UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER: 0-14703
(Exact name of registrant as specified in its charter)
|
|
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
(Address of principal executive office) (Zip Code)
Registrant’s telephone number, including area code: (607 ) 337-2265
Securities registered pursuant to section 12(b) of the Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
|
|
|
The
|
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
Accelerated filer ☐
|
Non-accelerated filer ☐
|
Smaller reporting company
|
Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation
to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Based on the closing price of the registrant’s common stock as of June 30, 2024, the aggregate market value of the voting stock, common stock, par value, $0.01 per share, held by non-affiliates of the registrant is $1,763,515,253 .
The number of shares of common stock outstanding as of January 31, 2025,
was 47,253,792 .
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 20, 2025 are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K.
NBT BANCORP INC.
FORM 10-K – Year Ended December 31, 2024
|
PART I
|
||
|
ITEM 1.
|
4 |
|
|
ITEM 1A.
|
17
|
|
|
ITEM 1B.
|
27
|
|
|
ITEM 1C.
|
27
|
|
|
ITEM 2.
|
28
|
|
|
ITEM 3.
|
28
|
|
|
ITEM 4.
|
28
|
|
|
PART II
|
||
|
ITEM 5.
|
29
|
|
|
ITEM 6.
|
30 |
|
|
ITEM 7.
|
31
|
|
|
ITEM 7A.
|
51 | |
|
ITEM 8.
|
52
|
|
|
52
|
||
|
55
|
||
|
56
|
||
|
57
|
||
|
58
|
||
|
59
|
||
|
61
|
||
|
ITEM 9.
|
109
|
|
|
ITEM 9A.
|
109
|
|
|
ITEM 9B.
|
111
|
|
|
ITEM 9C.
|
111
|
|
|
PART III
|
||
|
ITEM 10.
|
111
|
|
|
ITEM 11.
|
111
|
|
|
ITEM 12.
|
111
|
|
|
ITEM 13.
|
111
|
|
|
ITEM 14.
|
111
|
|
|
PART IV
|
||
|
ITEM 15.
|
112
|
|
|
ITEM 16.
|
113
|
|
|
114
|
GLOSSARY OF ABBREVIATIONS AND ACRONYMS
When references to “NBT”, “we,” “our,” “us,” and “the Company” are made in this report, we mean NBT Bancorp Inc. and our consolidated subsidiaries,
unless the context indicates that we refer only to the parent company, NBT Bancorp Inc. When we refer to the “Bank” in this report, we mean our only bank subsidiary, NBT Bank, National Association, and its subsidiaries.
The acronyms and abbreviations identified below are used throughout this report, including the Notes to Consolidated Financial Statements. You may
find it helpful to refer to this page as you read this report.
|
AFS
|
available for sale
|
|
AIR
|
accrued interest receivable
|
|
ALCO
|
Asset Liability Committee
|
|
AOCI
|
accumulated other comprehensive income (loss)
|
|
ASC
|
Accounting Standards Codification
|
|
ASU
|
Accounting Standards Update
|
|
Board
|
the Board of Directors
|
|
bp(s)
|
basis point(s)
|
|
C&I
|
Commercial & Industrial
|
|
CECL
|
current expected credit losses
|
|
CD
|
certificate of deposit
|
|
CME
|
Chicago Mercantile Exchange Clearing House
|
|
CODM
|
chief operating decision maker
|
|
COVID-19
|
coronavirus
|
|
CRE
|
Commercial Real Estate
|
|
EPS
|
earnings per share
|
|
Evans
|
Evans Bancorp, Inc.
|
|
Evans Bank
|
Evans Bank, National Association
|
|
FASB
|
Financial Accounting Standards Board
|
|
FDIC
|
Federal Deposit Insurance Corporation
|
|
FHLB
|
Federal Home Loan Bank
|
|
FOMC
|
Federal Open Market Committee
|
|
FRB
|
Federal Reserve Board
|
|
FTE
|
fully taxable equivalent
|
|
GAAP
|
generally accepted accounting principles in the United States of America
|
|
GDP
|
Gross Domestic Product
|
|
HTM
|
held to maturity
|
|
LGD
|
loss given default
|
|
LIBOR
|
London Interbank Offered Rate
|
|
MMDA
|
money market deposit accounts
|
|
NASDAQ
|
The NASDAQ Stock Market LLC
|
|
NIM
|
net interest margin
|
|
NOW
|
negotiable order of withdrawal
|
|
OCC
|
Office of the Comptroller of the Currency
|
|
OREO
|
other real estate owned
|
|
PCD
|
purchased credit deteriorated
|
|
PD
|
probability of default
|
|
ROU
|
right-of-use
|
|
Salisbury
|
Salisbury Bancorp, Inc.
|
|
Salisbury Bank
|
Salisbury Bank and Trust Company
|
|
SEC
|
U.S. Securities and Exchange Commission
|
|
SOFR
|
Secured Overnight Financing Rate
|
|
TDR
|
troubled debt restructuring
|
|
VIE
|
variable interest entities
|
PART I
NBT Bancorp Inc. is a registered financial holding company incorporated in the state of Delaware in 1986, with its principal headquarters located in Norwich, New York. The principal assets of NBT
Bancorp Inc. consist of all of the outstanding shares of common stock of its subsidiaries, including: NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”), NBT Holdings, Inc. (“NBT Holdings”), CNBF Capital
Trust I, NBT Statutory Trust I, NBT Statutory Trust II, Alliance Financial Capital Trust I and Alliance Financial Capital Trust II (collectively, the “Trusts”). The principal sources of revenue for NBT Bancorp Inc. are the management fees and
dividends it receives from the Bank, NBT Financial and NBT Holdings. Collectively, NBT Bancorp Inc. and its subsidiaries are referred to herein as (the “Company”). As of December 31, 2024, the Company had assets of $13.79 billion and
stockholders’ equity of $1.53 billion on a consolidated basis.
The Company’s business, primarily conducted through the Bank, consists of providing commercial banking, retail banking and wealth management services primarily to customers in its market area,
which includes upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut. The Company has been, and intends to remain, a community-oriented
financial institution offering a variety of financial services. The Company’s business philosophy is to operate as a community bank with local decision-making, providing a broad array of banking and financial services to retail, commercial and
municipal customers.
The financial condition and operating results of the Company are dependent on its net interest income, which is the difference between the interest and dividend income earned on its earning
assets, primarily loans and securities and the interest expense paid on its interest-bearing liabilities, primarily deposits and borrowings. Among other factors, net income is also affected by provision for loan losses and noninterest income,
such as service charges on deposit accounts, card services income, retirement plan administration fees, wealth management revenue including financial services and trust revenue, insurance services, bank owned life insurance income and
gains/losses on securities sales, as well as noninterest expenses, such as salaries and employee benefits, technology and data services, occupancy, professional fees and outside services, office supplies and postage, amortization of intangible
assets, loan collection and OREO expenses, advertising, FDIC assessment expenses and other expenses.
NBT Bank, National Association
The Bank, a full-service commercial bank formed in 1856, provides a broad range of financial products to individuals, corporations and municipalities throughout upstate New York, northeastern
Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut.
Through its network of branch locations, the Bank offers a wide range of products and services tailored to individuals, businesses and municipalities. Deposit products offered by the Bank include
demand deposit accounts, savings accounts, NOW accounts, MMDA and CD accounts. The Bank offers various types of each deposit account to accommodate the needs of its customers with varying rates, terms and features. Loan products offered by the
Bank include indirect and direct consumer loans, home equity loans, mortgages, business banking loans and commercial loans, with varying rates, terms and features to accommodate the needs of its customers. The Bank also offers various other
products and services through its branch network such as trust and investment services and financial planning and life insurance services. In addition to its branch network, the Bank also offers access to certain products and services
electronically through 24-hour online, mobile and telephone channels that enable customers to check balances, make deposits, transfer funds, pay bills, access statements, apply for loans and access various other products and services.
NBT Financial Services, Inc.
Through NBT Financial, the Company operates EPIC Advisors, Inc. (“EPIC”), a national benefits administration firm which was acquired by the
Company on January 21, 2005. Among other services, EPIC provides retirement plan administration. EPIC’s headquarters are located in Rochester, New York.
NBT Holdings, Inc.
Through NBT Holdings, the Company operates NBT Insurance Agency, LLC (“NBT Insurance”), a full-service insurance agency acquired by the Company on September 1, 2008. NBT Insurance is headquartered
in Norwich, New York. NBT Insurance offers a full array of insurance products, including personal property and casualty, business liability and commercial insurance, tailored to serve the specific insurance needs of individuals as well as
businesses in a range of industries operating in the markets served by the Company.
The Trusts
The Trusts were established to raise additional regulatory capital and to provide funding for certain acquisitions. CNBF Capital Trust I and NBT
Statutory Trust I are Delaware statutory business trusts formed in 1999 and 2005, respectively, for the purpose of issuing trust preferred securities and lending the proceeds to the Company. In connection with the acquisition of CNB Bancorp,
Inc., the Company formed NBT Statutory Trust II in February 2006 to fund the cash portion of the acquisition as well as to provide regulatory capital. In connection with the acquisition of Alliance Financial Corporation (“Alliance”), the
Company acquired two statutory trusts, Alliance Financial Capital Trust I and Alliance Financial Capital Trust II, which were formed in 2003 and 2006, respectively. The Company guarantees, on a limited basis, payments of distributions on the
trust preferred securities and payments on redemption of the trust preferred securities. The Trusts are VIEs for which the Company is not the primary beneficiary, as defined by FASB ASC. In accordance with ASC, the accounts of the Trusts are
not included in the Company’s consolidated financial statements.
Operating Subsidiaries of the Bank
The Bank has four operating subsidiaries, NBT Capital Corp., Broad Street Property Associates, Inc., NBT Capital Management, Inc. and SBT Mortgage Service Corporation. NBT Capital Corp., formed in
1998, is a venture capital corporation. Broad Street Property Associates, Inc., formed in 2004, is a property management company. NBT Capital Management, Inc., formerly Columbia Ridge Capital Management, Inc., was acquired in 2016 and is a
registered investment advisor that provides investment management and financial consulting services. SBT Mortgage Service Corporation, acquired in 2023 in connection with the Salisbury acquisition, is a passive investment company (“PIC”). The
PIC holds loans collateralized by real estate originated or purchased by the Bank. Income of the PIC is exempt from the Connecticut Corporate Business Tax.
Segment Reporting
The Company has identified two reportable segments: Banking and Retirement Plan Administration. See Note 1 and Note 22 to the consolidated financial statements included in Item 8. Financial
Statements and Supplementary Data, which are included elsewhere in this report.
Evans Bancorp, Inc. Merger
On September 9, 2024, the Company and the Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Evans and Evans Bank, Evans’s subsidiary bank, and pursuant to which the
Company will acquire Evans. Evans, with assets of approximately $2.19 billion at December 31 2024, is headquartered in Williamsville, New York. Its primary subsidiary, Evans Bank, is a federally-chartered national banking association operating
18 banking locations in Western New York.
Subject to the terms and conditions of the Merger Agreement, which has been approved by the boards of directors of each party, Evans will merge with and into the Company, with the Company as the
surviving entity, and immediately thereafter, Evans Bank will merge with and into the Bank, with the Bank as the surviving bank (the “Merger”).
Under the terms of the Merger Agreement, each outstanding share of Evans common stock will be converted into the right to receive 0.91 shares of
the Company’s common stock. In December 2024, NBT announced that it had received the regulatory approval from the OCC and the waiver from the Federal Reserve Bank of New York necessary to complete its acquisition of Evans. Also in December
2024, the shareholders of Evans voted to approve the Merger. Evans reported over 75% of the issued and outstanding shares of Evans were represented at a special shareholder meeting and over 96% of the votes cast were voted to approve the
Merger. NBT and Evans anticipate closing the transaction in second quarter of 2025 in conjunction with the core system conversion, pending customary closing conditions.
The Company incurred acquisition expenses related to the Merger of $1.5 million for the year ended December 31, 2024.
Salisbury Bancorp, Inc. Merger
On August 11, 2023, the Company completed its acquisition of Salisbury through the merger of Salisbury with and into the Company, with the Company
as the surviving entity, and the merger of Salisbury Bank with and into the Bank, with the Bank as the surviving bank, for $161.7 million in stock. Salisbury Bank was a Connecticut-chartered commercial bank headquartered in Lakeville,
Connecticut, operating 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York, and southwestern Massachusetts. In connection with the acquisition, the Company issued 4.32 million shares of common stock and acquired
approximately $1.46 billion of identifiable assets, including $1.18 billion of loans, $122.7 million in investment securities which were sold immediately after the merger, $31.2 million of core deposit intangibles and $4.7 million in a wealth
management customer intangible, as well as $1.31 billion in deposits. As of the acquisition date, the fair value discount was $78.7 million for loans, net of the reclassification of the PCD allowance, and was $3.0 million for subordinated debt.
The Company established a $14.5 million allowance for acquired Salisbury loans which included both the $5.8 million allowance for PCD loans reclassified from loans and the $8.8 million allowance for non-PCD loans recognized through the
provision for loan losses.
The Company incurred acquisition expenses related to the Salisbury merger of $10.0 million for the year ended December 31, 2023 and $1.0 million
for year ended December 31, 2022.
Competition
The financial services industry, including commercial banking, is highly competitive, and we encounter strong competition for deposits, loans and other financial products and services in our
market area. The increasingly competitive environment is the result of the rate environment, changes in regulation, changes in technology and product delivery systems, additional financial service providers and the accelerating pace of
consolidation among financial services providers. The Company competes for loans, deposits and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies,
finance companies, money market funds, credit unions and other nonbank financial service providers.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and
insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.
In addition, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.
Some of the Company’s nonbanking competitors have fewer regulatory constraints and may have lower cost structures. In addition, some of the Company’s competitors have assets, capital and lending
limits greater than those of the Company, have greater access to capital markets and offer a broader range of products and services than the Company. These institutions may have the ability to finance wide-ranging advertising campaigns and may
be able to offer lower rates on loans and higher rates on deposits than the Company can offer. Some of these institutions offer services, such as credit cards and international banking, which the Company does not directly offer.
Various in-state market competitors and out-of-state banks continue to enter or have announced plans to enter or expand their presence in the market areas where the Company currently operates.
With the addition of new financial services providers within our market, the Company expects increased competition for loans, deposits and other financial products and services.
In order to compete with other financial services providers, the Company stresses the community nature of its banking operations and principally relies upon local promotional activities, personal
relationships established by officers, directors and employees with the Company’s customers and specialized services tailored to meet the needs of the communities served. We also offer certain customer services, such as agricultural lending,
that many of our larger competitors do not offer. While the Company’s position varies by market, the Company’s management believes that it can compete effectively as a result of local market knowledge, local decision making and awareness of
customer needs. The Company has banking locations in forty-two counties in the states of New York, Pennsylvania, New Hampshire, Massachusetts, Vermont, Maine and Connecticut.
Data Privacy and Security Practices
The Company’s enterprise security strategy revolves around people, processes and technology. The Company implements a defense-in-depth strategy,
integrating physical and logical controls within a layered security model to ensure comprehensive end-to-end protection of Company and client information. The high-level objective of the information security program is to protect the
confidentiality, integrity and availability of all information assets in our environment. We accomplish this by building our program around six foundational control areas: program oversight and governance, safeguards and controls, security
awareness training, service provider oversight, incident response and business continuity. The Company’s data security and privacy practices follow all applicable laws and regulations including the Gramm-Leach Bliley Act of 2001 (“GLBA”) and
applicable privacy laws described under the heading “Supervision and Regulation” in this Item 1. Business section.
The controls identified in our enterprise security program are managed by various stakeholders throughout the Company and monitored by the information security team. All employees are required to
complete information security and privacy training when they join the Company and then complete annual online training certification and ad hoc face to face trainings. The Company engages outside consultants to perform periodic audits of our
information and data security controls and processes including penetration testing of the Company’s public facing websites and corporate networks. The Board requires the Company’s Information Security Officer to report to them the status of the
overall information security and data privacy program on a recurring basis. More information can be located on the Company’s website www.nbtbank.com/Personal/Customer-Support/Fraud-Information-Center.
For more information regarding the Company’s cybersecurity policies and practices, see Item 1C. Cybersecurity below.
Human Capital Resources
At December 31, 2024, the Company had 2,083 full-time equivalent employees. The Company’s employees are not presently represented by any collective bargaining group.
Our employees are key to our success as an organization. We are committed to attracting, retaining and promoting top quality talent regardless of
sex, sexual orientation, gender identity, race, color, national origin, age, religion and physical ability. We strive to identify and select the best candidates for all open positions based on qualifying factors for each job. We are dedicated
to providing a workplace for our employees that is supportive and free of any form of discrimination or harassment; recognizing and rewarding our employees based on their individual results and performance as well as that of their department
and the Company overall; and recognizing and respecting all of the characteristics and differences that make each of our employees unique.
We believe employing a workforce with a variety of backgrounds and experiences enhances our ability to serve our customers and our communities. By
promoting and fostering a workforce that we believe is reflective of our customers and communities, we seek to better understand the financial needs of our prospects and customers and provide them with relevant financial service products.
Understanding and supporting our community has always been a priority to us. Embracing diverse perspectives, experiences and backgrounds empowers employees to contribute and feel valued.
Investment in Our People
The Company’s focus on investing in our people includes key initiatives to attract, develop and retain our valued employees. Talent acquisition,
retention, and the overall employee experience continue to be top priorities considering the challenging labor market.
The Company offers total rewards that address employees at various stages of their personal lives and careers. Productivity is enhanced when an
organization supports employees in their efforts to manage their overall wellbeing, and in 2024 the Company launched an Employee Wellbeing strategy focusing on emotional, physical, financial, social and work-life goals. The strategy is
supported by paid parental leave, more flexibility in work schedules, paid leave benefits, a retirement transition option, a comprehensive Employee Assistance Program with expanded coverage in 2025 and including various health guides. The
Company’s incentive programs recognize employees at all levels and are designed to motivate employees to support the achievement of company success, with appropriate risk assessment and prevention measures designed to prevent fraud.
Engaging Employees
While our employee retention rate remains consistently high, we continue to place significant effort on retaining our valued employees through
career planning conversations, an on-going coaching process, goal setting, individual development plans and enhanced communications, which all play a part in employee satisfaction. The themes of our 2024 Employee Engagement Survey centered
around culture, leadership, employee growth and development, and communication. In the first quarter of 2025, we will conduct our next Employee Engagement Survey to learn about our progress. The results from the survey will continue to be used
to define specific initiatives to enhance engagement around the organization and add clarity to our business strategies, decision making and corporate-led development programs.
Learning and Career Development
The Company’s main priority is to attract and retain top talent by encouraging and promoting internal development. All employees have access to
the LinkedIn Learning Library, which is intended to make learning and development accessible in a concise, easily consumable format that enables employees to acquire the skills they need to achieve individual career aspirations. Currently,
85% of our employees are active in the learning library and are taking full advantage of this resource.
Our Personal Advancement Through Honing Self-Awareness program is designed to support employees who are new to the banking industry and need assistance in defining career goals. Employees
voluntarily enroll in the program and find support in navigating their own career development through assessments, training and facilitated discussions with our Talent Development Business Partners. For employees who identify undergraduate or
graduate degrees as a part of their development goals, the Company provides a tuition reimbursement program.
In addition to employee guided development, there are distinct programs strategically designed to attract top talent early in their careers and to further foster the growth and retention of our
high potential and emerging leaders. These programs have been designed to meet the objectives outlined in our succession plan. Our Management Development Program aims to attract diverse talent, primarily college seniors by offering accelerated
career advancement and mentoring with senior executives. The Company also offers two programs designed for high potential employees, one for employees with prior professional experience and another one targeted to our more experienced employees
with direct leadership responsibility. Both programs include a mentor, a coach, 360-degree feedback, individual development plans, presentation skill development and increased visibility to executive leadership. All development programs are
designed to be delivered in both virtual and in person learning environments. The Company also has a robust annual talent review and succession planning process that includes the Board and senior management.
Conduct and Ethics
The Board, senior management and the ethics committee have vigorously endorsed a no-tolerance stance for workplace harassment, biases and unethical behavior. The Company’s values-based Code of
Business Conduct and Ethics is extensively communicated on our website and targeted internal communications platforms. Frequent training specific to managers and employees, regular publication of our whistleblower policy and reporting
mechanisms provide framework to the Company’s motto of: “The right people. Doing the right things. In the right way.”
Community Engagement
The Company is engaged in the communities where we do business and where our employees and directors live and work. We live out our core value of community involvement through investments of both
money and the time of our employees.
Through our active contribution program, administered by market-based committees with representation from all lines of business, the Company contributed over $2.3 million in 2024. Our teams’
efforts to distribute philanthropic resources across our footprint ensure alignment with local needs and support for hundreds of organizations that provide health and human services and promote education, affordable housing, economic
development, the arts and agriculture.
A consistent way the Company and our employees support our communities across our markets is through giving to United Way chapters in the form of corporate pledges and employee campaign
contributions. In 2024, these commitments resulted in nearly $365,000 in funding for United Way chapters that provide resources to local organizations offering critical education, financial, food security and health services.
In addition to corporate financial support of community organizations and causes, employees are encouraged and empowered to volunteer and be a
resource in their communities. They invest their financial and other expertise as board members and serve in roles where they offer direct support to those in need by engaging in all kinds of volunteer activities. In 2024, the Company’s
employees reported over 10,500 hours of volunteer service.
The NBT CEI-Boulos Impact Fund is a $10 million real estate equity investment fund with the Bank as the sole investor. The fund, launched in 2022,
is designed to support individuals and communities with low- and moderate-income through investments in high-impact, community supported, CRE projects located within the Bank’s Community Reinvestment Act assessment areas in New York. A Social
Impact Advisory Board was also appointed to review proposed investments based on each project’s social and environmental impact, alignment with community needs and community support. Areas of the fund’s targeted impact include: projects that
support job creation; affordable and workforce housing; Main Street revitalization/historic preservation developments that do not contribute to displacement; developments that serve nonprofit organizations; and environmentally sustainable real
estate developments.
In 2023, the NBT CEI-Boulos Impact Fund announced its first equity investment in The Flanigan Square Transformation Project that will provide
affordable workforce housing and a grocery store in a historically underinvested North Central neighborhood in Troy as part of an approximately $75 million socially impactful, environmentally conscious, transit-oriented and community informed
master plan. The NBT CEI-Boulos Impact Fund made a $3.84 million equity investment for a majority ownership stake in two of the three components of the project. Progress is continuing with this project with the Bargain Grocery opening in 2024
and Flanigan Square Lofts expected to open in early 2025.
Products
The Company offers a comprehensive array of financial products and services for consumers and businesses with options that are beneficial to
unbanked and underbanked individuals. Deposit accounts include low balance savings and checking options that feature minimal or no monthly service fees, provide assistance rebuilding positive deposit relationships, and assistance for those just
starting a new banking relationship. The NBT iSelect Account was introduced in 2021 and has received certification for meeting the Bank On National Account Standards every year since its inception. Over 18,000 NBT iSelect Accounts have been
opened since 2021. These accounts feature no monthly charges for maintenance, inactivity or dormancy, no overdraft fees and no minimum balance requirement. An enhanced digital banking platform incorporates ready access through online and mobile
services to current credit score information and a personal financial management tool for budget and expense tracking.
The Company is focused on making home ownership accessible to everyone in the communities we serve. Our suite of home lending products features innovative and flexible options, including
government guaranteed programs like Federal Housing Administration (“FHA”), USDA Rural Housing Program and U.S. Department of Veterans Affairs (“VA”) loans. In addition, we have many offerings developed in house, including our Habitat for
Humanity, Home in the City, Portfolio Housing Agency and Portfolio 97 programs. Our home lending team includes affordable housing loan originators, and we maintain longstanding relationships with affordable housing agency partners across our
banking footprint that offer first-time homebuyer education programs and assistance with down payments and closing costs.
Environmental
The Company is focused on the environment and committed to business practices and activities that encourage sustainability and minimize our environmental impact. In larger facilities, the Company
conserves energy through the use of building energy management systems and motion sensor lighting controls. In new construction and renovations, the Company incorporates high-efficiency mechanical equipment, LED lighting, and modern building
techniques to reduce our carbon footprint wherever possible. The Company has an ongoing initiative to replace existing lighting with LED lighting to reduce energy consumption.
Services like mobile and online banking, remote deposit capture, electronic loan payments, eStatements and combined statements enable us to support all customers in their efforts to consume less
fuel and paper. We continue to digitize loan origination and deposit account opening processes, reducing trips to the bank and paper documents for our customers. Across our footprint, we host community shred days with multiple confidential
document destruction companies to promote safe document disposal and recycling.
Supervision and Regulation
The Company, the Bank and certain of its non-banking subsidiaries are subject to extensive regulation under federal and state laws. The regulatory framework applicable to bank holding companies
and their subsidiary banks is intended to protect depositors, federal deposit insurance funds and the stability of the U.S. banking system. This system is not designed to protect equity investors in bank holding companies, such as the Company.
Set forth below is a summary of the significant laws and regulations applicable to the Company and its subsidiaries. The description that follows is qualified in its entirety by reference to the
full text of the statutes, regulations and policies that are described. Such statutes, regulations and policies are subject to ongoing review by Congress and state legislatures and federal and state regulatory agencies. A change in any of the
statutes, regulations or regulatory policies applicable to the Company and its subsidiaries could have a material effect on the results of the Company.
Overview
The Company is a registered bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHC
Act”), and is subject to the supervision of, and regular examination by, the FRB as its primary federal regulator. The Company is also subject to the jurisdiction of the SEC, and is subject to the disclosure and other regulatory requirements of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as administered by the SEC. The Company’s common stock is listed on the NASDAQ Global Select market under the ticker symbol,
“NBTB,” and the Company is subject to the NASDAQ rules.
The Bank is chartered as a national banking association under the National Bank Act. The Bank is subject to the supervision of, and to regular
examination by, the OCC as its chartering authority and primary federal regulator. The Bank is also subject to the supervision and regulation, to a limited extent, of the FDIC as its deposit insurer. Financial products and services offered by
the Company and the Bank are subject to federal consumer protection laws and implementing regulations promulgated by the Consumer Financial Protection Bureau (“CFPB”). The Company and the Bank are also subject to oversight by state attorneys
general for compliance with state consumer protection laws. The Bank’s deposits are insured by the FDIC up to the applicable deposit insurance limits in accordance with FDIC laws and regulations. The non-bank subsidiaries of the Company and the
Bank are subject to federal and state laws and regulations, including regulations of the FRB and the OCC, respectively.
Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), U.S. banks and financial
services firms have been subject to enhanced regulation and oversight. It is not clear at this time what the effects on the Company and the Bank will be of any legislation or regulatory changes that may be enacted or implemented by the Trump
administration.
Federal Bank Holding Company Regulation
The Company is a bank holding company as defined by the BHC Act. The BHC Act generally limits the business of the Company to banking, managing or
controlling banks and other activities that the FRB has determined to be so closely related to banking “as to be a proper incident thereto.” The Company has also qualified for and elected to be a financial holding company. Financial holding
companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (1) financial in nature or incidental to such financial activity (as determined by the FRB in consultation with the
Secretary of the Treasury), or (2) complementary to a financial activity and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system (as solely determined by the FRB). If a bank
holding company seeks to engage in the broader range of activities permitted under the BHC Act for financial holding companies, (1) the bank holding company and all of its depository institution subsidiaries must be “well-capitalized” and
“well-managed,” as defined in the FRB’s Regulation Y and (2) it must file a declaration with the FRB that it elects to be a “financial holding company.” In order for a financial holding company to commence any activity that is financial in
nature, incidental thereto, or complementary to a financial activity, or to acquire a company engaged in any such activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have
received a rating of at least “satisfactory” in its most recent examination under the Community Reinvestment Act of 1977 (the “CRA”). See the section titled “Community Reinvestment Act of 1977” for further information relating to the CRA. The
FRB has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the FRB has reasonable grounds to believe that continuation of such activity or
such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.
Regulation of Mergers and Acquisitions
The BHC Act, the Bank Merger Act and other federal and state statutes regulate acquisitions of depository institutions and their holding companies. The BHC Act requires prior FRB approval for a
bank holding company to acquire, directly or indirectly, 5% or more of any class of voting securities of a commercial bank or its parent holding company and for a company, other than a bank holding company, to acquire 25% or more of any class
of voting securities of a bank or bank holding company (and sometimes a lower percentage if there are other indications of control). Under the Change in Bank Control Act, any person, including a company, may not acquire, directly or indirectly,
control of a bank without providing 60 days’ prior notice and receiving a non-objection from the appropriate federal banking agency.
Under the Bank Merger Act, prior approval of the OCC is required for a national bank to merge with another bank where the national bank is the surviving bank or to purchase the assets or assume
the deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions, the federal banking agencies will consider, among other criteria, the competitive effect and public benefits of the transactions,
the capital position of the combined banking organization, the applicant’s performance record under the CRA and the effectiveness of the subject organizations in combating money laundering activities.
As a financial holding company, the Company is permitted to acquire control of non-depository institutions engaged in activities that are financial in nature and in activities that are incidental
to financial activities without prior FRB approval. However, the BHC Act, as amended by the Dodd-Frank Act, requires prior written approval from the FRB or prior written notice to the FRB before a financial holding company may acquire control
of a company with consolidated assets of $10 billion or more.
Capital Distributions
The principal source of the Company’s liquidity is dividends from the Bank. The OCC oversees the ability of the Bank to make capital distributions, including dividends. The OCC generally prohibits
a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the bank would thereafter be undercapitalized. The OCC’s prior approval is required
if the total of all dividends declared by a national bank in any calendar year would exceed the sum of the bank’s net income for that year and its undistributed net income for the preceding two calendar years, less any required transfers to
surplus. The National Bank Act also prohibits national banks from paying dividends that would be greater than the bank’s undivided profits after deducting statutory bad debt in excess of the bank’s allowance for loan losses.
The federal banking agencies have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking
organizations should generally pay dividends only out of current operating earnings. The appropriate federal regulatory authority is authorized to determine, based on the financial condition of a bank holding company or a bank, that the payment
of dividends would be an unsafe or unsound practice and to prohibit such payment.
Affiliate and Insider Transactions
Transactions between the Bank and its affiliates, including the Company, are governed by Sections 23A and 23B of the Federal Reserve Act (the “FRA”) and the FRB’s implementation of Regulation W.
An “affiliate” of a bank includes any company or entity that controls, is controlled by or is under common control with such bank. In a bank holding company context, at a minimum, the parent holding company of a bank and companies that are
controlled by such parent holding company, are affiliates of the bank. Generally, Sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses in transactions with affiliates. These sections place
quantitative and qualitative limitations on covered transactions between the Bank and its affiliates and require that all transactions between a bank and its affiliates occur on market terms that are consistent with safe and sound banking
practices.
Section 22(h) of the FRA and its implementation of Regulation O restricts loans to the Bank’s and its affiliates’ directors, executive officers and principal stockholders (“Insiders”). Under
Section 22(h), loans to Insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the Bank’s loan-to-one borrower limit. Loans to Insiders above specified amounts
must receive the prior approval of the Bank’s Board of Directors. Further, under Section 22(h) of the FRA, loans to directors, executive officers and principal stockholders must be made on terms substantially the same as offered in comparable
transactions to other persons, except that such Insiders may receive preferential loans made under a benefit or compensation program that is widely available to the Bank’s employees and does not give preference to the Insider over the
employees. Section 22(g) of the FRA places additional limitations on loans to the Bank’s and its affiliates’ executive officers.
Federal Deposit Insurance and Brokered Deposits
The FDIC’s deposit insurance limit is $250,000 per depositor, per insured bank, for each account ownership category, in accordance with applicable FDIC regulations. The Bank’s deposit accounts are
fully insured by the FDIC Deposit Insurance Fund (the “DIF”) up to the deposit insurance limits in accordance with applicable laws and regulations.
The FDIC uses a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory rating (“CAMELS rating”). The
risk matrix uses different risk categories distinguished by capital levels and supervisory ratings. As a result of the Dodd-Frank Act, the base for deposit insurance assessments is the consolidated average assets less average tangible equity.
Assessment rates are calculated using formulas that take into account the risk of the institution being assessed.
In November 2023, the FDIC announced a special assessment on all insured depository institutions with more than $5 billion in total assets,
including the Bank, in order to recover the loss to the DIF associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. The special assessment is being collected over an eight-quarter
collection period, and potentially longer, beginning with the first quarterly assessment period of 2024. The assessment base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits reported as of
December 31, 2022, adjusted to exclude the first $5 billion. The Company’s uninsured deposits as of December 31, 2022 were under $5 billion and therefore the Company was not subject to this special assessment.
Under FDIC laws and regulations, no FDIC-insured depository institution can accept brokered deposits unless it is well-capitalized or unless it is adequately capitalized and receives a waiver from
the FDIC. Applicable laws and regulations also limit the interest rate that any depository institution that is not well-capitalized may pay on brokered deposits.
Under the Federal Deposit Insurance Act (“FDIA”), the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The Bank’s management is not aware of any practice, condition or violation that might lead to the termination
of its deposit insurance.
Federal Home Loan Bank System
The Bank is also a member of the FHLB of New York, which provides a central credit facility primarily for member institutions for home mortgage and neighborhood lending. The Bank is subject to the
rules and requirements of the FHLB, including the requirement to acquire and hold shares of capital stock in the FHLB in an amount at least equal to the sum of 0.125% of mortgage related assets at the beginning of each year. The Bank was in
compliance with FHLB rules and requirements as of December 31, 2024.
Debit Card Interchange Fees
The Dodd-Frank Act requires that any interchange transaction fee charged for a debit transaction be reasonable and proportional to the cost
incurred by the issuer for the transaction. FRB regulations mandated by the Dodd-Frank Act limit interchange fees on debit cards to a maximum of 21 cents per transaction plus 5 bps of the transaction amount. The rule also permits a
fraud-prevention adjustment of 1 cent per transaction conditioned upon an issuer developing, implementing and updating reasonably designed fraud-prevention policies and procedures. Issuers that, together with their affiliates, have less than
$10 billion of assets, are exempt from the debit card interchange fee standards. In addition, FRB regulations prohibit all issuers, including the Company and the Bank, from restricting the number of networks over which electronic debit
transactions may be processed to less than two unaffiliated networks.
In October 2023, the FRB issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum
of 14.4 cents per transaction and 4 bps multiplied by the value of the transaction. Furthermore, the fraud-prevention adjustment would increase from a maximum of 1 cent to 1.3 cents per debit card transaction. The proposal would adopt an
approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered by the FRB from large debit card issuers. The comment period for this proposal ended in May 2024 but no final rule
has been published to date. The extent to which any such proposed changes in permissible interchange fees will impact our future revenues is currently uncertain.
Source of Strength Doctrine
FRB policy requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Section 616 of the Dodd-Frank Act codifies the requirement that bank
holding companies serve as a source of financial strength to their subsidiary depository institutions. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be
considered by the FRB to be an unsafe and unsound banking practice or a violation of FRB regulations or both. As a result, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a
financial position to provide such resources. Any capital loan by the Company to the Bank is subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. The U.S. Bankruptcy Code provides that, in the
event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of
payment.
In addition, under the National Bank Act, if the Bank’s capital stock is impaired by losses or otherwise, the OCC is authorized to require payment of the deficiency by assessment upon the Company.
If the assessment is not paid within three months, the OCC could order a sale of Bank stock held by the Company to cover any deficiency.
Capital Adequacy
In July 2013, the FRB, the OCC and the FDIC approved final rules (the “Capital Rules”) that established a new capital framework for U.S. banking
organizations. The Capital Rules generally implement the Basel Committee on Banking Supervision’s (the “Basel Committee”) December 2010 final capital framework referred to as “Basel III” for strengthening international capital standards. The
Capital Rules revised the definitions and the components of regulatory capital, as well as addressed other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Capital Rules also addressed asset risk weights
and other matters affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing general risk-weighting approach with a more risk-sensitive approach.
The Capital Rules: (1) require a capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to
risk-weighted assets; (2) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (3) mandate that most deductions/adjustments to regulatory capital measures be made to CET1
and not to the other components of capital; and (4) expand the scope of the deductions from and adjustments to capital as compared to existing regulations. Under the Capital Rules, for most banking organizations, including the Company, the most
common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock and the most common forms of Tier 2 capital are subordinated notes and a portion of the allocation for loan losses, in each case, subject to the Capital Rules’
specific requirements.
Pursuant to the Capital Rules, the minimum capital ratios are:
| ● |
4.5% CET1 to risk-weighted assets;
|
| ● |
6.0% Tier 1 capital (CET1 plus Additional Tier 1 capital) to risk-weighted assets;
|
| ● |
8.0% Total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
|
| ● |
4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
|
The Capital Rules also require a “capital conservation buffer,” composed entirely of CET1, on top of these minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb
losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity and other capital instrument
repurchases and compensation based on the amount of the shortfall. The capital conservation buffer was phased in incrementally until when, on January 1, 2019, the capital conservation buffer was fully phased in, resulting in the capital
standards applicable to the Company and the Bank including an additional capital conservation buffer of 2.5% of CET1, and effectively resulting in minimum ratios inclusive of the capital conservation buffer of (1) CET1 to risk-weighted assets
of at least 7%, (2) Tier 1 capital to risk-weighted assets of at least 8.5% and (3) Total capital to risk-weighted assets of at least 10.5%. The risk-weighting categories in the Capital Rules are standardized and include a risk-sensitive number
of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures and resulting in higher risk weights for a variety of asset classes. The Capital
Rules provide for a number of deductions from and adjustments to CET1.
In addition, under the prior general risk-based capital rules, the effects of AOCI items included in stockholders’ equity (for example, marks-to-market of securities held in the AFS portfolio)
under GAAP were excluded for the purposes of determining regulatory capital ratios. Under the Capital Rules, the effects of certain AOCI items are not excluded; however, banking organizations not using the advanced approaches, including the
Company and the Bank, were permitted to make a one-time permanent election to continue to exclude these items in January 2015. The Capital Rules also preclude certain hybrid securities, such as trust preferred securities issued after May 19,
2010, from inclusion in bank holding companies’ Tier 1 capital.
Management believes that the Company is in compliance with the targeted capital ratios.
Prompt Corrective Action and Safety and Soundness
Pursuant to Section 38 of the FDIA, federal banking agencies are required to take “prompt corrective action” (“PCA”) should an insured depository institution fail to meet certain capital adequacy
standards. At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or
prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital
restoration plan to the appropriate federal banking agency and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized or
undercapitalized, may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound
practice, warrants such treatment.
For purposes of PCA, to be: (1) well-capitalized, an insured depository institution must have a total risk based capital ratio of at least 10%, a Tier 1 risk based capital ratio of at least 8%, a
CET1 risk based capital ratio of at least 6.5%, and a Tier 1 leverage ratio of at least 5%; (2) adequately capitalized, an insured depository institution must have a total risk based capital ratio of at least 8%, a Tier 1 risk based capital
ratio of at least 6%, a CET1 risk based capital ratio of at least 4.5%, and a Tier 1 leverage ratio of at least 4%; (3) undercapitalized, an insured depository institution would have a total risk based capital ratio of less than 8%, a Tier 1
risk based capital ratio of less than 6%, a CET1 risk based capital ratio of less than 4.5%, and a Tier 1 leverage ratio of less than 4%; (4) significantly undercapitalized, an insured depository institution would have a total risk based
capital ratio of less than 6%, a Tier 1 risk based capital ratio of less than 4%, a CET1 risk based capital ratio of less than 3%, and a Tier 1 leverage ratio of less than 3%; (5) critically undercapitalized, an insured depository institution
would have a ratio of tangible equity to total assets that is less than or equal to 2%. At December 31, 2024, the Bank qualified as “well-capitalized” under applicable regulatory capital standards.
Bank holding companies and insured depository institutions may also be subject to potential enforcement actions of varying levels of severity by the federal banking agencies for unsafe or unsound
practices in conducting their business or for violation of any law, rule, regulation, condition imposed in writing by the agency or term of a written agreement with the agency. In more serious cases, enforcement actions may include the issuance
of directives to increase capital; the issuance of formal and informal agreements; the imposition of civil monetary penalties; the issuance of a cease and desist order that can be judicially enforced; the issuance of removal and prohibition
orders against officers, directors and other institution-affiliated parties; the termination of the insured depository institution’s deposit insurance; the appointment of a conservator or receiver for the insured depository institution; and the
enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the FDIC, as receiver, would be harmed if such equitable relief was not granted.
Volcker Rule
Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule, restricts the ability of banking entities from: (1) engaging in “proprietary trading” and (2) investing in or sponsoring
certain covered funds, subject to certain limited exceptions. Under the Economic Growth, Regulatory Reform and Consumer Protection Act (“EGRRCPA”), depository institutions and their holding companies with less than $10 billion in assets, are
excluded from the prohibitions of the Volcker Rule. During 2020, the Company crossed the $10 billion threshold, accordingly, we are subject to the Volcker Rule again. Given the Company’s size and the scope of its activities, the implementation
of the Volcker Rule did not have a significant effect on its consolidated financial statements.
Depositor Preference
The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as
subrogee of insured depositors and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and
uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent bank holding company, with respect to any extensions of credit they have made to such insured depository
institution.
Consumer Protection and CFPB Supervision
The Dodd-Frank Act centralized responsibility for consumer financial protection by creating the CFPB, an independent agency charged with responsibility for implementing, enforcing and examining
compliance with federal consumer financial laws. The Company grew its asset base in excess of $10 billion in 2020. The Company is now subject to the CFPB’s examination authority with regard to compliance with federal consumer financial laws and
regulations, in addition to the OCC as the primary regulatory of the Bank. Under the Dodd-Frank Act, state attorneys general are also empowered to enforce rules issued by the CFPB.
