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What changed in NBT BANCORP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NBT BANCORP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+347 added−338 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in NBT BANCORP INC's 2023 10-K

347 paragraphs added · 338 removed · 249 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

67 edited+22 added−33 removed103 unchanged
Biggest changeUnder 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.
Biggest changeUnder 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. 10 Table of Contents Pursuant to the Capital Rules, the minimum capital ratios as of January 1, 2015 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”).
Among other factors, net income is also affected by provisions 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 other real estate owned (“OREO”) expenses, advertising, Federal Deposit Insurance Corporation (“FDIC”) expenses and other expenses.
Among other factors, net income is also affected by provisions 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 other real estate owned (“OREO”) expenses, advertising, Federal Deposit Insurance Corporation (“FDIC”) assessment expenses and other expenses.
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 empowered to enforce rules issued by the CFPB.
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’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 central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central Connecticut.
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.
NBT Bank, N.A. The Bank, a full service commercial bank formed in 1856, provides a broad range of financial products to individuals, corporations and municipalities throughout central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central Connecticut.
NBT Bank, N.A. 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.
Section 22(h) of the FRA and its implementing 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.
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.
The Bank was in compliance with FHLB rules and requirements as of December 31, 2022. 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.
The Bank was in compliance with FHLB rules and requirements as of December 31, 2023. 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.
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 limits the interest rate that any depository institution that is not well-capitalized may pay on brokered deposits.
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.
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. 15 Table of Contents
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. 14 Table of Contents
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 Federal Home Loan Bank (“FHLB”) of New York, which provides a central credit facility primarily for member institutions for home mortgage and neighborhood lending.
The Bank’s management is not aware of any practice, condition or violation that might lead to the termination of its deposit insurance. 9 Table of Contents Federal Home Loan Bank System The Bank is also a member of the Federal Home Loan Bank (“FHLB”) of New York, which provides a central credit facility primarily for member institutions for home mortgage and neighborhood lending.
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.
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. 8 Table of Contents Capital Distributions The principal source of the Company’s liquidity is dividends from the Bank.
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.
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.
In 2022, these commitments resulted in over $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.
In 2023, these commitments resulted in over $355,000 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.
Department of Justice. 13 Table of Contents 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.
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.
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. 7 Table of Contents The Company is focused on making home ownership accessible to everyone in the communities we serve.
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.
The Company became subject to the new standards starting in July 2022. 10 Table of Contents Source of Strength Doctrine FRB policy requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks.
The Company became subject to the new standards starting in July 2022. Source of Strength Doctrine FRB policy requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks.
In December 2020, the OCC, together with the Board of Governors of the Federal Reserve System and the FDIC, issued an interim final rule to temporarily mitigate transition costs related to the COVID-19 pandemic on community banking organizations with less than $10 billion in total assets as of December 31, 2019.
In December 2020, the OCC, together with the Board of Governors of the Federal Reserve System and the FDIC, issued an interim final rule to temporarily mitigate transition costs related to the coronavirus (“COVID-19”) pandemic on community banking organizations with less than $10 billion in total assets as of December 31, 2019.
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. Employees At December 31, 2022, the Company had 1,861 full-time equivalent employees. The Company’s employees are not presently represented by any collective bargaining group. Available Information The Company’s website is http://www.nbtbancorp.com.
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. Employees At December 31, 2023, the Company had 2,034 full-time equivalent employees. The Company’s employees are not presently represented by any collective bargaining group. Available Information The Company’s website is http://www.nbtbancorp.com.
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 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.
At December 31, 2022, the Bank qualified as “well-capitalized” under applicable regulatory capital standards.
At December 31, 2023, the Bank qualified as “well-capitalized” under applicable regulatory capital standards.
The new NBT iSelect Account was introduced in 2021 and certified as meeting the Bank On National Account Standards for 2021-2022 and again for 2023-2024. Over 3,200 NBT iSelect Accounts have been opened. These accounts feature no monthly charges for maintenance, inactivity or dormancy, no overdraft fees and no minimum balance requirement.
The NBT iSelect Account was introduced in 2021 and certified as meeting the Bank On National Account Standards for 2021-2022, 2023-2024 and again for 2024-2025. Over 11,000 NBT iSelect Accounts have been opened. These accounts feature no monthly charges for maintenance, inactivity or dormancy, no overdraft fees and no minimum balance requirement.
(“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 Company’s principal sources of revenue are the management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings.
(“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.
Operating Subsidiaries of the Bank The Bank has three operating subsidiaries, NBT Capital Corp., Broad Street Property Associates, Inc. and NBT Capital Management, Inc. NBT Capital Corp., formed in 1998, is a venture capital corporation. Broad Street Property Associates, Inc., formed in 2004, is a property management company.
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.
In addition, under the prior general risk-based capital rules, the effects of accumulated other comprehensive income or loss (“AOCI”) items included in stockholders’ equity (for example, marks-to-market of securities held in the available for sale (“AFS”) portfolio) under GAAP were excluded for the purposes of determining regulatory capital ratios.
In addition, under the prior general risk-based capital rules, the effects of accumulated other comprehensive income or loss (“AOCI”) items included in stockholders’ equity (for example, marks-to-market of securities held in the available for sale (“AFS”) portfolio) under generally accepted accounting principles in the United States of America (“GAAP”) were excluded for the purposes of determining regulatory capital ratios.
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.
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.
Our suite of home lending products features innovative and flexible options, including government guaranteed programs like Federal Housing Administration (“FHA”) and U.S. Department of Veterans Affairs (“VA”) loans as well as programs developed in-house like our First Home Loan, Habitat for Humanity, Home in the City and Portfolio 97 programs.
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.
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.
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. 4 Table of Contents 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.
The Capital Rules also address 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. 11 Table of Contents 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.
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.
