at December 31, 2022. The Company continues to experience migration from noninterest bearing and low interest checking and savings accounts into higher cost money market and time deposit instruments.
Loan to deposit ratio was 87.7% at June 30, 2023, compared to 85.8% at December 31, 2022.

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2023 was $89.1 million, which was down $6.0 million, or 6.3%, from the first quarter of 2023 and up $1.5 million, or 1.7%, from the second quarter of 2022.
The NIM on an FTE basis for the second quarter of 2023 was 3.27%, down 28 bps from the first quarter of 2023 driven by the increase in the cost of interest-bearing deposits, as well as a $200.6 million increase in the average balance of short-term borrowings and a 31 bp increase on the rates paid on those borrowings. The NIM on an FTE basis was up 6 bps from the second quarter of 2022 due to higher earning asset yields partially offset by the increase in the cost of interest-bearing deposits, as well as higher balances in short-term borrowings and the rates paid on those borrowings.
Earning asset yields for the three months ended June 30, 2023 were up 16 bps from the prior quarter to 5.17% and up 107 bps from the same quarter in the prior year. Earning assets grew $73.4 million, or 0.7%, from the first quarter of 2023, or 2.7% annualized.
Total cost of deposits, including noninterest bearing deposits, was 0.85% for the second quarter of 2023, up 38 bps from the prior quarter and up 78 bps from the same period in the prior year.
Total cost of funds for the three months ended June 30, 2023 was 1.22%, up 47 bps from the prior quarter and up 107 bps from the second quarter of 2022.

Asset Quality and Allowance for Loan Losses

Net charge-offs to total average loans was 17 bps compared to 19 bps in the prior quarter and 4 bps in the second quarter of 2022. The increase in net charge-offs from the second quarter of 2022 was due to an increase in charge-offs in the Company’s other consumer portfolio, which is in a run-off status. Net charge-offs for the portfolios in a run-off status represented 68% of total net charge-offs.
Nonperforming assets to total assets were 0.17% at June 30, 2023, compared to 0.16% at March 31, 2023 and 0.22% at June 30, 2022.
Provision expense for the three months ended June 30, 2023 was $3.6 million, compared to $3.9 million for the first quarter of 2023 and $4.4 million for the second quarter of 2022.
The allowance for loan losses was $100.4 million, or 1.20% of total loans, at June 30, 2023, compared to 1.21% of total loans at March 31, 2023 and 1.20% of total loans at June 30, 2022. The reserve for unfunded loan commitments decreased to $4.4 million at June 30, 2023 compared to the prior quarter-end at $4.5 million and to $5.1 million at June 30, 2022.

Noninterest Income

Total noninterest income, excluding securities losses, was $36.7 million for the three months ended June 30, 2023, up $0.3 million from the first quarter and down $5.6 million from the prior year’s second quarter.
Card services income increased $0.3 million from the prior quarter and decreased $4.6 million from the second quarter of 2022 primarily driven by the impact on debit interchange revenues from the statutory price cap provisions of the Durbin Amendment to the Dodd-Frank Act which the Company became subject to in the third quarter of 2022.
Retirement plan administration fees were up $0.3 million from the prior quarter and were $0.9 million lower than the second quarter of 2022 driven by a decrease in activity-based fees which were primarily statutory plan document restatements.
In the second quarter of 2023, the Company incurred a $4.5 million ($0.08 per diluted share) securities loss on the sale of two subordinated debt securities held in the AFS portfolio. In the first quarter of 2023, the Company recorded a $5.0 million ($0.09 per diluted share) securities loss related to the write-off of a subordinated debt security of a failed bank.