The Company is subject to federal consumer financial statutes and the regulations promulgated thereunder including, but not limited to:
| ● |
the Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
|
| ● |
the Equal Credit Opportunity Act (“ECOA”), prohibiting discrimination in connection with the extension of credit;
|
| ● |
the Home Mortgage Disclosure Act (“HMDA”), requiring home mortgage lenders, including the Bank, to make available to the public expanded information regarding the pricing of home mortgage loans, including
the “rate spread” between the annual percentage rate and the average prime offer rate for mortgage loans of a comparable type;
|
| ● |
the Fair Credit Reporting Act (“FCRA”), governing the provision of consumer information to credit reporting agencies and the use of consumer information; and
|
| ● |
the Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection agencies.
|
The Bank’s failure to comply with any of the consumer financial laws can result in civil actions, regulatory enforcement action by the federal banking agencies and the U.S. Department of Justice.
USA PATRIOT Act
The Bank Secrecy Act (“BSA”), as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”),
imposes obligations on U.S. financial institutions, including banks and broker-dealer subsidiaries, to implement policies, procedures and controls which are reasonably designed to detect and report instances of money laundering and the
financing of terrorism. Financial institutions also are required to respond to requests for information from federal banking agencies and law enforcement agencies. Information sharing among financial institutions for the above purposes is
encouraged by an exemption granted to complying financial institutions from the privacy provisions of the GLBA and other privacy laws. Financial institutions that hold correspondent accounts for foreign banks or provide private banking services
to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns and are prohibited from dealing with foreign “shell
banks” and persons from jurisdictions of particular concern. The primary federal banking agencies and the Secretary of the Treasury have adopted regulations to implement several of these provisions. Since May 11, 2018, the Bank has been
required to comply with the Customer Due Diligence Rule, which clarified and strengthened the existing obligations for identifying new and existing customers and explicitly included risk-based procedures for conducting ongoing customer due
diligence. All financial institutions also are required to establish internal anti-money laundering programs. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application
submitted by the financial institution under the Bank Merger Act. The Company has a BSA and USA PATRIOT Act Board-approved compliance program commensurate with its risk profile.
Identity Theft Prevention
The FCRA’s Red Flags Rule requires financial institutions with covered accounts (e.g., consumer bank accounts and loans) to develop, implement and administer an identity theft prevention program.
This program must include reasonable policies and procedures to detect suspicious patterns or practices that indicate the possibility of identity theft, such as inconsistencies in personal information or changes in account activity.
Office of Foreign Assets Control Regulation
The United States government has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These are typically known as the “OFAC” rules based on
their administration by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting countries take many different forms. Generally, they contain one or more of the following elements: (1)
restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating
to making investments in or providing investment-related advice or assistance to a sanctioned country; and (2) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by
prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner
without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.
Financial Privacy and Data Security
The Company and the Bank are subject to federal laws, including the GLBA and certain state laws containing consumer privacy protection provisions. These provisions limit the ability of banks and
other financial institutions to disclose nonpublic information about consumers to affiliated and non-affiliated third parties and limit the reuse of certain consumer information received from nonaffiliated financial institutions. These
provisions require notice of privacy policies to clients and, in some circumstances, allow consumers to prevent disclosure of certain nonpublic personal information to affiliates or non-affiliated third parties by means of “opt out” or “opt in”
authorizations.
The GLBA requires that financial institutions implement comprehensive written information security programs that include administrative, technical and physical safeguards to protect consumer
information. Further, pursuant to interpretive guidance issued under the GLBA and certain state laws, financial institutions are required to notify clients of security breaches resulting in unauthorized access to their personal information. The
Bank follows all GLBA obligations.
The Bank is also subject to data security standards, privacy and data breach notice requirements, primarily those issued by the OCC. The federal banking agencies, through the Federal Financial
Institutions Examination Council, have adopted guidelines to encourage financial institutions to address cyber security risks and identify, assess and mitigate these risks, both internally and at critical third party services providers.
Community Reinvestment Act of 1977
The Bank has a responsibility under the CRA, as implemented by OCC regulations, to help meet the credit needs of the communities it serves, including low- and moderate-income neighborhoods. The
CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular
community, consistent with the CRA. Regulators periodically assess the Bank’s record of compliance with the CRA. The Bank’s failure to comply with the CRA could, at a minimum, result in regulatory restrictions on its activities and the
activities of the Company. The Bank’s most current CRA rating was “Satisfactory.”
Future Legislative and Regulatory Initiatives
Congress, state legislatures and financial regulatory agencies may introduce various legislative and regulatory initiatives that could affect the
financial services industry, generally. Such initiatives may include proposals to expand or contract the powers of bank holding companies and/or depository institutions or proposals to substantially change the financial institution regulatory
system. This includes changes in priorities and operations of regulatory agencies in connection with new leadership or otherwise. Such legislation or regulatory changes could change banking statutes and the regulatory and operating environment
of the Company in substantial and unpredictable ways. If enacted or implemented, such legislation or regulatory changes could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive
balance among banks, savings associations, credit unions and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it or any implementing regulations would have
on the financial condition or results of operations of the Company. A change in statutes, regulations or regulatory policies applicable to the Company or any of its subsidiaries could have a material effect on the business of the Company.
Available Information
The Company’s website is www.nbtbancorp.com. The Company makes available free of charge through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act. We also make available through our
website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act, as well as our Code of Business Conduct and Ethics and
other codes/committee charters. The references to our website do not constitute incorporation by reference of the information contained in the website and such information should not be considered part of this document.
This Annual Report on Form 10-K and other reports filed with the SEC are available on the SEC’s website, which contains reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The SEC’s website address is www.sec.gov.
There are risks inherent to the Company’s business. The material risks and uncertainties that management believes affect the Company are described below. Any of the following risks could affect
the Company’s financial condition and results of operations and could be material and/or adverse in nature. You should consider all of the following risks together with all of the other information in this Annual Report on Form 10-K.
Risks Related to our Business and Industry
The Company may be adversely affected by conditions in the financial markets and economic conditions generally.
Key macroeconomic conditions historically have affected the Company’s business, results of operations and financial condition and are likely to
affect them in the future. Consumer confidence, unemployment and other economic indicators are among the factors that often impact consumer spending and payment behavior and demand for credit. The Company relies primarily on interest and fees
on our loan receivables to generate net earnings. The economy in the United States and globally has experienced volatility in recent years and may continue to do so for the foreseeable future. There can be no assurance that economic
conditions will not worsen. Unfavorable or uncertain economic conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in the cost of credit
and capital, trade wars or tariffs, inflation, changes in interest rates, the timing and impact of geopolitical uncertainties, natural disasters, epidemics and pandemics, terrorist attacks, acts of war or a combination of these or other
factors. Federal budget deficit concerns and the potential for political conflict over legislation to fund U.S. government operations and raise the U.S. government’s debt limit may increase the possibility of a default by the U.S. government
on its debt obligations, related credit-rating downgrades, or an economic recession in the United States. A worsening of business and economic conditions could have adverse effects on our business, including the following:
| ● |
investors may have less confidence in the equity markets in general and in financial services industry stocks in particular, which could place downward pressure on the Company’s stock price and resulting
market valuation;
|
| ● |
consumer and business confidence levels could be lowered and cause declines in credit usage and adverse changes in payment patterns, causing increases in delinquencies and default rates;
|
| ● |
the Company’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches the Company uses to select, manage and underwrite its customers become less predictive of
future behaviors;
|
| ● |
the Company could suffer decreases in demand for loans or other financial products and services or decreased deposits or other investments in accounts with the Company;
|
| ● |
demand for and income received from the Company’s fee-based services could decline;
|
| ● |
customers of the Company’s trust and benefit plan administration business may liquidate investments, which together with lower asset values, may reduce the level of assets under management and
administration and thereby decrease the Company’s investment management and administration revenues;
|
| ● |
competition in the financial services industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions or otherwise; and
|
| ● |
the value of loans and other assets or collateral securing loans may decrease.
|
Deterioration in local economic conditions may negatively impact our financial performance.
The Company’s success depends primarily on the general economic conditions in upstate New York, northeastern Pennsylvania, southern New
Hampshire, western Massachusetts, Vermont, southern Maine, central and northwestern Connecticut and the specific local markets in which the Company operates. Unlike larger national or other regional banks that are more geographically
diversified, the Company provides banking and financial services to customers primarily in the upstate New York areas of Norwich, Syracuse, Oneonta, Amsterdam-Gloversville, Albany, Binghamton, Utica-Rome, Plattsburgh, Glens Falls, Hudson
Valley and Ogdensburg-Massena, the northeastern Pennsylvania areas of Scranton and Wilkes-Barre, Berkshire County, Massachusetts, southern New Hampshire, Vermont, southern Maine and central and northwestern Connecticut. The local economic
conditions in these areas have a significant impact on the demand for the Company’s products and services as well as the ability of the Company’s customers to repay loans, the value of the collateral securing loans and the stability of the
Company’s deposit funding sources.
A downturn in our local economies could cause significant increases in nonperforming loans, which could negatively impact our earnings. Declines in real estate values in our market areas could
cause any of our loans to become inadequately collateralized, which would expose us to greater risk of loss. Additionally, a decline in real estate values could result in the decline of originations of such loans, as most of our loans and the
collateral securing our loans are located in those areas.
Severe weather, flooding and other effects of climate change and other natural disasters could adversely affect our financial condition, results of
operations or liquidity.
Our branch locations and our customers’ properties may be adversely impacted by flooding, wildfires, high winds and other effects of severe weather conditions that may be caused or exacerbated by
climate change. These events can force property closures, result in property damage and/or result in delays in expansion, development or renovation of our properties and those of our customers. Even if these events do not directly impact our
properties or our customers’ properties, they may impact us and our customers through increased insurance, energy or other costs. In addition, changes in laws or regulations, including federal, state or city laws, relating to climate change
could result in increased capital expenditures to improve the energy efficiency of our branch locations and/or our customers’ properties.
Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in
policies as the economy transitions to a less carbon-intensive environment, the Company may face regulatory risk of increasing focus on the Company’s resilience to climate-related risks, including in the context of stress testing for various
climate stress scenarios. Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.
Variations in interest rates could adversely affect our results of operations and financial condition.
The Company’s earnings and financial condition, like that of most financial institutions, are largely dependent upon net interest income, which is
the difference between interest and dividend income earned from loans and securities and interest expense paid on deposits and borrowings. The narrowing of interest rate spreads could adversely affect the Company’s earnings and financial
condition. Interest rates remain elevated compared to recent years and may increase. The Company cannot predict with certainty, or control, changes in interest rates. Regional and local economic conditions and the policies of regulatory
authorities, including monetary policies of the FRB, affect rates and, therefore, interest income and interest expense. High interest rates could also affect the amount of loans that the Company can originate because higher rates could cause
customers to apply for fewer mortgages or cause depositors to shift funds from accounts that have a comparatively lower cost to accounts with a higher cost. The Company may also experience customer attrition due to competitor pricing on both
deposits and loans. If the cost of interest-bearing deposits increases at a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected. Changes in the asset and liability mix may also
affect net interest income. Similarly, lower interest rates cause higher yielding assets to prepay and floating or adjustable rate assets to reset to lower rates. If the Company is not able to reduce its funding costs sufficiently, due to
either competitive factors or the maturity schedule of existing liabilities, then the Company’s NIM will decline.
Any substantial or unexpected change in, or prolonged change in market interest rates could have a material adverse effect on the Company’s
financial condition and results of operations. See the section captioned “Net Interest Income” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosure
About Market Risk located elsewhere in this report for further discussion related to the Company’s management of interest rate risk.
Our lending, and particularly our emphasis on commercial lending, exposes us to the risk of losses upon
borrower default.
As of December 31, 2024, approximately 53% of the Company’s loan portfolio consisted of commercial and industrial, agricultural, commercial
construction and CRE loans. These types of loans generally expose a lender to greater risk of non-payment and loss than residential real estate loans because repayment of the loans often depends on the successful operation of the property, the
income stream of the borrowers and, for construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single
borrowers or groups of related borrowers compared to residential real estate loans. Because the Company’s loan portfolio contains a significant number of commercial and industrial, agricultural, construction and CRE loans with relatively large
balances, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for
loan losses and/or an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations. See the section captioned “Loans” in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to our commercial and industrial, agricultural, construction and CRE loans.
Our allowance for credit losses may not be sufficient to cover actual loan losses, which could have a material adverse effect on our business, financial
condition and results of operations.
The Company maintains an allowance for credit losses, which is an allowance established through a provision for loan losses charged to expense, that represents management’s best estimate of
expected credit losses within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The determination of the appropriate level
of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks, forecast economic conditions and future trends, all of which may undergo
material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an
increase in the allowance for credit losses. Bank regulatory agencies periodically review the Company’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs,
based on judgments different from those of management. In addition, if charge-offs in future periods exceed the allowance for credit losses, the Company may need additional provisions to increase the allowance for credit losses. These potential
increases in the allowance for credit losses would result in a decrease in net income and, possibly, capital and may have a material adverse effect on the Company’s financial condition and results of operations. See the section captioned “Risk
Management – Credit Risk” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to the Company’s process for determining the appropriate
level of the allowance for loan losses. Management expects that the CECL model may create more volatility in the level of our allowance for credit losses from quarter to quarter as changes in the level of allowance for credit losses will be
dependent upon, among other things, macroeconomic forecasts and conditions, loan portfolio volumes and credit quality.
Strong competition within our industry and market area could adversely affect our performance and slow our growth.
The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors
primarily include national, regional and community banks within the various markets in which the Company operates. Additionally, various banks continue to enter or have announced plans to enter the market areas in which the Company currently
operates. The Company also faces competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies and other financial
intermediaries. The financial services industry could continue to become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Technology has lowered barriers to entry and made it
possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of the Company’s competitors have fewer regulatory constraints and may have lower cost
structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the
Company can.
The Company’s ability to compete successfully depends on a number of factors, including, among other things:
| ● |
the ability to develop, maintain and build upon long-term customer relationships based on top-quality service, high ethical standards and safe, sound assets;
|
| ● |
the ability to expand the Company’s market position;
|
| ● |
the scope, relevance and pricing of products and services offered to meet customer needs and demands;
|
| ● |
the rate at which the Company introduces new products, services and technologies relative to its competitors;
|
| ● |
customer satisfaction with the Company’s level of service;
|
| ● |
industry and general economic trends; and
|
| ● |
the ability to attract and retain talented employees.
|
Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability, which, in turn, could
have a material adverse effect on the Company’s financial condition and results of operations.
The Company is subject to liquidity risk, which could adversely affect net interest income and earnings.
The purpose of the Company’s liquidity management is to meet the cash flow obligations of its customers for both deposits and loans. Regulators
are increasingly focused on liquidity risk after the bank failures of 2023. The primary liquidity measurement the Company utilizes is called basic surplus, which captures the adequacy of the Company’s access to reliable sources of cash
relative to the stability of its funding mix of average liabilities. This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources,
which can be accessed when necessary. However, competitive pressure on deposit pricing could result in a decrease in the Company’s deposit base or an increase in funding costs. In addition, liquidity will come under additional pressure if
loan growth exceeds deposit growth. These scenarios could lead to a decrease in the Company’s basic surplus measure to an amount below the minimum policy level of 5%. To manage this risk, the Company has the ability to purchase brokered time
deposits, borrow against established borrowing facilities with other banks (federal funds) and enter into repurchase agreements with investment companies. Depending on the level of interest rates applicable to these alternatives, the
Company’s net interest income, and therefore earnings, could be adversely affected. See the section captioned “Liquidity Risk” in Item 7.
Our ability to service our debt, pay dividends and otherwise pay our obligations as they come due is substantially dependent on capital distributions from
our subsidiaries.
The Company is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its subsidiaries. These dividends are the principal
source of funds to pay dividends on the Company’s common stock and interest and principal on the Company’s debt. Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to the Company. In addition,
the Company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to the Company, the
Company may not be able to service debt, pay obligations or pay dividends on the Company’s common stock. The inability to receive dividends from the Bank could have a material adverse effect on the Company’s business, financial condition and
results of operations.
A reduction in the Company’s credit rating could adversely affect our business and/or the holders of our securities.
The credit rating agency rating our indebtedness regularly evaluates the Company and the Bank. Credit ratings are based on a number of factors, including our financial strength and ability to
generate earnings, as well as factors not entirely within our control, including conditions affecting the financial services industry generally and the economy and changes in rating methodologies. There can be no assurance that the Company will
maintain our current credit ratings. A downgrade of the credit ratings of the Company or the Bank could adversely affect our access to liquidity and capital, significantly increase our cost of funds, and decrease the number of investors and
counterparties willing to lend to the Company or purchase our securities. This could affect our growth, profitability, and financial condition, including liquidity.
The Company relies on third parties to provide key components of its business infrastructure.
The Company relies on third parties to provide key components for its business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces and
services, internet connections and network access. While the Company selects these third party vendors carefully, it does not control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other
disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and security breaches at a vendor, failure of a vendor to provide services for any reason or poor performance of
services by a vendor, could adversely affect the Company’s ability to deliver products and services to its customers and otherwise conduct its business. Financial or operational difficulties of a third party vendor could also hurt the Company’s
operations if those difficulties interfere with the vendor’s ability to serve the Company. Replacing these third party vendors also could create significant delays and expense that adversely affect the Company’s business and performance.
There are substantial risks and uncertainties associated with the introduction or expansion of lines of business or new products and services within existing
lines of business.
From time to time, the Company may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated
with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, the Company may invest significant time and resources. Initial
timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove attainable. External factors, such as compliance with regulations,
competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a
significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material
adverse effect on the Company’s business, results of operations and financial condition.
Risks Related to Legal, Governmental and Regulatory Changes
We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business and may negatively impact our
financial results.
We are subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’
funds, the DIF and the safety and soundness of the banking system as a whole, not stockholders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things.
Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Furthermore, political and policy goals of elected officials may change over time, which could impact the rulemaking,
supervision, examination and enforcement priorities of federal banking agencies. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect
the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or limit the pricing the Company may charge on certain
banking services, among other things. Compliance personnel and resources may increase our costs of operations and adversely impact our earnings.
Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on
our business, financial condition and results of operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned
“Supervision and Regulation” in Item 1. Business of this report for further information.
We are subject to heightened regulatory requirements because we exceed $10 billion in total consolidated assets.
As of December 31, 2024, we had total assets of approximately $13.79 billion. The Dodd-Frank Act, including the Durbin Amendment, and its implementing regulations impose enhanced supervisory
requirements on bank holding companies with more than $10 billion in total consolidated assets. For bank holding companies with more than $10 billion in total consolidated assets, such requirements include, among other things:
| ● |
applicability of Volcker Rule requirements and restrictions;
|
| ● |
increased capital, leverage, liquidity and risk management standards;
|
| ● |
examinations by the CFPB for compliance with federal consumer financial protection laws and regulations; and
|
| ● |
limits on interchange fees from debit card transactions.
|
The EGRRCPA, which was enacted in 2018, amended the Dodd-Frank Act to raise the $10 billion stress testing threshold to $250 billion, among other things. The federal financial regulators issued
final rules in 2019 to increase the threshold for these stress testing requirements from $10 billion to $250 billion, consistent with the EGRRCPA.
Our regulators will consider our compliance with these regulatory requirements that apply to us (in addition to regulatory requirements that applied to us previously) when examining our operations
or considering any request for regulatory approval. We may, therefore, incur associated compliance costs and may be required to maintain compliance procedures.
Failure to comply with these requirements may negatively impact the results of our operations and financial condition. To ensure compliance, we will be required to invest significant resources,
which may necessitate hiring additional personnel and implementing additional internal controls. These additional compliance costs may have a material adverse effect on our business, results of operations and financial condition.
Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business.
Management regularly reviews and updates our internal controls, disclosure controls and procedures and corporate governance policies and procedures. Any system of controls, however well designed
and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with
regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
We may be held responsible for environmental liabilities with respect to properties to which we obtain title, resulting in significant financial loss.
A significant portion of our loan portfolio at December 31, 2024 was secured by real estate. In the course of our business, we may foreclose and take title to real estate and could be subject to
environmental liabilities with respect to these properties. We may be held liable to a government entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with
environmental contamination or may be required to clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation and remediation activities could be substantial. In addition, if we are the
owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely
affect our business, results of operations, financial condition and liquidity.
We may be adversely affected by the soundness of other financial institutions including the FHLB of New York.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are
interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties and we routinely execute transactions with counterparties in the financial services industry,
including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial
services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or
client. In addition, our credit risk may be exacerbated if the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that
any such losses would not materially and adversely affect our business, financial condition or results of operations.
The Company owns common stock of FHLB of New York in order to qualify for membership in the FHLB system, which enables it to borrow funds under the FHLB of New York’s advance program. The carrying
value and fair value of our FHLB of New York common stock was $10.6 million as of December 31, 2024. There are 11 branches of the FHLB, including New York, which are jointly liable for the consolidated obligations of the FHLB system. To the
extent that one FHLB branch cannot meet its obligations to pay its share of the system’s debt, other FHLB branches can be called upon to make the payment. Any adverse effects on the FHLB of New York could adversely affect the value of our
investment in its common stock and negatively impact our results of operations.
Provisions of our certificate of incorporation and bylaws, as well as Delaware law and certain banking laws, could delay or prevent a takeover of us by a
third party.
Provisions of the Company’s certificate of incorporation and bylaws, the corporate law of the State of Delaware and state and federal banking
laws, including regulatory approval requirements, could delay, defer or prevent a third party from acquiring the Company, despite the possible benefit to the Company’s stockholders, or otherwise adversely affect the market price of the
Company’s common stock. These provisions include supermajority voting requirements for certain business combinations and advance notice requirements for nominations for election to the Board and for proposing matters that stockholders may act
on at stockholder meetings. In addition, the Company is subject to Delaware law, which among other things prohibits the Company from engaging in a business combination with any interested stockholder for a period of three years from the date
the person became an interested stockholder unless certain conditions are met. These provisions may discourage potential takeover attempts, discourage bids for the Company’s common stock at a premium over market price or adversely affect the
market price of and the voting and other rights of the holders of the Company’s common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors other than
candidates nominated by the Board.
The Company has risk related to legal proceedings.
The Company is involved in judicial, regulatory, and arbitration proceedings concerning matters arising from our business activities and fiduciary responsibilities. The Company establishes
reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. We may still incur legal costs for a matter even if a reserve is not established. In addition, the actual cost of
resolving a legal claim may be substantially higher than any amounts reserved for that matter. The ultimate resolution of a pending or future legal proceeding, depending on the remedy sought and granted, could materially adversely affect our
results of operations and financial condition.
Risks Related to Information Technology, Cybersecurity and Data Privacy
The Company faces operational risks and cybersecurity risks associated with incidents which have the potential to disrupt our operations, cause material harm
to our financial condition, result in misappropriation of assets, compromise confidential information and/or damage our business relationships and cannot guarantee that the steps we and our service providers take in response to these risks will
be effective.
We depend upon data processing, communication systems, and information exchange on a variety of platforms and networks and over the internet to
conduct business operations. In addition, we rely on the services of a variety of vendors to meet our data processing and communication needs. Although we require third party providers to maintain certain levels of security, such providers
remain vulnerable to breaches, security incidents, system unavailability or other malicious attacks that could compromise sensitive information. Further, new technologies such as artificial intelligence (“AI”) may be more capable at evading
safeguard measures. The risk of experiencing security incidents and disruptions, particularly through cyber-attacks or cyber intrusions, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions by
organized crime, hackers, terrorists, nation-states, activists and other external parties has increased. These security incidents may result in disruption of our operations; material harm to our financial condition, cash flows and the market
price of our common stock; misappropriation of assets; compromise or corruption of confidential information; liability for information or assets stolen during the incident; remediation costs; increased cybersecurity and insurance costs;
regulatory enforcement; litigation; and damage to our stakeholder and customer relationships.
Moreover, in the normal course of business, we and our service providers collect and retain certain personal information provided by our customers, employees and vendors. If this information gets
mishandled, misused, improperly accessed, lost or stolen, we could suffer significant financial, business, reputational, regulatory or other harm. These risks may increase as we continue to increase and expand our usage of web-based products
and applications.
These risks require continuous and likely increasing attention and resources from us to, among other actions, identify and quantify potential cybersecurity risks, and upgrade and expand our
technologies, systems and processes to adequately address the risk. We provide on-going training for our employees to assist them in detecting phishing, malware and other malicious schemes. Such attention diverts time and resources from other
activities and, while we have implemented policies and procedures designed to maintain the security and integrity of the information we and our service providers collect on our and their computer systems, there can be no assurance that our
efforts will be effective. Likewise, while we have implemented security measures to prevent unauthorized access to personal information and prevent or limit the effect of possible incidents, we can provide no assurance that a security breach or
disruption will not be successful or damaging, or, if any such breach or disruption does occur, that it can be sufficiently or timely remediated.
Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are
not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or
other preventative measures, and thus it is impossible for us to entirely mitigate this risk.
The Company may be adversely affected by fraud.
As a financial institution, the Company is inherently exposed to operational risk in the form of theft and other fraudulent activity by employees, customers and other third parties targeting the
Company and/or the Company’s customers or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Although the Company devotes substantial resources to
maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, the Company may experience financial losses or reputational harm as a result of fraud.
We continually encounter technological change and the failure to understand and adapt to these changes could have a material adverse impact on our business.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven
products and services (including those related to or involving AI, machine learning, blockchain and other technologies). The effective use of technology increases efficiency and enables financial institutions to serve customers better and to
reduce costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional
efficiencies in the Company’s operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and
services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological changes affecting the financial services industry could have a material adverse impact on the Company’s
business and, in turn, the Company’s financial condition and results of operations.
The development and use of AI exposes us to risks that may adversely impact our business.
We or our third-party providers may develop or incorporate AI technology in certain business processes, services, or products. The development
and use of AI poses a number of risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, and we may be subject to increasing regulations related to our use of these
technologies, including regulations related to privacy, data security, and intellectual property rights, which could expose us to legal risks. AI models, particularly generative AI models, may produce incorrect, biased, or misleading results,
expose confidential information, or infringe on intellectual property rights. Further, we may rely on AI models developed by third parties, and, to that extent, would be subject to additional risks, including limited oversight of how these
models are developed and trained and potential exposure to unauthorized data usage. If our AI models, or those developed by third parties, produce inaccurate or controversial results, we could face legal liability, regulatory scrutiny,
reputational harm, or operational inefficiencies. These risks could negatively impact our business, financial results, and the perception of our security measures.
Risks Related to an Investment in the Company’s Securities
There may be future sales or other dilution of the Company’s equity, which may adversely affect the market price of the Company’s stock.
The Company is not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock.
The Company also grants shares of common stock to employees and directors under the Company’s incentive plan each year. The issuance of any additional shares of the Company’s common stock or preferred stock or securities convertible into,
exchangeable for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to stockholders of the Company’s common stock. Holders of the Company’s common stock have no preemptive
rights that entitle such holders to purchase their pro rata share of any offering of shares of any class or series. Because the Company’s decision to issue securities in any future offering will depend on market conditions, its acquisition
activity and other factors, the Company cannot predict or estimate the amount, timing or nature of its future offerings. Thus, the Company’s stockholders bear the risk of the Company’s future offerings reducing the market price of the Company’s
common stock and diluting their stock holdings in the Company.
Risks Related to the Merger with Evans
The market price of the Company’s common stock may decline as a result of the Merger and the market price of the Company’s common stock after the
consummation of the Merger may be affected by factors different from those affecting the price of the Company’s common stock before the Merger.
The market price of the Company’s common stock may decline as a result of the Merger if the Company does not achieve the perceived benefits of the Merger or the effect of the Merger on the
Company’s financial results is not consistent with the expectations of financial or industry analysts.
In addition, the consummation of the Merger will result in the combination of two companies that currently operate as independent companies. The business of the Company and the business of Evans
differ. As a result, while the Company expects to benefit from certain synergies following the Merger, the Company may also encounter new risks and liabilities associated with these differences. Following the Merger, shareholders of the Company
and Evans will own interests in a combined company operating an expanded business and may not wish to continue to invest in the Company, or for other reasons may wish to dispose of some or all of the Company’s common stock. If, following the
effective time of the Merger, large amounts of the Company’s common stock are sold, the price of the Company’s common stock could decline.
Further, the results of operations of the Company and the market price of the Company’s common stock after the Merger may be affected by factors different from those currently affecting the
independent results of operations of each of the Company and Evans and the market price of the Company’s common stock. Accordingly, the Company’s historical market prices and financial results may not be indicative of these matters for the
Company after the Merger.
The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.
The Company and Evans can mutually agree to terminate the Merger Agreement at any time before the Merger has been completed, and either company can terminate the Merger Agreement if:
| ● |
the other party materially breaches any of its representations, warranties, covenants or other agreements set forth in the Merger Agreement (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement), which breach is not cured within 30 days of written notice of the breach, or by its nature cannot be cured prior to the closing of
the Merger, and such breach would entitle the non-breaching party not to consummate the Merger; or
|
| ● |
the Merger is not consummated by September 15, 2025, unless the failure to consummate the Merger by such date is due to a material breach of the Merger Agreement by the terminating party.
|
In addition, the Company may terminate the Merger Agreement if:
| ● |
Evans materially breaches the non-solicitation provisions in the Merger Agreement; or
|
| ● |
the Evans Board of Directors:
|
| ● |
fails to recommend approval of the Merger Agreement, or withdraws, modifies or changes such recommendation in a manner adverse to the Company’s interests; or
|
| ● |
recommends, proposes or publicly announces its intention to recommend or propose to engage in an acquisition transaction with any person other than the Company or any of its subsidiaries.
|
Failure to complete the Merger could negatively impact the stock price of the Company and its future
business and financial results.
Completion of the Merger is subject to the satisfaction or waiver of a number of conditions. The Company cannot guarantee when or if these
conditions will be satisfied or that the Merger will be successfully completed. The consummation of the Merger may be delayed, the Merger may be consummated on terms different than those contemplated by the Merger Agreement, or the Merger may
not be consummated at all. If the Merger is not completed, the ongoing business of the Company may be adversely affected, and the Company will be subject to several risks, including the following:
| ● |
the Company could incur substantial costs relating to the proposed Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees; and
|
| ● |
the Company’s management’s and employees’ attention may be diverted from their day-to-day business and operational matters as a result of efforts relating to
the attempt to consummate the Merger.
|
In addition, if the Merger is not completed, the Company may experience negative reactions from the financial markets and from its customers and
employees. The Company also could be subject to litigation related to any failure to complete the Merger or to enforcement proceedings commenced against the Company to perform its obligations under the Merger Agreement. If the Merger is not
completed, the Company cannot assure its stockholders that the risks described above will not materialize and will not materially affect the Company’s business and financial results or the stock price of the Company.
The integration of the Company and Evans will present significant challenges and expenses that may result in the combined business not operating as
effectively as expected, or in the failure to achieve some or all of the anticipated benefits of the transaction.
The benefits and synergies expected to result from the proposed Merger will depend in part on whether the operations of Evans can be integrated in a timely and efficient manner with those of the
Company. The Company will face challenges and costs in consolidating its functions with those of Evans, and integrating the organizations, procedures and operations of the two businesses. The integration of the Company and Evans will be complex
and time-consuming, and the management of both companies will have to dedicate substantial time and resources to it. These efforts could divert management’s focus and resources from serving existing customers or other strategic opportunities
and from day-to-day operational matters during the integration process. Failure to successfully integrate the operations of the Company and Evans could result in the failure to achieve some of the anticipated benefits from the transaction,
including cost savings and other operating efficiencies, and the Company may not be able to capitalize on the existing relationships of Evans to the extent anticipated, or it may take longer, or be more difficult or expensive than expected to
achieve these goals. This could have an adverse effect on the business, results of operations, financial condition or prospects of the Company and/or the Bank after the transaction.
Unanticipated costs relating to the Merger could reduce the Company’s future earnings per share.
The Company has incurred substantial legal, accounting, financial advisory and other Merger-related costs, and management has devoted considerable
time and effort in connection with the Merger. If the Merger is not completed, the Company will bear certain fees and expenses associated with the Merger without realizing the benefits of the Merger. If the Merger is completed, the Company
expects to incur substantial expenses in connection with integrating the business, operations, network, systems, technologies, policies and procedures of the two companies. The fees and expenses may be significant and could have an adverse
impact on the Company’s results of operations.
The Company believes that it has reasonably estimated the likely costs of integrating the operations of the Company and Evans, and the incremental
costs of operating as a combined company. However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as increased personnel costs or increased taxes, as
well as other types of unanticipated adverse developments, could have a material adverse effect on the results of operations and financial condition of the combined company. If unexpected costs are incurred, the Merger could have a dilutive
effect on the Company’s EPS. In other words, if the Merger is completed, the EPS of the Company’s common stock could be less than anticipated or even less than if the Merger had not been completed.
Estimates as to the future value of the combined company are inherently uncertain.
Any estimates as to the future value of the combined company, including estimates regarding the EPS of the combined company, are inherently
uncertain. The future value of the combined company will depend upon, among other factors, the combined company’s ability to achieve projected revenue and earnings expectations and to realize the anticipated synergies, all of which are
subject to the risks and uncertainties described in these risk factors.
Following the Merger, the Company may not continue to pay dividends at or above the rate currently paid.
Following the Merger, the Company’s stockholders may not receive dividends at the same rate that they did as stockholders of the Company prior to the Merger for various reasons, including the
following:
| ● |
the Company may not have enough cash to pay such dividends due to changes in its cash requirements, capital spending plans, cash flow or financial position;
|
| ● |
decisions on whether, when and in what amounts to make any future dividends will remain at all times entirely at the discretion of the Board, which reserves the right to change the Company’s dividend
practices at any time and for any reason; and
|
| ● |
the amount of dividends that the Company’s subsidiaries may distribute to the Company may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future
indebtedness that these subsidiaries may incur.
|
The Company’s stockholders will have no contractual or other legal right to dividends that have not been declared by the Board.
General Risks
The risks presented by acquisitions could adversely affect our financial condition and results of operations.
The business strategy of the Company has included and may continue to include growth through acquisition. Any acquisitions (including the
acquisition of Evans) will be accompanied by the risks commonly encountered in acquisitions. These risks may include, among other things:
| ● |
exposure to potential asset quality issues of the acquired business;
|
| ● |
potential exposure to unknown or contingent liabilities of the acquired business;
|
| ● |
our ability to realize anticipated cost savings;
|
| ● |
the difficulty of integrating operations and personnel (including the operations and personnel of Evans) and the potential loss of key employees;
|
| ● |
the potential disruption of our or the acquired company’s ongoing business in such a way that could result in decreased revenues or the inability of our management to maximize our financial and strategic
position;
|
| ● |
the inability to maintain uniform standards, controls, procedures and policies; and
|
| ● |
the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management.
|
We cannot provide any assurance that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions. Our inability to overcome these risks could
have an adverse effect on the achievement of our business strategy and results of operations.
We rely on our management and other key personnel, and the loss of any of them may adversely affect our operations.
We are and will continue to be dependent upon the services of our executive management team. In addition, we will continue to depend on our ability to retain and recruit key client relationship
managers. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial condition.
None.
Risk Management and Strategy
Using comprehensive risk assessment methodologies, we diligently identify and evaluate potential cybersecurity threats and vulnerabilities across our systems, networks, and data assets. This process includes
regular reviews of emerging threats, penetration testing, vulnerability scanning, and thorough analysis of industry-specific risks. We actively participate in industry forums and information-sharing initiatives and collaborate with relevant
stakeholders to exchange threat intelligence and best practices.
We emphasize continuous training for our staff to enhance their ability to identify and respond to cybersecurity threats. To support this effort, we invest in cybersecurity technology and talent. Additionally, we conduct rigorous vendor assessments and require specific security standards for third-party providers. Our comprehensive policies
and procedures are designed to safeguard the integrity and security of information collected by us and our service providers. We have also implemented security measures to prevent unauthorized access to personal data and mitigate potential
incidents. Furthermore, we learn from any past incidents and near misses to strengthen our resilience.
Governance
| ● |
Leading the initial implementation of the ISP, including assessing internal and external risks to institutional data and documenting findings through risk assessment reports and remediation plans.
|
| ● |
Coordinating the development, distribution, and maintenance of information security policies and procedures.
|
| ● |
Designing and implementing administrative, technical, and physical safeguards to protect institutional data across the company.
|
The DISO reports to the Chief Risk Officer and has expertise in cybercrime prevention, social engineering, identity theft, and fraud prevention, gained through prior roles within the organization.
During the incident review process, senior management, in collaboration with relevant personnel from information technology, data security, and external cybersecurity firms specializing in forensic
investigations, when necessary, assesses the materiality of the breach alongside the severity scale. This evaluation aims to accurately identify risks and potential operational and business impacts. Materiality determination involves an
objective analysis of both quantitative and qualitative factors, including an evaluation of impact and reasonably likely impacts.
We have purchased cybersecurity insurance, but there are no assurances that the coverage would be adequate in relation to any incurred losses. As of December 31, 2024 we have not experienced any material risks from cybersecurity threats, including as a result of any previous cybersecurity incidents or threats, that have materially affected the business strategy, results of operations or financial condition of the Company. However, we cannot guarantee that we will remain unaffected in the future.
For further discussion of such risks, see the section entitled “Risks Related to Information Technology, Cybersecurity and Data Privacy” in Item 1A. Risk Factors of this Form 10-K.
The Company owns its headquarters located at 52 South Broad Street, Norwich, New York 13815. In addition, as of December 31, 2024 the Company has 155 branch locations, of which 67 are leased from
third parties. The Company owns all other banking premises.
The Company believes that its offices are sufficient for its present operations and that all properties are adequately covered by insurance.
None.
PART II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market Information
The common stock of the Company, par value $0.01 per share (the “Common Stock”), is quoted on the NASDAQ Global Select Market under the symbol “NBTB.” The closing price of the Common Stock on
January 31, 2025 was $47.63. As of January 31, 2025, there were 5,194 stockholders of record of Common Stock. No unregistered securities were sold by the Company during the year ended December 31, 2024.
Stock Performance Graph
The following stock performance graph compares the cumulative total stockholder return (i.e., price change, reinvestment of cash dividends and stock dividends received) on our Common Stock against
the cumulative total return of the NASDAQ Stock Market (U.S. Companies) Index and the KBW Regional Bank Index (Peer Group). The stock performance graph assumes that $100 was invested on December 31, 2019. The graph further assumes the
reinvestment of dividends into additional shares of the same class of equity securities at the frequency with which dividends are paid on such securities during the relevant fiscal year. The yearly points marked on the horizontal axis
correspond to December 31 of that year. We calculate each of the referenced indices in the same manner. All are market-capitalization-weighted indices, so companies judged by the market to be more important (i.e., more valuable) count for more
in all indices.
|
Period Ending
|
||||||||||||||||||||||||
|
Index
|
12/31/19
|
12/31/20
|
12/31/21
|
12/31/22
|
12/31/23
|
12/31/24
|
||||||||||||||||||
|
NBT Bancorp
|
$
|
100.00
|
$
|
118.13
|
$
|
101.22
|
$
|
117.46
|
$
|
117.35
|
$
|
138.05
|
||||||||||||
|
KBW Regional Bank Index
|
$
|
100.00
|
$
|
91.32
|
$
|
124.78
|
$
|
116.15
|
$
|
115.69
|
$
|
130.96
|
||||||||||||
|
NASDAQ Composite Index
|
$
|
100.00
|
$
|
145.05
|
$
|
177.27
|
$
|
119.63
|
$
|
173.11
|
$
|
224.34
|
||||||||||||
Source: Bloomberg, L.P.
Dividends
The Company depends primarily upon dividends from subsidiaries for a substantial part of its revenue. Accordingly, the ability to pay dividends to stockholders depends primarily upon the receipt
of dividends or other capital distributions from the subsidiaries. Payment of dividends to the Company from the Bank is subject to certain regulatory and other restrictions. Under OCC regulations, the Bank may pay dividends to the Company
without prior regulatory approval so long as it meets its applicable regulatory capital requirements before and after payment of such dividends and its total dividends do not exceed its net income to date over the calendar year plus retained
net income over the preceding two years. At December 31, 2024, the Bank was in compliance with all applicable minimum capital requirements and had the ability to pay dividends of $107.6 million to the Company without the prior approval of the
OCC.
If the capital of the Company is diminished by depreciation in the value of its property or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the distribution of assets, no dividends may be paid out of net profits until the deficiency in the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets has been repaired. See the section captioned “Supervision and Regulation” in Item 1. Business and Note 15 to the consolidated financial statements included in Item 8. Financial
Statements and Supplementary Data, which are included elsewhere in this report.
Stock Repurchase
The Company purchased 7,600 shares of its common stock during year ended
December 31, 2024 at an average price of $33.02 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 effect of
stock-based incentive plans and other potential uses of common stock for corporate purposes. The Company did not purchase any shares of its common
stock during the fourth quarter of 2024. As of December 31, 2024, there were 1,992,400 shares available for repurchase under this plan authorized on December 18, 2023, which is set to expire on December 31, 2025.
The purpose of this discussion and analysis is to provide a concise description of the consolidated financial condition and results of operations of NBT Bancorp Inc. (“NBT”) and its wholly-owned
subsidiaries, including NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”) and NBT Holdings, Inc. (“NBT Holdings”) (collectively referred to herein as the “Company”). When references to “NBT,” “we,”
“our,” “us,” and “the Company” are made in this report, we mean NBT Bancorp Inc. and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, NBT Bancorp Inc. When we refer to the “Bank” in this
report, we mean our only bank subsidiary, NBT Bank, National Association, and its subsidiaries. This discussion will focus on results of operations for the fiscal years ended December 31, 2024, 2023, and 2022, and financial condition as of
December 31, 2024 and 2023, including capital resources and asset/liability management. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes.
Forward-Looking Statements
Certain statements in this filing and future filings by the Company with the SEC, in the Company’s press releases or other public or stockholder
communications or in oral statements made with the approval of an authorized executive officer, contain 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. The discussion in Item 1A. Risk Factors lists some of the factors that could cause our actual results to vary materially from those
expressed or implied by any forward-looking statements, and such discussion is incorporated into this discussion by reference.