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.
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. 11 Table of Contents 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.
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.
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.
The Company’s incentive programs recognize employees at all levels and are designed to motivate employees to support achievement of company success, with appropriate risk assessment and prevention measures designed to prevent fraud. Learning and Career Development The Company’s main priority is to attract and retain top talent by encouraging and promoting internal development.
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.
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 of Directors 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.
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.
While our employee retention rate remains consistently high, significant effort is placed on retaining our valued employees - stay interviews, career planning conversations, an on-going coaching process, goal setting, individual development plans and enhanced communications all play a part in employee satisfaction.
Engaging Employees While our employee retention rate remains consistently high, we continue to place significant effort toward retaining our valued employees - career planning conversations, an on-going coaching process, goal setting, individual development plans and enhanced communications all play a part in employee satisfaction. In the first quarter of 2024, we will administer our Employee Engagement Survey.
Talent acquisition and more importantly, retention, continue to be top priorities especially in the post-pandemic environment and considering the current challenges in the labor market. An Employee Referral Program was implemented in the third quarter resulting in current employees referring 18% of the new employees hired in 2022.
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 and more importantly, retention, continue to be top priorities especially in the post-pandemic environment and considering the current challenges in the labor market. An Employee Referral Program was implemented in the third quarter of 2022.
Both grassroots and executive sponsored strategies continue to be critical to our DEI initiatives. Executive sponsored strategies support leadership opportunities with cross functional/geographic teams, panel discussions and a fireside chat in support of women’s empowerment and being your authentic self and a financial contribution to a community center supporting LGBTQ youth.
Both grassroots and executive sponsored strategies continue to be critical to our DEI initiatives. Executive sponsored strategies support leadership opportunities with cross functional/geographic teams and panel discussions for employees and our communities hosted by our affinity group NBT Empowerment in support of women’s empowerment and being your authentic self.
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 Initiatives Congress, state legislatures and financial regulatory agencies may introduce various legislative and regulatory initiatives that could affect the financial services industry, generally.
The Bank’s most current CRA rating was “Satisfactory.” 13 Table of Contents Future Legislative Initiatives Congress, state legislatures and financial regulatory agencies may introduce various legislative and regulatory initiatives that could affect the financial services industry, generally.
See the section titled “Community Reinvestment Act of 1977” for further information relating to the CRA. 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.
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 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.
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.
Generally, Sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses in transactions with affiliates.
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.
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. 8 Table of Contents 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.
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. Federal Bank Holding Company Regulation The Company is a bank holding company as defined by the BHC Act.
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.
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 Bank’s deposits are insured by the FDIC up to the applicable deposit insurance limits in accordance with FDIC laws and regulations.
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.
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.
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.
The Company offers total rewards that address employees at various stages of their personal lives and careers, including a student loan repayment program, financial wellness programs, undergraduate and graduate tuition, paid parental leave, more flexibility in work schedules and paid leave benefits and a retirement transition option.
In 2023, 84 qualified referrals were made by employees, equating to 28% of the total new employees hired. 88% of referred employees continue to be employed. 5 Table of Contents The Company offers total rewards that address employees at various stages of their personal lives and careers, including financial wellness programs, undergraduate and graduate tuition, paid parental leave, more flexibility in work schedules and paid leave benefits and a retirement transition option.
Through NBT Financial Services, the Company operates EPIC Advisors, Inc. (“EPIC”), a retirement plan administrator. EPIC offers services including retirement plan consulting and recordkeeping services. 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.
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’s headquarters are located in Norwich, New York.
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.
The Company has a BSA and USA PATRIOT Act Board-approved compliance program commensurate with its risk profile. 12 Table of Contents 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.
Through our active contribution program, administered by market-based committees with representation from all lines of business, the Company contributed nearly $2.0 million in 2022.
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 $2.0 million in 2023.
We invested in a variety of development tools and resources for all employees, including the introduction of LinkedIn Learning Library. The LinkedIn Learning Library is intended to make learning and development accessible to all employees in a concise, easily consumable format that enables employees to get the development they need to achieve individual career aspirations.
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 get the development they need to achieve individual career aspirations. Currently 80% of our employees are active in the learning library and are taking full advantage of this resource.
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. 9 Table of Contents 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 implementing Regulation W.
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.
The plan is shared with our Board of Directors, management and employees, who are often included in implementing specific action items. More information can be located on the Company’s website at https://www.nbtbank.com/about-us/Diversity-and-Inclusion/. Investment in Our People The Company’s focus on investing in our people includes key initiatives to attract, develop and retain our valued employees.
The Company has a DEI steering committee comprised of members of the executive team, including the Chief Executive Officer. The plan is shared with the Board, management, and employees, who are often included in implementing specific action items. More information can be located on the Company’s website at https://www.nbtbank.com/about-us/Diversity-and-Inclusion/.
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. 12 Table of Contents 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%.
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%.
In 2022, the Bank and CEI-Boulos Capital Management, LLC announced the launch of the NBT CEI-Boulos Impact Fund, LLC a $10 million real estate equity investment fund with NBT Bank as the sole investor.
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. The NBT CEI-Boulos Impact Fund, LLC launched in 2022 is a $10 million real estate equity investment fund with the Bank as the sole investor.
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.
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. 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.
Data Privacy and Security Practices The Company’s enterprise security strategy revolves around people, processes and technology. The Company employs a defense in depth strategy, which combines physical control measures with logical control measures and uses a layered security model to provide end-to-end security of Company and client information.
The Company employs a defense in depth strategy, which combines physical control measures with logical control measures and uses a layered security model to provide end-to-end security 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.
To support career development, we employ an internal career manager to work as a liaison with employees and managers.
To support career development, we employ an internal career manager to work as a liaison with employees and managers. The Company also has a robust annual talent review and succession planning process that includes the Board and senior management.