Noninterest Expense

Total noninterest expense, excluding $1.2 million of acquisition expenses in the second quarter of 2023 and $0.6 million in the first quarter of 2023, decreased 1.4% compared to the previous quarter and increased 2.0% from the second quarter of 2022.
Salaries and benefits decreased 2.7% from the prior quarter driven by seasonally higher payroll taxes and higher stock-based compensation expenses in the first quarter along with a lower level of incentive compensation in the second quarter. These decreases were partially offset by a full quarter of merit pay increases and higher health and welfare benefits.
Technology and data services expenses increased over the prior quarter and from the second quarter of 2022 due to continued investment in digital platform solutions.
Occupancy costs decreased from the prior quarter due to lower seasonal maintenance, equipment costs and utilities and increased from the second quarter of 2022 driven by higher utilities, rent and seasonal maintenance costs.
FDIC assessment expense was comparable to the prior quarter and increased $0.5 million ($0.01 per diluted share) from the second quarter of 2022 driven by the statutory increase in the FDIC assessment rate.

Income Taxes

The effective tax rate was 22.4% for the second quarter of 2023, compared to 22.2% for the first quarter of 2023 and 22.5% for the second quarter of 2022.

Capital

Capital ratios are strong with tangible common equity to tangible assets1 at 7.95%. Tangible book value per share2 was $21.55 at June 30, 2023, $21.52 at March 31, 2023 and $20.99 at June 30, 2022.
Stockholders’ equity increased $36.9 million from December 31, 2022 driven by net income generation of $63.7 million, partially offset by dividends declared of $25.7 million and the repurchase of common stock of $2.8 million.
June 30, 2023, CET1 capital ratio of 12.29%, leverage ratio of 10.51% and total risk-based capital ratio of 15.50%.

Stock Repurchase

The Company purchased 87,000 shares of its common stock in the second quarter of 2023 at an average price of $31.94 per share under its previously announced share repurchase program. The Company may repurchase shares of its common stock from time to time to mitigate the potential dilutive effects of stock-based incentive plans and other potential uses of common stock for corporate purposes. As of June 30, 2023, there were 1,513,000 shares available for repurchase under this plan authorized on December 20, 2021 and set to expire on December 31, 2023.

Salisbury Bancorp, Inc. Merger

On July 10, 2023, NBT announced it has received the requisite regulatory approvals and waivers from the Office of the Comptroller of the Currency, the Connecticut State Banking Department and the Federal Reserve Bank of New York necessary to complete its acquisition of Salisbury. NBT and Salisbury anticipate closing the transaction on August 11, 2023, subject to the satisfaction of customary closing conditions. A weekend systems conversion will follow with locations of Salisbury Bank opening as NBT Bank offices on August 14, 2023. Salisbury is a Connecticut-chartered commercial bank with 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York, and southwestern Massachusetts. Salisbury had assets of $1.56 billion, deposits of $1.36 billion and net loans of $1.24 billion as of June 30, 2023.

Other Events

On July 1, 2023, the Company’s subsidiary national benefits administration firm, EPIC Retirement Plan Services (“EPIC RPS”), completed an asset purchase of Retirement Direct, LLC, based near Charlotte, NC. Retirement Direct served more than 500 qualified and nonqualified retirement plans and had over $2 billion in client assets under management. EPIC RPS has a client base that spans all 50 states and now supports over 5,000 retirement plans with more than 300,000 plan participants.

Conference Call and Webcast

The Company will host a conference call at 8:30 a.m. (Eastern) Tuesday, August 1, 2023, to review second quarter 2023 financial results. The audio webcast link, along with the corresponding presentation slides, will be available on the Company’s Event Calendar page at https://www.nbtbancorp.com/bn/presentations-events.html#events and will be archived for twelve months.

Corporate Overview

NBT Bancorp Inc. is a financial holding company headquartered in Norwich, NY, with total assets of $11.89 billion at June 30, 2023. 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 140 banking locations in New York, Pennsylvania, Vermont, Massachusetts, New Hampshire, Maine and Connecticut. EPIC Retirement Plan Services, based in Rochester, NY, is a national benefits administration 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.

Source: NORWICH, NY (July 31, 2023) – NBT Bancorp Inc