The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advises readers 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.
General
NBT Bancorp Inc. is a registered financial holding company headquartered in Norwich, NY, with total assets of $13.79 billion at December 31, 2024.
The Company’s business, primarily conducted through the Bank and its full-service retirement plan administration and recordkeeping subsidiary and full-service insurance agency subsidiary, consists of providing commercial banking, retail
banking, wealth management and other financial services primarily to customers in its market area, which includes upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central
and northwestern Connecticut. The Company’s business philosophy is to operate as a community bank with local decision-making, providing a broad array of banking and financial services to retail, commercial and municipal customers. The financial
review that follows focuses on the factors affecting the consolidated financial condition and results of operations of the Company and its wholly-owned subsidiaries, the Bank, NBT Financial and NBT Holdings during 2024 and, in summary form, the
preceding two years. NIM is presented in this discussion on a FTE basis. Average balances discussed are daily averages unless otherwise described. The audited consolidated financial statements and related notes as of December 31, 2024 and 2023
and for each of the years in the three-year period ended December 31, 2024 should be read in conjunction with this review.
Critical Accounting Policies
The SEC defines critical accounting policies as accounting policies that are most important to a company’s financial results and condition. These
policies are often subjective and require management to make estimates about uncertain matters. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles GAAP and to general
practices within the financial services industry. In the course of normal business activity, management must select and apply many accounting policies and methodologies and make estimates and assumptions that lead to the financial results
presented in the Company’s consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions, which could materially affect the Company’s results of operations and financial
position.
Management considers accounting estimates to be critical to reported financial results if (i) the accounting estimates require management to make assumptions about matters that are highly
uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a
material impact on the Company’s financial statements. Management considers the accounting policies relating to the allowance for credit losses (“allowance”, or “ACL”) and the determination of fair values for acquired assets and assumed
liabilities in a business combination, including intangible assets such as goodwill, to be critical accounting policies because of the uncertainty and subjectivity involved in these policies and the material effect that estimates related to
these areas can have on the Company’s results of operations.
The Company’s methodology for estimating the allowance considers available relevant information about the collectability of cash flows, including information about past events, current conditions,
and reasonable and supportable forecasts. Refer to Note 1 and Note 6 to the consolidated financial statements included elsewhere in this report.
Goodwill represents the cost of the acquired business in excess of the fair value of the related net assets acquired. Following a merger, the determination of fair values for acquired assets and
assumed liabilities, including intangible assets such as goodwill, becomes critical. All acquired assets, including goodwill and other intangible assets, and assumed liabilities in purchase acquisitions are recorded at fair value as of the
acquisition date. The Company expenses all acquisition-related costs as incurred as required by ASC Topic 805, “Business Combinations.”
The determination of fair values for acquired loans in a business combination is a significant aspect of our financial reporting process. The
valuation of acquired loans relied on a discounted cash flow approach applied on a pooled basis, utilizing a forecast of principal and interest payments. This methodology segmented the acquired loan portfolio by loan type, term, interest rate,
payment frequency and payment, and incorporated specific key valuation assumptions, encompassing prepayments, PD, LGD, and the discount rate to ascertain the fair value of these assets. Given the inherent subjectivity and reliance on future
cash flows and market conditions, this process involves considerable judgment and estimation uncertainty.
The Company conducts an annual review of goodwill impairment and conducts quarterly analyses to identify any events that may necessitate an interim
assessment. The Company initially undertakes a qualitative evaluation of goodwill to ascertain whether certain events or circumstances indicate a likelihood that the fair value of a reporting unit is less than its carrying amount. This
qualitative evaluation demands considerable managerial discretion, and if it suggests that the fair value of a reporting unit is unlikely to be less than the carrying value, no quantitative analysis is required. Inputs for this qualitative
analysis requiring managerial judgment encompass macroeconomic conditions, industry and market conditions, the financial performance of the reporting unit, and other pertinent events influencing the fair value of the reporting unit.
For information on the Company’s significant accounting policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 to the consolidated financial statements included elsewhere in this report.
For information on the Company’s significant accounting policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 to the consolidated financial statements included elsewhere in this report.
Critical Accounting Estimates
SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with GAAP that involve a significant
level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. The Company follows financial accounting and reporting policies that are in
accordance with GAAP. The allowance for credit losses and the allowance for unfunded commitments policies are deemed to meet the SEC’s definition of a critical accounting estimate.
Allowance for Credit Losses and Unfunded Commitments
The allowance for credit losses consists of the allowance for credit losses and the allowance for losses on unfunded commitments. The measurement of CECL on financial instruments requires an
estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable
and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss
experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, the Company considers forecasts about
future economic conditions that are reasonable and supportable. The allowance for credit losses for loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses, which is recognized in
earnings, and reduced by the charge-off of loan amounts, net of recoveries. The allowance for losses on unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit
and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the Company. The allowance for losses on unfunded commitments is determined by estimating future draws and applying the
expected loss rates on those draws.
Management of the Company considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate given the uncertainty in evaluating the level of the
allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods.
While management’s current evaluation of the allowance for credit losses indicates that the allowance is appropriate, the allowance may need to be increased under adversely different conditions or assumptions. The impact of utilizing the CECL
methodology to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material
changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.
One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the
forecast period. As of December 31, 2024, the quantitative model incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the
model. At December 31, 2024, the weightings were 80% and 20% for the baseline and downside economic forecasts, respectively. The baseline outlook reflected a Northeast unemployment rate environment starting at 4.1% and increasing slightly
during the forecast period to 4.2%. Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the first quarter of 2025 at approximately 3.8% before decreasing to a low of 2.6% in the third quarter of 2025 and then
increasing to 3.9% by the end of the forecast period. Key assumptions in the baseline economic outlook included two 25 basis point federal funds rate cuts in 2025, quantitative tightening ending in early 2025, a post-election fiscal outlook
with lower spending, lower taxes, and higher tariffs, and the economy currently being near full employment. The alternative downside scenario assumed deteriorated economic conditions from the baseline outlook. Under this scenario, Northeast
unemployment increases to a peak of 7.5% in the first quarter of 2026. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2024. Additional qualitative
adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation and recent trends in asset value indices. Additional monitoring for industry
concentrations, loan growth and policy exceptions was also conducted.
To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of December 31, 2024, the Company attributed the change in scenario
weightings to the change in the allowance for credit losses, with a 10% decrease to the downside scenario and a 10% increase to the baseline scenario causing a 4% decrease in the overall estimated allowance for credit losses. To further
demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of December 31, 2024, the Company increased the downside scenario to 100% which resulted in a 33% increase in the
overall estimated allowance for credit losses.
Non-GAAP Measures
This Annual Report on Form 10-K contains financial information determined by methods other than in accordance with GAAP. Where non-GAAP disclosures are used in this Annual Report on Form 10-K, the
comparable GAAP measure, as well as a reconciliation to the comparable GAAP measure, is provided in the accompanying tables. Management believes that these non-GAAP measures provide useful information that is important to an understanding of
the results of the Company’s core business as well as provide information standard in the financial institution industry. Non-GAAP measures should not be considered a substitute for financial measures determined in accordance with GAAP and
investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Amounts previously reported in the
consolidated financial statements are reclassified whenever necessary to conform to current period presentation.
Evans Bancorp, Inc. Merger
On September 9, 2024, the Company and the Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Evans and Evans Bank, Evans’s subsidiary, pursuant to which the Company
will acquire Evans. Evans, with assets of approximately $2.19 billion at December 31 2024, is headquartered in Williamsville, New York. Its primary subsidiary, Evans Bank, is a federally-chartered national banking association operating 18
banking locations in Western New York.
Subject to the terms and conditions of the Merger Agreement, which has been approved by the boards of directors of each party, Evans will merge with and into the Company, with the Company as the
surviving entity, and immediately thereafter, Evans Bank will merge with and into the Bank, with the Bank as the surviving bank (the “Merger”).
Under the terms of the Merger Agreement, each outstanding share of Evans common stock will be converted into the right to receive 0.91 shares of
the Company’s common stock. In December 2024, the Company announced that it had received the regulatory approval from the OCC and the waiver from Federal Reserve Bank of New York necessary to complete its acquisition of Evans. Also in December
2024, the shareholders of Evans voted to approve the Merger. Evans reported over 75% of the issued and outstanding shares of Evans were represented at a special shareholder meeting and over 96% of the votes cast were voted to approve the
Merger. NBT and Evans anticipate closing the transaction in second quarter of 2025 in conjunction with the core system conversion, pending customary closing conditions.
The Company incurred acquisition expenses related to the Merger of $1.5 million for the year ended December 31, 2024.
Salisbury Bancorp, Inc. Merger
On August 11, 2023, NBT completed its acquisition of Salisbury. Salisbury Bank was a Connecticut-chartered commercial bank headquartered in
Lakeville, Connecticut, operating 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York, and southwestern Massachusetts. In connection with the acquisition, the Company issued 4.32 million shares of common stock
and acquired approximately $1.46 billion of identifiable assets, including $1.18 billion of loans, $122.7 million in investment securities which were sold immediately after the merger, $31.2 million of core deposit intangibles and $4.7 million
in a wealth management customer intangible, as well as $1.31 billion in deposits. As of the acquisition date, the fair value discount was $78.7 million for loans, net of the reclassification of the purchase credit deteriorated allowance, and
was $3.0 million for subordinated debt. The Company established a $14.5 million allowance for acquired Salisbury loans which included both the $5.8 million allowance for PCD loans reclassified from loans and the $8.8 million allowance for
non-PCD loans recognized through the provision for loan losses.
The Company incurred acquisition expenses related to the merger with Salisbury of $10.0 million and $1.0 million for the years ended December 31,
2023 and 2022, respectively.
Executive Summary
Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to, net
income and EPS, return on average assets and equity, NIM, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products
and services, technology advancements, market share and peer comparisons.
Net income for the year ended December 31, 2024 was $140.6 million, or $2.97 per diluted common share, up $21.9 million from $118.8 million, or
$2.65 per diluted common share, for the year ended December 31, 2023.
Operating net income(1), a non-GAAP measure, was $139.7 million, or $2.94 per diluted common share, for the year ended December 31,
2024, compared to $144.7 million, or $3.23 per diluted common share for the year ended December 31, 2023.
In the first quarter of 2023, the Company incurred a $5.0 million securities loss on the write-off of an AFS subordinated debt investment of a
failed financial institution. In the first quarter of 2024, the Company sold the previously written-off subordinated debt security and recognized a gain of $2.3 million. In the second quarter 2023, the Company incurred a $4.5 million securities
loss on the sale of two subordinated debt securities held in the AFS portfolio. In the fourth quarter of 2023 the Company recorded a full $4.8 million impairment of its minority interest equity investment in a provider of financial and
technology services to residential solar equipment installers due to the uncertainty in the realizability of the investment in other noninterest expense in the consolidated statements of income.
The following information should be considered in connection with the Company’s results as of and for the year ended December 31, 2024:
| ● |
Net interest income for the year ended December 31, 2024 was $400.1 million, up $21.9 million, or 5.8%, from 2023.
|
| ● |
The Company recorded a provision for loan losses of $19.6 million for the year ended December 31, 2024, compared to $25.3 million in 2023. Included in the provision expense for the year ended December 31,
2023 was $8.8 million of acquisition-related provision for loan losses.
|
| ● |
Excluding securities gains (losses), noninterest income represented 30% of total revenues and was $174.0 million for the year ended December 31, 2024, up $22.5 million, or 14.9%, from the prior year.
|
| ● |
Noninterest expense, excluding acquisition expenses, was up $44.7 million, or 13.5%, from the prior year.
|
| ● |
Period end total loans were $9.97 billion, up $319.2 million, or 3.3% from December 31, 2023.
|
| ● |
Credit quality metrics including net charge-offs to average loans were 0.18% and allowance for loan losses to total loans was 1.16%.
|
| ● |
Period end total deposits were $11.55 billion, up $577.8 million, or 5.3%, from December 31, 2023.
|
| (1) |
Non-GAAP measure - Refer to non-GAAP reconciliation below.
|
Results of Operations
The following table sets forth certain financial highlights:
|
Years Ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Performance:
|
||||||||||||
|
Diluted earnings per share
|
$
|
2.97
|
$
|
2.65
|
$
|
3.52
|
||||||
|
Return on average assets
|
1.04
|
%
|
0.95
|
%
|
1.29
|
%
|
||||||
|
Return on average equity
|
9.57
|
%
|
9.34
|
%
|
12.67
|
%
|
||||||
|
Return on average tangible common equity
|
13.75
|
%
|
13.02
|
%
|
16.89
|
%
|
||||||
|
Net interest margin (FTE)
|
3.23
|
%
|
3.29
|
%
|
3.34
|
%
|
||||||
|
Capital:
|
||||||||||||
|
Equity to assets
|
11.07
|
%
|
10.71
|
%
|
10.00
|
%
|
||||||
|
Tangible equity ratio
|
8.42
|
%
|
7.93
|
%
|
7.73
|
%
|
||||||
|
Book value per share
|
$
|
32.34
|
$
|
30.26
|
$
|
27.38
|
||||||
|
Tangible book value per share
|
$
|
23.88
|
$
|
21.72
|
$
|
20.65
|
||||||
|
Leverage ratio
|
10.24
|
%
|
9.71
|
%
|
10.32
|
%
|
||||||
|
Common equity tier 1 capital ratio
|
11.93
|
%
|
11.57
|
%
|
12.12
|
%
|
||||||
|
Tier 1 capital ratio
|
12.83
|
%
|
12.50
|
%
|
13.19
|
%
|
||||||
|
Total risk-based capital ratio
|
15.03
|
%
|
14.75
|
%
|
15.38
|
%
|
||||||
The following tables provide non-GAAP reconciliations:
|
Years Ended December 31,
|
||||||||||||
|
(In thousands, except per share data)
|
2024
|
2023
|
2022
|
|||||||||
|
Return on average tangible common equity:
|
||||||||||||
|
Net income
|
$
|
140,641
|
$
|
118,782
|
$
|
151,995
|
||||||
|
Amortization of intangible assets (net of tax)
|
6,332
|
3,551
|
1,698
|
|||||||||
|
Net income, excluding intangible amortization
|
$
|
146,973
|
$
|
122,333
|
$
|
153,693
|
||||||
|
Average stockholders’ equity
|
$
|
1,468,861
|
$
|
1,272,333
|
$
|
1,199,383
|
||||||
|
Less: average goodwill and other intangibles
|
399,989
|
332,667
|
289,238
|
|||||||||
|
Average tangible common equity
|
$
|
1,068,872
|
$
|
939,666
|
$
|
910,145
|
||||||
|
Return on average tangible common equity
|
13.75
|
%
|
13.02
|
%
|
16.89
|
%
|
||||||
|
Tangible equity ratio:
|
||||||||||||
|
Stockholders’ equity
|
$
|
1,526,141
|
$
|
1,425,691
|
$
|
1,173,554
|
||||||
|
Intangibles
|
399,023
|
402,294
|
288,545
|
|||||||||
|
Assets
|
$
|
13,786,666
|
$
|
13,309,040
|
$
|
11,739,296
|
||||||
|
Tangible equity ratio
|
8.42
|
%
|
7.93
|
%
|
7.73
|
%
|
||||||
|
Tangible book value:
|
||||||||||||
|
Stockholders’ equity
|
$
|
1,526,141
|
$
|
1,425,691
|
$
|
1,173,554
|
||||||
|
Intangibles
|
399,023
|
402,294
|
288,545
|
|||||||||
|
Tangible equity
|
$
|
1,127,118
|
$
|
1,023,397
|
$
|
885,009
|
||||||
|
Diluted common shares outstanding
|
47,195
|
47,110
|
42,858
|
|||||||||
|
Tangible book value per share
|
$
|
23.88
|
$
|
21.72
|
$
|
20.65
|
||||||
|
Operating net income:
|
||||||||||||
|
Net income
|
$
|
140,641
|
$
|
118,782
|
$
|
151,995
|
||||||
|
Acquisition expenses
|
1,531
|
9,978
|
967
|
|||||||||
|
Acquisition-related provision for credit losses
|
-
|
8,750
|
-
|
|||||||||
|
Acquisition-related reserve for unfunded loan commitments
|
-
|
836
|
-
|
|||||||||
|
Impairment of a minority interest equity investment
|
-
|
4,750
|
-
|
|||||||||
|
Securities (gains) losses
|
(2,789
|
)
|
9,315
|
1,131
|
||||||||
|
Adjustment to net income
|
$
|
(1,258
|
)
|
$
|
33,629
|
$
|
2,098
|
|||||
|
Adjustment to net income (net of tax)
|
$
|
(984
|
)
|
$
|
25,965
|
$
|
1,623
|
|||||
|
Operating net income
|
$
|
139,657
|
$
|
144,747
|
$
|
153,618
|
||||||
|
Operating diluted earnings per share
|
$
|
2.94
|
$
|
3.23
|
$
|
3.56
|
||||||
2025 Outlook
The Company’s 2024 earnings reflected its continued ability to invest in the Company’s future while managing significant volatility in the
interest rate environment and overall economic conditions, which have presented challenges across the financial services industry. 2024 was marked by resilience for both economic growth and inflation. Entering the year, forecasts called for
a slowing economy and a moderation in inflation due to the rapid change in interest rates engineered by the FRB throughout 2022-2023. GDP growth rate of 1.6% in the first quarter of 2024 was weak, but growth strongly rebounded with 3.0% and
2.8% growth in the second and third quarters, respectively. Overall, 2024 annualized economic growth was 2.8%, a full percentage point higher than initial forecasts. At the same time, inflation continued to trend lower in the first half of
2024. However, that improvement stalled in the second half of the year, with the Core Personal Consumption Expenditure index increasing from 2.6% to 2.8% over the last 5 months of the year. The combination of stronger-than-expected GDP
growth and stubborn inflation forced the FRB to delay their pivot to an easier monetary policy that was anticipated in 2024. The yield curve remained inverted through the majority of 2024. However, in September of 2024 the FOMC lowered the
Federal Funds rate by 50 bps followed by consecutive 25 bps reductions in November and December of 2024. These rate cuts flattened the yield curve, and in some instances, led to a modestly upward-sloping yield curve at certain term points.
Economic indicators remained mixed, but trended toward an improved yet elevated level of inflation. While inflation has declined, continued
economic resilience has lowered the probability of further Federal Funds rate reductions in 2025. The “higher for longer” interest rate environment is expected to persist, though strong consumer and corporate balance sheets suggest that any
potential economic slowdown may be mild. Significant items that may have an impact on 2025 results include:
| ● |
Excess liquidity in the banking system has significantly decreased:
|
| ο |
loan growth may be negatively impacted as interest rates have risen and lenders have reverted back to historical credit spreads to account for overall higher cost of funds;
|
| ο |
cost of deposits as well as overall cost of funds could continue to negatively impact NIM. While the recent decline to short-term interest rates may allow for some continued cost of funds
reductions, the elevated level of relative interest rates and the bank failures in early 2023 continue to pressure competition for deposits as well as the associated cost of funds;
|
| ο |
higher short-term interest rates as compared to recent history have continued to afford deposit customers investment opportunities outside the banking system resulting in deposit declines across the
industry, however, a decline to short-term interest rates could potentially mitigate this;
|
| ο |
investment purchases have slowed, however, reinvestment of investment cash flows at higher rate levels has allowed for improved yield on the portfolio as a whole.
|
| ● |
The FRB has continued to combat elevated inflation, with the result being inflationary pressures being much more under control in 2024 and into 2025:
|
| ο |
this reduced inflation has had a material impact on current and expected FRB monetary policy;
|
| ο |
the tightening of monetary policy through measures to raise interest rates seen in 2022 and 2023 began to reverse itself in 2024 given softening inflation;
|
| ο |
the loosening of monetary policy through the reduction to short-term interest rates in 2024 and into 2025 could have a negative impact on overall net interest income given the decline in interest
rates on floating rate assets. This risk has been mitigated by the Bank’s migration to a more neutral interest rate sensitivity position.
|
| ● |
The Company’s continued focus on long-term strategies including growth in its markets, diversification of revenue sources, improving operating efficiencies and investing in technology.
|
| ● |
The Company’s anticipated merger with Evans is expected to provide earnings benefit and incremental growth potential in new markets.
|
The Company’s 2025 outlook is subject to factors in addition to those identified above and those risks and uncertainties that could impact the Company’s future results are explained in Item 1A. Risk Factors.
Asset/Liability Management
The Company attempts to maximize net interest income and net income, while actively managing its liquidity and interest rate sensitivity through the mix of various core deposit products and
other sources of funds, which in turn fund an appropriate mix of earning assets. The changes in the Company’s asset mix and sources of funds, and the resulting impact on net interest income, on an FTE basis, are discussed below. The following
table includes the condensed consolidated average balance sheet, an analysis of interest income/expense and average yield/rate for each major category of earning assets and interest-bearing liabilities on a taxable equivalent basis.
Average Balances and Net Interest Income
|
2024
|
2023
|
2022
|
||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Average
Balances
|
Net Interest
Income
|
Yield/
Rate
|
Average
Balances
|
Net Interest
Income
|
Yield/
Rate
|
Average
Balances
|
Net Interest
Income
|
Yield/
Rate
|
|||||||||||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||||||||||||||
|
Short-term interest-bearing accounts
|
$
|
86,213
|
$
|
4,412
|
5.12
|
%
|
$
|
126,765
|
$
|
6,259
|
4.94
|
%
|
$
|
440,429
|
$
|
3,072
|
0.70
|
%
|
||||||||||||||||||
|
Securities taxable(1)
|
2,285,725
|
45,588
|
1.99
|
%
|
2,377,596
|
45,176
|
1.90
|
%
|
2,424,925
|
43,229
|
1.78
|
%
|
||||||||||||||||||||||||
|
Securities tax-exempt(1) (3)
|
221,273
|
7,788
|
3.52
|
%
|
214,053
|
6,730
|
3.14
|
%
|
233,515
|
5,070
|
2.17
|
%
|
||||||||||||||||||||||||
|
FRB and FHLB stock
|
37,789
|
2,672
|
7.07
|
%
|
48,641
|
3,368
|
6.92
|
%
|
27,040
|
995
|
3.68
|
%
|
||||||||||||||||||||||||
|
Loans(2) (3)
|
9,818,064
|
553,784
|
5.64
|
%
|
8,803,228
|
463,290
|
5.26
|
%
|
7,772,962
|
333,008
|
4.28
|
%
|
||||||||||||||||||||||||
|
Total interest-earning assets
|
$
|
12,449,064
|
$
|
614,244
|
4.93
|
%
|
$
|
11,570,283
|
$
|
524,823
|
4.54
|
%
|
$
|
10,898,871
|
$
|
385,374
|
3.54
|
%
|
||||||||||||||||||
|
Other assets
|
1,071,455
|
923,850
|
893,197
|
|||||||||||||||||||||||||||||||||
|
Total assets
|
$
|
13,520,519
|
$
|
12,494,133
|
$
|
11,792,068
|
||||||||||||||||||||||||||||||
|
Liabilities and stockholders’ equity:
|
||||||||||||||||||||||||||||||||||||
|
Money market deposit accounts
|
$
|
3,308,433
|
$
|
116,982
|
3.54
|
%
|
$
|
2,418,450
|
$
|
62,475
|
2.58
|
%
|
$
|
2,447,978
|
$
|
4,955
|
0.20
|
%
|
||||||||||||||||||
|
NOW deposit accounts
|
1,617,456
|
13,442
|
0.83
|
%
|
1,555,414
|
8,298
|
0.53
|
%
|
1,578,831
|
2,600
|
0.16
|
%
|
||||||||||||||||||||||||
|
Savings deposits
|
1,580,517
|
734
|
0.05
|
%
|
1,715,749
|
650
|
0.04
|
%
|
1,829,360
|
592
|
0.03
|
%
|
||||||||||||||||||||||||
|
Time deposits
|
1,408,410
|
55,790
|
3.96
|
%
|
1,006,867
|
33,218
|
3.30
|
%
|
464,912
|
1,776
|
0.38
|
%
|
||||||||||||||||||||||||
|
Total interest-bearing deposits
|
$
|
7,914,816
|
$
|
186,948
|
2.36
|
%
|
$
|
6,696,480
|
$
|
104,641
|
1.56
|
%
|
$
|
6,321,081
|
$
|
9,923
|
0.16
|
%
|
||||||||||||||||||
|
Federal funds purchased
|
13,016
|
721
|
5.54
|
%
|
24,575
|
1,269
|
5.16
|
%
|
14,644
|
588
|
4.02
|
%
|
||||||||||||||||||||||||
|
Repurchase agreements
|
95,879
|
2,255
|
2.35
|
%
|
70,251
|
747
|
1.06
|
%
|
69,561
|
67
|
0.10
|
%
|
||||||||||||||||||||||||
|
Short-term borrowings
|
103,963
|
5,693
|
5.48
|
%
|
450,377
|
23,592
|
5.24
|
%
|
46,371
|
1,968
|
4.24
|
%
|
||||||||||||||||||||||||
|
Long-term debt
|
29,715
|
1,166
|
3.92
|
%
|
24,247
|
925
|
3.81
|
%
|
6,579
|
161
|
2.45
|
%
|
||||||||||||||||||||||||
|
Subordinated debt, net
|
120,420
|
7,232
|
6.01
|
%
|
105,756
|
6,076
|
5.75
|
%
|
98,439
|
5,424
|
5.51
|
%
|
||||||||||||||||||||||||
|
Junior subordinated debt
|
101,196
|
7,533
|
7.44
|
%
|
101,196
|
7,320
|
7.23
|
%
|
101,196
|
3,749
|
3.70
|
%
|
||||||||||||||||||||||||
|
Total interest-bearing liabilities
|
$
|
8,379,005
|
$
|
211,548
|
2.52
|
%
|
$
|
7,472,882
|
$
|
144,570
|
1.93
|
%
|
$
|
6,657,871
|
$
|
21,880
|
0.33
|
%
|
||||||||||||||||||
|
Demand deposits
|
3,377,352
|
3,463,608
|
3,696,957
|
|||||||||||||||||||||||||||||||||
|
Other liabilities
|
295,301
|
285,310
|
237,857
|
|||||||||||||||||||||||||||||||||
|
Stockholders’ equity
|
1,468,861
|
1,272,333
|
1,199,383
|
|||||||||||||||||||||||||||||||||
|
Total liabilities and stockholders’ equity
|
$
|
13,520,519
|
$
|
12,494,133
|
$
|
11,792,068
|
||||||||||||||||||||||||||||||
|
Net interest income (FTE)
|
$
|
402,696
|
$
|
380,253
|
$
|
363,494
|
||||||||||||||||||||||||||||||
|
Interest rate spread
|
2.41
|
%
|
2.61
|
%
|
3.21
|
%
|
||||||||||||||||||||||||||||||
|
Net interest margin (FTE)
|
3.23
|
%
|
3.29
|
%
|
3.34
|
%
|
||||||||||||||||||||||||||||||
|
Taxable equivalent adjustment
|
$
|
2,574
|
$
|
2,034
|
$
|
1,304
|
||||||||||||||||||||||||||||||
|
Net interest income
|
$
|
400,122
|
$
|
378,219
|
$
|
362,190
|
||||||||||||||||||||||||||||||
| (1) |
Securities are shown at average amortized cost.
|
| (2) |
For purposes of these computations, nonaccrual loans and loans held for sale are included in the average loan balances outstanding.
|
| (3) |
Interest income for tax-exempt securities and loans have been adjusted to an FTE basis using the statutory Federal income tax rate of 21%.
|
2024 OPERATING RESULTS AS COMPARED TO 2023 OPERATING RESULTS
Net Interest Income
Net interest income for the year ended December 31, 2024 was $400.1 million, up $21.9 million, or 5.8%, from 2023. FTE NIM was 3.23% for the year ended December 31, 2024, a decrease of 6 bps from 2023. Interest income increased $88.9 million, or 17.0%, as the yield on average interest-earning assets
increased 39 bps from 2023 to 4.93%, while average interest-earning assets of $12.45 billion increased $878.8 million primarily due to the Salisbury acquisition and organic loan growth, partially offset by a decrease in securities. Interest
expense was up $67.0 million, or 46.3%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, driven by interest-bearing deposit costs increasing 80 bps to 2.36% and a $1.22 billion increase in
interest-bearing deposits as a result of the Salisbury acquisition, partly offset by a decrease of $346.4 million in the average balances of short-term borrowings and the 548 bps rate paid on those borrowings. Included in net interest
income was $10.4 million and $4.3 million for the years ended December 31, 2024 and 2023, respectively, of acquisition-related net accretion.
Analysis of Changes in FTE Net Interest Income
|
Increase (Decrease)
2024 over 2023
|
Increase (Decrease)
2023 over 2022
|
|||||||||||||||||||||||
|
(In thousands)
|
Volume
|
Rate
|
Total
|
Volume
|
Rate
|
Total
|
||||||||||||||||||
|
Short-term interest-bearing accounts
|
$
|
(2,068
|
)
|
$
|
221
|
$
|
(1,847
|
)
|
$
|
(3,583
|
)
|
$
|
6,770
|
$
|
3,187
|
|||||||||
|
Securities taxable
|
(1,784
|
)
|
2,196
|
412
|
(856
|
)
|
2,803
|
1,947
|
||||||||||||||||
|
Securities tax-exempt
|
233
|
825
|
1,058
|
(452
|
)
|
2,112
|
1,660
|
|||||||||||||||||
|
FRB and FHLB stock
|
(766
|
)
|
70
|
(696
|
)
|
1,128
|
1,245
|
2,373
|
||||||||||||||||
|
Loans
|
55,771
|
34,723
|
90,494
|
47,841
|
82,441
|
130,282
|
||||||||||||||||||
|
Total FTE interest income
|
$
|
51,386
|
$
|
38,035
|
$
|
89,421
|
$
|
44,077
|
$
|
95,372
|
$
|
139,449
|
||||||||||||
|
Money market deposit accounts
|
27,225
|
27,282
|
54,507
|
(60
|
)
|
57,580
|
57,520
|
|||||||||||||||||
|
NOW deposit accounts
|
343
|
4,801
|
5,144
|
(39
|
)
|
5,737
|
5,698
|
|||||||||||||||||
|
Savings deposits
|
(54
|
)
|
138
|
84
|
(38
|
)
|
96
|
58
|
||||||||||||||||
|
Time deposits
|
15,016
|
7,556
|
22,572
|
4,164
|
27,278
|
31,442
|
||||||||||||||||||
|
Federal funds purchased
|
(634
|
)
|
86
|
(548
|
)
|
479
|
202
|
681
|
||||||||||||||||
|
Repurchase agreements
|
349
|
1,159
|
1,508
|
1
|
679
|
680
|
||||||||||||||||||
|
Short-term borrowings
|
(18,924
|
)
|
1,025
|
(17,899
|
)
|
21,058
|
566
|
21,624
|
||||||||||||||||
|
Long-term debt
|
214
|
27
|
241
|
632
|
132
|
764
|
||||||||||||||||||
|
Subordinated debt, net
|
871
|
285
|
1,156
|
414
|
238
|
652
|
||||||||||||||||||
|
Junior subordinated debt
|
-
|
213
|
213
|
-
|
3,571
|
3,571
|
||||||||||||||||||
|
Total FTE interest expense
|
$
|
24,406
|
$
|
42,572
|
$
|
66,978
|
$
|
26,610
|
$
|
96,080
|
$
|
122,690
|
||||||||||||
|
Change in FTE net interest income
|
$
|
26,980
|
$
|
(4,537
|
)
|
$
|
22,443
|
$
|
17,467
|
$
|
(708
|
)
|
$
|
16,759
|
||||||||||
Loans and Corresponding Interest and Fees on Loans
The average balance of loans increased by approximately $1.01 billion, or 11.5%, from 2023 to 2024 driven by the Salisbury acquisition and organic loan growth, with increases in C&I,
CRE, indirect auto and residential mortgage portfolios being partially offset by a reduction in the average balance of residential solar and other consumer loans. The yield on average loans increased from 5.26% in 2023 to 5.64% in 2024, as
loans re-priced upward due to the interest rate environment in 2024. FTE interest income from loans increased 19.5%, from $463.3 million in 2023 to $553.8 million in 2024. This increase was due to the increases in yields and an increase in
the average balance.
Composition of Loan Portfolio
A summary of the loan portfolio by major categories(1), net of deferred fees and origination costs, for the periods indicated is as follows:
|
December 31,
|
||||||||||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
2021
|
2020
|
|||||||||||||||
|
Commercial & industrial
|
$
|
1,426,358
|
$
|
1,353,725
|
$
|
1,265,082
|
$
|
1,155,240
|
$
|
1,121,224
|
||||||||||
|
Commercial real estate
|
3,876,698
|
3,626,910
|
2,807,941
|
2,655,367
|
2,526,813
|
|||||||||||||||
|
Paycheck protection program
|
124
|
523
|
949
|
101,222
|
430,810
|
|||||||||||||||
|
Residential real estate
|
2,142,249
|
2,125,804
|
1,649,870
|
1,571,232
|
1,466,662
|
|||||||||||||||
|
Home equity
|
334,268
|
337,214
|
314,124
|
330,357
|
387,974
|
|||||||||||||||
|
Indirect auto
|
1,273,253
|
1,130,132
|
989,587
|
859,454
|
931,286
|
|||||||||||||||
|
Residential solar
|
820,079
|
917,755
|
856,798
|
440,016
|
282,224
|
|||||||||||||||
|
Other consumer
|
96,881
|
158,650
|
265,796
|
385,571
|
351,892
|
|||||||||||||||
|
Total loans
|
$
|
9,969,910
|
$
|
9,650,713
|
$
|
8,150,147
|
$
|
7,498,459
|
$
|
7,498,885
|
||||||||||
| (1) |
Loans are summarized by business line which does not align with how the Company assesses credit risk in the estimate for credit losses under CECL.
|
Total loans were $9.97 billion and $9.65 billion at December 31, 2024 and 2023, respectively. Excluding the other consumer and residential solar portfolios that are in a planned run-off status,
period end loans increased $478.6 million, or 5.6%. C&I loans increased $72.2 million to $1.43 billion; CRE loans increased $249.8 million to $3.88 billion; and total consumer loans decreased $2.8 million to $4.67 billion. Total loans
represent approximately 72.3% of assets as of December 31, 2024, as compared to 72.5% as of December 31, 2023.
Loans in the C&I and CRE portfolios consist primarily of loans extended to small and medium-sized entities. The Company offers a variety of
loan products tailored to meet the needs of commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business
expansion, equipment purchases, livestock purchases and seasonal crop expenses. These loans are typically collateralized by business assets such as equipment, accounts receivable and perishable agricultural products, which are inherently
subject to industry price volatility. The Company extends CRE loans to support real estate transactions, including acquisitions, refinancings, expansions and property improvements to both commercial and agricultural properties. These loans
are secured by liens on real estate assets, covering a spectrum of properties including apartments, commercial structures, healthcare facilities and others, whether occupied by owners or non-owners. Risks associated with the CRE portfolio
pertain to the borrowers’ ability to meet interest and principal payments over the life of the loan, as well as their ability to secure financing upon the loan’s maturity. The Company has a risk management framework that includes rigorous
underwriting standards, targeted portfolio stress testing, interest rate sensitivities on commercial borrowers and comprehensive credit risk monitoring mechanisms. The Company remains vigilant in monitoring market trends, economic indicators
and regulatory developments to promptly adapt our risk management strategies as needed.
Within the CRE portfolio, approximately 81% comprises Non-Owner Occupied CRE, with the remaining 19% being Owner-Occupied CRE. Non-Owner Occupied CRE includes diverse sectors across the
Company’s markets such as residential rental properties (43%) and office spaces (18%), along with retail, manufacturing, mixed use, hotels and others. Notably, office CRE loans account for 6% of the total outstanding loans, predominantly
serving suburban medical and professional tenants across suburban and small urban markets. These loans carry an average size of $1.9 million, with 9% maturing over the next two years. As of December 31, 2024 and December 31, 2023, the total
CRE construction and development loans amounted to $314.8 million and $347.2 million, respectively.
Residential real estate loans consist primarily of loans secured by a first or second mortgage on primary residences. The Company originates both adjustable-rate and fixed-rate,
one-to-four-family residential loans for the construction or purchase of a residential property or refinancing of a mortgage. These loans are collateralized by properties located in the Company’s market area. The Company has never actively
participated in subprime mortgage lending, which has historically been one of the riskiest sectors in the residential housing market. Given the absence of a universally accepted definition of what constitutes “subprime” lending, the Company
follows guidance from the Office of Thrift Supervision and other federal bank regulators (the “Agencies”), as outlined in the “Expanded Guidance for Subprime Lending Programs,” or the Expanded Guidance, issued by the Agencies by press release
dated January 31, 2001. As of December 31, 2024, there were $40.5 million in residential construction and development loans included in total loans.
The Company participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), a guaranteed, forgivable loan program created under the Coronavirus Aid, Relief and
Economic Security Act (“CARES Act”) and the Consolidated Appropriation Act targeted to provide small businesses with support to cover payroll and certain other expenses. Loans made under the PPP are fully guaranteed by the SBA, the guarantee
is backed by the full faith and credit of the United States government. PPP covered loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain
workers and maintain payroll or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders
will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness. Lenders receive pre-determined fees for processing and servicing PPP loans. In addition, PPP loans are risk-weighted
at zero percent under the generally applicable Standardized Approach used to calculate risk-weighted assets for regulatory capital purposes.
In 2017, the Company partnered with Sungage Financial, LLC. to offer financing to consumers for solar ownership with the program tailored for delivery through solar installers. Advances of
credit through this business line are to prime borrowers and are subject to the Company’s underwriting standards. Typically, the Company collects fees at origination that are deferred and recognized into interest income over the estimated
life of the loan. Residential solar loans are in a planned-run off status.
The Company offers a variety of consumer loan products including indirect auto, home equity and other consumer loans. Indirect auto loans include indirect installment loans to individuals, which
are primarily secured by automobiles. Although automobile loans have generally been originated through dealers, all applications submitted through dealers are subject to the Company’s normal underwriting and loan approval procedures. Other
consumer loans consist of direct installment loans to individuals most secured by automobiles and other personal property and unsecured consumer loans across a national footprint originated through our relationship with national
technology-driven consumer lending companies that began over 10 years ago beginning with our investment in Springstone Financial LLC (“Springstone”) which was subsequently acquired by LendingClub in 2014. Springstone and LendingClub loans are
in a planned run-off status. In addition to installment loans, the Company also offers personal lines of credit, overdraft protection, home equity lines of credit and second mortgage loans (loans secured by a lien position on one-to-four
family residential real estate) to finance home improvements, debt consolidation, education and other uses. For home equity loans, consumers are able to borrow up to 85% of the equity in their homes, and are generally tied to Prime with a ten
year draw followed by a fifteen year amortization.
Loans by Maturity and Interest Rate Sensitivity
The following table presents the maturity distribution and an analysis of loans that have predetermined and floating interest rates. Scheduled repayments are reported in the maturity category in
which the contractual maturity is due. For loans without contractual maturities, classification of maturity is consistent with the policy elections to measure the allowance for credit losses. Specifically, C&I and CRE lines of credit
assume one year maturity for relationships over $1.0 million and five year maturity for relationships under $1.0 million, while home equity line of credits maturities are classified based on their fixed rate conversion date plus five years.
C&I includes PPP and other consumer includes home equity and other consumer loans.
|
Remaining Maturity at December 31, 2024
|
||||||||||||||||||||||||||||
|
(In thousands)
|
C&I
|
CRE
|
Indirect Auto
|
Residential Solar
|
Other Consumer
|
Residential
|
Total
|
|||||||||||||||||||||
|
Within one year
|
$
|
342,668
|
$
|
192,219
|
$
|
11,760
|
$
|
217
|
$
|
17,226
|
$
|
468
|
$
|
564,558
|
||||||||||||||
|
From one to five years
|
563,191
|
1,160,766
|
719,867
|
16,762
|
90,575
|
36,984
|
2,588,145
|
|||||||||||||||||||||
|
From five to fifteen years
|
315,437
|
2,197,911
|
541,626
|
258,232
|
319,451
|
375,232
|
4,007,889
|
|||||||||||||||||||||
|
After fifteen years
|
205,186
|
325,802
|
-
|
544,868
|
3,897
|
1,729,565
|
2,809,318
|
|||||||||||||||||||||
|
Total
|
$
|
1,426,482
|
$
|
3,876,698
|
$
|
1,273,253
|
$
|
820,079
|
$
|
431,149
|
$
|
2,142,249
|
$
|
9,969,910
|
||||||||||||||
|
Interest rate terms on amounts due after one year:
|
||||||||||||||||||||||||||||
|
Fixed
|
$
|
755,929
|
$
|
833,674
|
$
|
1,261,493
|
$
|
819,862
|
$
|
178,174
|
$
|
1,820,592
|
$
|
5,669,724
|
||||||||||||||
|
Variable
|
$
|
327,885
|
$
|
2,850,805
|
$
|
-
|
$
|
-
|
$
|
235,749
|
$
|
321,189
|
$
|
3,735,628
|
||||||||||||||
Securities and Corresponding Interest and Dividend Income
The average balance of taxable securities AFS and HTM decreased $91.9 million, or 3.9%, from 2023 to 2024. The yield on average taxable securities was 1.99% for 2024 compared to 1.90% in 2023.
The average balance of tax-exempt securities AFS and HTM increased from $214.1 million in 2023 to $221.3 million in 2024. The FTE yield on tax-exempt securities increased from 3.14% in 2023 to 3.52% in 2024.
The average balance of FRB and FHLB stock decreased to $37.8 million in 2024 from $48.6 million in 2023. The yield on investments in FRB and FHLB stock increased from 6.92% in 2023 to 7.07% in
2024.