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.
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.
The principal assets of the Company 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.
ITEM 1. BUSINESS 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.
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.
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.
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. 14 Table of Contents 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.
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 Company adopted the capital transition relief over the permissible five-year period. 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.
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.
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.
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.
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. One operating subsidiary, CNB Realty Trust, formed in 1998, was a real estate investment trust which was dissolved during 2021. Merger with Salisbury Bancorp, Inc.
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 is a passive investment company (“PIC”) acquired in 2023 in connection with the acquisition of Salisbury Bancorp, Inc. (“Salisbury”).
We also offer certain customer services, such as agricultural lending, that many of our larger competitors do not offer.
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 Bank is also subject to data security standards, privacy and data breach notice requirements, primarily those issued by the OCC.
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.
ITEM 1. BUSINESS NBT Bancorp Inc. (the “Company”) is a registered financial holding company incorporated in the state of Delaware in 1986, with its principal headquarters located in Norwich, New York. The Company, on a consolidated basis, at December 31, 2022 had assets of $11.74 billion and stockholders’ equity of $1.17 billion.
Collectively, NBT Bancorp Inc. and its subsidiaries are referred to herein as (the “Company”). The Company, on a consolidated basis, at December 31, 2023 had assets of $13.31 billion and stockholders’ equity of $1.43 billion.
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 manner of volunteer activities. New employees participate in an onboarding experience that includes a community service activity.
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 manner of volunteer activities. 6 Table of Contents The NBT CEI-Boulos Impact Fund, a high-impact commercial real estate equity investment fund established by the Bank and CEI-Boulos Capital Management, announced its first equity investment in 2023 that will provide affordable, workforce housing and a grocery store for residents in Troy, NY.
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 revise the definitions and the components of regulatory capital, as well as address other issues affecting the numerator in banking institutions’ regulatory capital ratios.
The Capital Rules revise the definitions and the components of regulatory capital, as well as address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Capital Rules also address 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.
Removed
NBT Insurance’s headquarters are located in Norwich, New York.
Added
When we refer to “NBT,” “we,” “our,” “us,” and “the Company” 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 its only bank subsidiary, NBT Bank, National Association, and its subsidiaries.
Removed
On December 5, 2022, the Company entered into an Agreement and Plan of Merger (the “merger agreement”) with Salisbury Bancorp, Inc. (“Salisbury”), Salisbury Bank and Trust Company (“Salisbury Bank”), and the Bank, pursuant to which the Company will acquire Salisbury.
Added
Through NBT Financial Services, 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.
Removed
Subject to the terms and conditions of the merger agreement, Salisbury will merge with and into the Company, with the Company as the surviving entity, and immediately thereafter, Salisbury Bank will merge with and into NBT Bank, with NBT Bank as the surviving bank (the “merger”).
Added
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. Merger with Salisbury Bancorp, Inc.
Removed
Under the terms of the merger agreement, each outstanding share of Salisbury common stock will be converted into the right to receive 0.7450 shares of the Company’s common stock. Salisbury had assets of $1.54 billion at December 31, 2022.
Added
On August 11, 2023, the Company completed the acquisition of Salisbury through the merger of Salisbury with and into the Company, with the Company surviving the merger, and the merger of Salisbury Bank and Trust Company (“Salisbury Bank”) with and into the Bank, with the Bank as the surviving bank, for $161.7 million in stock.
Removed
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. 4 Table of Contents The table below summarizes the Bank’s deposits and market share as of June 30, 2022 by the thirty-eight counties of New York, Pennsylvania, New Hampshire, Massachusetts, Vermont, Maine and Connecticut.
Added
Salisbury Bank was a Connecticut-chartered commercial bank headquartered in Lakeville, Connecticut with 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York, and southwestern Massachusetts.
Removed
Market share is based on deposits of all commercial banks, credit unions, savings and loans associations and savings banks.
Added
In connection with the acquisition, the Company issued 4.32 million shares 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.
Removed
County State Deposits in Thousands Market Share Market Rank Number of Branches* Number of ATMs* Chenango NY $ 815,939 92.59 % 1 11 12 Fulton NY 652,866 67.56 % 1 5 6 Schoharie NY 307,266 48.36 % 1 4 4 Montgomery NY 436,892 45.24 % 1 5 4 Hamilton NY 56,988 43.94 % 2 1 1 Cortland NY 367,577 38.89 % 1 4 6 Otsego NY 513,121 37.62 % 1 8 11 Essex NY 329,672 32.77 % 1 3 4 Madison NY 391,727 31.86 % 2 5 7 Delaware NY 347,797 28.68 % 3 5 5 Susquehanna PA 273,215 19.73 % 2 5 7 Broome NY 580,368 15.61 % 2 7 9 Oneida NY 704,944 14.88 % 2 6 8 St.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

41 edited+13 added−37 removed81 unchanged
Biggest changeThe 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. 19 Table of Contents We expect that our regulators will consider our compliance with these regulatory requirements that now apply to us (in addition to regulatory requirements that applied to us previously) when examining our operations or considering any request for regulatory approval.
Biggest changeOur 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.
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 and Ogdensburg-Massena, the northeastern Pennsylvania areas of Scranton and Wilkes-Barre, Berkshire County, Massachusetts, southern New Hampshire, Vermont, southern Maine and central Connecticut.
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 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.
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 now exceed $10 billion in total consolidated assets.
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.
Deterioration in local economic conditions may negatively impact our financial performance. The Company’s success depends primarily on the general economic conditions in central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine, central Connecticut and the specific local markets in which the Company operates.
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.
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 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.
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 Salisbury) 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.
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 cards transactions.
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.
A significant portion of our loan portfolio at December 31, 2022 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.
A significant portion of our loan portfolio at December 31, 2023 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.
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.
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. 19 Table of Contents We may be held responsible for environmental liabilities with respect to properties to which we obtain title, resulting in significant financial 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.
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. 15 Table of Contents Severe weather, flooding and other effects of climate change and other natural disasters could adversely affect our financial condition, results of operations or liquidity.
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. 18 Table of Contents 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.
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.
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.
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. 22 Table of Contents
As of December 31, 2022, we had total assets of approximately $11.74 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.
As of December 31, 2023, we had total assets of approximately $13.31 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.
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.
See the section captioned “Liquidity Risk” in Item 7. 17 Table of Contents 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.
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, increases in inflation or interest rates, the timing and impact of changing governmental policies, natural disasters, epidemics and pandemics (including COVID-19), terrorist attacks, acts of war or a combination of these or other factors.
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, increases in inflation or 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.
As of December 31, 2022, approximately 50% of the Company’s loan portfolio consisted of commercial and industrial, agricultural, commercial construction and commercial real estate loans.
As of December 31, 2023, approximately 52% of the Company’s loan portfolio consisted of commercial and industrial, agricultural, commercial construction and commercial real estate loans.
The carrying value and fair market value of our FHLB of New York common stock was $26.8 million as of December 31, 2022. There are 11 branches of the FHLB, including New York, which are jointly liable for the consolidated obligations of the FHLB system.
The carrying value and fair value of our FHLB of New York common stock was $21.6 million as of December 31, 2023. There are 11 branches of the FHLB, including New York, which are jointly liable for the consolidated obligations of the FHLB system.
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.
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.
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.
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, 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. Variations in interest rates could adversely affect our results of operations and financial condition.
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.
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.
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.
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.
Compliance personnel and resources may increase our costs of operations and adversely impact our earnings. 18 Table of Contents 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.
We may, therefore, incur associated compliance costs and may be required to maintain compliance procedures. Failure to comply with these new 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.
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.
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. 16 Table of Contents A downturn in our local economies could cause significant increases in nonperforming loans, which could negatively impact our earnings.
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.
Risks Related to 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.
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. 20 Table of Contents Risks Related to 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.
The purpose of the Company’s liquidity management is to meet the cash flow obligations of its customers for both deposits and loans. 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.
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.
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.
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.
Management expects that the CECL model may create more volatility in the level of our allowance for loan losses from quarter to quarter as changes in the level of allowance for loan losses will be dependent upon, among other things, macroeconomic forecasts and conditions, loan portfolio volumes and credit quality. 17 Table of Contents Strong competition within our industry and market area could adversely affect our performance and slow our growth.
Management expects that the Current Expected Credit Losses (“CECL”) model may create more volatility in the level of our allowance for loan losses from quarter to quarter as changes in the level of allowance for loan losses will be dependent upon, among other things, macroeconomic forecasts and conditions, loan portfolio volumes and credit quality.
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.
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 Salisbury The merger with Salisbury could adversely affect the Company’s future business and financial results.
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 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.
The economy in the United States and globally has experienced volatility in recent years and may continue to do so for the foreseeable future, particularly as a result of the COVID-19 pandemic. There can be no assurance that economic conditions will not worsen.
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.
These additional compliance costs may have a material adverse effect on our business, results of operations and financial condition. Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.
Replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations.
Our allowance for loan 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.
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 commercial real estate loans. 16 Table of Contents Our allowance for loan 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.
We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.
We had a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that were either directly or indirectly dependent on LIBOR. With the transition from LIBOR to SOFR as the preferred alternative to LIBOR, we have transitioned and amended our contracts and financial instruments to reference the SOFR rate where required.
The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR.
The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR.
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.
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.
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.
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.
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.
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.
In order to address rising inflation, the FRB raised interest rates in 2022 and may continue to do so; however, the magnitude of any such further increase is not currently known.
In order to address rising inflation, the FRB raised interest rates in 2022 and in the first half 2023 and, while the Federal funds rate has remained unchanged over recent months, the FRB may again raise interest rates in response to inflation. The magnitude of any such increase is not currently known.
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. 20 Table of Contents 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 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.
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 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.
Any future acquisitions will be accompanied by the risks commonly encountered in acquisitions.
The business strategy of the Company has included and may continue to include growth through acquisition. Any acquisitions (including the acquisition of Salisbury) will be accompanied by the risks commonly encountered in acquisitions.
Removed
As economic conditions relating to the COVID-19 pandemic have improved, the Federal Reserve has shifted its focus to limiting inflationary and other potentially adverse effects of the extensive pandemic-related government stimulus, which signals the potential for a continued period of economic uncertainty even though the pandemic has subsided.
Added
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.
Removed
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with China and the Russian invasion of Ukraine, all of which may have a destabilizing effect on financial markets and economic activity.
Added
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.
Removed
Economic pressure on consumers and overall economic uncertainty may result in changes in consumer and business spending, borrowing and saving habits.
Added
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.
Removed
These economic conditions and/or other negative developments in the domestic or international credit markets or economies may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability.
Added
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.
Removed
Declines in real estate values and sales volumes and high unemployment or underemployment may also result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.
Added
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.
Removed
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 commercial real estate loans.
Added
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.
Removed
In 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced that the FCA intends to stop persuading or compelling banks to submit the rates required to calculate LIBOR after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.
Added
In March 2021, the United Kingdom’s Financial Conduct Authority and the Intercontinental Exchange Benchmark Administration, the administrator for London Interbank Offered Rate (“LIBOR”), concurrently announced that certain settings of LIBOR would no longer be published on a representative basis after December 31, 2021, and the most commonly used U.S. dollar LIBOR settings would no longer be published on a representative basis after June 30, 2023.
Removed
The U.S. bank regulators issued a Statement on LIBOR Transition on November 30, 2020 and subsequent guidance encouraging banks to transition away from U.S. Dollar (USD) LIBOR by December 31, 2021 at the latest for new contracts. LIBOR is currently anticipated to be fully phased out by June 30, 2023.