Securities Portfolio
|
As of December 31,
|
||||||||||||||||||||||||
|
2024
|
2023
|
2022
|
||||||||||||||||||||||
|
(In thousands)
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
||||||||||||||||||
|
AFS securities:
|
||||||||||||||||||||||||
|
U.S. treasury
|
$
|
108,838
|
$
|
102,790
|
$
|
133,302
|
$
|
125,024
|
$
|
132,891
|
$
|
121,658
|
||||||||||||
|
Federal agency
|
248,348
|
218,517
|
248,384
|
214,740
|
248,419
|
206,419
|
||||||||||||||||||
|
State & municipal
|
95,457
|
87,490
|
96,251
|
86,306
|
97,036
|
82,851
|
||||||||||||||||||
|
Mortgage-backed
|
512,353
|
464,365
|
473,813
|
422,268
|
536,021
|
473,694
|
||||||||||||||||||
|
Collateralized mortgage obligations
|
725,821
|
656,488
|
614,886
|
541,544
|
669,111
|
588,363
|
||||||||||||||||||
|
Corporate
|
48,482
|
45,014
|
48,442
|
40,976
|
60,404
|
54,240
|
||||||||||||||||||
|
Total AFS securities
|
$
|
1,739,299
|
$
|
1,574,664
|
$
|
1,615,078
|
$
|
1,430,858
|
$
|
1,743,882
|
$
|
1,527,225
|
||||||||||||
|
HTM securities:
|
||||||||||||||||||||||||
|
Federal agency
|
$
|
100,000
|
$
|
83,344
|
$
|
100,000
|
$
|
82,216
|
$
|
100,000
|
$
|
79,322
|
||||||||||||
|
Mortgage-backed
|
224,190
|
189,326
|
245,806
|
213,630
|
267,907
|
230,473
|
||||||||||||||||||
|
Collateralized mortgage obligations
|
228,924
|
206,125
|
251,335
|
228,463
|
274,366
|
249,848
|
||||||||||||||||||
|
State & municipal
|
289,807
|
271,150
|
308,126
|
290,215
|
277,244
|
253,004
|
||||||||||||||||||
|
Total HTM securities
|
$
|
842,921
|
$
|
749,945
|
$
|
905,267
|
$
|
814,524
|
$
|
919,517
|
$
|
812,647
|
||||||||||||
The Company’s mortgage-backed securities, U.S. agency notes and collateralized mortgage obligations are all guaranteed by Fannie Mae, Freddie Mac, FHLB, Federal Farm Credit Banks or Ginnie Mae
(“GNMA”). GNMA securities are considered similar in credit quality to U.S. Treasury securities, as they are backed by the full faith and credit of the U.S. government. Currently, there are no subprime mortgages in the investment portfolio.
The following tables set forth information with regard to contractual maturities of debt securities shown in amortized cost ($) and weighted average yield (%) at December 31, 2024.
Weighted-average yields are an arithmetic computation of income (not FTE adjusted) divided by amortized cost. Maturities of mortgage-backed, collateralized mortgage obligations and asset-backed securities are stated based on their estimated
average lives. Actual maturities may differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
|
Less than 1 Year
|
1 Year to 5 Years
|
5 Years to 10 Years
|
Over 10 Years
|
Total
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
$ |
%
|
$ |
%
|
$
|
%
|
$ |
%
|
$ |
%
|
||||||||||||||||||||||||||||||
|
AFS securities:
|
||||||||||||||||||||||||||||||||||||||||
|
U.S. treasury
|
$
|
29,815
|
1.80
|
%
|
$
|
79,023
|
1.72
|
%
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
108,838
|
1.74
|
%
|
||||||||||||||||||||||
|
Federal agency
|
-
|
-
|
225,600
|
1.02
|
%
|
22,748
|
1.18
|
%
|
-
|
-
|
248,348
|
1.04
|
%
|
|||||||||||||||||||||||||||
|
State & municipal
|
4,001
|
1.69
|
%
|
86,217
|
1.36
|
%
|
5,239
|
1.40
|
%
|
-
|
-
|
95,457
|
1.38
|
%
|
||||||||||||||||||||||||||
|
Mortgage-backed
|
594
|
2.64
|
%
|
87,354
|
1.28
|
%
|
136,867
|
2.45
|
%
|
287,538
|
2.45
|
%
|
512,353
|
2.25
|
%
|
|||||||||||||||||||||||||
|
Collateralized mortgage obligations
|
5,416
|
3.38
|
%
|
146,623
|
2.42
|
%
|
28,662
|
1.52
|
%
|
545,120
|
2.87
|
%
|
725,821
|
2.73
|
%
|
|||||||||||||||||||||||||
|
Corporate
|
-
|
-
|
-
|
-
|
48,482
|
4.03
|
%
|
-
|
-
|
48,482
|
4.03
|
%
|
||||||||||||||||||||||||||||
|
Total AFS securities
|
$
|
39,826
|
2.01
|
%
|
$
|
624,817
|
1.52
|
%
|
$
|
241,998
|
2.52
|
%
|
$
|
832,658
|
2.72
|
%
|
$
|
1,739,299
|
2.25
|
%
|
||||||||||||||||||||
|
HTM securities:
|
||||||||||||||||||||||||||||||||||||||||
|
Federal agency
|
$
|
-
|
-
|
$
|
25,000
|
1.01
|
%
|
$
|
75,000
|
1.14
|
%
|
$
|
-
|
-
|
$
|
100,000
|
1.11
|
%
|
||||||||||||||||||||||
|
Mortgage-backed
|
-
|
-
|
3,483
|
3.49
|
%
|
12,128
|
4.23
|
%
|
208,579
|
2.01
|
%
|
224,190
|
2.15
|
%
|
||||||||||||||||||||||||||
|
Collateralized mortgage obligations
|
-
|
-
|
69,154
|
3.03
|
%
|
33,855
|
2.77
|
%
|
125,915
|
2.73
|
%
|
228,924
|
2.83
|
%
|
||||||||||||||||||||||||||
|
State & municipal
|
97,329
|
3.58
|
%
|
65,769
|
2.45
|
%
|
72,587
|
1.90
|
%
|
54,122
|
1.81
|
%
|
289,807
|
2.57
|
%
|
|||||||||||||||||||||||||
|
Total HTM securities
|
$
|
97,329
|
3.58
|
%
|
$
|
163,406
|
2.50
|
%
|
$
|
193,570
|
1.90
|
%
|
$
|
388,616
|
2.22
|
%
|
$
|
842,921
|
2.36
|
%
|
||||||||||||||||||||
Funding Sources and Corresponding Interest Expense
The Company utilizes traditional deposit products such as time, savings, NOW, money market and demand deposits as its primary source for funding. Other sources, such as short-term FHLB advances,
federal funds purchased, securities sold under agreements to repurchase, brokered time deposits and long-term FHLB borrowings are utilized as necessary to support the Company’s growth in assets and to achieve interest rate sensitivity
objectives. The average balance of interest-bearing liabilities totaled $8.38 billion in 2024 and increased $906.1 million from 2023. The increase was primarily driven by the interest-bearing deposits acquired from Salisbury partially offset
by a decrease in short-term borrowings. The rate paid on interest-bearing liabilities increased from 1.93% in 2023 to 2.52% in 2024. This increase in rates caused an increase in interest expense of $67.0 million, or 46.3%, from $144.6 million
in 2023 to $211.5 million in 2024.
Deposits
Average interest-bearing deposits increased $1.22 billion, or 18.2%, from 2023 to 2024. Average money market deposits increased $890.0
million, or 36.8%, during 2024 compared to 2023. Average NOW accounts increased $62.0 million, or 4.0%, during 2024 as compared to 2023. The average balance of savings accounts decreased $135.2 million, or 7.9%, during 2024 compared to
2023. The average balance of time deposits increased $401.5 million, or 39.9%, from 2023 to 2024. The average balance of demand deposits decreased $86.3 million, or 2.5%, during 2024 compared to 2023. The Company continues to experience
some migration incremental from noninterest bearing and low interest checking and savings
accounts into higher cost money market and time deposit instruments. The increase in average balances was primarily due to the $1.31 billion in deposits acquired from Salisbury in the third quarter of 2023. The Company’s composition of
total deposits is diverse and granular with over 561,000 accounts with an average per account balance of $20,574 as of December 31, 2024.
The rate paid on average interest-bearing deposits was up 80 bps to 2.36% for 2024. The rate paid for MMDA increased 96 bps to 3.54% from 2023 to 2024. The rate paid for NOW deposit accounts increased from 0.53% in 2023 to 0.83% in 2024.
The rate paid for savings deposits increased from 0.04% in 2023 to 0.05% in 2024. The rate paid for time deposits increased from 3.30% during 2023 to 3.96% during 2024.
|
Years Ended December 31,
|
||||||||||||||||||||||||
|
2024
|
2023
|
2022
|
||||||||||||||||||||||
|
(In thousands)
|
Average
Balance
|
Yield/Rate
|
Average
Balance
|
Yield/Rate
|
Average
Balance
|
Yield/Rate
|
||||||||||||||||||
|
Demand deposits
|
$
|
3,377,352
|
$
|
3,463,608
|
$
|
3,696,957
|
||||||||||||||||||
|
Money market deposit accounts
|
3,308,433
|
3.54
|
%
|
2,418,450
|
2.58
|
%
|
2,447,978
|
0.20
|
%
|
|||||||||||||||
|
NOW deposit accounts
|
1,617,456
|
0.83
|
%
|
1,555,414
|
0.53
|
%
|
1,578,831
|
0.16
|
%
|
|||||||||||||||
|
Savings deposits
|
1,580,517
|
0.05
|
%
|
1,715,749
|
0.04
|
%
|
1,829,360
|
0.03
|
%
|
|||||||||||||||
|
Time deposits
|
1,408,410
|
3.96
|
%
|
1,006,867
|
3.30
|
%
|
464,912
|
0.38
|
%
|
|||||||||||||||
|
Total interest-bearing deposits
|
$
|
7,914,816
|
2.36
|
%
|
$
|
6,696,480
|
1.56
|
%
|
$
|
6,321,081
|
0.16
|
%
|
||||||||||||
The following table presents the estimated amounts of uninsured deposits based on the same methodologies and assumptions used for the bank regulatory reporting:
|
As of December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Estimated amount of uninsured deposits
|
$
|
4,731,363
|
$
|
4,077,186
|
$
|
3,555,342
|
||||||
The following table presents the maturity distribution of time deposits of $250,000 or more:
|
(In thousands)
|
December 31, 2024
|
|||
|
Portion of time deposits in excess of insurance limit
|
$
|
251,607
|
||
|
Time deposits otherwise uninsured with a maturity of:
|
||||
|
Within three months
|
$
|
127,284
|
||
|
After three but within six months
|
97,092
|
|||
|
After six but within twelve months
|
4,632
|
|||
|
Over twelve months
|
22,599
|
|||
Borrowings
Average federal funds purchased decreased to $13.0 million in 2024. The rate paid on federal funds purchased was 5.54% in 2024. Average repurchase agreements increased to $95.9 million in 2024
from $70.3 million in 2023. The average rate paid on repurchase agreements increased from 1.06% in 2023 to 2.35% in 2024. Average short-term borrowings decreased to $104.0 million in 2024 from $450.4 million in 2023. The average rate paid on
short-term borrowings increased from 5.24% in 2023 to 5.48% in 2024. Average long-term debt increased from $24.2 million in 2023 to $29.7 million in 2024. The average balance of junior subordinated debt remained at $101.2 million in 2024. The
average rate paid for junior subordinated debt in 2024 was 7.44%, up from 7.23% in 2023.
Total short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, which generally represent overnight borrowing transactions and other short-term
borrowings, primarily FHLB advances, with original maturities of one year or less. The Company has unused lines of credit with the FHLB and access to brokered deposits available for short-term financing. Those sources totaled approximately
$3.46 billion and $2.87 billion at December 31, 2024 and 2023, respectively. Securities collateralizing repurchase agreements are held in safekeeping by nonaffiliated financial institutions and are under the Company’s control. Long-term debt,
which is comprised primarily of FHLB advances, are collateralized by the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket lien on its residential real estate mortgage loans.
On June 23, 2020, the Company issued $100.0 million of 5.00% fixed-to-floating rate subordinated notes due 2030. The subordinated notes, which qualify as Tier 2 capital, bear interest at an
annual rate of 5.00%, payable semi-annually in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025. The
subordinated debt issuance cost of $2.2 million is being amortized on a straight-line basis into interest expense over five years. The Company repurchased $2.0 million of the subordinated notes in 2022 at a discount of $0.1 million.
Subordinated notes assumed in connection with the Salisbury acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which
qualify as Tier 2 capital, bear interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in
arrears commencing on June 30, 2026. As of the acquisition date, the fair value discount was $3.0 million, which will be amortized into interest expense over the expected call or maturity date.
As of December 31, 2024 and December 31, 2023 the subordinated debt net of unamortized issuance costs and fair value discount was $121.2 million and $119.7 million, respectively.
Noninterest Income
Noninterest income is a significant source of revenue for the Company and an important factor in the Company’s results of operations. The following table sets forth information by category of
noninterest income for the years indicated:
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Service charges on deposit account
|
$
|
17,087
|
$
|
15,425
|
$
|
14,630
|
||||||
|
Card services income
|
22,331
|
20,829
|
29,058
|
|||||||||
|
Retirement plan administration fees
|
56,587
|
47,221
|
48,112
|
|||||||||
|
Wealth management
|
41,641
|
34,763
|
33,311
|
|||||||||
|
Insurance services
|
17,032
|
15,667
|
14,696
|
|||||||||
|
Bank owned life insurance income
|
8,325
|
6,750
|
6,044
|
|||||||||
|
Net securities gains (losses)
|
2,789
|
(9,315
|
)
|
(1,131
|
)
|
|||||||
|
Other
|
11,032
|
10,838
|
10,858
|
|||||||||
|
Total noninterest income
|
$
|
176,824
|
$
|
142,178
|
$
|
155,578
|
||||||
Noninterest income for the year ended December 31, 2024 was $176.8 million, up $34.6 million, or 24.4%, from the year ended December 31, 2023. Excluding net
securities gains (losses), noninterest income for the year ended December 31, 2024 was $174.0 million, up $22.5 million, or 14.9%, from the year ended December 31, 2023. The increase from the prior year was primarily due to an increase in
retirement plan administration fees and wealth management fees. The increase in retirement plan administration fees was driven by higher market level, the acquisition of Retirement Direct, LLC and PACO, Inc., organic growth and higher
activity-based fees. The increase in wealth management fees was driven by the addition of Salisbury revenues, organic growth and market performance.
Noninterest Expense
Noninterest expenses are also an important factor in the Company’s results of operations. The following table sets forth the major components of noninterest expense for the years indicated:
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Salaries and employee benefits
|
$
|
232,487
|
$
|
194,250
|
$
|
187,830
|
||||||
|
Technology and data services
|
39,139
|
38,163
|
35,712
|
|||||||||
|
Occupancy
|
31,309
|
28,408
|
26,282
|
|||||||||
|
Professional fees and outside services
|
19,132
|
17,601
|
16,810
|
|||||||||
|
Office supplies and postage
|
7,525
|
6,917
|
6,140
|
|||||||||
|
FDIC assessment
|
6,765
|
6,257
|
3,197
|
|||||||||
|
Advertising
|
3,386
|
3,054
|
2,822
|
|||||||||
|
Amortization of intangible assets
|
8,443
|
4,734
|
2,263
|
|||||||||
|
Loan collection and other real estate owned, net
|
2,505
|
2,618
|
2,647
|
|||||||||
|
Acquisition expenses
|
1,531
|
9,978
|
967
|
|||||||||
|
Other
|
25,659
|
29,684
|
19,795
|
|||||||||
|
Total noninterest expense
|
$
|
377,881
|
$
|
341,664
|
$
|
304,465
|
||||||
Noninterest expense for the year ended December 31, 2024 was $377.9 million, up $36.2 million, or 10.6%, from the year ended December 31,
2023. Excluding acquisition expenses and the impairment of a minority interest equity investment, noninterest expense for the year ended December 31, 2024 was $376.4 million, up $49.4 million, or 15.1%, from the year ended December 31,
2023. The increase from the prior year was driven by higher salaries and employee benefits due to the Salisbury acquisition, merit pay increases, higher levels of incentive compensation and higher medical and other benefit costs. In
addition, the increase in occupancy expense, professional fees and outside services and amortization of intangible assets were impacted by additional expenses from the Salisbury acquisition.
Income Taxes
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent
year. Adjustments based on filed returns are recorded when identified, which is generally in the fourth quarter of the subsequent year for U.S. federal and state provisions.
The amount of income taxes the Company pays is subject at times to ongoing audits by U.S. federal and state tax authorities, which may result in proposed assessments. Future results may include
favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are proposed or resolved or when statutes of limitations on potential assessments expire. As a result, the Company’s effective tax rate may
fluctuate significantly on a quarterly or annual basis.
On August 16, 2022, H.R. 5376, the Inflation Reduction Act (“IRA”), was signed into law. The IRA, among other things, introduced a corporate
alternative minimum tax, excise tax on stock repurchases and a clean vehicle credit. The Company has evaluated the impact of the IRA and does not expect it to be material. However, the Company will continue to monitor any future implication on
its tax position and business operations.
Income tax expense for the year ended December 31, 2024 was $38.8 million, up $4.1 million, or 11.9%, from the year ended December 31, 2023. The effective tax rate
was 21.6% in 2024 and was 22.6% in 2023. The decrease in the effective tax rate from 2023 was due to a higher level of tax-exempt income as a percentage of total taxable income.
Risk Management – Credit Risk
Credit risk is managed through a network of loan officers, credit committees, loan policies and oversight from senior credit officers and the
Board. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in each loan portfolio. An ongoing independent review of individual credits in the commercial loan portfolio is performed by the
independent loan review function. These components of the Company’s underwriting and monitoring functions are critical to the timely identification, classification and resolution of problem credits.
Allowance for Credit Losses
Beginning January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage
Disclosures (“ASU 2022-02”), which resulted in an insignificant change to the Company’s methodology for estimating the allowance for credit losses on TDRs since December 31, 2022. The January 1, 2023 decrease in allowance for credit
loss on TDR loans relating to adoption of ASU 2022-02 was $0.6 million, which increased retained earnings by $0.5 million and decreased the deferred tax asset by $0.1 million.
Management considers the accounting policy relating to the allowance for credit losses to be a critical estimate given the degree of judgment exercised in evaluating the level of the allowance
required to estimate expected credit losses over the expected contractual life of our loan portfolio and the material effect that such judgments can have on the consolidated results of operations.
The CECL methodology requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from,
or added to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. Loan losses are charged off against the allowance when management believes a loan balance is confirmed to be
uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Required additions or reductions to the allowance for credit losses are made periodically by charges or credits to the provision for loan
losses. These are necessary to maintain the allowance at a level which management believes is reasonably reflective of the overall loss expected over the contractual life of the loan portfolio, adjusted for expected prepayments and
curtailments. While management uses available information to recognize losses on loans, additions or reductions to the allowance may fluctuate from one reporting period to another. These fluctuations are reflective of changes in risk
associated with portfolio content and/or changes in management’s assessment of any or all of the determining factors discussed above. Management considers the allowance for credit losses to be appropriate based on evaluation and analysis
of the loan portfolio.
Management estimates the allowance balance for credit losses using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable
and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Company historical loss experience was supplemented with peer information when there was insufficient loss data for
the Company. Significant management judgment is required at each point in the measurement process.
The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is
applied on a quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each segment is measured using an econometric, discounted PD and LGD modeling methodology in which distinct,
segment-specific multi-variate regression models are applied to multiple, probabilistically weighted external economic forecasts. Under the discounted cash flows methodology, expected credit losses are estimated over the effective
life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. After quantitative considerations, management applies additional qualitative adjustments so that the allowance
for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Upon adoption of CECL, management
revised the manner in which loans were pooled for similar risk characteristics. Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have
been combined or subsegmented as needed to ensure loans of similar risk profiles are appropriately pooled.
Additional information about our Allowance for Credit Losses is included in Notes 1 and 6 to the consolidated financial statements as well as in the “Critical Accounting Estimates” section of
the Management Discussion and Analysis. The Company’s management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio.
The allowance for credit losses totaled $116.0 million at December 31, 2024, compared to $114.4 million at December 31, 2023. The allowance for credit losses as a percentage of loans was 1.16%
at December 31, 2024, compared to 1.19% at December 31, 2023. The increase in the allowance for credit losses from December 31, 2023 to December 31, 2024 was primarily due to providing for organic loan growth, the slowing of prepayment speed
assumptions, including the changes in prepayment model assumptions. These increases to the allowance for credit losses were partially offset by a change in forecast scenario weightings from 70% baseline and 30% downside to 80% baseline and
20% downside, and the shift in loan composition driven by other consumer and residential solar portfolios that are in a planned run-off status.
The allowance for credit losses as of December 31, 2023 incorporates the recording of $14.5 million of allowance for acquired Salisbury loans as of the acquisition date, which included both the
$8.8 million of non-PCD allowance recognized through the provision for loan losses and the $5.8 million of PCD allowance reclassified from loans.
The allowance for credit losses was 224.73% of nonperforming loans at December 31, 2024 as compared to 302.05% at December 31, 2023. The
allowance for credit losses was 253.17% of nonaccrual loans at December 31, 2024 as compared to 334.38% at December 31, 2023. The decline in the coverage of the allowance to nonperforming and nonaccrual loans from December 31, 2023 to
December 31, 2024 largely relates to one nonperforming relationship with an amortized cost basis of $14.0 million that is individually evaluated for purposes of the allowance for credit losses which had no reserve established at December
31, 2024.
The provision for loan losses was $19.6 million for the year ended December 31, 2024, compared to $25.3 million for the year ended December 31, 2023. Provision expense decreased from the prior
year primarily due to the $8.8 million of acquisition-related provision for loan losses due to the Salisbury acquisition recorded in 2023, providing for current year loan growth, the slowing of prepayment speed assumptions in the current year,
changes in model assumptions including the extension of the expected duration of the portfolio. Net charge-offs totaled $18.0 million for 2024, up from $16.8 million in 2023. Net charge-offs to average loans was 18 bps for 2024 compared to 19
bps for 2023.
|
(Dollars in thousands)
|
2024
|
2023
|
2022
|
2021
|
2020
|
|||||||||||||||
|
Balance at January 1*
|
$
|
114,400
|
$
|
100,152
|
$
|
92,000
|
$
|
110,000
|
$
|
75,999
|
||||||||||
|
Loans charged-off
|
||||||||||||||||||||
|
Commercial
|
5,042
|
4,154
|
1,870
|
4,638
|
4,005
|
|||||||||||||||
|
Residential
|
211
|
517
|
633
|
979
|
1,135
|
|||||||||||||||
|
Consumer**
|
20,475
|
22,107
|
16,140
|
14,489
|
21,938
|
|||||||||||||||
|
Total loans charged-off
|
$
|
25,728
|
$
|
26,778
|
$
|
18,643
|
$
|
20,106
|
$
|
27,078
|
||||||||||
|
Recoveries
|
||||||||||||||||||||
|
Commercial
|
$
|
839
|
$
|
3,625
|
$
|
2,430
|
$
|
723
|
$
|
786
|
||||||||||
|
Residential
|
415
|
496
|
852
|
1,069
|
618
|
|||||||||||||||
|
Consumer**
|
6,467
|
5,859
|
7,014
|
8,571
|
8,541
|
|||||||||||||||
|
Total recoveries
|
$
|
7,721
|
$
|
9,980
|
$
|
10,296
|
$
|
10,363
|
$
|
9,945
|
||||||||||
|
Net loans charged-off
|
$
|
18,007
|
$
|
16,798
|
$
|
8,347
|
$
|
9,743
|
$
|
17,133
|
||||||||||
|
Allowance for credit loss on PCD acquired loans
|
$
|
-
|
$
|
5,772
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
|
Provision for loan losses
|
19,607
|
25,274
|
17,147
|
(8,257
|
)
|
51,134
|
||||||||||||||
|
Balance at December 31
|
$
|
116,000
|
$
|
114,400
|
$
|
100,800
|
$
|
92,000
|
$
|
110,000
|
||||||||||
|
Allowance for loan losses to loans outstanding at end of year
|
1.16
|
%
|
1.19
|
%
|
1.24
|
%
|
1.23
|
%
|
1.47
|
%
|
||||||||||
|
Commercial net charge-offs to average loans outstanding
|
0.04
|
%
|
0.01
|
%
|
(0.01
|
)%
|
0.05
|
%
|
0.04
|
%
|
||||||||||
|
Residential net charge-offs to average loans outstanding
|
-
|
-
|
-
|
-
|
0.01
|
%
|
||||||||||||||
|
Consumer net charge-offs to average loans outstanding
|
0.14
|
%
|
0.18
|
%
|
0.12
|
%
|
0.08
|
%
|
0.18
|
%
|
||||||||||
|
Net charge-offs to average loans outstanding
|
0.18
|
%
|
0.19
|
%
|
0.11
|
%
|
0.13
|
%
|
0.23
|
%
|
||||||||||
| * |
2020 includes an adjustment of $3.0 million as a result of the January 1, 2020, adoption of ASC 326 and 2023 includes an adjustment of $0.6 million as a result of the January 1, 2023, adoption of ASU
2022-02.
|
|
**
|
Consumer charge-off and recoveries include consumer and home equity.
|
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loans modifications, OREO and
nonperforming securities. Loans are generally placed on nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection. Loans may also be placed on nonaccrual when
circumstances indicate that the borrower may be unable to meet the contractual principal or interest payments. The threshold for evaluating classified commercial and CRE loans risk graded substandard or doubtful, and nonperforming loans
individually evaluated for credit loss is $1.0 million. OREO represents property acquired through foreclosure and is valued at the lower of the carrying amount or fair value, less any estimated disposal costs.
|
|
As of December 31,
|
|||||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
2024
|
%
|
2023
|
%
|
2022
|
%
|
2021
|
%
|
2020
|
%
|
||||||||||||||||||||||||||||||
|
Nonaccrual loans:
|
||||||||||||||||||||||||||||||||||||||||
|
Commercial
|
$
|
32,144
|
70
|
%
|
$
|
21,567
|
63
|
%
|
$
|
7,664
|
44
|
%
|
$
|
15,942
|
53
|
%
|
$
|
23,557
|
53
|
%
|
||||||||||||||||||||
|
Residential
|
10,464
|
23
|
%
|
9,632
|
28
|
%
|
4,835
|
28
|
%
|
8,862
|
29
|
%
|
13,082
|
29
|
%
|
|||||||||||||||||||||||||
|
Consumer
|
2,529
|
6
|
%
|
2,566
|
8
|
%
|
1,667
|
10
|
%
|
1,511
|
5
|
%
|
3,020
|
7
|
%
|
|||||||||||||||||||||||||
|
Troubled loan modifications(1)
|
682
|
1
|
%
|
448
|
1
|
%
|
3,067
|
18
|
%
|
3,970
|
13
|
%
|
4,988
|
11
|
%
|
|||||||||||||||||||||||||
|
Total nonaccrual loans
|
$
|
45,819
|
100
|
%
|
$
|
34,213
|
100
|
%
|
$
|
17,233
|
100
|
%
|
$
|
30,285
|
100
|
%
|
$
|
44,647
|
100
|
%
|
||||||||||||||||||||
|
Loans over 90 days past due and still accruing:
|
||||||||||||||||||||||||||||||||||||||||
|
Commercial
|
$
|
-
|
-
|
$
|
1
|
-
|
$
|
4
|
-
|
$
|
-
|
-
|
$
|
493
|
16
|
%
|
||||||||||||||||||||||||
|
Residential
|
2,411
|
42
|
%
|
554
|
15
|
%
|
771
|
20
|
%
|
808
|
33
|
%
|
518
|
16
|
%
|
|||||||||||||||||||||||||
|
Consumer
|
3,387
|
58
|
%
|
3,106
|
85
|
%
|
3,048
|
80
|
%
|
1,650
|
67
|
%
|
2,138
|
68
|
%
|
|||||||||||||||||||||||||
|
Total loans over 90 days past due and still accruing
|
$
|
5,798
|
100
|
%
|
$
|
3,661
|
100
|
%
|
$
|
3,823
|
100
|
%
|
$
|
2,458
|
100
|
%
|
$
|
3,149
|
100
|
%
|
||||||||||||||||||||
|
Total nonperforming loans
|
$
|
51,617
|
$
|
37,874
|
$
|
21,056
|
$
|
32,743
|
$
|
47,796
|
||||||||||||||||||||||||||||||
|
OREO
|
182
|
-
|
105
|
167
|
1,458
|
|||||||||||||||||||||||||||||||||||
|
Total nonperforming assets
|
$
|
51,799
|
$
|
37,874
|
$
|
21,161
|
$
|
32,910
|
$
|
49,254
|
||||||||||||||||||||||||||||||
|
Total nonaccrual loans to total loans
|
0.46
|
%
|
0.35
|
%
|
0.21
|
%
|
0.40
|
%
|
0.60
|
%
|
||||||||||||||||||||||||||||||
|
Total nonperforming loans to total loans
|
0.52
|
%
|
0.39
|
%
|
0.26
|
%
|
0.44
|
%
|
0.64
|
%
|
||||||||||||||||||||||||||||||
|
Total nonperforming assets to total assets
|
0.38
|
%
|
0.28
|
%
|
0.18
|
%
|
0.27
|
%
|
0.45
|
%
|
||||||||||||||||||||||||||||||
|
Total allowance for loan losses to nonperforming loans
|
224.73
|
%
|
302.05
|
%
|
478.72
|
%
|
280.98
|
%
|
230.14
|
%
|
||||||||||||||||||||||||||||||
|
Total allowance for loan losses to nonaccrual loans
|
253.17
|
%
|
334.38
|
%
|
584.92
|
%
|
303.78
|
%
|
246.38
|
%
|
||||||||||||||||||||||||||||||
(1) TDRs prior to adoption of ASU 2022-02.
Total nonperforming assets were $51.8 million at December 31, 2024, compared to $37.9 million at December 31, 2023. Nonperforming loans at
December 31, 2024 were $51.6 million or 0.52% of total loans, compared with $37.9 million or 0.39% of total loans at December 31, 2023. The increase in nonperforming assets from
the same period in the prior year was attributable to a CRE relationship that was placed into a nonaccrual status in the fourth quarter of 2024. The relationship is being actively managed and was written down to estimated fair value in the fourth quarter of 2024, and as such, no specific reserve has been established. Total nonaccrual loans were $45.8 million or 0.46% of total loans
at December 31, 2024, compared to $34.2 million or 0.35% of total loans at December 31, 2023. Past due loans as a percentage of total loans was 0.34% at December 31, 2024, up from 0.32% of total loans at December 31, 2023.
In addition to nonperforming loans discussed above, the Company has also identified approximately $116.1 million in potential problem loans at
December 31, 2024 as compared to $87.7 million at December 31, 2023. Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected. Such loans may need to be disclosed as
nonperforming at some time in the future. Potential problem loans are classified by the Company’s loan rating system as “substandard.” Potential problem loans have increased to
more normalized levels and the increase primarily relates to a few CRE relationships reflecting changing conditions in certain CRE markets including construction delays, rising costs and delays in leasing up spaces. The increase in
potential problem loans from December 31, 2023 is primarily due to the net migration of $41.9 million to substandard, partially offset by an increase of $10.0 million in nonaccrual commercial loan balances. Management cannot predict the
extent to which economic conditions may worsen or other factors, which may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become over 90 days past due, be placed on
nonaccrual, become troubled loans modifications or require increased allowance coverage and provision for loan losses. To mitigate this risk the Company maintains a diversified loan portfolio, has no significant concentration in any
particular industry and originates loans primarily within its footprint.
Allocation of the Allowance for Loan Losses
|
December 31,
|
||||||||||||||||||||||||||||||||||||||||
|
2024
|
2023
|
2022
|
2021
|
2020
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in thousands)
|
Allowance
|
Category
Percent of
Loans
|
Allowance
|
Category
Percent of
Loans
|
Allowance
|
Category
Percent of
Loans
|
Allowance
|
Category
Percent of
Loans
|
Allowance
|
Category
Percent of
Loans
|
||||||||||||||||||||||||||||||
|
Commercial
|
$
|
45,453
|
51
|
%
|
$
|
45,903
|
50
|
%
|
$
|
34,722
|
48
|
%
|
$
|
28,941
|
51
|
%
|
$
|
50,942
|
53
|
%
|
||||||||||||||||||||
|
Residential
|
26,560
|
27
|
%
|
22,070
|
27
|
%
|
15,127
|
26
|
%
|
18,806
|
27
|
%
|
21,255
|
26
|
%
|
|||||||||||||||||||||||||
|
Consumer
|
43,987
|
22
|
%
|
46,427
|
23
|
%
|
50,951
|
26
|
%
|
44,253
|
22
|
%
|
37,803
|
21
|
%
|
|||||||||||||||||||||||||
|
Total
|
$
|
116,000
|
100
|
%
|
$
|
114,400
|
100
|
%
|
$
|
100,800
|
100
|
%
|
$
|
92,000
|
100
|
%
|
$
|
110,000
|
100
|
%
|
||||||||||||||||||||
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company has exposure to credit risk via a contractual obligation to extend credit, unless that obligation is
unconditionally cancellable by the Company. The allowance for losses on off-balance sheet credit exposures is adjusted as an expense in other noninterest expense. The estimate includes consideration of the likelihood that funding will occur
and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for losses on unfunded commitments totaled $4.4 million as of December 31, 2024, compared to $5.1 million as of December
31, 2023. December 31, 2023 included $0.8 million of acquisition-related provision for unfunded loan commitments.
Liquidity Risk
Liquidity risk arises from the possibility that the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternate funding sources. The
objective of liquidity management is to ensure the Company can fund balance sheet growth, meet the cash flow requirements of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. Management’s ALCO is responsible for liquidity management and has developed guidelines, which cover all assets and liabilities, as well as off-balance sheet items that are potential sources or uses of liquidity. Liquidity
policies must also provide the flexibility to implement appropriate strategies, along with regular monitoring of liquidity and testing of the contingent liquidity plan. Requirements change as loans grow, deposits and securities mature and
payments on borrowings are made. Liquidity management includes a focus on interest rate sensitivity management with a goal of avoiding widely fluctuating net interest margins through periods of changing economic conditions. Loan repayments
and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the
housing market, general and local economic conditions, and competition in the marketplace. Management continually monitors marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset
prepayments.
The primary liquidity measurement the Company utilizes is called “Basic Surplus,” which captures the adequacy of its access to reliable sources of cash relative to the stability of its funding
mix of average liabilities. This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary. At
December 31, 2024, the Company’s Basic Surplus measurement was 17.0% of total assets, or $2.34 billion, as compared to the December 31, 2023 Basic Surplus of 11.6%, or $1.54 billion, and was above the Company’s minimum of 5% (calculated at
$689.3 million and $665.5 million, of period end total assets as of December 31, 2024 and December 31, 2023, respectively) set forth in its liquidity policies.
At December 31, 2024 and 2023, FHLB advances outstanding totaled $45.6 million and $322.7 million, respectively. At December 31, 2024 and 2023, the Bank had $199.0 million and $77.0 million,
respectively, of collateral encumbered by municipal letters of credit. The Bank is a member of the FHLB system and had additional borrowing capacity from the FHLB of approximately $1.71 billion at December 31, 2024 and $1.11 billion at
December 31, 2023. In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $957.3 million and $823.3 million at December 31, 2024 and 2023, respectively, or used to collateralize
other borrowings, such as repurchase agreements. The Company also has the ability to issue brokered time deposits and to borrow against established borrowing facilities with other banks (federal funds), which could provide additional
liquidity of $2.01 billion at December 31, 2024 and December 31, 2023. In addition, the Bank has a “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge automobile and residential solar loans as collateral. At
December 31, 2024 and 2023, the Bank had the capacity to borrow $1.13 billion and $1.02 billion, respectively, from this program. The Company’s internal policies authorize borrowing up to 25% of assets. Under this policy, remaining available
borrowing capacity totaled $3.38 billion at December 31, 2024 and $2.99 billion at December 31, 2023.
This Basic Surplus approach enables the Company to appropriately manage liquidity from both operational and contingency perspectives. By
tempering the need for cash flow liquidity with reliable borrowing facilities, the Company is able to operate with a more fully invested and, therefore, higher interest income generating securities portfolio. The makeup and term structure
of the securities portfolio is, in part, impacted by the overall interest rate sensitivity of the balance sheet. Investment decisions and deposit pricing strategies are impacted by the liquidity position. The Company considers its Basic
Surplus position to be strong. However, certain events may adversely impact the Company’s liquidity position in 2025. While short-term interest rates have declined, they
remain elevated relative to recent history, which could result in deposit declines as depositors have alternative opportunities for yield on their excess funds. In the current economic environment, draws against lines of credit
could drive asset growth higher. Disruptions in wholesale funding markets could spark increased competition for deposits. These scenarios could lead to a decrease in the Company’s Basic Surplus measure below the minimum policy level of
5%. Note, enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the pandemic including increasing the frequency of monitoring and adding additional sources of liquidity. While the pandemic
has come to an end, this enhanced monitoring continues as elevated interest rates and the recent bank failures have led to a deposit decline in the banking system and increased volatility to liquidity risk.
At December 31, 2024, a portion of the Company’s loans and securities were pledged as collateral on borrowings. Therefore, once on-balance sheet liquidity is reduced, future growth of earning
assets will depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management and may require further use of brokered time deposits or other higher cost borrowing arrangements.
Net cash flows provided by operating activities totaled $188.6 million and $157.5 million in 2024 and 2023, respectively. The critical elements of net operating cash flows include net income,
adjusted for non-cash income and expense items such as the provision for loan losses, deferred income tax expense, depreciation and amortization and cash flows generated through changes in other assets and liabilities.
Net cash flows used in investing activities totaled $399.2 million and $44.2 million in 2024 and 2023, respectively. Critical elements of investing activities are loan and investment securities
transactions.
Net cash flows provided by financing activities totaled $289.5 million and net cash flows used in financing activities totaled $105.4 million
in 2024 and 2023. The critical elements of financing activities are proceeds from deposits, borrowings and stock issuance. In addition, financing activities are impacted by dividends and treasury stock transactions.
Commitments to Extend Credit
The Company makes contractual commitments to extend credit, which include unused lines of credit, which are subject to the Company’s credit approval and monitoring procedures. At December
31, 2024 and 2023, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $2.84 billion and $2.68 billion, respectively. In the opinion of management, there are no material commitments to extend
credit, including unused lines of credit that represent unusual risks. All commitments to extend credit in the form of loans, including unused lines of credit, expire within one year.
Standby Letters of Credit
The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit. The Company guarantees the obligations or performance
of customers by issuing standby letters of credit to third-parties. These standby letters of credit are generally issued in support of third-party debt, such as corporate debt issuances, industrial revenue bonds and municipal securities. The
risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers and letters of credit are subject to the same credit origination, portfolio maintenance and
management procedures in effect to monitor other credit and off-balance sheet products. Typically, these instruments have one-year expirations terms with an option to renew upon annual review; therefore, the total amounts do not necessarily
represent future cash requirements. At December 31, 2024 and 2023, standby letters of credit were $50.8 million and $44.7 million, respectively. As of December 31, 2024 and 2023, the fair value of the Company’s standby letters of credit was
not significant. The following table sets forth the commitment expiration period for standby letters of credit at:
|
(In thousands)
|
December 31, 2024
|
|||
|
Within one year
|
$
|
38,810
|
||
|
After one but within three years
|
11,109
|
|||
|
After three but within five years
|
590
|
|||
|
After five years
|
323
|
|||
|
Total
|
$
|
50,832
|
||
Interest Rate Swaps
The Company records all derivatives at fair value on the consolidated balance sheet. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative,
whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and
qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. The Company may enter into derivative
contracts that are intended to economically hedge certain of its risks, even if hedge accounting does not apply or if the Company elects not to apply hedge accounting. For derivatives designated as fair value hedges, changes in the fair value
of the derivative and the hedged item related to the hedged risk are recognized in earnings.
When the Company purchases or sells a portion of a commercial loan that has an existing interest rate swap, it may enter into a risk
participation agreement to provide credit protection to the financial institution that originated the swap transaction should the borrower fail to perform on its obligation. The Company enters into both risk participation agreements
in which it purchases credit protection from other financial institutions and those in which it provides credit protection to other financial institutions. Any fee paid to the Company under a risk participation agreement is in
consideration of the credit risk of the counterparties and is recognized in the income statement. Credit risk on the risk participation agreements is determined after considering the risk rating, PD and LGD of the counterparties.
Loans Serviced for Others and Loans Sold with Recourse
The total amount of loans serviced by the Company for unrelated third parties was approximately $982.5 million and $856.9 million at December 31, 2024 and 2023, respectively. At December 31,
2024 and 2023, the Company had $0.9 million and $1.0 million, respectively, of mortgage servicing rights. At December 31, 2024 and 2023, the Company serviced $24.7 million and $26.4 million, respectively, of agricultural loans sold with
recourse. Due to sufficient collateral on these loans and government guarantees, no reserve is considered necessary at December 31, 2024 and 2023.
Capital Resources
Consistent with its goal to operate a sound and profitable financial institution, the Company actively seeks to maintain a “well-capitalized” institution in accordance with regulatory standards.
The principal source of capital to the Company is earnings retention. The Company’s and the Bank’s capital measurements are in excess of both regulatory minimum guidelines and meet the requirements to be considered well-capitalized.
The Company’s primary source of funds is dividends from its subsidiaries. Various laws and regulations restrict the ability of banks to pay dividends to their stockholders. Generally, the
payment of dividends by the Company in the future as well as the payment of interest on the capital securities will require the generation of sufficient future earnings by its subsidiaries.
Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends. The approval of the OCC is required to pay dividends when a bank
fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC
regulations. At December 31, 2024 and 2023, approximately $107.6 million and $106.6 million, respectively, of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC. The
Bank’s ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with these requirements. Under the State of Delaware General Corporation Law, the
Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus.
Stock Repurchase Plan
The Company purchased 7,600 shares of its common stock during the year ended December 31, 2024 at an average price of $33.02 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 effect of stock-based incentive plans and other potential uses of common stock for
corporate purposes. The Company did not purchase any shares of its common stock during the fourth quarter of 2024. As of December 31, 2024, there were 1,992,400 shares available for repurchase under this plan authorized on December 18, 2023, which is set to expire on December 31, 2025.
Recent Accounting Updates
See Note 2 to the consolidated financial statements for a detailed discussion of new accounting pronouncements.
2023 OPERATING RESULTS AS COMPARED TO 2022 OPERATING RESULTS
For similar operating and financial data and discussion of our results for the year ended December 31, 2023 compared to our results for the year ended December 31, 2022, refer
to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 29, 2024 and is
incorporated herein by reference.
Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in
the normal course of the Company’s business activities or are immaterial to the results of operations.
Interest rate risk is defined as an exposure to a movement in interest rates that could have an adverse effect on the Company’s net interest income. Net interest income is susceptible to
interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than earning assets. When interest-bearing liabilities mature or reprice more quickly than earning assets in a given period, a
significant increase in market rates of interest could adversely affect net interest income. Similarly, when earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease
in net interest income.
To manage the Company’s exposure to changes in interest rates, management monitors the Company’s interest rate risk. Management’s ALCO meets
monthly to review the Company’s interest rate risk position and profitability and to recommend strategies for consideration by the Board. Management also reviews loan and deposit pricing and the Company’s securities portfolio, formulates
investment and funding strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner. Notwithstanding the Company’s interest rate risk management
activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income.
In managing the Company’s asset/liability position, the Board and management aim to manage the Company’s interest rate risk while minimizing
NIM compression. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the
Company’s interest rate risk position somewhat in order to increase its NIM. The Company’s results of operations and net portfolio values remain vulnerable to changes in interest rates and fluctuations in the difference between long and
short-term interest rates.
The primary tool utilized by the ALCO to manage interest rate risk is earnings at risk modeling (interest rate sensitivity analysis). Information, such as principal balance, interest rate,
maturity date, cash flows, next repricing date (if needed) and current rates are uploaded into the model to create an ending balance sheet. In addition, the ALCO makes certain assumptions regarding prepayment speeds for loans and mortgage
related investment securities along with any optionality within the deposits and borrowings. The model is first run under an assumption of a flat rate scenario (e.g., no change in current interest rates) with a static balance sheet. Four
additional models are run in which a gradual increase of 200 bps, a gradual increase of 100 bps, a gradual decrease of 100 bps and a gradual decrease of 200 bps takes place over a 12-month period with a static balance sheet. Under these
scenarios, assets subject to prepayments are adjusted to account for faster or slower prepayment assumptions. Any investment securities or borrowings that have callable options embedded in them are handled accordingly based on the interest
rate scenario. The resulting changes in net interest income are then measured against the flat rate scenario. The Company also runs other interest rate scenarios to highlight potential interest rate risk.
The Company’s Interest Rate Sensitivity has remained in a near neutral
position. In the declining rate scenario, net interest income is projected to modestly decrease when compared to the forecasted net interest income in the flat rate scenario through the simulation period. The decrease in net interest
income is a result of earning assets repricing and rolling over at lower yields at a faster pace than interest-bearing liabilities decline and/or reach their floors. In the rising rate scenarios, net interest income is near neutral,
impacted by slowing prepayments speeds and increased deposit reactivity; the magnitude of potential impact on earnings may be affected by the ability to lag deposit repricing on NOW, savings, MMDA and time accounts. Net interest income
for the next twelve months in the +200/+100/-100/-200 bp scenarios, as described above, is within the internal policy risk limits of not more than a 5.0% reduction in net interest income in the +100/-100 bps scenarios and of not more
than a 7.5% reduction in net interest income in the +200/-200 bps scenarios. The following table summarizes the percentage change in net interest income in the rising and declining rate scenarios over a 12-month period from the
forecasted net interest income in the flat rate scenario using the December 31, 2024 balance sheet position:
Interest Rate Sensitivity Analysis
|
Change in interest rates
(in bps)
|
Percent change in
net interest income
|
|
|
+200
|
0.06
|
%
|
|
+100
|
0.34
|
%
|
|
-100
|
(0.36
|
)%
|
|
-200
|
(0.29
|
)%
|
The Company anticipates that the trajectory of net interest income will
continue to depend significantly on the timing and path of short to mid-term interest rates which are heavily influenced by inflationary pressures and FOMC monetary policy. In response to the economic impact of the pandemic, the federal
funds rate was reduced to near zero in March 2020, causing term interest rates to decline sharply across the yield curve. As a result, the Company lowered deposit rates. Post-pandemic, inflationary pressures have resulted in a higher
overall yield curve with federal funds increases of 425 bps in 2022 with an additional 100 bps of increases in 2023. However, the tightening cycle ended in September of 2024, when the FRB lowered the federal funds rate by 50 bps, with a
total of 100 bps of federal funds rate reductions by the end of 2024. While deposit rates increased meaningfully in 2023 and continued to increase in early 2024 in conjunction with elevated short-term interest rates, the recent federal
funds rate reduction has provided the catalyst for the Company to begin reducing deposit rates. The Company continues to focus on managing deposit expense in an environment of still elevated but declining short-term interest rates while
allowing assets to reprice upward in relation to existing portfolio asset yields.
To the Stockholders and Board of Directors
NBT Bancorp Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of NBT Bancorp Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income,
comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for credit losses – loans evaluated on a collective basis
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company’s allowance for credit losses on loans evaluated on a collective basis (the collective ACL on loans) was $116.0 million of a total allowance for credit losses of $116.0 million as of December 31, 2024. The collective ACL on loans includes
the measure of expected credit losses on a collective (pooled) basis for class segments of loans that share similar risk characteristics. The Company uses a discounted cash flow methodology where the respective quantitative allowance for each
segment is measured by comparing the amortized cost to the present value of expected principal, interest and recovery cash flows projected using an econometric, probability of default (PD) and loss given default (LGD) modeling methodology. The
Company uses PD regression models to develop the PD, and LGD models to develop the LGD, using historical credit loss experience over the observation period for both the Company and segment-specific selected peers. The application of these models
incorporates multiple weighted external economic forecasts for the economic variables over the reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company reverts to long-term average economic
variables over a reversion period on a straight-line basis. Contractual cash flows over the contractual life of the loans are the basis for expected principal, interest and recovery cash flows, adjusted for modeled defaults, expected prepayments
and curtailments, and discounted at the loan-level effective interest rate. After quantitative considerations, the Company applies additional qualitative adjustments, giving consideration to the effects of limitations inherent in the quantitative
model, so that the collective ACL on loans is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date.
We identified the assessment of the collective ACL on loans as a critical audit matter. A high degree of audit effort, including specialized skills
and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL on loans due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ACL on
loans methodology, including the methods and models used to estimate (1) the PD and LGD and their significant assumptions including the external economic forecasts and economic variables, and the related weighting of the forecasts, the reasonable
and supportable forecast periods, the composition of the peer group, and the observation period from which historical Company and peer experience was used, (2) the expected prepayments and curtailments assumptions, and (3) the qualitative
adjustments and the significant assumptions, including the effects of limitations inherent in the quantitative model. The assessment also included an evaluation of the conceptual soundness and performance of the PD regression and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to
the Company’s measurement of the collective ACL on loans estimate, including controls over the:
| • |
development of the collective ACL on loans methodology
|
| • |
continued use and appropriateness of the PD regression and LGD models
|
| • |
performance monitoring of the PD regression and LGD models
|
| • |
identification and determination of the expected prepayments and curtailments assumptions and the significant assumptions used in the PD regression and LGD models
|
| • |
development of the qualitative methodology and related adjustments, including the significant assumptions used in the measurement of select qualitative adjustments
|
| • |
analysis of the collective ACL on loans results, trends, and ratios.
|
We evaluated the Company’s process to develop the collective ACL on loans estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance
and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
| • |
evaluating the Company’s collective ACL on loans methodology for compliance with U.S. generally accepted accounting principles
|
| • |
evaluating judgments made by the Company relative to the performance monitoring of the PD regression and LGD models, by comparing them to relevant Company-specific metrics and trends and the applicable
industry and regulatory practices
|
| • |
assessing the conceptual soundness and performance testing of the PD regression and LGD models, by inspecting the model documentation to determine whether the models are suitable for their intended use
|
| • |
evaluating the expected prepayments and curtailments assumptions by comparing to relevant Company-specific metrics and trends and current economic considerations
|
| • |
evaluating the selection of economic forecasts and economic variables, including weighting of the forecasts, and underlying assumptions by comparing to the Company’s business environment and relevant
industry practices
|
| • |
evaluating the length of the observation period from which historical Company and peer experience was used and the reasonable and supportable forecast period by comparing them to specific portfolio risk
characteristics and trends
|
| • |
assessing the composition of the peer group by comparing to Company and specific portfolio risk characteristics
|
| • |
evaluating the methodology used to develop the qualitative adjustments and the effect of those adjustments on the collective ACL on loans by comparing to relevant credit risk factors, the current economic
environment and consistency with credit trends and identified limitations of the underlying quantitative models.
|
We also assessed the sufficiency of the audit evidence obtained related to the collective ACL on loans estimate by evaluating the:
| • |
cumulative results of the audit procedures
|
| • |
qualitative aspects of the Company’s accounting practices
|
| • |
potential bias in the accounting estimate.
|
/s/ KPMG LLP
We have served as the Company’s auditor since 1987.
February 28, 2025
NBT Bancorp Inc. and Subsidiaries
|
December 31,
|
||||||||
| (In thousands except share and per share data) |
2024
|
2023
|
||||||
|
Assets
|
||||||||
|
Cash and due from banks
|
$
|
|
$
|
|
||||
|
Short-term interest-bearing accounts
|
|
|
||||||
|
Equity securities, at fair value
|
|
|
||||||
|
Securities available for sale, at fair value
|
|
|
||||||
|
Securities held to maturity (fair value $
|
|
|
||||||
|
Federal Reserve and Federal Home Loan Bank stock
|
|
|
||||||
|
Loans held for sale
|
|
|
||||||
|
Loans
|
|
|
||||||
|
Less allowance for loan losses
|
|
|
||||||
|
Net loans
|
$
|
|
$
|
|
||||
|
Premises and equipment, net
|
|
|
||||||
|
Goodwill
|
|
|
||||||
|
Intangible assets, net
|
|
|
||||||
|
Bank owned life insurance
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities
|
||||||||
|
Demand (noninterest bearing)
|
$
|
|
$
|
|
||||
|
Savings, NOW and money market
|
|
|
||||||
|
Time
|
|
|
||||||
|
Total deposits
|
$
|
|
$
|
|
||||
|
Short-term borrowings
|
|
|
||||||
|
Long-term debt
|
|
|
||||||
|
Subordinated debt, net
|
|
|
||||||
|
Junior subordinated debt
|
|
|
||||||
|
Other liabilities
|
|
|
||||||
|
Total liabilities
|
$
|
|
$
|
|
||||
|
Stockholders’ equity
|
||||||||
|
Preferred stock, $
|
$
|
|
$
|
|
||||
|
Common stock, $
|
|
|
||||||
|
Additional paid-in-capital
|
|
|
||||||
|
Retained earnings
|
|
|
||||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Common stock in treasury, at cost,
|
(
|
)
|
(
|
)
|
||||
|
Total stockholders’ equity
|
$
|
|
$
|
|
||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
See accompanying notes to consolidated financial statements.
NBT Bancorp Inc. and Subsidiaries
|
Years Ended December 31,
|
||||||||||||
| (In thousands, except per share data) |
2024
|
2023
|
2022
|
|||||||||
|
Interest, fee and dividend income
|
||||||||||||
|
Interest and fees on loans
|
$
|
|
$
|
|
$
|
|
||||||
|
Securities available for sale
|
|
|
|
|||||||||
|
Securities held to maturity
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
Total interest, fee and dividend income
|
$
|
|
$
|
|
$
|
|
||||||
|
Interest expense
|
||||||||||||
|
Deposits
|
$
|
|
$
|
|
$
|
|
||||||
|
Short-term borrowings
|
|
|
|
|||||||||
|
Long-term debt
|
|
|
|
|||||||||
|
Subordinated debt
|
|
|
|
|||||||||
|
Junior subordinated debt
|
|
|
|
|||||||||
|
Total interest expense
|
$
|
|
$
|
|
$
|
|
||||||
|
Net interest income
|
$
|
|
$
|
|
$
|
|
||||||
|
Provision for loan losses
|
|
|
|
|||||||||
|
Net interest income after provision for loan losses
|
$
|
|
$
|
|
$
|
|
||||||
|
Noninterest income
|
||||||||||||
|
Service charges on deposit accounts
|
$
|
|
$
|
|
$
|
|
||||||
|
Card services income
|
|
|
|
|||||||||
|
Retirement plan administration fees
|
|
|
|
|||||||||
|
Wealth management
|
|
|
|
|||||||||
|
Insurance services
|
|
|
|
|||||||||
|
Bank owned life insurance income
|
|
|
|
|||||||||
|
Net securities gains (losses)
|
|
(
|
)
|
(
|
)
|
|||||||
|
Other
|
|
|
|
|||||||||
|
Total noninterest income
|
$
|
|
$
|
|
$
|
|
||||||
|
Noninterest expense
|
||||||||||||
|
Salaries and employee benefits
|
$
|
|
$
|
|
$
|
|
||||||
| Technology and data services | ||||||||||||
|
Occupancy
|
|
|
|
|||||||||
|
Professional fees and outside services
|
|
|
|
|||||||||
|
Office supplies and postage
|
|
|
|
|||||||||
|
FDIC assessment
|
|
|
|
|||||||||
|
Advertising
|
|
|
|
|||||||||
|
Amortization of intangible assets
|
|
|
|
|||||||||
|
Loan collection and other real estate owned, net
|
|
|
|
|||||||||
|
Acquisition expenses
|
||||||||||||
|
Other
|
|
|
|
|||||||||
|
Total noninterest expense
|
$
|
|
$
|
|
$
|
|
||||||
|
Income before income tax expense
|
$
|
|
$
|
|
$
|
|
||||||
|
Income tax expense
|
|
|
|
|||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Earnings per share
|
||||||||||||
|
Basic
|
$
|
|
$
|
|
$
|
|
||||||
|
Diluted
|
$
|
|
$
|
|
$
|
|
||||||
See accompanying notes to consolidated financial statements.
NBT Bancorp Inc. and Subsidiaries
|
Years Ended December 31,
|
||||||||||||
| (In thousands) |
2024
|
2023
|
2022
|
|||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Other comprehensive income (loss), net of tax:
|
||||||||||||
|
Securities available for sale:
|
||||||||||||
|
Unrealized net holding gains (losses) arising during the period, gross
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Tax effect
|
(
|
)
|
(
|
)
|
|
|||||||
|
Unrealized net holding gains (losses) arising during the period, net
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Reclassification adjustment for net losses in net income, gross
|
$
|
|
$
|
|
$
|
|
||||||
|
Tax effect
|
|
(
|
)
|
|
||||||||
|
Reclassification adjustment for net losses in net income, net
|
$
|
|
$
|
|
$
|
|
||||||
|
Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross
|
$
|
|
$
|
|
$
|
|
||||||
|
Tax effect
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, net
|
$
|
|
$
|
|
$
|
|
||||||
|
Total securities available for sale, net
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Pension and other benefits:
|
||||||||||||
|
Amortization of prior service cost and actuarial losses, gross
|
$
|
|
$
|
|
$
|
|
||||||
|
Tax effect
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Amortization of prior service cost and actuarial losses, net
|
$
|
|
$
|
|
$
|
|
||||||
|
Decrease (increase) in unrecognized actuarial loss, gross
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Tax effect
|
(
|
)
|
(
|
)
|
|
|||||||
|
Decrease (increase) in unrecognized actuarial loss, net
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Total pension and other benefits, net
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Total other comprehensive income (loss)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Comprehensive income (loss)
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
See accompanying notes to consolidated financial statements.
NBT Bancorp Inc. and Subsidiaries
|
(In thousands, except share and per share data)
|
Common
Stock
|
Additional
Paid-in-
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Common
Stock in
Treasury
|
Total
|
||||||||||||||||||
|
Balance at December 31, 2021
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash dividends - $
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
| Purchase of |
( |
) | ( |
) | ||||||||||||||||||||
|
Net issuance of
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive (loss)
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
|
Balance at December 31, 2022
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Cumulative effect adjustment for ASU 2022-02 implementation as of January 1, 2023
|
||||||||||||||||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash dividends - $
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Issuance of
|
||||||||||||||||||||||||
|
Purchase of
|
( |
) | ( |
) | ||||||||||||||||||||
|
Net issuance of
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive income
|
|
|
|
|
|
|
||||||||||||||||||
|
Balance at December 31, 2023
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash dividends - $
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Purchase of
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
Net issuance of
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive income
|
|
|
|
|
|
|
||||||||||||||||||
|
Balance at December 31, 2024
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||
See accompanying notes to consolidated financial statements.
NBT Bancorp Inc. and Subsidiaries
|
Years Ended December 31,
|
||||||||||||
| (In thousands) |
2024
|
2023
|
2022
|
|||||||||
|
Operating activities
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Adjustments to reconcile net income to net cash provided by operating activities
|
||||||||||||
|
Provision for loan losses
|
|
|
|
|||||||||
|
Depreciation and amortization of premises and equipment
|
|
|
|
|||||||||
|
Net amortization on securities
|
|
|
|
|||||||||
|
Amortization of intangible assets
|
|
|
|
|||||||||
|
Amortization of operating lease right-of-use assets
|
|
|
|
|||||||||
|
Excess tax benefit on stock-based compensation
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Stock-based compensation expense
|
|
|
|
|||||||||
|
Bank owned life insurance income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Amortization of subordinated debt issuance costs
|
|
|
|
|||||||||
| Discount on repurchase of subordinated debt |
( |
) | ||||||||||
|
Proceeds from sale of loans held for sale
|
|
|
|
|||||||||
|
Originations of loans held for sale
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net gains on sales of loans held for sale
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net security (gains) losses
|
(
|
)
|
|
|
||||||||
|
Net gains on sale of other real estate owned
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
| Impairment of a minority interest equity investment |
||||||||||||
|
Net deferred income tax expense (benefit)
|
|
|
(
|
)
|
||||||||
|
Net change in other assets and other liabilities
|
|
(
|
)
|
|
||||||||
|
Net cash provided by operating activities
|
$
|
|
$
|
|
$
|
|
||||||
|
Investing activities
|
||||||||||||
|
Net cash (used in) provided by acquisitions
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||
|
Securities available for sale:
|
||||||||||||
|
Proceeds from maturities, calls and principal paydowns
|
|
|
|
|||||||||
| Proceeds from sales |
||||||||||||
|
Purchases
|
(
|
)
|
|
(
|
)
|
|||||||
|
Securities held to maturity:
|
||||||||||||
|
Proceeds from maturities, calls and principal paydowns
|
|
|
|
|||||||||
|
Purchases
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Equity securities:
|
||||||||||||
|
Purchases
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Other:
|
||||||||||||
|
Net increase in loans
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from Federal Home Loan Bank stock redemption
|
|
|
|
|||||||||
|
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from settlement of bank owned life insurance
|
|
|
|
|||||||||
|
Purchases of premises and equipment, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from sales of other real estate owned
|
|
|
|
|||||||||
|
Net cash used in investing activities
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Financing activities
|
||||||||||||
|
Net increase (decrease) in deposits
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Net (decrease) increase in short-term borrowings
|
(
|
)
|
(
|
)
|
|
|||||||
| Repurchase of subordinated debt |
( |
) | ||||||||||
|
Proceeds from long-term debt
|
|
|
|
|||||||||
|
Repayments of long-term debt
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from the issuance of shares to employee and other stock plans
|
|
|
|
|||||||||
|
Cash paid by employer for tax-withholding on stock issuance
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Purchase of treasury stock
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Cash dividends
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net cash provided (used in) by financing activities
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Net increase (decrease) in cash and cash equivalents
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Cash and cash equivalents at beginning of year
|
|
|
|
|||||||||
|
Cash and cash equivalents at end of year
|
$
|
|
$
|
|
$
|
|
||||||
NBT Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
|
Years Ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
||||||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Cash paid during the year for:
|
||||||||||||
|
Interest expense
|
$
|
|
$
|
|
$
|
|
||||||
|
Income taxes paid, net of refund
|
|
|
|
|||||||||
|
Noncash investing activities:
|
||||||||||||
|
Loans transferred to other real estate owned
|
$
|
|
$
|
|
$
|
|
||||||
|
Acquisitions:
|
||||||||||||
|
Fair value of assets acquired, excluding acquired cash and goodwill
|
$
|
|
$
|
|
$
|
|
||||||
| Fair value of liabilities assumed |
||||||||||||
| Common stock issued |
|
|
||||||||||
See accompanying notes to consolidated financial statements.
NBT Bancorp Inc. and Subsidiaries
December 31, 2024 and 2023
1. Summary of Significant Accounting Policies
The accounting and reporting policies of NBT Bancorp Inc. and its subsidiaries, NBT Bank, National Association (“NBT Bank” or the “Bank”), NBT Financial Services, Inc.
and NBT Holdings, Inc., conform, in all material respects, with GAAP and to general practices within the banking industry. Collectively, NBT Bancorp Inc. and its subsidiaries are referred to herein as (the “Company”).
The following is a description of significant policies and practices:
Consolidation
The accompanying consolidated financial statements include the accounts of NBT Bancorp Inc. and its wholly-owned subsidiaries mentioned above. All
material intercompany transactions have been eliminated in consolidation. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to the current year’s presentation. In the “Parent Company
Financial Information,” the investment in subsidiaries is recorded using the equity method of accounting.
The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable
interest entity under GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses,
the right to receive residual returns and the right to make decisions about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable
accounting standards, variable interest entities (“VIEs”) are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when the Company has both the power and ability to
direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company’s wholly-owned
subsidiaries CNBF Capital Trust I, NBT Statutory Trust I, NBT Statutory Trust II, Alliance Financial Capital Trust I and Alliance Financial Capital Trust II are VIEs for which the Company is not the primary beneficiary. Accordingly, the accounts of
these entities are not included in the Company’s consolidated financial statements.
Segment Reporting
The Company’s operations are primarily in the community banking industry and include the provision of traditional banking services. The Company also provides other
services through its subsidiaries such as insurance, retirement plan administration and wealth management. The Company operates in the geographical regions of upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts,
Vermont, southern Maine and central and northwestern Connecticut.
The Company manages its
operations under the segments of Banking, including Wealth Management, Retirement Plan Administration and Insurance. Prior to the fourth quarter of 2024, the Company disclosed a reportable segment, as revenue from individual segments were below the disclosure threshold relative to consolidated revenue, total assets and operating profit or loss.
Each year the Company evaluates its business activities, financial results and operational data to determine whether segment disclosure is required.
In accordance with
Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, and as the Company has grown, management has reassessed its operating segment structure to enhance transparency in how
financial performance is evaluated and resources are allocated by the chief operating decision maker (“CODM”). As a result of this reassessment, beginning with the fiscal year ended December 31, 2024, the Bank has determined that it now operates
through two reportable segments: Banking and Retirement Plan Administration, as they meet both the quantitative threshold and
qualitative criteria for disclosure. Wealth Management is combined with our Banking segment in accordance with the similarity test outlined in ASC 280. Insurance does not meet materiality requirements for disclosure and is included in the “All
Other” category.
Cash Equivalents
The Company considers amounts due from correspondent banks, cash items in process of collection and institutional money market mutual funds to be cash equivalents for
purposes of the consolidated statements of cash flows.
Securities
The Company classifies its securities at date of purchase as either held to maturity (“HTM”), avialable for sale (“AFS”) or equity. HTM debt securities are those that
the Company has the ability and intent to hold until maturity. AFS debt securities are securities that are not classified as HTM. AFS securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on AFS
securities are excluded from earnings and are reported in the consolidated statements of changes in stockholders’ equity and the consolidated statements of comprehensive income (loss) as a component of accumulated other comprehensive income (loss)
(“AOCI”). HTM securities are recorded at amortized cost. Transfers of securities between categories are recorded at fair value at the date of transfer. Non-marketable equity securities and equity securities without readily determinable fair values
are carried at cost. The Company performs a qualitative assessment on equity securities to determine whether the investments are impaired and downward or upward adjustments are recognized through the income statement. All other equity securities are
recorded at fair value, with net unrealized gains and losses recognized in income.
Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the interest method. Dividend and interest income
are recognized when earned. Realized gains and losses on securities sold are derived using the specific identification method for determining the cost of securities sold.
Investments in Federal Reserve Board (“FRB”) and Federal Home Loan Bank (“FHLB”) stock stock are required for membership in those organizations and are carried at cost
since there is no market value available. The FHLB New York continues to pay dividends and repurchase stock. As such, the Company has not recognized any impairment on its holdings of FRB and FHLB stock.
Allowance for Credit Losses – HTM Debt Securities
With respect to its HTM debt securities, the Company is required to utilize the Financial Accounting Standards Board (“FASB”) ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments methodology to estimate expected credit losses. Management measures expected credit losses on HTM debt
securities on a collective basis by major security types that share similar risk characteristics, such as (as applicable): internal or external (third-party) credit score or credit ratings, risk ratings or classification, financial asset type,
collateral type, size, effective interest rate, term, geographical location, industry of the borrower, vintage, historical or expected credit loss patterns, and reasonable and supportable forecast periods. Management classifies the HTM portfolio into
the following major security types: U.S. government agency or U.S. government-sponsored mortgage-backed and collateralized mortgage obligations securities, and state and municipal debt securities.
The HTM mortgage-backed and collateralized mortgage obligations securities are issued by U.S. government entities and agencies. These securities are
either explicitly and/or implicitly guaranteed by the U.S. government as to timely repayment of principal and interest, are highly rated by major rating agencies, and have a long history of zero credit losses. Therefore, the Company did not record an
allowance for credit loss for these securities.
State and municipal bonds generally carry a Moody’s rating of A to AAA. In addition, the Company has a limited amount of New York state local
municipal bonds that are not rated. The estimate of expected credit losses on the HTM portfolio is based on the expected cash flows of each individual bond over its contractual life and considers historical credit loss information, current conditions
and reasonable and supportable forecasts. Given the rarity of municipal defaults and losses, the Company utilized Moody’s Municipal Loss Forecast Model as the sole source of municipal default and loss rates which provides decades of data across all
municipal sectors and geographies. As with the loan portfolio, cash flows are forecast over a 6-quarter period under various weighted economic conditions, with a reversion to long-term average economic conditions over a 4-quarter period on a
straight-line basis. Management may exercise discretion to make adjustments based on environmental factors. The Company determined that the expected credit loss on its HTM municipal bond portfolio was immaterial and therefore no allowance for credit losses was recorded.
Allowance for Credit Losses – AFS Debt Securities
The impairment model for AFS debt securities differs from the current expected credit losses (“CECL”) methodology utilized for HTM debt securities
because AFS debt securities are measured at fair value rather than amortized cost. For AFS debt securities in an unrealized loss position, the Bank first assesses whether it intends to sell, or it is more likely than not that it will be required to
sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do
not meet the aforementioned criteria, in making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, adverse conditions specifically related to
the security, failure of the issuer of the debt security to make scheduled interest or principal payments, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the
security are compared to the amortized cost basis of the security. The cash flows should be estimated using information relevant to the collectability of the security, including information about past events, current conditions and reasonable and
supportable forecasts. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair
value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Loan Held for Sale and Loan Servicing
Loans held for sale are recorded at the lower of cost or fair value on an individual basis. Loan sales are recorded when the sales are funded. Gains and losses on sales
of loans held for sale are included in other noninterest income in the consolidated statements of income. Mortgage loans held for sale are generally sold with servicing rights retained. Mortgage servicing rights are recorded at fair value upon sale
of the loan, and are amortized in proportion to and over the period of estimated net servicing income.
Loans
Loans are recorded at their current unpaid principal balance, net of unearned income and unamortized loan fees and expenses, which are amortized under the effective
interest method over the estimated lives of the loans. Interest income on loans is accrued based on the principal amount outstanding.
For all loan classes within the Company’s loan portfolio, loans are placed on nonaccrual status when timely collection of principal and/or interest in accordance with
contractual terms is in doubt. Loans are transferred to nonaccrual status generally when principal or interest payments become over ninety days
delinquent, unless the loan is well secured and in the process of collection, or sooner when management concludes circumstances indicate that borrowers may be unable to meet contractual principal or interest payments. When a loan is transferred to a
nonaccrual status, all interest previously accrued in the current period but not collected is reversed against interest income in that period. Interest accrued in a prior period and not collected is charged-off against the allowance for credit
losses.
If ultimate repayment of a nonaccrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment of principal is not
expected, any payment received on a nonaccrual loan is applied to principal until ultimate repayment becomes expected. For all loan classes within the Company’s loan portfolio, nonaccrual loans are returned to accrual status when they become current
as to principal and interest and demonstrate a period of performance under the contractual terms and, in the opinion of management, are fully collectible as to principal and interest. For loans in all portfolios, the principal amount is charged off
in full or in part as soon as management determines, based on available facts, that the collection of principal in full or in part is improbable. For Commercial loans, management considers specific facts and circumstances relative to individual
credits in making such a determination. For Consumer and Residential loan classes, management uses specific guidance and thresholds from the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification and Account
Management Policy.
Beginning in 2023, with the Company’s adoption of ASU 2022-02, Financial Instruments
- CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), the recognition of a troubled debt restructuring (“TDR”) was eliminated and instead the Company evaluates borrowers who are experiencing financial difficulty or loan modifications to borrowers experiencing financial difficulties. When a borrower is experiencing
financial difficulties and the Company modifies a loan, such modifications generally include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with
similar risk; a change in scheduled payment amount; or principal forgiveness. Modifications to borrowers experiencing financial difficulty may be different from those previously disclosed in TDR disclosures since the Company is no longer required
to determine if a concession has been granted, which was a requirement to determine whether a loan modification was considered to be a TDR. Historically, a TDR would generally include one or a combination of the following: an extension of the
maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a temporary reduction in the interest rate; or a change in scheduled payment amount. TDR loans were nonaccrual loans; however, they could
be returned to accrual status after a period of performance, generally evidenced by six months of compliance with their modified terms.
Allowance for Credit Losses - Loans
The CECL methodology requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses
is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. Loan losses are charged off against the allowance when management believes a loan
balance is confirmed to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the allowance balance for credit losses using relevant information, from internal and external sources, related to past events,
current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether
the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience is used. Adjustments to historical loss
information is made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as changes in environmental conditions, such as changes in unemployment
rates, production metrics, property values, or other relevant factors. Company historical loss experience is supplemented with peer information when there is insufficient loss data for the Company. Peer selection is based on a review of institutions
with comparable loss experience as well as loan yield, bank size, portfolio concentration and geography. Finally, the Company considers forecasts about future economic conditions that are reasonable and supportable. Significant management judgment is
required at various points in the measurement process.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit
losses. Upon adoption of CECL, management revised the manner in which loans were pooled for similar risk characteristics. Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal
call report segmentation and have been combined or subsegmented as needed to ensure loans of similar risk profiles are appropriately pooled.
During 2023, the Company made adjustments to the class segments within the portfolios to better align risk characteristics and reflect the
monitoring and assessment of risks as the portfolios continue to evolve. Paycheck Protection Program was consolidated with Commercial & Industrial, as the portfolio had decreased to less than $1 million and no longer warranted a material class segment. The Other Consumer class segment was further separated into Residential Solar and Other Consumer. The growth in our
Residential Solar loans warranted evaluation of this class separately from the Other Consumer class segments. The change to the class segments was applied retrospectively and did not have a significant impact on the allowance for loan losses. The following
table illustrates the portfolio and class segments for the Company’s loan portfolio:
|
Portfolio Segment
|
Class
|
|
Commercial Loans
|
Commercial & Industrial
Commercial Real Estate
|
|
Consumer Loans
|
Auto
Residential Solar
Other Consumer
|
|
Residential Loans
|
|
Commercial Loans
The Company offers a variety of commercial loan products. The Company’s underwriting analysis for commercial loans typically includes credit
verification, independent appraisals, a review of the borrower’s financial condition and a detailed analysis of the borrower’s underlying cash flows.
Commercial and Industrial (“C&I”) – The Company offers
a variety of loan options to meet the specific needs of our C&I customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs and are typically collateralized by business
assets such as equipment, accounts receivable and perishable agricultural products, which are exposed to industry price volatility. To reduce these risks, management also attempts to obtain personal guarantees of the owners or to obtain government
loan guarantees to provide further support.
Commercial Real Estate (“CRE”) – The Company offers CRE
loans to finance real estate purchases, refinancing’s, expansions and improvements to commercial and agricultural properties. CRE loans are loans that are secured by liens on real estate, which may include both owner-occupied and nonowner-occupied
properties, such as apartments, commercial structures, health care facilities and other facilities. The Company’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower’s financial condition and a
detailed analysis of the borrower’s underlying cash flows. These loans are typically originated in amounts of no more than 80 % of the
appraised value of the property. Government loan guarantees may be obtained to provide further support for agricultural property.
Consumer Loans
The Company offers a variety of Consumer loan products including Auto, Residential Solar and Other Consumer loans.
Auto – The Company provides both direct and indirect
financing of automobiles (“Auto”). The Company maintains relationships with many dealers primarily in the communities that we serve. Through these relationships, the Company primarily finances the purchases of automobiles indirectly through dealer
relationships. Auto loans are secured with collateral consisting of a perfected lien on the vehicle being purchased. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from to six years , based upon the nature
of the collateral and the size of the loan.
Residential
Solar – The Company offers loans across a national
footprint originated through our relationships with national technology-driven consumer lending companies to finance the purchase and installation of residential solar energy. Advances of credit through this business line are subject to the
Company’s underwriting standards including criteria such as FICO score and debt to income thresholds. In 2017, the Company partnered with Sungage Financial, LLC. to offer financing to consumers for solar ownership with the program tailored for
delivery through solar installers. Advances of credit through this business line are to prime borrowers and are subject to the Company’s underwriting standards. Residential solar loans carry a fixed rate of interest with principal repayment terms
typically ranging from to twenty-five years . Typically, the Company collects origination fees that are deferred and recognized into interest income over the estimated life of the loan.
Other Consumer – The Other Consumer loan segment consists primarily of unsecured consumer loans and direct consumer loans. The Company offers unsecured consumer loans across a national footprint originated through our relationships with
national technology-driven consumer lending companies to finance such things as dental and medical procedures, K-12 tuition and other consumer purpose loans. Advances of credit through this business line are subject to the Company’s underwriting
standards including criteria such as FICO score and debt to income thresholds. Advances of credit through this business line are to prime borrowers and are subject to the Company’s underwriting standards. Typically, the Company collects
origination fees that are deferred and recognized into interest income over the estimated life of the loan. The Company offers a variety of direct consumer installment loans to finance various personal expenditures. In addition to installment
loans, the Company also offers personal lines of credit, overdraft protection, debt consolidation, education and other uses. Direct consumer installment loans carry a fixed rate of interest with principal repayment terms typically ranging from to fifteen years , based upon the
nature of the collateral and the size of the loan. Consumer installment loans are often secured with collateral consisting of a perfected lien on the asset being purchased or a perfected lien on a consumer’s deposit account. Risk is reduced
through underwriting criteria, which include credit verification, appraisals, a review of the borrower’s financial condition and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real
estate.
Residential
Residential loans consist primarily of loans secured by a first or second mortgage on primary residences, home equity loans and lines of credit in
first and second lien positions and residential construction loans. We originate adjustable-rate and fixed rate, one-to-four-family residential loans for the construction or purchase of a residential property or the refinancing of a mortgage. These
loans are collateralized by properties located in the Company’s market area. Loans on one-to-four-family residential are generally originated in amounts of no more than 85 % of the purchase price or appraised value (whichever is lower) or have private mortgage insurance. Mortgage title insurance and hazard insurance are normally required. Construction loans
have a unique risk because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period. For home equity loans, consumers are able to borrow up to 85 % of the equity in their homes and are generally tied to Prime with a ten-year draw followed by a fifteen-year amortization. These loans carry a
higher risk than first mortgage residential loans as they are often in a second position with respect to collateral.
Historical credit loss experience over the observation period for both the Company and segment-specific peers provides the basis for the estimation
of expected credit losses, where observed credit losses are converted using models to probability of default (“PD”) rate curves through the use of segment-specific loss given default (“LGD”) risk factors that convert default rates to loss severity
based on industry-level, observed relationships between the two variables for each asset class, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company’s own loss experience
and adjusted in certain cases when the relationship between the Company’s historical default and loss severity deviated from that of the wider industry. The historical PD curves, together with corresponding economic conditions, establish a
quantitative relationship between economic conditions and loan performance through an economic cycle.
Using the historical relationship between economic conditions and loan performance, management’s expectation of future loan performance is
incorporated using externally developed economic forecasts which are probabilistically weighted to reflect potential forecast inaccuracy and model limitations. These forecasts are applied over a period that management has determined to be reasonable
and supportable. Beyond the period over which management can develop or source a reasonable and supportable forecast, the model will revert to long-term average economic conditions using a straight-line, time-based methodology.
The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a
quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each segment is measured using an econometric, PD/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are
applied to multiple, probabilistically weighted external economic forecasts of economic variables. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference
between the net present value of modeled cash flows and amortized cost basis. Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults, expected prepayments and curtailments and
discounted at the loan-level stated interest rate. The contractual term excludes expected extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are
not unconditionally cancellable by the Company.
After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit losses is reflective of
the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date. Qualitative considerations include limitations inherent in the quantitative model; trends experienced in nonperforming and delinquent loans; changes in value
of underlying collateral; changes in lending policies and procedures; nature and composition of loans; portfolio concentrations that may affect loss experience across one or more components of the portfolio; the experience, ability and depth of
lending management and staff; the Company’s credit review system; and the effect of external factors; such as competition, legal and regulatory requirements.
The threshold for evaluating classified, commercial and CRE loans risk graded substandard or doubtful, and nonperforming loans specifically
evaluated for individual credit loss is $1.0 million. When management determines that foreclosure is probable, expected credit losses are
based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted
expected cash flows using the loan’s initial effective interest rate. Generally, individually assessed loans are collateral dependent.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company has exposure to credit risk via a contractual
obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as an expense in other noninterest expense. The estimate includes
consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. Estimating credit losses on unfunded commitments requires the Bank to consider the
following categories of off-balance sheet credit exposure: unfunded commitments to extend credit, unfunded lines of credit and standby letters of credit. Each of these unfunded commitments is then analyzed for a probability of funding to calculate a
probable funding amount. The life of loan loss factor by related portfolio segment from the loan allowance for credit loss calculation is then applied to the probable funding amount to calculate a reserve on unfunded commitments.
Accrued Interest Receivable
Accrued interest receivable (“AIR”) balances are included in other assets on the consolidated balance sheets. The Company has excluded interest
receivable that is included in amortized cost of financing receivables from related disclosure requirements and AIR is written off by reversing interest income. For loans, write off typically occurs upon becoming over 90 to 120 days past due and therefore the
amount of such write offs are immaterial. Historically, the Company has not experienced uncollectible AIR on investment securities.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. Depreciation of premises and equipment is determined using the straight-line method over the
estimated useful lives of the respective assets. Expenditures for maintenance, repairs and minor replacements are charged to expense as incurred.
Leases
The Company determines if a lease is present at the inception of an agreement. Right-of-use (“ROU”) assets and lease liabilities are recognized at lease commencement
based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. ROU assets and operating lease liabilities, are included in other assets and
other liabilities, respectively, on the consolidated balance sheets. Leases with original terms of 12 months or less are recognized in profit or loss on a
straight-line basis over the lease term.
Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to
make lease payments arising from the lease. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is
recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the consolidated statements of income.
The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and
other non-components, such as common area maintenance charges, real estate taxes and insurance are not included in the measurement of the lease liability since they are generally able to be segregated. Our leases relate primarily to office space and
bank branches, and some contain options to renew the lease. These options to renew are generally not considered reasonably certain to exercise, and are therefore not included in the lease term until such time that the option to renew is reasonably
certain.
Other Real Estate Owned
Other real estate owned (“OREO”) consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the
lower of fair value of the asset acquired less estimated costs to sell or “cost” (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, any excess loan balance over fair market value
of the acquired asset, less estimated selling costs, is charged to the allowance for loan losses. Any subsequent valuation write-downs are recorded as other expense. In connection with the determination of the allowance for loan losses and the
valuation of OREO, management obtains appraisals for properties. Operating costs associated with the properties are expensed as incurred. Gains on the sale of OREO are recognized as income when title has passed and the sale has met the minimum down
payment requirements prescribed by GAAP. The balance of OREO is recorded in other assets on the consolidated balance sheets.
Goodwill and Other Intangible Assets
Goodwill represents the cost of acquired business in excess of the fair value of the related net assets acquired. Goodwill is not amortized but tested at the reporting
unit level for impairment on an annual basis and on an interim basis or when events or circumstances dictate. The Company has elected June 30 as the annual impairment testing date for the insurance and retirement services reporting units and December
31 for the Bank reporting unit.
The Company has the option to first assess qualitative factors, by performing a qualitative analysis, to determine whether the existence of events or circumstances leads
to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the events or circumstances, the Company determines it is more likely than not that the fair value of a
reporting unit is greater than its carrying amount, the impairment test is not required. If the Company concludes otherwise, the Company is required to perform a quantitative impairment test. In the quantitative impairment test, the estimated fair
value of a reporting unit is compared to the carrying amount in order to determine if impairment is indicated. If the estimated fair value exceeds the carrying amount, the reporting unit is not deemed to be impaired. If the estimated fair value is
below the carrying value of the reporting unit, the difference is the amount of impairment.