Added
Since alternative rates (including SOFR) are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The future performance of SOFR, including how changes in SOFR rates may differ from other rates during different economic conditions, cannot be predicted based on its limited historical performance.
Removed
ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. The Company is in the process of transitioning legacy LIBOR loans to SOFR by June 30, 2023.
Added
Further, we cannot predict how SOFR will perform in comparison to LIBOR in changing market conditions, what the effect of such rate’s implementation may be on the markets for floating-rate financial instruments or whether such rates will be vulnerable to manipulation.
Removed
The transition from LIBOR, or any changes or reforms to the determination or supervision of LIBOR, could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us, could create considerable costs and additional risk and could have an adverse impact on our overall financial condition or results of operations.
Added
The implementation of an alternative index or indices for the Company’s financial arrangements may result in less predictable outcomes, including reduced or more volatile interest income if the alternative index or indices respond differently to market and other factors, and may result in reduced loan balances if borrowers do not accept the substitute index or indices and may result in disputes or litigation with customers over the appropriateness or comparability of the alternative index to LIBOR, which could have an adverse effect on the Company’s results of operations.
Removed
Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
Added
Despite the successful integration of Salisbury’s operations with the Company’s, inherent challenges persist, particularly in harmonizing operational processes, technology platforms, and corporate cultures. The complexity of this integration process may lead to unforeseen delays or disruptions, potentially impacting customer service quality and operational efficiency.
Removed
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.
Added
Additionally, increased regulatory scrutiny following the merger could result in heightened compliance requirements and regulatory enforcement actions, posing additional risks to our business operations and financial performance. Moreover, the loss of key personnel, customer attrition, and competitive pressures post-merger could adversely affect the Company’s ability to execute strategic initiatives and sustain growth momentum.
Removed
Risks Related to the Merger The merger is subject to a number of conditions, including the receipt of consents and approvals from governmental authorities, that may delay the merger or adversely impact the Company’s and Salisbury’s ability to complete the merger. The completion of the merger is subject to the satisfaction or waiver of a number of conditions.
Added
While the Company remains committed to mitigating these risks through diligent management and proactive measures, the uncertainties associated with the post-merger environment necessitate ongoing vigilance and risk management efforts to safeguard our stakeholders’ interests and ensure long-term success. General Risks The risks presented by acquisitions could adversely affect our financial condition and results of operations.
Removed
Before the merger may be completed, various approvals, waivers and/or consents must be obtained from state and federal governmental authorities, including the FRB, the OCC and the Connecticut Department of Banking (“CTDOB”). Satisfying the requirements of these governmental authorities may delay the date of completion of the merger.
Removed
In addition, these governmental authorities may include conditions on the completion of the merger, or require changes to the terms of the merger.
Removed
While it is currently anticipated that the merger will be completed promptly following the receipt of all required regulatory approvals, there can be no assurance that the conditions to closing will be satisfied in a timely manner or at all, or that no effect, event, development or change will transpire that could delay or prevent these conditions from being satisfied or impose additional costs on or limit the revenues of the Company following the merger, any of which might have a material adverse effect on the Company following the merger.
Removed
The parties are not obligated to complete the merger should any regulatory approval contain a condition, restriction or requirement that our Board of Directors reasonably determines in good faith would, individually or in the aggregate, materially reduce the benefits of the merger to such a degree that the Company would not have entered into the merger agreement had such condition, restriction or requirement been known at the date of the merger agreement.
Removed
The Company and Salisbury cannot provide any assurances with respect to the timing of the closing of the merger, whether the merger will be completed at all or when Salisbury stockholders would receive the consideration for the merger, if at all.
Removed
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, including approval by Salisbury stockholders of the merger.
Removed
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.
Removed
If the merger is not completed, the ongoing business of the Company may be adversely affected, and the Company and 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 attempting to consummate the merger.
Removed
In addition, if the merger is not completed, the Company may experience negative reactions from the financial markets, and the Company may experience negative reactions from its customers and employees.
Removed
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.
Removed
If the merger is not completed, the Company and Salisbury cannot assure their respective stockholders that the risks described above will not materialize and will not materially affect the business and financial results of the Company or the stock price of the Company.
Removed
The integration of the Company and Salisbury will present significant challenges 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.
Removed
The benefits and synergies expected to result from the proposed transaction will depend in part on whether the operations of Salisbury can be integrated in a timely and efficient manner with those of the Company. The Company will face challenges in consolidating its functions with those of Salisbury, and integrating the organizations, procedures and operations of the two businesses.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES The Company owns its headquarters located at 52 South Broad Street, Norwich, New York 13815. In addition, as of December 31, 2022 the Company has 140 branch locations, of which 61 are leased from third parties. The Company owns all other banking premises.
Biggest changeITEM 2. PROPERTIES The Company owns its headquarters located at 52 South Broad Street, Norwich, New York 13815. In addition, as of December 31, 2023 the Company has 153 branch locations, of which 66 are leased from third parties. The Company owns all other banking premises.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+3 added−1 removed4 unchanged
Biggest changeThe Company did not purchase any shares of its common stock during the fourth quarter of 2022.
Biggest changeThe 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. The Company did not purchase any share of its common stock during the fourth quarter of 2023.
The stock performance graph assumes that $100 was invested on December 31, 2017. 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 stock performance graph assumes that $100 was invested on December 31, 2018. 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.
Dividends The Company depends primarily upon dividends from subsidiaries for a substantial part of the Company’s 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.
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.
At December 31, 2022, the Bank was in compliance with all applicable minimum capital requirements and had the ability to pay dividends of $145.3 million to the Company without the prior approval of the OCC.
At December 31, 2023, the Bank was in compliance with all applicable minimum capital requirements and had the ability to pay dividends of $106.6 million to the Company without the prior approval of the OCC.
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 February 3, 2023 was $41.34.
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, 2024 was $35.57.
As of February 3, 2023, there were 5,114 stockholders of record of Common Stock. No unregistered securities were sold by the Company during the year ended December 31, 2022.
As of January 31, 2024, there were 5,634 stockholders of record of Common Stock. No unregistered securities were sold by the Company during the year ended December 31, 2023.
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.
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.
Stock Repurchase The Company purchased 400,000 shares of its common stock during year ended December 31, 2022 at an average price of $36.78 per share under its previously announced share repurchase program. As of December 31, 2022, there were 1,600,000 shares available for repurchase under this plan authorized on December 20, 2021 and set to expire on December 31, 2023.
Stock Repurchase The Company purchased 155,500 shares of its common stock during year ended December 31, 2023 at an average price of $31.79 per share under its previously announced share repurchase program.
Removed
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. 24 Table of Contents Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 NBT Bancorp $ 100.00 $ 96.48 $ 116.34 $ 95.26 $ 117.77 $ 136.65 KBW Regional Bank Index $ 100.00 $ 82.51 $ 102.20 $ 93.33 $ 127.53 $ 118.71 NASDAQ Composite Index $ 100.00 $ 97.18 $ 132.88 $ 192.74 $ 235.56 $ 158.97 Source: Bloomberg, L.P.
Added
Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 NBT Bancorp $ 100.00 $ 120.59 $ 98.73 $ 122.06 $ 141.64 $ 141.51 KBW Regional Bank Index $ 100.00 $ 123.87 $ 113.11 $ 154.57 $ 143.87 $ 143.30 NASDAQ Composite Index $ 100.00 $ 136.73 $ 198.33 $ 242.38 $ 163.58 $ 236.70 Source: Bloomberg, L.P. 25 Table of Contents Dividends The Company depends primarily upon dividends from subsidiaries for a substantial part of the its revenue.
Added
This repurchase program under which these shares were purchased was due to expire on December 31, 2023; however, on December 18, 2023, the Board of Directors authorized and approved an amendment to the repurchase program.
Added
Pursuant to the amended stock repurchase program, the Company may repurchase up to 2,000,000 shares of the outstanding shares of its common stock with all repurchases under the stock repurchase program to be made by December 31, 2025.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following information should be considered in connection with the Company’s results for the fiscal year ended December 31, 2022: ● net income of $152.0 million, or $3.52 diluted earnings per share; ● noninterest income of $155.6 million, down 1.4% from 2021; represents 30% of total revenues; ● period end loans were $8.15 billion, up 8.7% (10.2% excluding Paycheck Protection Program (“PPP”) loans); ● strong credit quality metrics including net charge-offs of 0.11% and allowance for loan losses to total loans at 1.24%; ● book value per share of $27.38 at December 31, 2022; tangible book value per share was $20.65 (1) at December 31, 2022.
Biggest change(“Salisbury”) by the merger of Salisbury with and into the Company was completed on August 11, 2023; ● net income for the year ended December 31, 2023 was $118.8 million, down $33.2 million from the year ended December 31, 2022; ● diluted earnings per share of $2.65 for the year ended December 31, 2023, down $0.87 from the year ended December 31, 2022; ● operating net income (1) , a non-GAAP measure, which excludes acquisition expenses, acquisition-related provision for credit losses, securities (losses) gains and an impairment of a minority interest equity investment, net of tax, was $144.7 million, or $3.23 per diluted common share, for the year ended December 31, 2023; ● excluding securities (losses) gains, noninterest income represented 29% of total revenues and was $151.5 million for the year ended December 31, 2023, down $5.2 million, or 3.3% from the year ended December 31, 2022; ● noninterest expense, excluding $10.0 million of acquisition expenses for the year ended December 31, 2023 and $1.0 million for the year ended December 31, 2022, respectively, was up $28.2 million, or 9.3%, from the prior year; ● period end total loans were $9.65 billion, up $1.50 billion, or 18.4% from December 31, 2022, excluding the $1.18 billion of loans acquired from Salisbury, loans grew $320.6 million, or 3.9%, since December 31, 2022; ● period end total deposits were $10.97 billion, up $1.47 billion, or 15.5% from December 31, 2022, excluding the $1.31 billion of deposits acquired from Salisbury, deposits increased $164.1 million, or 1.7%, since December 31, 2022; ● credit quality metrics including net charge-offs of 0.19% and allowance for loan losses to total loans at 1.19%; ● book value per share of $30.26 at December 31, 2023; tangible book value per share was $21.72 (1) at December 31, 2023.
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 central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central Connecticut.
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.
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 typically are usually collateralized by business assets such as equipment, accounts receivable and perishable agricultural products, which are exposed to industry price volatility.
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 usually collateralized by business assets such as equipment, accounts receivable and perishable agricultural products, which are exposed to industry price volatility.
Critical Accounting Estimates SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles 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.
Critical Accounting Estimates SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with U.S. generally accepted accounting principles 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 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 2022 and, in summary form, the preceding two years. Net interest margin is presented in this discussion on a fully taxable equivalent (“FTE”) basis.
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 2023 and, in summary form, the preceding two years. Net interest margin is presented in this discussion on a fully taxable equivalent (“FTE”) basis.
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 residential solar, home equity and other consumer loans.
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.
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. 37 Table of Contents Allowance for Loan Losses Beginning January 1, 2020, the Company calculated the allowance for credit losses using current expected credit losses methodology.
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. 41 Table of Contents Allowance for Loan Losses Beginning January 1, 2020, the Company calculated the allowance for credit losses using current expected credit losses methodology.
Therefore, once on-balance-sheet liquidity is depleted, 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.
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.