Intangible assets that have indefinite useful lives are not amortized, but are tested at least annually for impairment. Intangible assets that have finite useful lives
are amortized over their useful lives. Core deposit intangibles and trust intangibles at the Company are amortized using the sum-of-the-years’-digits method. Covenants not to compete are amortized on a straight-line basis. Customer lists are
amortized using an accelerated method. When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company evaluates the recoverability of the asset carrying value, using estimates of undiscounted future cash
flows over the remaining asset life. Any impairment loss is measured by the excess of carrying value over fair value.
Determining the fair value of a reporting unit under the goodwill impairment tests and determining the fair value of other intangible assets are judgmental and often
involve the use of significant estimates and assumptions. Estimates of fair value are primarily determined using the discounted cash flows method, which uses significant estimates and assumptions including projected future cash flows, discount rates
reflecting the market rate of return and projected growth rates. Future events may impact such estimates and assumptions and could cause the Company to conclude that our goodwill or intangible assets have become impaired, which would result in
recording an impairment loss.
Bank Owned Life Insurance
The Bank has purchased life insurance policies on certain employees, key executives and directors. Bank owned life insurance is recorded at the amount that can be
realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Treasury Stock
Treasury stock acquisitions are recorded at cost. Subsequent sales of treasury stock are recorded on an average cost basis. Gains on the sale of treasury stock are
credited to additional paid-in-capital. Losses on the sale of treasury stock are charged to additional paid-in-capital to the extent of previous gains, otherwise charged to retained earnings.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized. The realization of deferred tax assets is primarily dependent upon the generation of adequate future taxable income. The Company recognizes interest accrued and penalties related to unrecognized tax
benefits in income tax expense.
Tax positions are recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
Pension Costs
The Company has a qualified, noncontributory, defined benefit pension plan covering substantially all of its employees, as well as supplemental employee retirement plans
to certain current and former executives and a defined benefit postretirement healthcare plan that covers certain employees. Costs associated with these plans, based on actuarial computations of current and future benefits for employees, are charged
to current operating expenses.
Stock-Based Compensation
The Company maintains various long-term incentive stock benefit plans under which restricted stock units are granted to certain directors and key
employees. Compensation expense is recognized in the consolidated statements of income over the requisite service period, based on the grant-date fair value of the award. For restricted stock units, compensation expense is recognized ratably over the
vesting period for the fair value of the award, measured at the grant date.
Earnings Per Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity (such as the Company’s dilutive restricted stock units and stock options).
Comprehensive Income (Loss)
At the Company, comprehensive income (loss) represents net income plus OCI, which consists primarily of the net change in unrealized gains (losses) on AFS debt
securities for the period, changes in the funded status of employee benefit plans and unrealized gains (losses) on derivatives designated as hedging instruments. AOCI represents the net unrealized gains (losses) on AFS debt securities, the previously
unrecognized portion of the funded status of employee benefit plans and the fair value of instruments designated as hedging instruments, net of income taxes, as of the consolidated balance sheet dates.
Derivative Instruments and Hedging Activities
The Company records all derivatives on the consolidated balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended
use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives
designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and
qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss
recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions
in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are
recognized in earnings.
When the Company purchases or sells a portion of a commercial loan that has an existing interest rate swap, it may enter into a risk participation agreement to provide credit protection to the financial institution that originated the swap transaction should the borrower fail to perform on its obligation. The Company enters
into both risk participation agreements in which it purchases credit protection from other financial institutions and those in which it provides credit protection to other financial institutions. Any fee paid to the Company under a risk
participation agreement is in consideration of the credit risk of the counterparties and is recognized in the income statement. Credit risk on the risk participation agreements is determined after considering the risk rating, PD and LGD of the
counterparties.
Business Combinations
Business
combinations are accounted for under the acquisition method of accounting. Acquired assets, including separately identifiable intangible assets, and assumed liabilities are recorded at their acquisition date estimated fair values. The excess of
the cost of acquisition over these fair values is recognized as goodwill. During the measurement period, which cannot exceed one year from the acquisition date, changes to estimated fair values are recognized as an adjustment to goodwill.
Certain transaction costs are expensed as incurred. See Note 3 for additional information.
Fair Value Measurements
GAAP states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy exists within GAAP that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities;
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or inputs that are observable, either directly
or indirectly, for substantially the full term of the asset or liability; and
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no
market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, many other sovereign government
obligations, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy. The Company does not adjust the quoted prices for such
instruments.
The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations or quote from alternative pricing sources with
reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations and certain
physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy. Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices). Other investment securities are
reported at fair value utilizing Level 1 and Level 2 inputs. The prices for Level 2 instruments are obtained through an independent pricing service or dealer market participants with whom the Company has historically transacted both purchases and
sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the
U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the methodologies used by its third-party
providers in pricing the securities.
Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions. Valuations are adjusted to reflect illiquidity and/or
non-transferability and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate will be used. Management’s best estimate consists of both internal and external support on certain
Level 3 investments. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment
or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets and changes in financial ratios or cash flows.
Other Financial Instruments
The Company is a party to certain financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, unused lines of credit, standby letter of credit and certain agricultural real estate loans sold to investors with recourse, with the sold portion having a government guarantee that is
assignable back to the Company upon repurchase of the loan in the event of default. The Company’s policy is to record such instruments when funded.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third-party. The risk involved in issuing standby letters of
credit is essentially the same as the credit risk involved in extending loan facilities to customers and letters of credit are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit
and off-balance sheet products. Under the standby letters of credit, the Company is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer’s failure to perform under the
terms of the underlying contract with the beneficiary. Standby letters of credit typically have one-year expiration terms with an option
to renew upon annual review. The Company typically receives a fee for these transactions. The fair value of standby letters of credit is recorded upon inception.
Repurchase Agreements
Repurchase agreements are accounted for as secured financing transactions since the Company maintains effective control over the transferred
securities and the transfer meets the other criteria for such accounting. Obligations to repurchase securities sold are reflected as a liability in the consolidated balance sheets. The securities underlying the agreements are delivered to a custodial
account for the benefit of the counterparties with whom each transaction is executed. The counterparties, who may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, agree to resell to the
Company the same securities at the maturities of the agreements.
Revenue from Contracts with Customers
The Company recognizes revenue in accordance with ASU 2014-09, Revenue
from Contracts with Customers (Accounting Standards Codification (“ASC”) Topic 606) (“ASC 606”), and all subsequent ASUs that modified ASC 606. ASC
606 does not apply to revenue associated with financial instruments, including revenue from loans and securities and certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives and
certain credit card fees are also not in scope. ASC 606 is applicable to noninterest revenue streams such as retirement plan administration fees, trust and asset management income, deposit related fees and annuity and insurance commissions.
Noninterest revenue streams in-scope of ASC 606 are discussed below.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of overdraft fees, monthly service fees, check orders and other deposit account related fees. Overdraft, monthly service,
check orders and other deposit account related fees are transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is
primarily received immediately or in the following month through a direct charge to customers’ accounts.
Card Services Income
ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Debit card income is primarily
comprised of interchange fees earned whenever the Company’s debit cards are processed through card payment networks. The Company’s performance obligations for these revenue streams are satisfied, and related revenue recognized, when the services are
rendered or upon completion. Payment is typically received immediately or in the following month.
Retirement Plan Administration Fees
Retirement plan administration fees are primarily generated for services related to the recordkeeping, administration and plan design solutions of defined benefit,
defined contribution and revenue sharing plans. Revenue is recognized in arrears for services already provided in accordance with fees established in contracts with customers or based on rates agreed to with investment trade platforms based on ending
investment balances held. The Company’s performance obligation is satisfied, and related revenue recognized based on services completed or ending investment balances, for which receivables are recorded at the time of revenue recognition.
Wealth Management
Wealth Management revenue primarily is comprised of trust and other financial services revenue. Trust and asset management income is primarily
comprised of fees earned from the management and administration of trusts, pensions and other customer assets. The Company’s performance obligation is generally satisfied with the resulting fees recognized monthly, based upon services completed or
the month-end market value of the assets under management and the applicable fee rate. Payment is generally received shortly after services are rendered or a few days after month end through a direct charge to customers’ accounts. The Company does
not earn performance-based incentives. Financial services revenue primarily consists of commissions received on brokered investment product sales. For other financial services revenue, the Company’s performance obligation is generally satisfied upon
the issuance of the annuity policy. Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. The Company does not earn a significant amount of trailing commission fees on
brokered investment product sales. The majority of the trailing commission fees are calculated based on a percentage of market value of a period end and revenue is recognized when an investment product’s market value can be determined.
Insurance Revenue
Insurance and other financial services revenue primarily consists of commissions received on insurance. The Company acts as an intermediary between
the Company’s customer and the insurance carrier. The Company’s performance obligation related to insurance sales for both property and casualty insurance and employee benefit plans is generally satisfied upon the later of the issuance or effective
date of the policy. The Company earns performance based incentives, commonly known as contingent payments, which usually are based on certain criteria established by the insurance carrier such as premium volume, growth and insured loss ratios.
Contingent payments are accrued for based upon management’s expectations for the year. Commission expense associated with sales of insurance products is expensed as incurred. The Company does not earn a significant amount of trailing commission fees
on insurance product sales. The majority of the trailing commission fees are calculated based on a percentage of market value of a period end and revenue is recognized when an investment product’s market value can be determined.
Other
Other noninterest income consists of other recurring revenue streams such as account and loan fees, interest rate swap fees, safe deposit box rental fees and other
miscellaneous revenue streams. These revenue streams are primarily transactional based and payment is received immediately or in the following month, and therefore, the Company’s performance obligation is satisfied, and the related revenue is
recognized, at a point in time.
The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606:
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Noninterest income
|
||||||||||||
|
In-Scope of ASC 606:
|
||||||||||||
|
Service charges on deposit accounts
|
$
|
|
$
|
|
$
|
|
||||||
|
Card services income
|
|
|
|
|||||||||
|
Retirement plan administration fees
|
|
|
|
|||||||||
|
Wealth management
|
|
|
|
|||||||||
|
Insurance services
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
Total noninterest income in-scope of ASC 606
|
$
|
|
$
|
|
$
|
|
||||||
|
Total noninterest income out-of-scope of ASC 606
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Total noninterest income
|
$
|
|
$
|
|
$
|
|
||||||
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration or before payment is due, which would result in
contract receivables or assets, respectively. A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment or for which payment is due from the customer. The Company’s
noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company
satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances.
Contract Acquisition Costs
ASC 606 requires the capitalization, and subsequently amortization into expense, of certain incremental costs of obtaining a contract with a customer if these costs are
expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. The Company elected the
practical expedient, which allows immediate expensing of contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less, and did not capitalize any contract acquisition
costs as of or during the year ended December 31, 2024, 2023 and 2022.
Trust Operations
Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the accompanying consolidated balance sheets, since such assets are
not assets of the Company.
Subsequent Events
The Company has evaluated subsequent events for potential recognition and/or disclosure and there were none identified.
|
2.
|
Recent Accounting Pronouncements
|
Recently Adopted Accounting Standards
In November
2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, to enhance reportable segment disclosure requirements by requiring annual and interim disclosure of incremental
segment information. In addition, the amendments will enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for
entities with a single reportable segment and include other disclosure requirements. The amendments in this ASU are effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024, and early adoption is permitted. The Company adopted ASU 2023-07 on December 31, 2024 on a retrospective basis, and aside from meeting the new disclosure requirements, the adoption did not have a material
impact on the consolidated financial statements. See Note 1 and Note 22 for additional information.
Accounting Standards Issued Not Yet Adopted
In December 2023, the
FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, in response to requests from investors, lenders, creditors and other allocators of capital for enhanced income tax disclosures to support
capital allocation decisions. The ASU requires enhanced disclosures primarily related to existing rate reconciliation and income taxes paid information to help investors better assess how the Company’s operations and related tax risks and tax
planning and operational opportunities affect the Company’s tax rate and prospects for future cash flows. The ASU 2023-09 improves the transparency of income tax disclosures. The amendments in this ASU are effective for the Company on January 1,
2025 and should be applied on a prospective basis. Retrospective application and early adoption are permitted. Aside from complying with the new disclosure requirements, the adoption is not expected to have a material impact on the consolidated
financial statements.
In November
2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, that addresses
longstanding investor requests for more information of expenses included in the expense captions presented on the face of the income statement. The ASU will require a tabular disclosure that disaggregates certain income statement expenses
including employee compensation, depreciation and intangible asset amortization. In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures
(Subtopic 220-40): Clarifying the Effective Date, which revises the effective date of ASU 2024-03. The ASU will become effective in the annual reporting periods beginning after December 15, 2026, and early adoption is permitted. Aside
from complying with the new disclosure requirements, the adoption is not expected to have a material impact on the consolidated financial statements.
| 3. |
Acquisitions
|
Pending Acquisition of
Evans Bancorp, Inc. (Unaudited)
On September 9, 2024,
the Company and the Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Evans Bancorp, Inc. (“Evans”) and Evans Bank, National Association (“Evans Bank”), Evans’s subsidiary, pursuant to which the Company will acquire
Evans. Evans, with assets of approximately $2.19 billion at December 31, 2024, is headquartered in Williamsville, New York. Its primary
subsidiary, Evans Bank, is a federally-chartered national banking association operating 18 banking locations in Western New York.
Subject to the terms
and conditions of the Merger Agreement, which has been approved by the boards of directors of each party, Evans will merge with and into the Company, with the Company as the surviving entity, and immediately thereafter, Evans Bank will merge with
and into the Bank, with the Bank as the surviving bank (the “Merger”).
Under the terms of
the Merger Agreement, each outstanding share of Evans common stock will be converted into the right to receive 0.91 shares of the
Company’s common stock. In December 2024, NBT announced that it had received the regulatory approval from the Office of the Comptroller of the Currency (“OCC”) and the waiver from the Federal Reserve Bank of New York necessary to complete its
acquisition of Evans. Also in December 2024, the shareholders of Evans voted to approve the Merger. Evans reported over 75 % of the
issued and outstanding shares of Evans were represented at a special shareholder meeting and over 96 % of the votes cast were voted to
approve the Merger. NBT and Evans anticipate closing the transaction in second quarter of 2025 in conjunction with the core system conversion, pending customary closing conditions.
The Company incurred
acquisition expenses related to the Merger of $1.5 million for the year ended December 31, 2024.
Prior Period Acquisitions
On August 11, 2023, the Company completed the acquisition of Salisbury Bancorp, Inc. (“Salisbury”) through the merger of Salisbury with and into the
Company, with the Company surviving the merger, for $161.7 million in stock. Salisbury Bank and Trust Company, Salisbury’s subsidiary, was
a Connecticut-chartered commercial bank headquartered in Lakeville, Connecticut, operating 13 banking offices. The acquisition enhances
the Company’s presence in Massachusetts’ Berkshire county, and extends its footprint into New York’s Dutchess, Orange and Ulster counties and Connecticut’s Litchfield county. In connection with the acquisition, the Company issued 4.32 million shares of common stock and acquired approximately $1.46 billion of identifiable assets. Goodwill of $79.7 million was recognized as a result of the merger
and is not amortizable or deductible for tax purposes. During the fourth quarter of 2023, the Company revised the estimated fair value of premises and equipment, net and related deferred income taxes based upon receipt of land and building
appraisals, which resulted in a $1.7 million increase in goodwill. The effects of the acquired assets and liabilities have been included in
the consolidated financial statements since that date. As a result of the full integration of the operations of Salisbury, it is not practicable to determine all revenue or net income included in the Company’s operating results relating to Salisbury
since the date of acquisition as Salisbury results cannot be separately identified.
The Company determined that this acquisition constituted a business combination and therefore was accounted for using the acquisition method of
accounting. Accordingly, as of the date of the acquisition, the Company recorded the assets acquired, liabilities assumed and consideration paid at fair value based on management’s best estimates using information available at the date of the
acquisition and these estimates are subject to adjustment based on updated information not available at the time of the acquisition. The amount of goodwill arising from the acquisition consists largely of the synergies and economies of scale expected
from combining the operations of the Company with Salisbury.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed:
|
August 11, 2023
|
||||
|
(In thousands)
|
Salisbury Bancorp, Inc.
|
|||
|
Consideration:
|
||||
|
Cash paid to shareholders (fractional shares)
|
$
|
|
||
|
Common stock issuance
|
|
|||
|
Total net consideration
|
$
|
|
||
|
Recognized amounts of identifiable assets acquired and (liabilities) assumed:
|
||||
|
Cash and cash equivalents
|
$
|
|
||
|
Securities available for sale
|
|
|||
|
Loans, net of allowance for credit losses on purchased credit deteriorated loans
|
|
|||
|
Premises and equipment, net
|
|
|||
|
Core deposit intangibles
|
|
|||
|
Wealth management customer intangible
|
|
|||
|
Bank owned life insurance
|
|
|||
|
Other assets
|
|
|||
|
Total identifiable assets acquired
|
$
|
|
||
|
Deposits
|
$
|
(
|
)
|
|
|
Borrowings
|
(
|
)
|
||
|
Other liabilities
|
(
|
)
|
||
|
Total liabilities assumed
|
$
|
(
|
)
|
|
|
Total identifiable assets, net
|
$
|
|
||
|
Goodwill
|
$
|
|
||
The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The Company used an independent valuation specialist
to assist with the determination of fair values for certain acquired assets and assumed liabilities.
Cash and due from banks - The estimated fair value was determined to approximate the carrying amount of these assets.
Securities available for sale - The estimated fair value of the investment portfolio was based on quoted market prices and dealer quotes. The investment securities were sold
immediately after the merger and no gains or losses were recorded.
Loans - The estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for non-purchased credit deteriorated (“non-PCD”) loans
and for purchased credit deteriorated (“PCD”) loans. The valuation
considered underlying characteristics including loan type, term, rate, payment schedule and credit rating. Other factors included assumptions related to prepayments, PD and LGD. The discount rates applied were based on a build-up approach
considering the funding mix, servicing costs, liquidity premium and factors related to performance risk.
Core deposit intangible - The core deposit intangible was valued utilizing the cost savings method approach, which recognizes the cost savings represented by the expense of
maintaining the core deposit base versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding
rates.
Wealth management customer intangible - The wealth management customer intangible was valued utilizing the income approach, which employs a present value analysis, which
calculates the expected after-tax cash flow benefits of the net revenues generated by the acquired customers over the expected lives of the acquired customers, discounted at a long-term market-oriented after-tax rate of return on investment. The
value assigned to the acquired customers represents the future economic benefit from acquiring the customers (net of operating expenses).
Deposits - The fair value of noninterest bearing demand deposits, interest checking, money market and savings deposit accounts from Salisbury were assumed to approximate the
carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit (“CD”) (time deposit accounts) were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates.
Borrowings - The estimated fair value of short-term borrowings was determined to approximate stated value. Subordinated debt was valued using a discounted cash flow approach
incorporating a discount rate that incorporated similar terms, maturity and credit rating.
Accounting for Acquired Loans - Acquired
loans are classified into two categories: PCD loans and non-PCD loans. PCD loans are defined as a loan or group of loans that have experienced more than insignificant credit deterioration since origination. Non-PCD loans had an allowance
established on acquisition date, which was recognized as an expense through the provision for credit losses. For PCD loans, an allowance was recognized by adding it to the fair value of the loan, which is the amortized cost. There is no provision
for credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan. The allowance for credit losses on non-PCD loans of $8.8 million was recorded through the provision for loan losses within the unaudited interim consolidated statements of income. The following table provides details related to the fair value of acquired PCD loans.
|
(In thousands)
|
PCD Loans
|
|||
|
Par value of PCD loans at acquisition
|
$
|
|
||
|
Allowance for credit losses at acquisition
|
|
|||
|
Discount at acquisition
|
(
|
)
|
||
|
Fair value of PCD loans at acquisition
|
$
|
|
||
Direct costs related to the acquisition were expensed as incurred. Acquisition
integration-related expenses were $10.0 million and $1.0 million during the years ended 2023 and 2022, respectively. These amounts have been separately stated in the consolidated statements of income and are included in operating activities in the consolidated
statements of cash flows.
Supplemental Pro Forma Financial Information (Unaudited)
The following table presents certain
unaudited pro forma financial information for illustrative purposes only, for the years ended December 31, 2023 and 2022, as if Salisbury had been acquired on January 1, 2022. This unaudited pro forma information combines the historical results
of Salisbury with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what
would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision expense resulting from recording loan assets at fair
value, cost savings or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented and the differences could be significant.
|
Pro Forma (Unaudited)
|
||||||||
|
Years Ended December 31,
|
||||||||
|
(In thousands)
|
2023
|
2022
|
||||||
|
Total revenue, net of interest expense
|
$
|
|
$
|
|
||||
|
Net income
|
|
|
||||||
Other Acquisitions
In November 2024, the
Company, through its subsidiary, NBT Bank, National Association, completed its acquisition of certain assets of PACO, Inc, a third-party administration business based in West Des Moines, Iowa for a total consideration of $3.3 million. As part of the acquisition the Company recorded goodwill of $0.7 million and $2.9 million contingent considerations recorded in other liabilities on the consolidated
balance sheets as of December 31, 2024.
In July 2024, the Company, through its subsidiary, NBT Insurance Agency, LLC, a full-service insurance agency, completed the acquisition of substantially all of the assets of Karl W. Reynard, Inc.
located in Stamford, NY for a total consideration of $1.2 million. Karl W. Reynard, Inc. was a long-established property and casualty
agency offering personal and commercial lines. This strategic acquisition expands the presence of NBT Insurance Agency, LLC in the Catskills, where the agency and the Bank are well established. As part of the acquisition, the Company recorded
goodwill of $0.2 million and a $1.0
million contingent consideration recorded in other liabilities on the consolidated balance sheets as of December 31, 2024.
In
July 2023, the Company, through its subsidiary, EPIC Advisors Inc., completed its acquisition of certain assets of Retirement Direct, LLC, a retirement plan administration business based near Charlotte, North Carolina for a total consideration of
$2.8 million. As part of the acquisition, the Company recorded goodwill of $0.9 million and $1.0 million contingent consideration recorded
in other liabilities on the consolidated balance sheets as of December 31, 2023.
The
operating results of the acquired company is included in the consolidated results after the date of acquisition.
| 4. |
Securities
|
The amortized cost, estimated fair value and unrealized gains (losses) of AFS securities are as follows:
|
(In thousands)
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Estimated
Fair Value
|
||||||||||||
|
As of December 31, 2024
|
||||||||||||||||
| U.S. treasury |
$ | $ | $ | ( |
) | $ | ||||||||||
|
Federal agency
|
|
|
(
|
)
|
|
|||||||||||
|
State & municipal
|
|
|
(
|
)
|
|
|||||||||||
|
Mortgage-backed:
|
||||||||||||||||
|
Government-sponsored enterprises
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government agency securities
|
|
|
(
|
)
|
|
|||||||||||
|
Collateralized mortgage obligations:
|
||||||||||||||||
|
Government-sponsored enterprises
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government agency securities
|
|
|
(
|
)
|
|
|||||||||||
|
Corporate
|
|
|
(
|
)
|
|
|||||||||||
|
Total AFS securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
As of December 31, 2023
|
||||||||||||||||
| U.S. treasury |
$ | $ | $ | ( |
) | $ | ||||||||||
|
Federal agency
|
|
|
(
|
)
|
|
|||||||||||
|
State & municipal
|
|
|
(
|
)
|
|
|||||||||||
|
Mortgage-backed:
|
||||||||||||||||
|
Government-sponsored enterprises
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government securities
|
|
|
(
|
)
|
|
|||||||||||
|
Collateralized mortgage obligations:
|
||||||||||||||||
|
Government-sponsored enterprises
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government securities
|
|
|
(
|
)
|
|
|||||||||||
| Corporate |
( |
) | ||||||||||||||
|
Total AFS securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
There was no
During the year ended December 31, 2023, there were $4.5 million of gross realized losses
reclassified out of AOCI and into earnings and the Company incurred a $5.0 million loss on the write-off of an AFS corporate debt
security from a subordinated debt investment of a financial institution that failed. These losses were reclassified out of AOCI and into earnings in net securities gains (losses) in the consolidated statements of income. During the year ended December 31, 2024, the Company sold the
previously written-off security and recognized a gain of $2.3 million into earnings in net securities gains (losses) in the
consolidated statements of income. During the year ended December 31, 2022, there were no
The amortized cost, estimated fair value and unrealized gains (losses) of HTM securities are as follows:
|
(In thousands)
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Estimated
Fair Value
|
||||||||||||
|
As of December 31, 2024
|
||||||||||||||||
|
Federal agency
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Mortgage-backed:
|
||||||||||||||||
|
Government-sponsored enterprises
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government agency securities
|
|
|
(
|
)
|
|
|||||||||||
|
Collateralized mortgage obligations:
|
||||||||||||||||
|
Government-sponsored enterprises
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government agency securities
|
|
|
(
|
)
|
|
|||||||||||
|
State & municipal
|
|
|
(
|
)
|
|
|||||||||||
|
Total HTM securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
As of December 31, 2023
|
||||||||||||||||
| Federal agency |
$ | $ | $ | ( |
) | $ | ||||||||||
|
Mortgage-backed:
|
||||||||||||||||
|
Government-sponsored enterprises
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government agency securities
|
|
|
(
|
)
|
|
|||||||||||
|
Collateralized mortgage obligations:
|
||||||||||||||||
|
Government-sponsored enterprises
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. government agency securities
|
|
|
(
|
)
|
|
|||||||||||
|
State & municipal
|
|
|
(
|
)
|
|
|||||||||||
|
Total HTM securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
At December 31, 2024 and
2023, all of the mortgaged-backed HTM securities were comprised of U.S. government agency and government-sponsored enterprises securities.
The Company recorded no 4
thousand for the year ended December 31, 2022.
AFS and HTM securities with amortized costs totaling $1.60 billion at December 31, 2024 and $2.03
billion at December 31, 2023, were pledged to secure public deposits and for other purposes required or permitted by law. Additionally, at December 31, 2024 and 2023, AFS and HTM securities with an amortized cost of $234.2 million and $177.2 million,
respectively, were pledged as collateral for securities sold under repurchase agreements.
The following table sets forth information with regard to gains and (losses) on equity securities:
|
Years Ended
December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022 | |||||||||
|
Net gains recognized on equity securities
|
$
|
|
$
|
|
$ | ( |
) | |||||
|
Less: Net gains recognized on equity securities sold during the period
|
|
|
||||||||||
|
Unrealized gains and recognized on equity securities still held
|
$
|
|
$
|
|
$ | ( |
) | |||||
As of December 31, 2024 and 2023 the carrying value of equity securities without readily determinable fair values was $1.0 no
The following table sets forth information with regard to contractual maturities of debt securities at December 31, 2024:
|
(In thousands)
|
Amortized
Cost
|
Estimated
Fair Value
|
||||||
|
AFS debt securities:
|
||||||||
|
Within one year
|
$
|
|
$
|
|
||||
|
From one to five years
|
|
|
||||||
|
From five to ten years
|
|
|
||||||
|
After ten years
|
|
|
||||||
|
Total AFS debt securities
|
$
|
|
$
|
|
||||
|
HTM debt securities:
|
||||||||
|
Within one year
|
$
|
|
$
|
|
||||
|
From one to five years
|
|
|
||||||
|
From five to ten years
|
|
|
||||||
|
After ten years
|
|
|
||||||
|
Total HTM debt securities
|
$
|
|
$
|
|
||||
Maturities of mortgage-backed, collateralized mortgage obligations and asset-backed securities are stated based on their estimated average lives. Actual maturities may
differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations, with or without call or prepayment penalties.
Except for U.S. government securities and government-sponsored enterprises securities, there were no
The following table sets forth information with regard to investment securities with unrealized losses, for which an allowance for credit losses has not been recorded, segregated according to the length of time the securities were in a continuous unrealized loss position:
|
Less Than 12 Months
|
12 Months or Longer
|
Total
|
||||||||||||||||||||||||||||||||||
|
(In thousands)
|
Fair
Value
|
Unrealized
Losses
|
Number
of
Positions
|
Fair
Value
|
Unrealized
Losses
|
Number
of
Positions
|
Fair
Value
|
Unrealized
Losses
|
Number
of
Positions
|
|||||||||||||||||||||||||||
|
As of December 31, 2024
|
||||||||||||||||||||||||||||||||||||
|
AFS securities:
|
||||||||||||||||||||||||||||||||||||
| U.S. treasury |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||||||
|
Federal agency
|
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|
|||||||||||||||||||||||||
| State & municipal |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
|
Mortgage-backed
|
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||||||||||
|
Collateralized mortgage obligations
|
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||||||||||
| Corporate |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
|
Total securities with unrealized losses
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
||||||||||||||||||
|
HTM securities:
|
||||||||||||||||||||||||||||||||||||
|
Federal agency
|
$
|
|
$
|
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
|||||||||||||||||||
| Mortgage-backed |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
|
State & municipal
|
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||||||||||
|
Total securities with unrealized losses
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
||||||||||||||||||
|
As of December 31, 2023
|
||||||||||||||||||||||||||||||||||||
|
AFS securities:
|
||||||||||||||||||||||||||||||||||||
| U.S. treasury |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||||||
|
Federal agency
|
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|
|||||||||||||||||||||||||
|
State & municipal
|
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
|
Mortgage-backed
|
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||||||||||
|
Collateralized mortgage obligations
|
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||||||||||
| Corporate |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
|
Total securities with unrealized losses
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
||||||||||||||||||
|
HTM securities:
|
||||||||||||||||||||||||||||||||||||
| Federal agency |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||||||
|
Mortgage-backed
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
|
State & municipal
|
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||||||||||
|
Total securities with unrealized losses
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
$
|
|
$
|
(
|
)
|
|
||||||||||||||||||
The Company does not believe the AFS securities that were in an unrealized loss position as of December 31, 2024 and 2023, which consisted of 401 and 388 individual securities,
respectively, represented a credit loss impairment. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. As of December 31, 2024 and 2023, the majority of the AFS securities in an
unrealized loss position consisted of debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises that carry the explicit and/or implicit guarantee of the U.S. government, which are widely recognized as “risk-free” and
have a long history of zero credit losses. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment
securities. The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell the securities before recovery of its amortized cost basis, which may be at maturity. The Company elected to exclude AIR from
the amortized cost basis of debt securities. AIR on AFS debt securities totaled $4.4 million at December 31, 2024 and $3.9 million at December 31, 2023 and is excluded from the estimate of credit losses and reported in the financial statement line.
5. Loans
A summary of loans, net of deferred fees and origination costs, by category is as follows:
|
At December 31,
|
||||||||
|
(In thousands)
|
2024
|
2023
|
||||||
|
Commercial & industrial
|
$
|
|
$
|
|
||||
|
Commercial real estate
|
|
|
||||||
|
Residential real estate
|
|
|
||||||
|
Home equity
|
|
|
||||||
|
Indirect auto
|
|
|
||||||
|
Residential solar
|
|
|
||||||
|
Other consumer
|
|
|
||||||
|
Total loans
|
$
|
|
$
|
|
||||
Included in the above loans are net deferred loan origination (fees) costs totaling $(64.7 ) million and $(98.2 ) million at December 31, 2024 and 2023, respectively. The
Company had $2.4 million and $0.4
million of residential real estate loans held for sale as of December 31, 2024 and 2023, respectively. The Company had $7.3 million and $2.9 million of residential solar loans held for sale as of December 31, 2024 and 2023, respectively.
The total amount of loans serviced by the Company for unrelated third parties was $982.5 million and $856.9 million at December 31, 2024 and 2023, respectively. At
December 31, 2024 and 2023,
the Company had $0.9 million and $1.0
million, respectively, of mortgage servicing rights.
At December 31, 2024 and 2023, the Company serviced $24.7 million
and $26.4 million, respectively, of agricultural loans sold with recourse. Due to sufficient collateral on these loans and government
guarantees, no reserve is considered necessary at December 31, 2024 and 2023.
FHLB advances are collateralized by a blanket lien on the Company’s residential real estate mortgages.
In the ordinary course of business, the Company has made loans at prevailing rates and terms to directors, officers and other related parties. Such loans, in
management’s opinion, do not present more than the normal risk of collectability or incorporate other unfavorable features. The aggregate amount of loans outstanding to qualifying related parties and changes during the years are summarized as
follows:
|
(In thousands)
|
2024
|
2023
|
||||||
|
Balance at January 1
|
$
|
|
$
|
|
||||
|
New loans
|
|
|
||||||
|
Repayments
|
(
|
)
|
(
|
)
|
||||
|
Balance at December 31
|
$
|
|
$
|
|
||||
|
6.
|
Allowance for Credit Losses and Credit Quality of Loans
|
The allowance for credit losses totaled $116.0 million at December 31, 2024, compared to $114.4 million at December
31, 2023. The allowance for credit losses as a percentage of loans was 1.16 % at December 31, 2024, compared
to 1.19 % at December 31, 2023.
The allowance for credit losses calculation incorporated a 6-quarter forecast period to account for forecast economic conditions under each scenario
utilized in the measurement. For periods beyond the 6-quarter forecast, the model reverts to long-term economic conditions over a 4-quarter reversion period on a straight-line basis. The Company considers a baseline, upside and downside economic
forecast in measuring the allowance.
The quantitative model as of December 31, 2024 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a
reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2024, the weightings were 80% and 20% for the baseline and downside economic forecasts, respectively. The baseline outlook reflected a Northeast
unemployment rate environment starting at 4.1% and increasing slightly during the forecast period to 4.2%. Northeast Gross Domestic Product (“GDP’s”) annualized growth (on a quarterly basis) is expected to start the first quarter of 2025 at
approximately 3.8% before decreasing to a low of 2.6% in the third quarter of 2025 and then increasing to 3.9% by the end of the forecast period. Key assumptions in the baseline economic outlook included two 25 basis point federal funds rate cuts in 2025, quantitative tightening
ending in early 2025, a post-election fiscal outlook with lower spending, lower taxes, and higher tariffs, and the economy currently being near full employment. The alternative downside scenario assumed deteriorated economic conditions
from the baseline outlook. Under this scenario, Northeast unemployment increases to a peak of 7.5% in the first quarter of 2026. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s
expectations as of December 31, 2024. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation and recent trends in
asset value indices. Additional monitoring for industry concentrations, loan growth and policy exceptions was also conducted.
The quantitative model as of December 31, 2023 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a
reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2023, the weightings were 70% and 30% for the baseline and downside economic forecasts, respectively. The baseline outlook reflected an
unemployment rate environment starting at 3.8% and increasing slightly during the forecast period to 4.1%. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the first quarter of 2024 at approximately 3.7% before decreasing to a low of 2.9% in the third
quarter of 2024 and then increasing to 3.8% by the end of the forecast period. Other utilized economic variable forecasts are mixed compared to the prior year, with retail sales improving, business output mixed and housing starts down. Key assumptions in the baseline
economic outlook included currently
being in a full employment economy, continued tapering of the Federal Reserve balance sheet and the Federal Open Market Committee beginning to cut rates in the second quarter of 2024. The alternative downside scenario assumed deteriorated economic conditions from the
baseline outlook. Under this scenario, Northeast unemployment increases to a peak of 7.0% in the first quarter of 2025. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations
as of December 31, 2023. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation and recent trends in asset value
indices. Additional monitoring for industry concentrations, loan growth and policy exceptions was also conducted.
The quantitative model as of December 31, 2022 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a
reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2022, the weightings were 50% and 50% for the baseline and downside economic forecasts, respectively. The baseline outlook reflected an
unemployment rate environment initially around pre-coronavirus (“COVID-19”) levels levels at 3.9% that increases slightly during the forecast period to 4.0%. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the first
quarter of 2023 at approximately 3.9% and hovering around 4.6% by the end of the forecast period. Other utilized economic variables have generally deteriorated in their respective forecasts, with retail sales and housing starts forecasts declining
from the prior year. Key assumptions in the baseline economic outlook included a full employment economy being realized in the near future, continued tapering of the Federal Reserve balance sheet, an increasing yield on ten-year treasury securities
and a gradual decline in global oil prices. The alternative downside scenario assumed deteriorated economic and pandemic related conditions from the baseline outlook. Under this scenario, Northeast unemployment rises from 3.9% in the fourth quarter
of 2022 to a peak of 6.9% in the first quarter of 2024. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2022. Additional qualitative adjustments were
made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation and recent trends in asset value indices. Additional monitoring for industry concentrations, loan
growth and policy exceptions was also conducted.
There were no loans purchased with credit deterioration during the year
ended December 31, 2024. There were $219.5 million of PCD loans acquired
from Salisbury during the year ended December 31, 2023, which resulted in an allowance for credit losses at acquisition of $5.8
million. During 2024, the Company purchased $3.0 million of residential loans at a 7.0 % premium with a $31 thousand allowance for credit losses
recorded for these loans. During 2023, the Company purchased $3.8 million of residential loans at a 7.0 % premium with a $31 thousand allowance for credit losses recorded for these loans.
The Company made a policy election to report AIR in the line item on the consolidated balance sheets. AIR on loans totaled $34.8 million at December 31, 2024 and $34.1 million at December 31, 2023
and with no
The Company’s
January 1, 2023 adoption of ASU 2022-02, Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures resulted in an insignificant change to its methodology for
estimating the allowance for credit losses on TDRs. The ASU eliminated the guidance on TDRs and requires an evaluation on all loan modifications to determine if they result in a new loan or a continuation of the existing loan. The decrease in
allowance for credit loss on TDR loans relating to the adoption of ASU 2022-02 was $0.6 million.
The following tables present the activity in the allowance for credit losses by our portfolio segment:
|
(In thousands)
|
Commercial
Loans
|
Consumer
Loans
|
Residential
|
Total
|
||||||||||||
|
Balance as of December 31, 2023
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Charge-offs
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Recoveries
|
|
|
|
|
||||||||||||
|
Provision
|
|
|
|
|
||||||||||||
|
Ending
Balance as of December 31, 2024
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
|
||||||||||||||||
|
Balance as of January 1, 2023 (after
adoption of ASU 2022-02)
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| Allowance for credit loss on PCD acquired loans |
||||||||||||||||
|
Charge-offs
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Recoveries
|
|
|
|
|
||||||||||||
|
Provision
|
|
|
|
|
||||||||||||
|
Ending Balance as of December 31, 2023
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ||||||||||||
| Charge-offs | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Recoveries | ||||||||||||||||
| Provision | ( |
) | ||||||||||||||
| Ending Balance as of December 31, 2022 | $ | $ | $ | $ | ||||||||||||
The allowance for credit losses as of December 31, 2024 increased compared to the allowance estimates as of December 31, 2023 primarily due to providing for current year loan growth, the slowing of
prepayment speed assumptions, including the changes in prepayment model assumptions. These increases to the allowance for credit losses were partially offset by the change in forecast scenario weightings from 70 % baseline and 30 % downside to 80 % baseline and 20 % downside, and
the shift in loan composition driven by other consumer and residential solar portfolios that are in a planned run-off status. The increase in the allowance for credit losses from December 31, 2022 to December 31, 2023 was primarily due
to the recording of $14.5 million of allowance for acquired Salisbury loans as of the acquisition date, which included both the $8.8 million of non-PCD allowance recognized through the provision for loan losses and the $5.8 million of PCD allowance reclassified from loans. The increase in the allowance for credit losses from December 31, 2021 to December 31, 2022 was primarily due to an increase in loan
balances and a modest deterioration in the economic forecast.
Individually Evaluated Loans
The threshold for evaluating classified, commercial and CRE loans risk graded substandard or doubtful, and nonperforming loans individually evaluated for credit loss is $1.0 million. As of December 31, 2024, three
relationships were identified for individual credit loss evaluation which had an amortized cost basis of $28.8
million, with no allowance for credit loss. As of December 31, 2023, two of the three same relationships were identified for individual credit loss evaluation which had an amortized cost basis of $17.3 million, with no allowance for credit loss.
The increase in
the amortized cost basis on an individual relationship basis from December 31, 2023 to December 31, 2024 was primarily due to the addition of one
new individually evaluated relationship with an amortized cost basis of $14.0 million. This increase was partially offset by $2.2 million of charge-offs experienced during the year on the other two individually evaluated relationships.
As of December 31, 2024 and 2023, there were $28.8 million and $17.3 million, respectively, of loans
in nonaccrual status that were individually evaluated for expected credit loss without an allowance for credit losses.
The following table sets
forth information with regard to past due and nonperforming loans by loan segment:
|
(In thousands)
|
31-60 Days
Past Due
Accruing
|
61-90 Days
Past Due
Accruing
|
Greater
Than
90 Days
Past Due
Accruing
|
Total
Past Due
Accruing
|
Nonaccrual
|
Current
|
Recorded
Total
Loans
|
|||||||||||||||||||||
|
As of December 31, 2024
|
||||||||||||||||||||||||||||
|
Commercial loans:
|
||||||||||||||||||||||||||||
|
C&I
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
CRE
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total commercial loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Consumer loans:
|
||||||||||||||||||||||||||||
|
Auto
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Residential solar
|
||||||||||||||||||||||||||||
|
Other consumer
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total consumer loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Total loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
(In thousands)
|
31-60 Days
Past Due
Accruing
|
61-90 Days
Past Due
Accruing
|
Greater
Than
90 Days
Past Due
Accruing
|
Total
Past Due
Accruing
|
Nonaccrual
|
Current
|
Recorded
Total
Loans
|
|||||||||||||||||||||
|
As of December 31, 2023
|
||||||||||||||||||||||||||||
|
Commercial loans:
|
||||||||||||||||||||||||||||
|
C&I
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
CRE
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total commercial loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Consumer loans:
|
||||||||||||||||||||||||||||
|
Auto
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Residential solar
|
||||||||||||||||||||||||||||
|
Other consumer
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total consumer loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Total loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
Credit Quality Indicators
The Company has developed an internal loan grading system to evaluate and quantify the Company’s loan portfolio with respect to quality and risk, focusing on, among
other things, borrower’s financial strength, experience and depth of borrower’s management, primary and secondary sources of repayment, payment history, nature of the business and industry outlook. The internal grading system enables the Company to
monitor the quality of the entire loan portfolio on a consistent basis and provide management with an early warning system, which facilitates recognition and response to problem loans and potential problem loans.