The respective quantitative allowance for each segment is measured using an econometric, discounted probability of default (PD) and loss given default (LGD) modeling methodology in which distinct, segment-specific multi-variate regression models are applied to multiple, probabilistically weighted external economic forecasts.
The respective quantitative allowance for each segment is measured using an econometric, discounted probability of default and loss given default modeling methodology in which distinct, segment-specific multi-variate regression models are applied to multiple, probabilistically weighted external economic forecasts.
Average balances discussed are daily averages unless otherwise described. The audited consolidated financial statements and related notes as of December 31, 2022 and 2021 and for each of the years in the three-year period ended December 31, 2022 should be read in conjunction with this review.
Average balances discussed are daily averages unless otherwise described. The audited consolidated financial statements and related notes as of December 31, 2023 and 2022 and for each of the years in the three-year period ended December 31, 2023 should be read in conjunction with this review.
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, 2022. 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.
The following tables set forth information with regard to contractual masturities of debt securities shown in amortized cost ($) and weighted average yield (%) at December 31, 2023. 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.
Going forward, the impact of utilizing the CECL approach 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.
The impact of utilizing the CECL approach 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.
Recent Accounting Updates See Note 2 to the consolidated financial statements for a detailed discussion of new accounting pronouncements. 2021 OPERATING RESULTS AS COMPARED TO 2020 OPERATING RESULTS For similar operating and financial data and discussion of our results for the year ended December 31, 2021 compared to our results for the year ended December 31, 2020 , 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, 2021, which was filed with the SEC on March 1, 2022 and is incorporated herein by reference. 43 Table of Contents
Recent Accounting Updates See Note 2 to the consolidated financial statements for a detailed discussion of new accounting pronouncements. 2022 OPERATING RESULTS AS COMPARED TO 2021 OPERATING RESULTS For similar operating and financial data and discussion of our results for the year ended December 31, 2022 compared to our results for the year ended December 31, 2021 , 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, 2022, which was filed with the SEC on March 1, 2023 and is incorporated herein by reference. 47 Table of Contents
As of December 31, 2022 and 2021, the allowance for losses on unfunded commitments totaled $5.1 million. Prior to January 1, 2020, the Company calculated the allowance for losses on unfunded commitments using the incurred loss methodology.
As of December 31, 2023 and 2022, the allowance for losses on unfunded commitments totaled $5.1 million. Prior to January 1, 2020, the Company calculated the allowance for losses on unfunded commitments using the incurred loss methodology.
Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, restructured loans, other real estate owned (“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.
Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loans modifications, other real estate owned (“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.
The effective tax rate was 22.5% in 2022 and 2021. 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 of Directors. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in each loan portfolio.
The effective tax rate was 22.6% in 2023 and was 22.5% in 2022. 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 of Directors. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in each loan portfolio.
At December 31, 2022 and 2021, approximately $145.3 million and $164.6 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.
At December 31, 2023 and 2022, approximately $106.6 million and $145.3 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.
Mainly, the volatility associated with the rapid downward shift in the yield curve which remained fairly flat for the majority of 2021 and into early 2022, followed by the drastic rise in rates beginning in the second quarter of 2022, which resulted in an inverted yield curve for much of the remainder of 2022 and into 2023.
Mainly, the interest rate volatility associated with the rapid downward shift in the yield curve which remained fairly flat for the majority of 2021 and into early 2022, followed by the drastic rise in rates beginning in the second quarter of 2022, which resulted in an inverted yield curve for the remainder of 2022 and throughout 2023.
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 2023. Higher interest rates could result in deposit declines as depositors have alternative opportunities for yield on their excess funds.
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 2024. Continued increases to interest rates could result in deposit declines as depositors have alternative opportunities for yield on their excess funds.
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 $1.92 billion at December 31, 2022 and $2.03 billion at December 31, 2021.
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, 2023 and $1.92 billion at December 31, 2022.
As a result of our January 1, 2020, adoption of CECL and its related amendments, our methodology for estimating the allowance for credit losses changed significantly from December 31, 2019. The Company recorded a net decrease to retained earnings of $4.3 million as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13.
As a result of our January 1, 2020, adoption of CECL and its related amendments, our methodology for estimating the allowance for credit losses changed significantly from December 31, 2019. The Company recorded a net decrease to retained earnings of $4.3 million as of January 1, 2020 for the cumulative effect of adopting Accounting Standards Updates (“ASU”) 2016-13.
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 aggregate principal amount of 5.00% fixed-to-floating rate subordinated notes due 2030.
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. 38 Table of Contents On June 23, 2020, the Company issued $100.0 million of 5.00% fixed-to-floating rate subordinated notes due 2030.
At December 31, 2022 and 2021, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $2.42 billion and $2.30 billion, respectively. In the opinion of management, there are no material commitments to extend credit, including unused lines of credit that represent unusual risks.
At December 31, 2023 and 2022, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $2.68 billion and $2.42 billion, respectively. In the opinion of management, there are no material commitments to extend credit, including unused lines of credit that represent unusual risks.
Significant items that may have an impact on 2023 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 begun to revert 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 negatively impact net interest margin.
Significant items that may have an impact on 2024 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 net interest margin.
Under this policy, remaining available borrowing capacity totaled $2.41 billion at December 31, 2022 and $2.89 billion at December 31, 2021. This Basic Surplus approach enables the Company to appropriately manage liquidity from both operational and contingency perspectives.
Under this policy, remaining available borrowing capacity totaled $2.99 billion at December 31, 2023 and $2.41 billion at December 31, 2022. This Basic Surplus approach enables the Company to appropriately manage liquidity from both operational and contingency perspectives.