Commercial Grading System
For C&I and CRE loans, the Company uses a grading system that relies on quantifiable and measurable characteristics when available. This includes comparison of
financial strength to available industry averages, comparison of transaction factors (loan terms and conditions) to loan policy and comparison of credit history to stated repayment terms and industry averages. Some grading factors are necessarily
more subjective such as economic and industry factors, regulatory environment and management. C&I and CRE loans are graded Doubtful, Substandard, Special Mention and Pass.
Doubtful
A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its
classification as a loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations,
capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new
information. Nonaccrual treatment is required for Doubtful assets because of the high probability of loss.
Substandard
Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision
by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other
credit risk mitigants. For some Substandard loans, the likelihood of full collection of interest and principal may be in doubt and those loans should be placed on nonaccrual. Although Substandard assets in the aggregate will have a distinct
potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated Substandard.
Special Mention
Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s
position at some future date. These loans pose elevated risk, but their weakness does not yet justify a Substandard classification. Borrowers may be experiencing adverse operating trends (i.e., declining revenues or margins) or may be struggling
with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage and/or tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may
also support a Special Mention rating. Although a Special Mention loan has a higher PD than a Pass asset, its default is not imminent.
Pass
Loans graded as Pass encompass all loans not graded as Doubtful, Substandard or Special Mention. Pass loans are in compliance with loan covenants
and payments are generally made as agreed. Pass loans range from superior quality to fair quality. Pass loans also include any portion of a government guaranteed loan, including Paycheck Protection Program loans.
Consumer and Residential Grading System
Consumer and Residential loans are graded as either Nonperforming or Performing.
Nonperforming
Nonperforming loans are loans that are (1) over 90 days past due and interest is still accruing or (2) on nonaccrual status.
Performing
All loans not meeting any of the above criteria are considered Performing.
The following tables illustrate the Company’s credit
quality by loan class by vintage and
includes gross charge-offs by vintage. Included in other consumer gross charge-offs for the year ended December 31, 2024, the Company recorded $0.2
million in overdrawn deposit accounts reported as 2023 originations and $0.7 million in overdrawn deposit accounts reported as 2024
originations. Included in other consumer gross charge-offs for the year ended December 31, 2023, the Company recorded $0.2 million in
overdrawn deposit accounts reported as 2022 originations and $0.8 million in overdrawn deposit accounts reported as 2023 originations.
|
(In thousands)
|
2024
|
2023
|
2022
|
2021
|
2020
|
Prior
|
Revolving
Loans
Amortized
Cost Basis
|
Revolving
Loans
Converted
to Term
|
Total
|
|||||||||||||||||||||||||||
| As of December 31, 2024 | ||||||||||||||||||||||||||||||||||||
|
C&I
|
||||||||||||||||||||||||||||||||||||
|
By internally assigned grade:
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total C&I
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current-period gross charge-offs
|
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||||||
|
CRE
|
||||||||||||||||||||||||||||||||||||
|
By internally assigned grade:
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total CRE
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current-period gross charge-offs
|
$ | $ | $ | $ | ( |
) | $ | $ | $ | $ | $ | ( |
) | |||||||||||||||||||||||
|
Auto
|
||||||||||||||||||||||||||||||||||||
|
By payment activity:
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total auto
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current-period gross charge-offs
|
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||
|
Residential solar
|
||||||||||||||||||||||||||||||||||||
|
By payment activity:
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
|
Nonperforming
|
||||||||||||||||||||||||||||||||||||
|
Total residential solar
|
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
|
Current-period gross charge-offs
|
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||||
|
Other consumer
|
||||||||||||||||||||||||||||||||||||
|
By payment activity:
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total other consumer
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||
|
Residential
|
||||||||||||||||||||||||||||||||||||
|
By payment activity:
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||||||||||
|
Total loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||
|
(In thousands)
|
2023
|
2022
|
2021
|
2020
|
2019
|
Prior
|
Revolving
Loans
Amortized
Cost Basis
|
Revolving
Loans
Converted
to Term
|
Total
|
|||||||||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||||||||||||
|
C&I
|
||||||||||||||||||||||||||||||||||||
|
By internally assigned grade:
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total C&I
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||||
|
CRE
|
||||||||||||||||||||||||||||||||||||
|
By internally assigned grade:
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total CRE
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||||||||||
|
Auto
|
||||||||||||||||||||||||||||||||||||
|
By payment activity:
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total auto
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||
| Residential solar |
||||||||||||||||||||||||||||||||||||
|
By payment activity:
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
|
Nonperforming
|
||||||||||||||||||||||||||||||||||||
|
Total residential solar
|
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current-period gross charge-offs | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||
|
Other consumer
|
||||||||||||||||||||||||||||||||||||
|
By payment activity:
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total other consumer
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||
|
Residential
|
||||||||||||||||||||||||||||||||||||
|
By payment activity:
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||||||||
|
Total loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
| Current-period gross charge-offs | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||||
Allowance for Credit Losses on
Off-Balance Sheet Credit Exposures
The allowance for losses on unfunded commitments totaled $4.4
million as of December 31, 2024, compared to $5.1 million as of December 31, 2023.
The reserve for unfunded loan commitments was ($0.7 )
million for the year ended December 31, 2024, compared to less than $0.1 0.8 million of acquisition-related
provision for unfunded loan commitments due to the Salisbury acquisition.
Loan Modifications to Borrowers Experiencing Financial Difficulties
The Company’s January 1, 2023 adoption of ASU 2022-02 eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, the Company no longer recognizes an allowance for credit losses for the economic concession granted to a borrower for changes in the timing and amount of contractual cash flows when a loan is restructured. The adoption of ASU 2022-02 resulted in a change to reporting for loan modifications to borrowers experiencing financial difficulties. With the adoption of ASU 2022-02 these modifications required enhanced reporting on the type of modifications granted and the financial magnitude of the concessions granted.
When the Company modifies a loan with financial difficulty, such modifications generally include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a change in scheduled payment amount; or principal forgiveness.
The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty,
disaggregated by class of financing receivable and type of concession granted:
|
Year Ended December 31, 2024
|
||||||||||||||||||||||||
| Interest Rate Reduction |
Term Extension
|
Combination - Term
Extension and Interest Rate
Reduction |
||||||||||||||||||||||
|
(Dollars in thousands)
|
Amortized
Cost
|
% of Total Class
of Financing
Receivables
|
Amortized
Cost |
% of Total Class
of Financing
Receivables
|
Amortized
Cost
|
% of Total Class
of Financing
Receivables
|
||||||||||||||||||
| Residential | $ | $ |
% |
$ | % |
|||||||||||||||||||
|
Total
|
$ |
$
|
|
$ | ||||||||||||||||||||
|
Year Ended December 31, 2023
|
||||||||||||||||||||||||
| Interest Rate Reduction |
Term Extension
|
Combination - Term
Extension and Interest Rate
Reduction |
||||||||||||||||||||||
|
(Dollars in thousands)
|
Amortized
Cost
|
% of Total Class
of Financing
Receivables
|
Amortized
Cost |
% of Total Class
of Financing
Receivables
|
Amortized
Cost
|
% of Total Class
of Financing
Receivables
|
||||||||||||||||||
|
Residential
|
$ | % |
$
|
|
% | $ | % | |||||||||||||||||
|
Total
|
$ |
$
|
|
$ | ||||||||||||||||||||
The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulties:
| Year Ended December 31, 2024 | ||||
|
Loan Type
|
Term Extension
|
Interest Rate Reduction
|
||
|
Residential
|
Added a weighted-average
life of loans, which reduced monthly
payment amounts for the borrowers.
|
Interest rates were reduced by an average
of |
||
| Year Ended December 31, 2023 | ||||
|
Loan Type
|
Term Extension
|
Interest Rate Reduction
|
||
|
Residential
|
Added a weighted-average
life of loans, which reduced monthly
payment amounts for the borrowers.
|
Interest rates were reduced by an average
of |
||
There were no financing receivables that had
payment defaults during the year ended December 31, 2024 that were modified to borrowers experiencing financial difficulty modified in the twelve months prior to that default. There were $31 thousand of Residential financing receivables with interest rate reductions and $124
thousand of Residential financing receivables with Term Extensions that had payment defaults during the year ended December 31, 2023 that were modified to borrowers experiencing financial difficulty modified in the prior twelve months to that
default.
The following table depicts the performance of loans that have been modified
to borrowers experiencing financial difficulty that were modified in the prior twelve months:
|
Payment Status (Amortized Cost Basis)
|
||||||||||||||||
|
(In thousands)
|
Current
|
31-60 Days
Past Due
|
61-90 Days
Past Due
|
Greater than 90
Days Past Due
|
||||||||||||
|
Year Ended December 31, 2024
|
||||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Payment Status (Amortized Cost Basis)
|
||||||||||||||||
|
(In thousands)
|
Current
|
31-60 Days
Past Due
|
61-90 Days
Past Due
|
Greater than 90
Days Past Due
|
||||||||||||
|
Year Ended December 31, 2023
|
||||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Troubled Debt Restructuring
Prior to the adoption of ASU 2022-02 on January 1, 2023, the Company accounted for loan modifications to borrowers experiencing financial difficulty when concessions
were granted as TDRs. The following tables are disclosures related to TDRs in prior periods.
The following tables illustrate the recorded investment and number of modifications designated as TDRs, including the recorded
investment in the loans prior to a modification and the recorded investment in the loans after restructuring:
|
Year Ended December 31, 2022
|
||||||||||||
|
(Dollars in thousands)
|
Number of
Contracts
|
Pre-
Modification
Outstanding
Recorded
Investment
|
Post-
Modification
Outstanding
Recorded
Investment
|
|||||||||
|
Residential
|
|
$ |
|
$ |
|
|||||||
|
Total TDRs
|
|
$ |
|
$ |
|
|||||||
The following table illustrates the recorded investment and
number of modifications for TDRs where a concession has been made and subsequently defaulted during the year:
|
Year Ended December 31, 2022
|
||||||||
|
(Dollars in thousands)
|
Number of
Contracts
|
Recorded
Investment
|
||||||
|
Commercial loans:
|
||||||||
|
C&I
|
$ | |||||||
|
Total commercial loans
|
$ | |||||||
|
Consumer loans:
|
||||||||
|
Auto
|
$ | |||||||
|
Total consumer loans
|
$ | |||||||
|
Residential
|
$ | |||||||
|
Total TDRs
|
$ | |||||||
7. Premises, Equipment and Leases
A summary of premises and equipment follows:
|
December 31,
|
||||||||
|
(In thousands)
|
2024
|
2023
|
||||||
|
Land, buildings and improvements
|
$
|
|
$
|
|
||||
|
Furniture and equipment
|
|
|
||||||
|
Premises and equipment before accumulated depreciation
|
$
|
|
$
|
|
||||
|
Accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Total premises and equipment
|
$
|
|
$
|
|
||||
Buildings and improvements are depreciated based on useful lives of
to twenty years . Furniture and equipment is depreciated based on useful lives of to ten years .
Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities, included in and ,
respectively, on the consolidated balance sheets. The Company does not have any significant finance leases in which we are the lessee as of December 31, 2024 and December 31, 2023.
Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent
our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the
Company’s incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the
operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy expense in the consolidated statements of income.
The Company made a policy election to exclude the recognition requirements to all classes of leases with original terms of 12 months or less.
Instead, the short-term lease payments are recognized in profit or loss on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases,
non-lease components and other non-components, such as common area maintenance charges, real estate taxes and insurance are not included in the measurement of the lease liability since they are generally able to be segregated.
Our leases relate primarily to office space and bank branches, and some contain options to renew the lease. These options to renew are generally not
considered reasonably certain to exercise, and are therefore not included in the lease term until such time that the option to renew is reasonably certain. As of December 31, 2024, operating lease ROU assets and liabilities were $27.6 million and $30.3 million,
respectively. As of December 31, 2023, operating lease ROU assets and liabilities were $26.7 million and $28.2 million, respectively.
The table below summarizes net lease cost:
|
December 31,
|
||||||||
|
(In thousands)
|
2024
|
2023
|
||||||
|
Operating lease cost
|
$
|
|
$
|
|
||||
|
Variable lease cost
|
|
|
||||||
|
Short-term lease cost
|
|
|
||||||
|
Sublease income
|
(
|
)
|
(
|
)
|
||||
|
Total operating lease cost
|
$
|
|
$
|
|
||||
The table below shows future minimum rental commitments related to non-cancelable operating leases for the next five years and thereafter as of December 31, 2024:
|
(In thousands)
|
||||
|
2025
|
$
|
|
||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
Thereafter
|
|
|||
|
Total lease payments
|
$
|
|
||
|
Less: interest
|
(
|
)
|
||
|
Present value of lease liabilities
|
$
|
|
||
The following table shows the weighted average remaining operating lease term, the weighted average discount rate and supplemental information on the consolidated
statements of cash flows for operating leases:
|
December 31,
|
||||||||
|
(In thousands except for percent and period data)
|
2024
|
2023
|
||||||
|
Weighted average remaining lease term, in years
|
|
|
||||||
|
Weighted average discount rate
|
|
%
|
|
%
|
||||
|
Cash paid for amounts included in the measurement of lease liabilities:
|
||||||||
|
Operating cash flows from operating leases
|
$
|
|
$
|
|
||||
|
ROU assets obtained in exchange for lease liabilities
|
|
|
||||||
As of December 31, 2024 there are no new significant leases that have not yet commenced.
Rental expense included in occupancy expense amounted to $8.4 million in 2024, $7.9 million in 2023 and $7.2 million in 2022.
8. Goodwill and Other Intangible Assets
A summary of goodwill is as follows:
|
(In thousands)
|
||||
|
January 1, 2024
|
$
|
|
||
|
Goodwill acquired
|
|
|||
|
December 31, 2024
|
$
|
|
||
|
January 1, 2023
|
$
|
|
||
|
Goodwill acquired
|
|
|||
|
December 31, 2023
|
$
|
|
||
The Company has intangible assets with definite useful lives capitalized on its consolidated balance sheet in the form of core deposit and other identified intangible
assets. These intangible assets are amortized over their estimated useful lives, which range primarily from to twenty years .
There was no
A summary of core deposit and other intangible assets follows:
|
December 31,
|
||||||||
|
(In thousands)
|
2024
|
2023
|
||||||
|
Core deposit intangibles:
|
||||||||
|
Gross carrying amount
|
$
|
|
$
|
|
||||
|
Less: accumulated amortization
|
|
|
||||||
|
Net carrying amount
|
$
|
|
$
|
|
||||
|
Identified intangible assets:
|
||||||||
|
Gross carrying amount
|
$
|
|
$
|
|
||||
|
Less: accumulated amortization
|
|
|
||||||
|
Net carrying amount
|
$
|
|
$
|
|
||||
|
Total intangibles:
|
||||||||
|
Gross carrying amount
|
$
|
|
$
|
|
||||
|
Less: accumulated amortization
|
|
|
||||||
|
Net carrying amount
|
$
|
|
$
|
|
||||
Amortization expense on intangible assets with definite useful lives totaled $8.4 million for 2024, $4.7 million for 2023 and $2.3 million for 2022. Amortization
expense on intangible assets with definite useful lives is expected to total $7.9 million for 2025, $6.9 million for 2026, $5.8 million for 2027, $4.8 million for 2028, $3.8 million for 2029 and $7.2 million thereafter. Other
identified intangible assets include customer lists and non-compete agreements.
During the years ended December 31, 2024, 2023 and 2022, there was no
9. Deposits
The following table sets forth the maturity distribution of time deposits:
|
(In thousands)
|
December 31, 2024
|
|||
|
Within one year
|
$
|
|
||
|
After one but within two years
|
|
|||
|
After two but within three years
|
|
|||
|
After three but within four years
|
|
|||
|
After four but within five years
|
|
|||
|
After five years
|
|
|||
|
Total
|
$
|
|
||
Time deposits of $250,000 or more aggregated $251.6
million and $263.1 million December 31, 2024
and 2023, respectively.
10. Borrowings
Short-Term Borrowings
In addition to the liquidity provided by balance sheet cash flows, liquidity must also be supplemented with additional sources such as credit lines from correspondent
banks as well as borrowings from the FHLB and the Federal Reserve Bank. Other funding alternatives may also be appropriate from time to time, including wholesale and retail repurchase agreements and brokered CD accounts.
Short-term borrowings totaled $162.9 million and $386.7 million at December 31, 2024 and
2023, respectively, and consist of Federal funds purchased and securities sold under repurchase agreements, which generally represent
overnight borrowing transactions and other short-term borrowings, primarily FHLB advances, with original maturities of one year or less.
The Company has unused lines of credit with the FHLB and access to brokered deposits available for short-term financing. Those sources totaled approximately $3.46 billion and $2.87 billion at
December 31, 2024 and 2023,
respectively. Borrowings on the FHLB lines are secured by FHLB stock, certain securities and one-to-four family first lien mortgage loans. Securities collateralizing repurchase agreements are held in safekeeping by nonaffiliated financial
institutions and are under the Company’s control.
Information related to short-term borrowings is summarized as follows:
| December 31, |
||||||||||||
|
(Dollars in thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Federal funds purchased:
|
||||||||||||
|
Balance at year-end
|
$
|
|
$
|
|
$
|
|
||||||
|
Average during the year
|
|
|
|
|||||||||
|
Maximum month end balance
|
|
|
|
|||||||||
|
Weighted average rate during the year
|
|
%
|
|
%
|
|
%
|
||||||
|
Weighted average rate at year-end
|
|
%
|
|
%
|
|
%
|
||||||
|
Securities sold under repurchase agreements:
|
||||||||||||
|
Balance at year-end
|
$
|
|
$
|
|
$
|
|
||||||
|
Average during the year
|
|
|
|
|||||||||
|
Maximum month end balance
|
|
|
|
|||||||||
|
Weighted average rate during the year
|
|
%
|
|
%
|
|
%
|
||||||
|
Weighted average rate at year-end
|
|
%
|
|
%
|
|
%
|
||||||
|
Other short-term borrowings:
|
||||||||||||
|
Balance at year-end
|
$
|
|
$
|
|
$
|
|
||||||
|
Average during the year
|
|
|
|
|||||||||
|
Maximum month end balance
|
|
|
|
|||||||||
|
Weighted average rate during the year
|
|
%
|
|
%
|
|
%
|
||||||
|
Weighted average rate at year-end
|
|
%
|
|
%
|
|
%
|
||||||
See Note 4 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.
Long-Term Debt
Long-term debt consists of obligations having an original maturity at issuance of more than one year. A majority of the Company’s long-term debt
is comprised of FHLB advances collateralized by the FHLB stock owned by the Company, and a blanket lien on its residential real estate mortgage loans. As of December 31, 2024 the Company had no callable long-term debt. A summary is as follows:
|
(Dollars in thousands)
|
December 31, 2024
|
December 31, 2023
|
||||||||||||||
|
Maturity
|
Amount
|
Weighted
Average Rate
|
Amount
|
Weighted
Average Rate
|
||||||||||||
|
2025
|
$ |
|
|
%
|
$ |
|
|
%
|
||||||||
|
2031
|
|
|
%
|
|
|
%
|
||||||||||
|
Total
|
$
|
|
$
|
|
||||||||||||
Subordinated Debt
On June 23, 2020, the Company issued $100.0
million aggregate principal amount of 5.00 % fixed-to-floating rate subordinated notes due 2030. The subordinated notes, which qualify
as Tier 2 capital, bear interest at an annual rate of 5.00 %, payable semi-annually in arrears commencing on January 1, 2021, and a
floating rate of interest equivalent to the three-month Secured Overnight Financing Rate (“”) plus a spread of 4.85 %, payable quarterly in arrears
commencing on October 1, 2025. The subordinated notes issuance costs of $2.2 million are being amortized on a straight-line basis into
interest expense over five years .
The Company may redeem the subordinated notes (1) in whole or in part beginning with the interest payment date of July 1, 2025, and on any
interest payment date thereafter or (2) in whole but not in part upon the occurrence of a “Tax Event”, a “Tier 2 Capital Event” or in the event the Company is required to register as an investment company pursuant to the Investment Company Act of
1940, as amended. The redemption price for any redemption is 100 % of the principal amount of the subordinated notes being redeemed,
plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Any redemption of the subordinated notes will be subject to the receipt of the approval of the Board of Governors of the Federal Reserve System to the extent then
required under applicable laws or regulations, including capital regulations. The Company repurchased $2.0 million of the subordinated notes during the year ended December 31, 2022 at a discount of $0.1 million.
The subordinated notes assumed in connection with the Salisbury acquisition
included $25.0 million of 3.50 %
fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which qualify as Tier 2 capital, have a maturity date of March 31, 2031 and bear interest at an annual rate of 3.50 %, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month plus a spread of 2.80 %, payable quarterly in arrears commencing on June 30, 2026. The subordinated notes are redeemable, without penalty, on or after March 31, 2026
and, in certain limited circumstances, prior to that date. As of the acquisition date, the fair value discount was $3.0 million.
The following table summarizes the Company’s subordinated debt:
|
(Dollars in thousands)
|
December 31, 2024 |
December 31,
2023
|
||||||
|
Subordinated notes issued June 2020 - fixed interest rate of
|
$ |
$
|
|
|||||
|
Subordinated notes issued March 2021 and acquired August 2023 - fixed interest rate of
|
||||||||
|
Subtotal subordinated notes
|
$ |
$ |
||||||
|
Unamortized debt issuance costs and unamortized fair value discount
|
( |
) |
(
|
)
|
||||
|
Total subordinated debt, net
|
$ |
$
|
|
|||||
Junior Subordinated Debt
The Company sponsors five
business trusts, CNBF Capital Trust I, NBT Statutory Trust I, NBT Statutory Trust II, Alliance Financial Capital Trust I and Alliance Financial Capital Trust II (collectively, the “Trusts”). The Company’s junior subordinated debentures include
amounts related to the Company’s NBT Statutory Trust I and II as well as junior subordinated debentures associated with one statutory
trust affiliate that was acquired from our merger with CNB Financial Corp. and two statutory trusts that were acquired from our
acquisition of Alliance Financial Corporation (“Alliance”). The Trusts were formed for the purpose of issuing company-obligated mandatorily redeemable trust preferred securities to third-party investors and investing in the proceeds from the sale
of such preferred securities solely in junior subordinated debt securities of the Company for general corporate purposes. The Company guarantees, on a limited basis, payments of distributions on the trust preferred securities and payments on
redemption of the trust preferred securities. The Trusts are VIEs for which the Company is not the primary beneficiary, as defined by GAAP. In accordance with GAAP, the accounts of the Trusts are not included in the Company’s consolidated
financial statements. See Note 1 for additional information about the Company’s consolidation policy.
The debentures held by each trust are the sole assets of that trust. The Trusts hold, as their sole assets, junior subordinated debentures of
the Company with face amounts totaling $98.0 million at December 31, 2024. The Company owns all of the common securities of the Trusts
and has accordingly recorded $3.2 million in equity method investments classified as other assets in our consolidated balance sheets at
December 31, 2024. The Company owns all of the common stock of the Trusts, which have issued trust preferred securities in conjunction with the Company issuing trust preferred debentures to the Trusts. The terms of the trust preferred debentures
are substantially the same as the terms of the trust preferred securities.
As of December 31, 2024, the Trusts had the following trust preferred securities outstanding and held the following junior subordinated
debentures of the Company (dollars in thousands):
|
Description
|
Issuance Date
|
Trust
Preferred
Securities
Outstanding
|
Interest Rate
|
Trust
Preferred
Debt Owed
To Trust
|
Final Maturity Date
|
||||||
|
CNBF Capital Trust I
|
|
$
|
|
|
$
|
|
|
||||
|
NBT Statutory Trust I
|
|
|
|
|
|
||||||
|
NBT Statutory Trust II
|
|
|
|
|
|
||||||
|
Alliance Financial Capital Trust I
|
|
|
|
|
|
||||||
|
Alliance Financial Capital Trust II
|
|
|
|
|
|
||||||
The Company’s junior subordinated debentures are redeemable prior to the maturity date at our option upon each trust’s stated option repurchase
dates and from time to time thereafter. These debentures are also redeemable in whole at any time upon the occurrence of specific events defined within the trust indenture. Our obligations under the debentures and related documents, taken
together, constitute a full and unconditional guarantee by the Company of the issuers’ obligations under the trust preferred securities. The Company owns all of the common stock of the Trusts, which have issued trust preferred securities in
conjunction with the Company issuing trust preferred debentures to the Trusts. The terms of the trust preferred debentures are substantially the same as the terms of the trust preferred securities.
With respect to the Trusts, the Company has the right to defer payments of interest on the debentures issued to the Trusts at any time or from
time to time for a period of up to ten consecutive semi-annual periods with respect to each deferral period. Under the terms of the
debentures, if in certain circumstances there is an event of default under the debentures or the Company elects to defer interest on the debentures, the Company may not, with certain exceptions, declare or pay any dividends or distributions on
its capital stock or purchase or acquire any of its capital stock.
Despite the fact that the Trusts are not included in the Company’s consolidated financial statements, $97 million of the $101 million in trust preferred securities
issued by these subsidiary trusts is included in the Tier 1 capital of the Company for regulatory capital purposes as allowed by the FRB (NBT Bank owns $1.0
million of CNBF Trust I securities). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires bank holding companies with assets greater than $500 million to be subject to the same capital requirements as insured depository institutions, meaning, for instance, that such bank holding companies will not be able to count trust
preferred securities issued after May 19, 2010 as Tier 1 capital. The aforementioned Trusts are grandfathered with respect to this enactment based on their date of issuance.
11. Income Taxes
The significant components of income tax expense attributable to operations are as follows:
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Current:
|
||||||||||||
|
Federal
|
$
|
|
$
|
|
$
|
|
||||||
|
State
|
|
|
|
|||||||||
|
Total current
|
$
|
|
$
|
|
$
|
|
||||||
|
Deferred:
|
||||||||||||
|
Federal
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
State
|
|
|
(
|
)
|
||||||||
|
Total deferred
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Total income tax expense
|
$
|
|
$
|
|
$
|
|
||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
|
December 31,
|
||||||||
|
(In thousands)
|
2024
|
2023
|
||||||
|
Deferred tax assets:
|
||||||||
|
Allowance for loan losses
|
$
|
|
$
|
|
||||
|
Lease liability
|
|
|
||||||
|
Deferred compensation
|
|
|
||||||
| Fair value adjustments on acquisitions |
||||||||
|
Loan fees
|
|
|
||||||
|
Stock-based compensation expense
|
|
|
||||||
| Unrealized losses on securities |
||||||||
|
Other
|
|
|
||||||
|
Total deferred tax assets
|
$
|
|
$
|
|
||||
|
Deferred tax liabilities:
|
||||||||
|
Pension benefits
|
$
|
|
$
|
|
||||
|
Lease right-of-use asset
|
|
|
||||||
|
Amortization of intangible assets
|
|
|
||||||
|
Premises and equipment, primarily due to accelerated depreciation
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total deferred tax liabilities
|
$
|
|
$
|
|
||||
|
Net deferred tax asset at year-end
|
$
|
|
$
|
|
||||
|
Net deferred tax asset at beginning of year
|
|
|
||||||
|
(Decrease) Increase in net deferred tax asset
|
$
|
(
|
)
|
$
|
|
|||
Realization of deferred tax assets is dependent upon the generation of future taxable income. A valuation allowance is recorded when it is more likely than not that
some portion of the deferred tax asset will not be realized. Based on available evidence, gross deferred tax assets will ultimately be realized and a valuation allowance was not deemed necessary at December 31, 2024 and 2023.
The following is a reconciliation of the provision for income taxes to the amount computed by applying the applicable Federal statutory rate to income before taxes:
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Federal income tax at statutory rate
|
$
|
|
$
|
|
$
|
|
||||||
|
Tax exempt income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net increase in cash surrender value of life insurance
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Federal tax credits
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
State taxes, net of federal tax benefit
|
|
|
|
|||||||||
|
Other, net
|
(
|
)
|
|
(
|
)
|
|||||||
|
Income tax expense
|
$
|
|
$
|
|
$
|
|
||||||
A reconciliation of the beginning and ending balance of Federal and State gross unrecognized tax benefits (“UTBs”) is as follows:
|
(In thousands)
|
2024
|
2023
|
||||||
|
Balance at January 1
|
$
|
|
$
|
|
||||
|
Additions for tax positions of prior years
|
|
|
||||||
| Reduction for tax positions of prior years |
( |
) | ( |
) | ||||
|
Current period tax positions
|
|
|
||||||
|
Balance at December 31
|
$
|
|
$
|
|
||||
|
Amount that would affect the effective tax rate if recognized, gross of tax
|
$
|
|
$
|
|
||||
The Company recognizes interest and penalties on the income tax expense line in the accompanying consolidated statements of income. The Company monitors changes in
tax statutes and regulations to determine if significant changes will occur over the next 12 months. As of December 31, 2024, no
significant changes to UTBs are projected; however, tax audit examinations are possible, but it is not reasonably possible to estimate when examinations in
subsequent years will be completed. The Company recognized $0.6 million and $0.5 million of interest expense related to UTBs in the consolidated statements of income for the years ended December 31, 2024 and 2023, respectively.
As of December 31, 2024, the Company is no longer subject to U.S. Federal tax examination by tax authorities for years prior to 2021. The tax years are currently being audited by New York State.
12. Employee Benefit Plans
Defined Benefit Post-Retirement Plans
The Company has a qualified, noncontributory, defined benefit pension plan (“the Plan”) covering substantially all of its employees at December 31, 2024. Benefits paid
from the Plan are based on age, years of service, compensation and social security benefits and are determined in accordance with defined formulas. The Company’s policy is to fund the Plan in accordance with Employee Retirement Income Security Act of
1974 standards. Assets of the Plan are invested in publicly traded stocks, bonds and mutual funds. Prior to January 1, 2000, the Plan was a traditional defined benefit plan based on final average compensation. On January 1, 2000, the Plan was
converted to a cash balance plan with grandfathering provisions for existing participants. Effective March 1, 2013, the Plan was amended. Benefit accruals for participants who, as of January 1, 2000, elected to continue participating in the
traditional defined benefit plan design were frozen as of March 1, 2013. In May 2013, the noncontributory, frozen, defined benefit pension plan assumed from Alliance in the acquisition was merged into the Plan. In addition to the Plan, the Company
provides supplemental employee retirement plans to certain current and former executives. The Company also assumed supplemental retirement plans for former executives in the Alliance acquisition. These supplemental employee retirement plans and the
Plan are collectively referred to herein as “Pension Benefits.”
In addition, the Company provides certain health care benefits for retired employees. Benefits were accrued over the employees’ active service period. Only employees
that were employed by the Company on or before January 1, 2000 are eligible to receive post-retirement health care benefits. The Plan is contributory for participating retirees, requiring participants to absorb certain deductibles and coinsurance
amounts with contributions adjusted annually to reflect cost sharing provisions and benefit limitations called for in the Plan. Employees become eligible for these benefits if they reach normal retirement age while working for the Company. For
eligible employees described above, the Company funds the cost of post-retirement health care as benefits are paid. The Company elected to recognize the transition obligation on a delayed basis over twenty years . In addition, the Company assumed post-retirement medical life insurance benefits for certain Alliance employees, retirees and their spouses, if applicable, in the
Alliance acquisition. These post-retirement benefits are referred to herein as “Other Benefits.”
Accounting standards require an employer to: (1) recognize the overfunded or underfunded status of defined benefit post-retirement plans, which is
measured as the difference between plan assets at fair value and the benefit obligation, as an asset or liability in its balance sheet; (2) recognize changes in that funded status in the year in which the changes occur through comprehensive income;
and (3) measure the defined benefit plan assets and obligations as of the date of its year-end balance sheet.
The components of AOCI, which have not yet been recognized as components of net periodic benefit cost, related to pensions and other post-retirement benefits are
summarized below:
|
Pension Benefits
|
Other Benefits
|
|||||||||||||||
|
(In thousands)
|
2024
|
2023
|
2024
|
2023
|
||||||||||||
|
Net actuarial loss (gain)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
|
Prior service cost (credit)
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Total amounts recognized in AOCI (pre-tax)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
A December 31 measurement date is used for the pension, supplemental pension and post-retirement benefit plans. The following table sets forth changes in benefit
obligations, changes in plan assets and the funded status of the pension plans and other post-retirement benefits:
|
Pension Benefits
|
Other Benefits
|
|||||||||||||||
|
(In thousands)
|
2024
|
2023
|
2024
|
2023
|
||||||||||||
|
Change in benefit obligation:
|
||||||||||||||||
|
Benefit obligation at beginning of year
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Service cost
|
|
|
|
|
||||||||||||
|
Interest cost
|
|
|
|
|
||||||||||||
|
Plan participants’ contributions
|
|
|
|
|
||||||||||||
|
Actuarial (gain) loss
|
(
|
)
|
|
(
|
)
|
|
||||||||||
| Amendments |
||||||||||||||||
|
Benefits paid
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Projected benefit obligation at end of year
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Change in plan assets:
|
||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Gain on plan assets
|
|
|
|
|
||||||||||||
|
Employer contributions
|
|
|
|
|
||||||||||||
|
Plan participants’ contributions
|
|
|
|
|
||||||||||||
|
Benefits paid
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Fair value of plan assets at end of year
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Funded (unfunded) status at year end
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
An asset is recognized for an overfunded plan and a liability is recognized for an underfunded plan. The accumulated benefit obligation for pension benefits was $75.0 million and $77.0 million at December
31, 2024 and 2023, respectively. The accumulated benefit obligation for other post-retirement benefits was $4.5 million and $4.7 million at December 31, 2024 and 2023, respectively. The funded status of the pension and other post-retirement benefit plans has been recognized as
follows in the consolidated balance sheets at December 31, 2024 and 2023.
|
Pension Benefits
|
Other Benefits
|
|||||||||||||||
|
(In thousands)
|
2024
|
2023
|
2024
|
2023
|
||||||||||||
|
Other assets
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Other liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Funded status
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
The following assumptions were used to determine the benefit obligation and the net periodic pension cost for the years indicated:
|
Years Ended December 31,
|
|||
|
2024
|
2023
|
2022
|
|
|
Weighted average assumptions:
|
|||
|
The following assumptions were used to determine benefit obligations:
|
|||
|
Discount rate
|
|
|
|
|
Expected long-term return on plan assets
|
|
|
|
|
Rate of compensation increase
|
|
|
|
|
Interest rate of credit for cash balance plan
|
|
|
|
|
The following
assumptions were used to determine net periodic pension cost:
|
|||
|
Discount rate
|
|
|
|
|
Expected long-term return on plan assets
|
|
|
|
|
Rate of compensation increase
|
|
|
|
|
Interest rate of credit for cash balance plan
|
|
|
|
Net periodic benefit cost and other amounts recognized in OCI for the years ended December 31 included the following components:
|
Pension Benefits
|
Other Benefits
|
|||||||||||||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
2024
|
2023
|
2022
|
||||||||||||||||||
|
Components of net periodic (benefit) cost:
|
||||||||||||||||||||||||
|
Service cost
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Interest cost
|
|
|
|
|
|
|
||||||||||||||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|
|
|||||||||||||||
|
Amortization of prior service cost (credit)
|
|
|
|
(
|
)
|
(
|
)
|
|
||||||||||||||||
|
Amortization of unrecognized net loss (gain)
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||
|
Net periodic pension cost (benefit)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
Other changes in plan assets and benefit obligations recognized in OCI (pre-tax):
|
||||||||||||||||||||||||
|
Net (gain) loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||||
|
Prior service cost
|
|
|
|
|
|
|
||||||||||||||||||
|
Amortization of prior service (cost) credit
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||
|
Amortization of unrecognized net (loss) gain
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|
|
|||||||||||||||
|
Total recognized in OCI
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||||
|
Total recognized in net periodic (benefit) cost and OCI, pre-tax
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||||||
The service cost component of the net periodic (benefit) cost is included in Salaries and Employee Benefits and the interest cost, expected return
on plan assets and net amortization components are included in Other Noninterest Expense on the consolidated statements of income.
The following table sets forth estimated future benefit payments for the pension plans and other post-retirement benefit plans as of December 31, 2024:
|
(In thousands)
|
Pension
Benefits
|
Other
Benefits
|
||||||
|
2025
|
$
|
|
$
|
|
||||
|
2026
|
|
|
||||||
|
2027
|
|
|
||||||
|
2028
|
|
|
||||||
|
2029
|
|
|
||||||
|
2030 - 2034
|
|
|
||||||
The Company made no
For measurement purposes, the annual rates of increase in the per capita cost of covered medical and prescription drug benefits for fiscal year 2024 were assumed to be 7.0 % to 12.0 %. The rates were assumed to
decrease gradually to 4.5 % for fiscal year 2034 and remain at that level thereafter. Assumed health care cost trend rates have a
significant effect on amounts reported for health care plans.
Plan Investment Policy
The Company’s key investment objectives in managing its defined benefit plan assets are to ensure that present and future benefit obligations to all participants and
beneficiaries are met as they become due; to provide a total return that, over the long-term, maximizes the ratio of the plan assets to liabilities, while minimizing the present value of required Company contributions, at the appropriate levels of
risk; to meet statutory requirements and regulatory agencies’ requirements; and to satisfy applicable accounting standards. The Company periodically evaluates the asset allocations, funded status, rate of return assumption and contribution strategy
for satisfaction of our investment objectives.
The target and actual allocations expressed as a percentage of the defined benefit pension plan’s assets are as follows:
|
Target 2024
|
2024
|
2023
|
|
|
Cash and cash equivalents
|
|
|
|
|
Fixed income securities
|
|
|
|
|
Equities
|
|
|
|
|
Total
|
|
|
Only high-quality bonds are to be included in the portfolio. All issues that are rated lower than A by Standard and Poor’s are to be excluded. Equity securities at
December 31, 2024 and 2023 do not include any Company common stock.
The following table presents the financial instruments recorded at fair value on a recurring basis by the Plan:
|
(In thousands)
|
Level 1
|
Level 2
|
December 31,
2024
|
|||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
||||||
|
U.S. government bonds
|
|
|
|
|||||||||
|
Mutual funds
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
|
(In thousands)
|
Level 1
|
Level 2
|
December 31,
2023
|
|||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
||||||
|
U.S. government bonds
|
|
|
|
|||||||||
|
Mutual funds
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
The plan had no financial instruments recorded at fair value on a non-recurring basis as of December 31, 2024 and 2023.
Determination of Assumed Rate of Return
The expected long-term rate-of-return on assets was 6.7
Employee 401(k) and Employee Stock Ownership Plans
The Company maintains a 401(k) and employee stock ownership plan (the “401(k) Plan”). The Company contributes to the 401(k) Plan based on employees’ contributions out of
their annual salaries. In addition, the Company may also make discretionary contributions to the 401(k) Plan based on profitability. Participation in the 401(k) Plan is contingent upon certain age and service requirements. The employer contributions
associated with the 401(k) Plan were $4.9 million in 2024, $4.4 million in 2023 and $4.0 million in 2022.
Other Retirement Benefits
Included in other liabilities is $0.6 million and $0.9 million at December 31, 2024 and 2023, respectively, for supplemental retirement benefits for retired executives from legacy plans assumed in
acquisitions. The Company recognized $0.1 million in 2024, $0.2 million in 2023 and $0.2 million in 2022, related to these plans.
13. Stock-Based Compensation
In May 2024, the Company adopted the NBT Bancorp Inc. 2024 Omnibus Incentive Plan (the “Stock Plan”) replacing the 2018 Omnibus Incentive Plan. Under the terms of the
Stock Plan, equity-based awards are granted to directors and employees to increase their direct proprietary interest in the operations and success of the Company. The Stock Plan assumed all prior equity-based incentive plans and any new equity-based
awards are granted under the terms of the Stock Plan. Restricted shares granted under the Plan typically vest after or five years for employees and one year for non-employee directors. Restricted
stock units granted under the Stock Plan may have different terms and conditions. Performance shares and units granted under the Stock Plan for executives may have different terms and conditions. Since 2011, the Company primarily grants restricted
stock unit awards. Stock option grants since that time were reloads of existing grants which terminate ten years from the date of the grant. Under
terms of the Stock Plan, stock options are granted to purchase shares of the Company’s common stock at a price equal to the fair market value of the common stock on the date of the grant. Shares issued as a result of vesting of restricted stock
unit awards and stock option exercises are funded from the Company’s treasury stock.
The Company has outstanding restricted stock granted from various plans at December 31, 2024. The Company recognized $6.0 million, $5.1 million and $4.5 million in
stock-based compensation expense related to these stock awards for the years ended December 31, 2024, 2023 and 2022, respectively. Tax
benefits recognized with respect to restricted stock units were $1.5 million, $1.3 million and $1.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. Unrecognized compensation cost related to restricted stock units totaled $6.0 million at December 31, 2024 and will be recognized over 1.4 years on a weighted average basis. Shares issued are funded from the Company’s treasury stock. The following table summarizes information for
unvested restricted stock units outstanding as of December 31, 2024:
| |
Number
of Shares
|
Weighted-
Average Grant
Date Fair Value
|
||||||
|
Unvested at January 1, 2024
|
|
$
|
|
|||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Vested
|
(
|
)
|
|
|||||
|
Granted
|
|
|
||||||
|
Unvested at December 31, 2024
|
|
$
|
|
|||||
The following table summarizes information concerning stock options outstanding:
|
(In thousands, except share and per share data)
|
Number
of Shares
|
Weighted
Average
Exercise Price
|
Weighted Average
Remaining
Contractual Term
(in Years)
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Outstanding at January 1, 2024
|
|
$
|
|
|||||||||||||
|
Exercised
|
(
|
)
|
|
|||||||||||||
|
Outstanding at December 31, 2024
|
|
$
|
|
|
$
|
|
||||||||||
|
Exercisable at December 31, 2024
|
|
$
|
|
|
$
|
|
||||||||||
There was no
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Proceeds from stock options exercised
|
$
|
|
$
|
|
$
|
|
||||||
|
Tax benefits related to stock options exercised
|
|
|
|
|||||||||
|
Intrinsic value of stock options exercised
|
|
|
|
|||||||||
The Company has 620,241 securities remaining available to
be granted as part of the Plan at December 31, 2024.
14. Stockholders’ Equity
In accordance with GAAP, unrecognized prior service costs and net actuarial gains or losses associated with the Company’s pension and postretirement benefit plans and
unrealized gains and losses on AFS securities are included in AOCI, net of tax. For the years ended December 31, components of AOCI are:
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Unrecognized prior service cost and net actuarial (losses) on pension plans
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Unrealized net holding (losses) on AFS securities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
AOCI
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends. The approval of the OCC is required to pay
dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations. At December 31, 2024, approximately $107.6 million of the total stockholders’ equity of the Bank
was available for payment of dividends to the Company without approval by the OCC. The Bank’s ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with
these requirements. Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus.
The Company purchased 7,600 shares of its common stock
during the year ended December 31, 2024, for a
total of $0.3 million at an average price of $33.02 per share under its previously announced share repurchase
program. On December 18, 2023, the Board of Directors
(“Board”) authorized a repurchase program for the Company to repurchase up to 2,000,000 shares
of the outstanding shares of its common stock. The Company did no t purchase any shares of its common stock during the fourth quarter of
2024. 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 December 31, 2024, there were 1,992,400 shares
available for repurchase under this plan authorized on December 18, 2023, which is set to expire on December 31, 2025.
15. Regulatory Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of NBT Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 Capital to risk-weighted assets and of Tier 1 capital to average assets. In addition to maintaining minimum capital ratios, the
Company is subject to a capital conservation buffer (“Buffer”) of 2.50% above the minimum to avoid restriction on capital distributions and discretionary bonus paychecks to officers. At December 31, 2024 and 2023, the Company and the Bank meet all capital adequacy requirements to which they were subject.
Under their prompt corrective action regulations, regulatory authorities are required to take certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution’s financial statements. The regulations establish a framework for the classification of banks into five categories: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2024 and 2023, the most recent notifications from the Bank’s regulators categorized the Bank as well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 Capital to Average Asset ratios as set forth in the table below. There are no conditions or events since that
notification that management believes have changed the Bank’s category.
In March 2020, the OCC, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (“FDIC”) announced an interim final rule
to delay the estimated impact on regulatory capital stemming from the implementation of CECL. Under the modified CECL transition provision, the regulatory capital impact of the January 1, 2020 CECL adoption date adjustment to the allowance for
credit losses (after-tax) has been deferred and will phase into regulatory capital at 25% per year commencing January 1, 2022. For the ongoing impact of CECL, the Company was allowed to defer the regulatory capital impact of the allowance for
credit losses in an amount equal to 25% of the change in the allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020 and December 31, 2021. The cumulative adjustment to the allowance for credit
losses between January 1, 2020 and December 31, 2021, will also phase into regulatory capital at 25% per year commencing January 1, 2022. The Company adopted the
capital transition relief over the permissible five-year period.
The Company and NBT Bank’s actual capital amounts and ratios are presented as follows:
|
Actual
|
Regulatory Ratio Requirements
|
|||||||||||||||||||
|
(Dollars in thousands)
|
Amount
|
Ratio
|
Minimum
Capital
Adequacy
|
Minimum
plus Buffer
|
For
Classification
as Well-
Capitalized
|
|||||||||||||||
|
As of December 31, 2024
|
||||||||||||||||||||
|
Tier 1 Capital (to average assets)
|
||||||||||||||||||||
|
Company
|
$
|
|
|
%
|
|
%
|
|
%
|
||||||||||||
|
NBT Bank
|
|
|
%
|
|
%
|
|
%
|
|||||||||||||
|
Common Equity Tier 1 Capital
|
||||||||||||||||||||
|
Company
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
NBT Bank
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
Tier 1 Capital (to risk-weighted assets)
|
||||||||||||||||||||
|
Company
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
NBT Bank
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
Total Capital (to risk-weighted assets)
|
||||||||||||||||||||
|
Company
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
NBT Bank
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
As of December 31, 2023
|
||||||||||||||||||||
|
Tier 1 Capital (to average assets)
|
||||||||||||||||||||
|
Company
|
$
|
|
|
%
|
|
%
|
|
%
|
||||||||||||
|
NBT Bank
|
|
|
%
|
|
%
|
|
%
|
|||||||||||||
|
Common Equity Tier 1 Capital
|
||||||||||||||||||||
|
Company
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
NBT Bank
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
Tier 1 Capital (to risk-weighted assets)
|
||||||||||||||||||||
|
Company
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
NBT Bank
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
Total Capital (to risk-weighted assets)
|
||||||||||||||||||||
|
Company
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
|
NBT Bank
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|||||||||||
16. Earnings Per Share
The following is a reconciliation of basic and diluted EPS for the years presented in the consolidated statements of income:
|
Years Ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2024
|
2023
|
2022
|
||||||||||||||||||||||||||||||||||
|
(In thousands except per share data)
|
Net
Income
|
Weighted
Average
Shares
|
Per
Share
Amount
|
Net
Income
|
Weighted
Average
Shares
|
Per
Share
Amount
|
Net
Income
|
Weighted
Average
Shares
|
Per
Share
Amount
|
|||||||||||||||||||||||||||
|
Basic EPS
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
|||||||||||||||||||||
|
Effect of dilutive securities:
|
||||||||||||||||||||||||||||||||||||
|
Stock-based compensation
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Diluted EPS
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
|||||||||||||||||||||
There was a nominal number of weighted average stock options outstanding for the years ended December 31, 2024, 2023 and 2022, that were not considered in the calculation of diluted EPS since the stock options’ exercise prices were greater than the average market price during these periods.
17. Reclassification Adjustments Out of Other Comprehensive Income (Loss)
The following table summarizes the reclassification adjustments out of AOCI:
|
Detail About AOCI Components
|
Amount Reclassified from AOCI
|
Affected Line Item in the
Consolidated
Statements of Comprehensive
Income (Loss)
|
|||||||||||
|
(In thousands)
|
Years Ended December 31,
|
||||||||||||
|
2024
|
2023
|
2022
|
|||||||||||
|
AFS securities:
|
|||||||||||||
|
Losses on AFS securities
|
$
|
|
$
|
|
$
|
|
Net securities (gains) losses
|
||||||
|
Amortization of unrealized gains related to securities transfer
|
|
|
|
Interest income
|
|||||||||
|
Tax effect
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Income tax (benefit)
|
|||
|
Net of tax
|
$
|
|
$
|
|
$
|
|
|||||||
|
Pension and other benefits:
|
|||||||||||||
|
Amortization of net losses
|
$
|
|
$
|
|
$
|
|
Other noninterest expense
|
||||||
|
Amortization of prior service costs
|
|
|
|
Other noninterest expense
|
|||||||||
|
Tax effect
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Income tax (benefit)
|
|||
|
Net of tax
|
$
|
|
$
|
|
$
|
|
|||||||
|
Total reclassifications, net of tax
|
$
|
|
$
|
|
$
|
|
|||||||
18. Commitments and Contingent Liabilities
The Company’s concentrations of credit risk are reflected in the consolidated balance sheets. The concentrations of credit risk with standby letters of credit, unused
lines of credit, commitments to originate new loans and loans sold with recourse generally follow the loan classifications.
At December 31, 2024, approximately 64 % of the Company’s
loans were secured by real estate located in upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut. Accordingly, the ultimate collectability of a
substantial portion of the Company’s portfolio is susceptible to changes in market conditions of those areas. Management is not aware of any material concentrations of credit to any industry or individual borrowers.
The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit and certain agricultural real estate loans sold to investors with recourse, with the sold portion having a government guarantee that is
assignable back to the Company upon repurchase of the loan in the event of default. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters
of credit and loans sold with recourse is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved
with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.
|
At December 31,
|
||||||||
|
(In thousands)
|
2024
|
2023
|
||||||
|
Unused lines of credit
|
$
|
|
$
|
|
||||
|
Commitments to extend credits, primarily variable rate
|
|
|
||||||
|
Standby letters of credit
|
|
|
||||||
|
Loans sold with recourse
|
|
|
||||||
Since many loan commitments, standby letters of credit and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts
are not necessarily indicative of future cash flows. The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit.
The Company guarantees the obligations or performance of customers by issuing standby letters of credit to third-parties. These standby letters of
credit are generally issued in support of third-party debt, such as corporate debt issuances, industrial revenue bonds and municipal securities. The risk involved in issuing standby letters of credit is essentially the same as the credit risk
involved in extending loan facilities to customers and letters of credit are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet products. Typically, these
instruments have one year expirations with an option to renew upon annual review; therefore, the total amounts do not necessarily
represent future cash requirements. As of December 31, 2024 and 2023, the fair value of the Company’s standby letters of credit was not significant.
In the normal course of business there are various outstanding legal proceedings. If legal costs are deemed material by management, the Company accrues for the estimated
loss from a loss contingency if the information available indicates that it is probable that a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.
19. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide
variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate risk, primarily by managing the amount, sources and duration of its assets and liabilities and
through the use of derivative instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash
amounts, the value of which is determined by interest rates. Generally, the Company may use derivative financial instruments to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or
expected cash payments. Currently, the Company has interest rate derivatives resulting from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The
Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.
Derivatives Not Designated as Hedging Instruments
The
Company enters into interest rate swaps to facilitate customer transactions and meet their financing needs. These swaps are considered derivatives, but are not designated as hedging relationships. These instruments have interest rate and credit
risk associated with them. To mitigate the interest rate risk, the Company enters into offsetting interest rate swaps with counterparties. The counterparty swaps are also considered derivatives and are also not designated as hedging
relationships. Interest rate swaps are recorded within other assets or other liabilities on the consolidated balance sheets at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are
included, net, in other operating income in the consolidated statements of income.
The Company is subject
to over-the-counter derivative clearing requirements, which require certain derivatives to be cleared through central clearing houses. Accordingly, the Company clears certain derivative transactions through the Chicago Mercantile Exchange Clearing
House (“CME”). The CME requires the Company to post initial and variation margin payments to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts. A daily
settlement occurs through the CME for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through the daily clearing agent. As a result, the total fair values of loan level derivative
assets and liabilities recognized on the Company’s financial statements are not equal and offsetting.
In 2017, the U.K. Financial Conduct Authority
announced its intention to stop compelling banks to submit rates for the calculation of London Interbank Offered Rate (“LIBOR”) after 2021. In 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates
based on SOFR that replaced LIBOR in certain financial contracts after June 30, 2023. In 2023, the Company transitioned all of its financial instruments to an alternative benchmark rate.
As of December 31, 2024 and 2023, the Company had twenty
and twelve risk participation agreements, respectively, with financial institution counterparties for interest rate swaps related to
participated loans. Risk participation agreements provide credit protection to the financial institution that originated the swap transaction should the borrower fail to perform on its obligation. The Company enters into both risk participation
agreements in which it purchases credit protection from other financial institutions and those in which it provides credit protection to other financial institutions.
The following table summarizes the derivatives outstanding:
|
(In thousands)
|
Notional
Amount
|
Balance
Sheet
Location
|
Fair
Value
|
Notional
Amount
|
Balance
Sheet
Location
|
Fair
Value
|
||||||||||||
|
As of December 31, 2024
|
||||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||
|
Interest rate derivatives
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
||||||||
|
Risk participation agreements
|
|
|
|
|
|
|
||||||||||||
|
Total derivatives not designated as hedging instruments
|
$
|
|
$
|
|
||||||||||||||
|
Netting adjustments(1)
|
|
(
|
)
|
|||||||||||||||
|
Net derivatives in the balance sheet
|
$
|
|
$
|
|
||||||||||||||
|
Derivatives not offset on the balance sheet
|
$
|
|
$
|
|
||||||||||||||
|
Cash collateral(2)
|
|
|
||||||||||||||||
|
Net derivative amounts
|
$
|
|
$
|
|
||||||||||||||
|
As of December 31, 2023
|
||||||||||||||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||||||||
|
Interest rate derivatives
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
||||||||
|
Risk participation agreements
|
|
|
|
|
|
|
||||||||||||
|
Total derivatives not designated as hedging instruments
|
$
|
|
$
|
|
||||||||||||||
|
Netting adjustments(1)
|
||||||||||||||||||
|
Net derivatives in the balance sheet
|
$ | $ | ||||||||||||||||
|
Derivatives not offset on the balance sheet
|
$ | $ | ||||||||||||||||
|
Cash collateral(2)
|
|
|
||||||||||||||||
|
Net derivative amounts
|
$
|
|
$
|
|
||||||||||||||
| (1) |
|
| (2) |
|
The following table indicates the gain or loss recognized in income on derivatives not designated as a hedging relationship:
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||
|
Increase (decrease) in other income
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
20. Fair Value Measurements and Fair Values of Financial Instruments
GAAP states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy exists within GAAP that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described
below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or inputs that are observable, either
directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no
market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, many other sovereign government
obligations, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy. The Company does not adjust the quoted prices for such
instruments.
The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations or quote from alternative pricing sources with
reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations and certain
physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy. Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices). Other investment securities
are reported at fair value utilizing Level 1 and Level 2 inputs. The prices for Level 2 instruments are obtained through an independent pricing service or dealer market participants with whom the Company has historically transacted both purchases
and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash
flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the methodologies used by its
third-party providers in pricing the securities.
Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions. Valuations are adjusted to reflect illiquidity and/or
non-transferability and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate will be used. Management’s best estimate consists of both internal and external support on
certain Level 3 investments. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying
investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets and changes in financial ratios or cash flows.
The following tables set forth the Company’s financial assets and liabilities measured on a recurring basis that were accounted for at fair value. Assets and
liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
|
(In thousands)
|
Level 1
|
Level 2
|
Level 3
|
December 31,
2024
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
AFS securities
|
||||||||||||||||
| U.S. treasury | $ |
$ | $ | $ | ||||||||||||
|
Federal agency
|
|
|
|
|
|
|
|
|
||||||||
|
State & municipal
|
|
|
|
|
||||||||||||
|
Mortgage-backed
|
|
|
|
|
||||||||||||
|
Collateralized mortgage obligations
|
|
|
|
|
||||||||||||
|
Corporate
|
|
|
|
|
||||||||||||
|
Total AFS securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Equity securities
|
|
|
|
|
||||||||||||
|
Derivatives
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
(In thousands)
|
Level 1
|
Level 2
|
Level 3
|
December 31,
2023
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
AFS securities
|
||||||||||||||||
|
U.S. treasury
|
$ |
$ |
$ |
$ |
||||||||||||
|
Federal agency
|
|
|
|
|
|
|
|
|
||||||||
|
State & municipal
|
|
|
|
|
||||||||||||
|
Mortgage-backed
|
|
|
|
|
||||||||||||
|
Collateralized mortgage obligations
|
|
|
|
|
||||||||||||
| Corporate | ||||||||||||||||
|
Total AFS securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Equity securities
|
|
|
|
|
||||||||||||
|
Derivatives
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Liabilities:
|
||||||||||||||||
|
Derivatives
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
GAAP requires disclosure of assets and liabilities measured and recorded at fair
value on a non-recurring basis such as goodwill, loans held for sale, OREO, collateral-dependent loans individually evaluated for expected credit losses and HTM securities. Loans with fair value of $28.8 million as of December 31, 2024 were individually evaluated for expected credit losses where the amortized cost was adjusted to fair value. There were no loans individually evaluated for expected credit losses where the amortized cost was adjusted to fair value as of December 31, 2023. The Company
uses the fair value of underlying collateral, less costs to sell, to estimate the allowance for credit losses for individually evaluated collateral dependent loans. The appraisals may be adjusted by management for qualitative factors such as
economic conditions and estimated liquidation expenses ranging from 10 % to 50 %. Based on the valuation techniques used, the fair value measurements for collateral dependent individually evaluated loans are classified as Level 3.
The following table sets forth information with regard to estimated fair values of financial instruments. This table excludes financial instruments for which the
carrying amount approximates fair value. Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, AFS securities, equity securities, AIR, non-maturity deposits, short-term borrowings, accrued
interest payable and derivatives.
|
December 31, 2024
|
December 31, 2023
|
|||||||||||||||||||
|
(In thousands)
|
Fair Value
Hierarchy
|
Carrying
Amount
|
Estimated
Fair Value
|
Carrying
Amount
|
Estimated
Fair Value
|
|||||||||||||||
|
Financial assets:
|
||||||||||||||||||||
|
HTM securities
|
2
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
Net loans
|
3
|
|
|
|
|
|||||||||||||||
|
Financial liabilities:
|
||||||||||||||||||||
|
Time deposits
|
2
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||
|
Long-term debt
|
2
|
|
|
|
|
|||||||||||||||
|
Subordinated debt
|
1
|
|
|
|
|
|||||||||||||||
|
Junior subordinated debt
|
2
|
|
|
|
|
|||||||||||||||
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not
reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair
value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and
the value of assets and liabilities that are not considered financial instruments. For example, the Company has a substantial wealth operation that contributes net fee income annually. The wealth management operation is not considered a financial
instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities include the benefits resulting from the low-cost funding of deposit liabilities as compared to the cost of borrowing funds in
the market and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimate of fair
value.
HTM Securities
The fair value of the Company’s HTM securities is primarily measured using information from a third-party pricing service. The fair value measurements consider
observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among
other things.
Net Loans
Net loans include portfolio loans and loans held for sale. Loans were first segregated by type and then further segmented into fixed and variable
rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments, and those expected future cash flows also includes credit risk, illiquidity risk and other market
factors to calculate the exit price fair value in accordance with ASC 820.
Time Deposits
The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The
fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.
Long-Term Debt
The fair value of long-term debt was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments.
Subordinated Debt
The fair value of subordinated debt has been measured using the observable market price as of the period reported.
Junior Subordinated Debt
The fair value of junior subordinated debt has been estimated using a discounted cash flow analysis.
21. Parent Company Financial Information
Condensed Balance Sheets
|
December 31,
|
||||||||
|
(In thousands)
|
2024
|
2023
|
||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Equity securities, at estimated fair value
|
|
|
||||||
|
Investment in subsidiaries, on equity basis
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Total liabilities
|
$
|
|
$
|
|
||||
|
Stockholders’ equity
|
|
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
Condensed Statements of Income
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Dividends from subsidiaries
|
$
|
|
$
|
|
$
|
|
||||||
|
Management fee from subsidiaries
|
|
|
|
|||||||||
|
Net securities gains (losses)
|
|
(
|
)
|
(
|
)
|
|||||||
|
Interest, dividends and other income
|
|
|
|
|||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
||||||
|
Operating expenses
|
|
|
|
|||||||||
|
Income before income tax benefit and equity in undistributed income of subsidiaries
|
$
|
|
$
|
|
$
|
|
||||||
|
Income tax expense (benefit)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Equity in undistributed income of subsidiaries
|
|
|
|
|||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
Condensed Statements of Cash Flows
|
Years Ended December 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
2022
|
|||||||||
|
Operating activities
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Adjustments to reconcile net income to net cash provided by operating activities
|
||||||||||||
|
Depreciation and amortization of premises and equipment
|
|
|
|
|||||||||
|
Excess tax benefit on stock-based compensation
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Stock-based compensation expense
|
|
|
|
|||||||||
|
Net securities (gains) losses
|
(
|
)
|
|
|
||||||||
|
Equity in undistributed income of subsidiaries
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Bank owned life insurance income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Amortization of subordinated debt issuance costs
|
|
|
|
|||||||||
| Discount on repurchase of subordinated debt |
( |
) | ||||||||||
|
Net change in other assets and other liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net cash provided by operating activities
|
$
|
|
$
|
|
$
|
|
||||||
|
Investing activities
|
||||||||||||
|
Net cash provided by acquisitions
|
$ | $ | $ | |||||||||
|
Net cash provided by investing activities
|
$
|
|
$
|
|
$
|
|
||||||
|
Financing activities
|
||||||||||||
| Repurchase of subordinated debt |
$ | $ | $ | ( |
) | |||||||
|
Proceeds from the issuance of shares to employee and other stock plans
|
|
|
|
|||||||||
|
Cash paid by employer for tax-withholding on stock issuance
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Purchases of treasury shares
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Cash dividends
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net cash (used in) financing activities
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Net increase in cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
||||||
|
Cash and cash equivalents at beginning of year
|
|
|
|
|||||||||
|
Cash and cash equivalents at end of year
|
$
|
|
$
|
|
$
|
|
||||||
A statement of changes in stockholders’ equity has not been presented since it is the same as the consolidated statement of changes in stockholders’ equity previously
presented.
22. Segment Reporting
Historically, the Company operated as a reportable segment, providing a full range of banking services to retail and commercial customers. However, in accordance with ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, and as the Bank has grown, management has reassessed its operating segment structure to enhance transparency in how financial performance is evaluated
and resources are allocated by the CODM. The updated guidance enhances disclosures by requiring more detailed information on segment profitability and certain key performance metrics used by management. Segments are components of an enterprise that
are regularly evaluated by the CODM to allocate resources and assess performance. The Company’s CODM is its Chief Executive Officer.
As a result of this reassessment, as disclosed in Note 1, beginning with the fiscal
year ended December 31, 2024, the Bank has determined that it now operates through two reportable segments:
Banking – Provides commercial banking, retail banking, and wealth management services primarily to customers in its market area, offering a broad array of banking and financial services to retail,
commercial, and municipal customers. Included in Banking is the revenue and expenses from the wealth management business and the parent holding company. The parent company’s
principal activities include the direct and indirect ownership of banking and non-banking subsidiaries, as well as the issuance of debt and equity. The parent company’s principal sources of revenue are the management fees and dividends it
receives from its subsidiaries. Banking also includes corporate shared service costs such as the majority of equity compensation expense, as well as other general and administrative shared services costs including pension, retirement plan and
supplemental retirement plan costs. Currently there is no allocation of these costs to other operating segments.
Retirement
Plan Administration – Includes retirement plan and health savings account recordkeeping and administration, investment management, third-party administration, and actuarial services.
Our CODM reviews actual net income versus budgeted net income to assess segment
performance and to make decisions about allocating capital and personnel to the segments. The CODM regularly receives expense information at a level consistent with that disclosed in the Company’s consolidated statements of income.
Reported segments and their financial information are not necessarily comparable to
similar information reported by other financial institutions. Additionally, due to interrelationships among the various segments, the information presented is not indicative of how the segments would perform as independent entities. Changes in
management structure, allocation methodologies, or procedures may result in future revisions to previously reported segment financial data.
For the years ended December 31, 2023 and 2022, the Company only disclosed one
Information about reportable segments and reconciliation of the information to the
consolidated financial statements follows:
|
December 31, 2024
|
||||||||||||||||
|
(In thousands)
|
Banking
|
Retirement
Plan
Administration
|
All Other(1)
|
Consolidated
|
||||||||||||
|
Net interest income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for loan losses
|
|
|
|
|
||||||||||||
|
Net interest income after provision for loan losses
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Noninterest income
|
||||||||||||||||
|
Service charges on deposit accounts
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Card services income
|
|
|
|
|
||||||||||||
|
Retirement plan administration fees
|
|
|
(
|
)
|
|
|||||||||||
|
Wealth management
|
|
|
|
|
||||||||||||
|
Insurance services
|
|
|
|
|
||||||||||||
|
Bank owned life insurance income
|
|
|
|
|
||||||||||||
|
Net securities gains (losses)
|
|
|
|
|
||||||||||||
|
Other
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Noninterest expense
|
||||||||||||||||
|
Salaries and employee benefits
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Technology and data services
|
|
|
|
|
||||||||||||
|
Occupancy
|
|
|
|
|
||||||||||||
|
Professional fees and outside services
|
|
|
(
|
)
|
|
|||||||||||
|
Office supplies and postage
|
|
|
|
|
||||||||||||
|
FDIC assessment
|
|
|
|
|
||||||||||||
|
Advertising
|
|
|
|
|
||||||||||||
|
Amortization of intangible assets
|
|
|
|
|
||||||||||||
|
Loan collection and other real estate owned, net
|
|
|
|
|
||||||||||||
|
Acquisition expenses
|
|
|
|
|
||||||||||||
|
Other
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Income before income tax expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Income tax expense
|
|
|
|
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Goodwill
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Intangible assets, net
|
|
|
|
|
||||||||||||
|
Total assets
|
|
|
(
|
)
|
|
|||||||||||
| (1) |
|
|
December 31, 2023
|
||||||||||||||||
|
(In thousands)
|
Banking
|
Retirement
Plan
Administration
|
All Other(1)
|
Consolidated
|
||||||||||||
|
Net interest income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for loan losses
|
|
|
|
|
||||||||||||
|
Net interest income after provision for loan losses
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Noninterest income
|
||||||||||||||||
|
Service charges on deposit accounts
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Card services income
|
|
|
|
|
||||||||||||
|
Retirement plan administration fees
|
|
|
(
|
)
|
|
|||||||||||
|
Wealth management
|
|
|
|
|
||||||||||||
|
Insurance services
|
|
|
|
|
||||||||||||
|
Bank owned life insurance income
|
|
|
|
|
||||||||||||
|
Net securities gains (losses)
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Other
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Noninterest expense
|
||||||||||||||||
|
Salaries and employee benefits
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Technology and data services
|
|
|
|
|
||||||||||||
|
Occupancy
|
|
|
|
|
||||||||||||
|
Professional fees and outside services
|
|
|
(
|
)
|
|
|||||||||||
|
Office supplies and postage
|
|
|
|
|
||||||||||||
|
FDIC assessment
|
|
|
|
|
||||||||||||
|
Advertising
|
|
|
|
|
||||||||||||
|
Amortization of intangible assets
|
|
|
|
|
||||||||||||
|
Loan collection and other real estate owned, net
|
|
|
|
|
||||||||||||
|
Acquisition expenses
|
|
|
|
|
||||||||||||
|
Other
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Income before income tax expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Income tax expense
|
|
|
|
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Goodwill
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Intangible assets, net
|
|
|
|
|
||||||||||||
|
Total assets
|
|
|
(
|
)
|
|
|||||||||||
| (1) |
Included in All Other is the revenue and expenses from certain other non-bank subsidiaries of the parent, including the insurance subsidiary, along with eliminating amounts that do not meet the definition of
an operating segment.
|
|
December 31, 2022
|
||||||||||||||||
|
(In thousands)
|
Banking
|
Retirement
Plan
Administration
|
All Other(1)
|
Consolidated
|
||||||||||||
|
Net interest income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for loan losses
|
|
|
|
|
||||||||||||
|
Net interest income after provision for loan losses
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Noninterest income
|
||||||||||||||||
|
Service charges on deposit accounts
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Card services income
|
|
|
|
|
||||||||||||
|
Retirement plan administration fees
|
|
|
(
|
)
|
|
|||||||||||
|
Wealth management
|
|
|
|
|
||||||||||||
|
Insurance services
|
|
|
|
|
||||||||||||
|
Bank owned life insurance income
|
|
|
|
|
||||||||||||
|
Net securities gains (losses)
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Other
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Noninterest expense
|
||||||||||||||||
|
Salaries and employee benefits
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Technology and data services
|
|
|
|
|
||||||||||||
|
Occupancy
|
|
|
|
|
||||||||||||
|
Professional fees and outside services
|
|
|
(
|
)
|
|
|||||||||||
|
Office supplies and postage
|
|
|
|
|
||||||||||||
|
FDIC assessment
|
|
|
|
|
||||||||||||
|
Advertising
|
|
|
|
|
||||||||||||
|
Amortization of intangible assets
|
|
|
|
|
||||||||||||
|
Loan collection and other real estate owned, net
|
|
|
|
|
||||||||||||
|
Acquisition expenses
|
|
|
|
|
||||||||||||
|
Other
|
|
|
(
|
)
|
|
|||||||||||
|
Total noninterest expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Income before income tax expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Income tax expense
|
|
|
|
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Goodwill
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Intangible assets, net
|
|
|
|
|
||||||||||||
|
Total assets
|
|
|
(
|
)
|
|
|||||||||||
| (1) |
Included in All Other is the revenue and expenses from certain other non-bank subsidiaries of the parent, including the insurance subsidiary, along with eliminating amounts that do not meet the definition of
an operating segment.
|
None.
As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out by the Company’s management, with the participation of its Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. No changes were made to the Company’s internal control over financial reporting that occurred
during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management Report on Internal Control Over Financial Reporting
The management of NBT Bancorp Inc. and subsidiaries’ (the “Company”) is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
As of December 31, 2024, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial
reporting established in “Internal Control – Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. Based on the assessment,
management determined that the Company’s internal control over financial reporting as of December 31, 2024 was effective at the reasonable assurance level based on those criteria.
KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued a report
on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2024, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm” on the following page.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
NBT Bancorp Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited NBT Bancorp Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December
31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes
(collectively, the consolidated financial statements), and our report dated February 28, 2025 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Albany, New York
February 28, 2025
During the three months ended December 31, 2024, none of the Company’s directors or executive officers adopted , modified or terminated
On December 10, 2024 , Martin Dietrich , one of the Company’s director s, adopted a Rule 10b5-1 trading arrangement for the potential sale of 20,000 shares of common stock. The arrangement’s expiration
is December 10, 2025 .
None.
PART III
The Company has adopted an
Insider Trading and Information Policy that governs the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees that is reasonably designed to promote compliance with insider trading
laws, rules and regulations, and any listing standards applicable to the Company. A copy of the Company’s Insider Trading Policy is filed as Exhibit 19 to this Form 10-K.
The remaining information required by this item is incorporated herein by reference to the Company’s definitive Proxy Statement for its
Annual Meeting of stockholders to be held on May 20, 2025 (the “Proxy Statement”), which will be filed with the SEC within 120 days after the Company’s 2024 fiscal year end.
The information required by this item is incorporated herein by reference to the Proxy Statement, which will be filed with the SEC within 120 days after the Company’s 2024 fiscal year end.
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The following table provides information with respect to shares of common stock that may be issued under the Company’s existing equity compensation plans:
|
Plan Category
|
A. Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
|
B. Weighted-
average exercise
price of
outstanding
options, warrants
and rights
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column A)
|
|||||||||
|
Equity compensation plans approved by stockholders
|
3,850
|
$
|
30.36
|
620,241
|
||||||||
|
Equity compensation plans not approved by stockholders
|
None
|
None
|
None
|
|||||||||
The other information required by this item is incorporated herein by reference to the Proxy Statement, which will be filed with the SEC within 120 days of the Company’s 2024 fiscal year
end.
The information required by this item is incorporated herein by reference to the Proxy Statement, which will be filed with the SEC within 120 days of the Company’s 2024 fiscal year end.
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Our independent registered public accounting firm is KPMG, LLP, Albany, NY, Auditor Firm ID: .
The information required by this item is incorporated herein by reference to the Proxy Statement, which will be filed with the SEC within 120 days of the Company’s 2024 fiscal year end.
PART IV
(a)(1) The following Consolidated Financial Statements are included in Part II, Item 8 hereof:
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of December 31, 2024 and 2023.
Consolidated Statements of Income for each of the three years ended December 31, 2024, 2023 and 2022.
Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2024, 2023 and 2022.
Consolidated Statements of Changes in Stockholders’ Equity for each of the three years ended December 31, 2024, 2023 and 2022.
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2024, 2023 and 2022.
Notes to the Consolidated Financial Statements.
(a)(2) There are no financial statement schedules that are required to be filed as part of this form since they are not applicable or the information is included in the consolidated financial
statements.
(a)(3) See below for all exhibits filed herewith and the Exhibit Index.
|
Agreement and Plan of Merger, dated as of September 9, 2024, by and among NBT Bancorp Inc., NBT Bank,
National Association, Evans Bancorp, Inc. and Evans Bank, National Association (filed as Exhibit 2.1 to Registrant’s Form 8-K,
filed on September 9, 2024, and incorporated herein by reference).
|
|
|
Restated Certificate of Incorporation of NBT Bancorp Inc. as amended through July 1, 2015 (filed as
Exhibit 3.1 to Registrant’s Form 10-Q, filed on August 10, 2015, and incorporated herein by reference).
|
|
|
Amended and Restated Bylaws of NBT Bancorp Inc. effective May 22, 2018 (filed as Exhibit 3.1 to Registrant’s
Form 8-K, filed on May 23, 2018 and incorporated herein by reference).
|
|
|
Certificate of Designation of the Series A Junior Participating Preferred Stock (filed as Exhibit A to Exhibit
4.1 of the Registrant’s Form 8-K, filed on November 18, 2004, and incorporated herein by reference).
|
|
|
Specimen common stock certificate for NBT’s Bancorp Inc. common stock (filed as Exhibit 4.3 to the
Registrant’s Amendment No. 1 to Registration Statement on Form S-4, filed on December 27, 2005, and incorporated herein by reference).
|
|
|
Description of Registrant’s Securities (filed as Exhibit 4.2 to the Registrant’s Form 10-K for the year ended December 31, 2019, filed on March 2, 2020, and incorporated herein by
reference).
|
|
|
Subordinated Indenture, dated as of June 23, 2020, between NBT Bancorp Inc. and U.S. Bank National
Association (filed as Exhibit 4.1 to Registrant’s Form 8-K, filed on June 23, 2020 and incorporated herein by reference).
|
|
|
First Supplemental Indenture, dated as of June 23, 2020, between NBT Bancorp Inc. and U.S. Bank
National Association (filed as Exhibit 4.2 to Registrant’s Form 8-K, filed on June 23, 2020 and incorporated herein by reference).
|
|
|
Form of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (included in Exhibit 4.4).
|
|
|
NBT Bancorp Inc. Non-employee Directors Restricted and Deferred Stock Plan (filed as Exhibit 10.5 to
Registrant’s Form 10-K for the year ended December 31, 2008, filed on March 2, 2009, and incorporated herein by reference).*
|
|
|
Supplemental Executive Retirement Agreement between NBT Bancorp Inc. and Martin A. Dietrich as amended and
restated January 20, 2010 (filed as Exhibit 10.14 to Registrant’s Form 10-K for the year ended December 31, 2009, filed on March 1, 2010, and incorporated herein by reference).*
|
|
|
Split-Dollar Agreement between NBT Bancorp Inc., NBT Bank, National Association and Martin A. Dietrich made
November 10, 2008 (filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2008, filed on November 10, 2008, and incorporated herein by reference).*
|
|
|
First Amendment dated November 5, 2009 to Split-Dollar Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Martin A. Dietrich made November 10, 2008 (filed as Exhibit 10.6 to Registrant’s Form 10-Q for the quarterly period ended September 30, 2009, filed on November 9, 2009, and incorporated herein by reference).*
|
|
|
Second Amendment dated July 28, 2014 to Split-Dollar Agreement between NBT Bancorp Inc., NBT Bank, National
Association, and Martin A. Dietrich made November 10, 2008 (filed as Exhibit 10.1 to Registrant’s Form 8-K, filed on August 1, 2014, and incorporated herein by reference).*
|
|
NBT Bancorp Inc. 2008 Omnibus Incentive Plan (filed as Appendix A of Registrant’s Definitive Proxy
Statement on Form 14A, filed on March 31, 2008, and incorporated herein by reference).*
|
|
|
Long-Term Incentive Compensation Plan for Named Executive Officers (filed as Exhibit 10.24 to Registrant’s
Form 10-K for the year ended December 31, 2011, filed on February 29, 2012, and incorporated herein by reference).*
|
|
|
Amended and Restated Supplemental Retirement Agreement and First Amendment to the Supplemental Retirement
Agreement between Alliance Financial Corporation, Alliance Bank, N.A. and Jack H. Webb (filed as Exhibit 10.29 to Registrant’s Form 10-K for the year ended December 31, 2013, filed on March 3, 2014, and incorporated herein by
reference).*
|
|
|
Split-Dollar Agreement between NBT Bancorp Inc., NBT Bank, National Association and John H. Watt, Jr. dated May 9,
2017 (filed as Exhibit 10.1 to Registrant’s Form 10-Q, filed on May 10, 2017, and incorporated herein by reference).*
|
|
|
Supplemental Executive Retirement Agreement, dated December 19, 2016 by and between NBT Bancorp Inc. and
John H. Watt, Jr. (filed as Exhibit 10.2 to Registrant’s Form 8-K, filed on December 20, 2016, and incorporated herein by reference).*
|
|
|
NBT Bancorp Inc. 2018 Omnibus Incentive Plan (filed as Appendix A of Registrant’s Definitive Proxy
Statement on Form 14A, filed on April 6, 2018, and incorporated herein by reference).*
|
|
|
Employment Agreement, dated November 1, 2021, by and between NBT Bancorp Inc. and Ruth H. Mahoney
(Filed as Exhibit 10.16 to Registrant’s Form 10-K, filed on March 1, 2023, and incorporated herein by reference).*
|
|
|
Employment Agreement, dated January 1, 2018, by and between NBT Bancorp Inc. and Amy Wiles (Filed
as Exhibit 10.18 to Registrant’s Form 10-K, filed on March 1, 2022, and incorporated herein by reference).*
|
|
|
NBT Bancorp Inc. 2024 Omnibus Incentive Plan (Filed as Exhibit 10.1 to Registrant’s Form 8-K, filed on May 21, 2024, and incorporated herein by reference).*
|
|
|
Form of Restricted Stock Unit Award Agreement (Filed
as Exhibit 10.2 to Registrant’s Form 8-K, filed on May 21, 2024, and incorporated herein by reference).**
|
|
|
Employment Agreement, dated May 21, 2024 by and between NBT Bancorp Inc. and Scott A. Kingsley
(Filed as Exhibit 10.1 to Registrant’s Form 8-K, filed on May 22, 2024, and incorporated herein by reference).*
|
|
|
Supplemental Retirement Agreement, dated May 21, 2014 by and between Scott A. Kingsley and NBT Bancorp
Inc. (Filed as Exhibit 10.2 to Registrant’s Form 8-K, filed on May 22, 2024, and incorporated herein by reference).*
|
|
|
Employment Agreement, dated May 21, 2024 by and between NBT Bancorp Inc. and Annette L. Burns (Filed as Exhibit 10.3 to Registrant’s Form 8-K, filed on May 22, 2024, and incorporated herein by reference).*
|
|
|
Employment Agreement, dated May 21, 2024 by and between NBT Bancorp Inc. and Joseph R. Stagliano
(Filed as Exhibit 10.4 to Registrant’s Form 8-K, filed on May 22, 2024, and incorporated herein by reference).*
|
|
|
First Amendment to Split-Dollar Agreement, dated May 21, 2024, by and among NBT Bancorp Inc., NBT Bank,
N.A. and John H. Watt, Jr. (Filed as Exhibit 10.5 to Registrant’s Form 8-K, filed on May 22, 2024, and incorporated herein by reference).*
|
|
|
Amendment to NBT Bancorp Inc. Supplemental Executive Retirement Plan and Supplemental Retirement
Agreement for John H. Watt, Jr., dated May 21, 2024, between NBT Bancorp Inc. and John H. Watt, Jr. (Filed as Exhibit 10.6 to Registrant’s Form 8-K, filed on May 22, 2024, and incorporated herein by reference).*
|
|
| 19 |
|
|
Incentive Compensation Recovery Policy (Filed as Exhibit 97 to the Registrant’s Form 10-K for the year
ended December 31, 2023, filed on February 29, 2024, and incorporated herein by reference).
|
|
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
|
| * |
Management contract or compensatory plan or arrangement.
|
| ** |
Portions of this exhibit have been omitted in compliance with Item 601 of Regulation S-K.
|
| (b) |
Exhibits to this Form 10-K are attached or incorporated herein by reference as noted above.
|
| (c) |
Not applicable.
|
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, NBT Bancorp Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
/s/ Scott A. Kingsley
|
|
|
Scott A. Kingsley
|
|
|
Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
|
/s/ Martin A. Dietrich
|
/s/ Timothy E. Delaney
|
|
|
Martin A. Dietrich
|
Timothy E. Delaney, Director
|
|
|
Chairman and Director
|
Date: February 28, 2025
|
|
|
Date: February 28, 2025
|
|
/s/ Scott A. Kingsley
|
/s/ Heidi M. Hoeller
|
|
|
Scott A. Kingsley
|
Heidi M. Hoeller, Director
|
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
Date: February 28, 2025
|
|
|
Date: February 28, 2025
|
|
/s/ Annette L. Burns
|
/s/ Andrew S. Kowalczyk III
|
|
|
Annette L. Burns
|
Andrew S. Kowalczyk III, Director
|
|
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
|
Date: February 28, 2025
|
|
|
Date: February 28, 2025
|
|
/s/ John H. Watt, Jr.
|
/s/ V. Daniel Robinson II
|
|
|
John H. Watt, Jr.
|
V. Daniel Robinson II, Director
|
|
|
Vice Chairman and Director
|
Date: February 28, 2025
|
|
|
Date: February 28, 2025
|
|
/s/ Johanna R. Ames
|
/s/ Matthew J. Salanger
|
|
|
Johanna R. Ames, Director
|
Matthew J. Salanger, Director
|
|
|
Date: February 28, 2025
|
Date: February 28, 2025
|
|
/s/ J. David Brown
|
/s/ Lowell A. Seifter
|
|
|
J. David Brown, Director
|
Lowell A. Seifter, Director
|
|
|
Date: February 28, 2025
|
Date: February 28, 2025
|
|
/s/ Richard J. Cantele, Jr.
|
/s/ Jack H. Webb
|
|
|
Richard J. Cantele, Jr., Director
|
Jack H. Webb, Director
|
|
|
Date: February 28, 2025
|
Date: February 28, 2025
|
114