December 31, 2019 2018 (Dollars in thousands) Allowance Category Percent of Loans Allowance Category Percent of Loans Commercial and agricultural $ 34,525 48 % $ 32,759 47 % Residential real estate 2,793 20 % 2,568 20 % Consumer 35,647 32 % 37,178 33 % Total $ 72,965 100 % $ 72,505 100 % 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.
December 31, 2019 (Dollars in thousands) Allowance Category Percent of Loans Commercial and agricultural $ 34,525 48 % Residential real estate 2,793 20 % Consumer 35,647 32 % Total $ 72,965 100 % 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.
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.
Risk Factors. 32 Table of Contents 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.
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 $6.66 billion in 2022 and increased $66.7 million from 2021.
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 $7.47 billion in 2023 and increased $815.0 million from 2022.
Additional information about our Allowance for Loan 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.
Additional information about our Allowance for Loan 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.
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. At December 31, 2022 and 2021, outstanding standby letters of credit were approximately $53.3 million and $55.1 million, respectively.
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. At December 31, 2023 and 2022, outstanding standby letters of credit were approximately $44.7 million and $53.3 million, respectively.
In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $898.1 million and $999.1 million at December 31, 2022 and 2021, respectively, or used to collateralize other borrowings, such as repurchase agreements.
In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $823.3 million and $898.1 million at December 31, 2023 and 2022, respectively, or used to collateralize other borrowings, such as repurchase agreements.
In addition to nonperforming loans discussed above, the Company has also identified approximately $52.0 million in potential problem loans at December 31, 2022 as compared to $74.9 million at December 31, 2021. Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected.
In addition to nonperforming loans discussed above, the Company has also identified approximately $87.7 million in potential problem loans at December 31, 2023 as compared to $52.0 million at December 31, 2022. Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected.
Those sources totaled approximately $2.90 billion and $3.45 billion at December 31, 2022 and 2021, respectively. Securities collateralizing repurchase agreements are held in safekeeping by nonaffiliated financial institutions and are under the Company’s control.
Those sources totaled approximately $2.87 billion and $2.90 billion at December 31, 2023 and 2022, respectively. Securities collateralizing repurchase agreements are held in safekeeping by nonaffiliated financial institutions and are under the Company’s control.
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.
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.
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 and nonperforming loans specifically evaluated for individual credit loss is $1.0 million.
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 commercial real estate loans risk graded substandard or doubtful, and nonperforming loans specifically evaluated for individual credit loss is $1.0 million.
Credit risk on the risk participation agreements is determined after considering the risk rating, probability of default and loss given default 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 $576.0 million and $575.9 million at December 31, 2022 and 2021, respectively.
Credit risk on the risk participation agreements is determined after considering the risk rating, probability of default and loss given default 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 $856.9 million and $592.7 million at December 31, 2023 and 2022, respectively.
This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes.
This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes.
The allowance for credit losses as a percentage of loans was 1.24% at December 31, 2022, compared to 1.23% at December 31, 2021.
The allowance for credit losses as a percentage of loans was 1.19% at December 31, 2023, compared to 1.24% at December 31, 2022.
In addition, the Bank has a “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge automobile loans as collateral. At December 31, 2022 and 2021, the Bank had the capacity to borrow $622.7 million and $580.8 million, respectively, from this program. The Company’s internal policies authorize borrowing up to 25% of assets.
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, 2023 and 2022, the Bank had the capacity to borrow $1.02 billion and $622.7 million, respectively, from this program. The Company’s internal policies authorize borrowing up to 25% of assets.
Nonperforming Assets As of December 31, (Dollars in thousands) 2022 % 2021 % 2020 % Nonaccrual loans: Commercial $ 7,664 44 % $ 15,942 53 % $ 23,557 53 % Residential 4,835 28 % 8,862 29 % 13,082 29 % Consumer 1,667 10 % 1,511 5 % 3,020 7 % Troubled debt restructured loans 3,067 18 % 3,970 13 % 4,988 11 % Total nonaccrual loans $ 17,233 100 % $ 30,285 100 % $ 44,647 100 % Loans over 90 days past due and still accruing: Commercial $ 4 - $ - - $ 493 16 % Residential 771 20 % 808 33 % 518 16 % Consumer 3,048 80 % 1,650 67 % 2,138 68 % Total loans over 90 days past due and still accruing $ 3,823 100 % $ 2,458 100 % $ 3,149 100 % Total nonperforming loans $ 21,056 $ 32,743 $ 47,796 OREO 105 167 1,458 Total nonperforming assets $ 21,161 $ 32,910 $ 49,254 Total nonaccrual loans to total loans 0.21 % 0.40 % 0.60 % Total nonperforming loans to total loans 0.26 % 0.44 % 0.64 % Total nonperforming assets to total assets 0.18 % 0.27 % 0.45 % Total allowance for loan losses to nonperforming loans 478.72 % 280.98 % 230.14 % Total allowance for loan losses to nonaccrual loans 584.92 % 303.78 % 246.38 % 36 Table of Contents The following tables are related to nonperforming loans in prior periods.
Nonperforming Assets As of December 31, (Dollars in thousands) 2023 % 2022 % 2021 % 2020 % Nonaccrual loans: Commercial $ 21,567 63 % $ 7,664 44 % $ 15,942 53 % $ 23,557 53 % Residential 9,632 28 % 4,835 28 % 8,862 29 % 13,082 29 % Consumer 2,566 8 % 1,667 10 % 1,511 5 % 3,020 7 % Troubled loan modifications (1) 448 1 % 3,067 18 % 3,970 13 % 4,988 11 % Total nonaccrual loans $ 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 554 15 % 771 20 % 808 33 % 518 16 % Consumer 3,106 85 % 3,048 80 % 1,650 67 % 2,138 68 % Total loans over 90 days past due and still accruing $ 3,661 100 % $ 3,823 100 % $ 2,458 100 % $ 3,149 100 % Total nonperforming loans $ 37,874 $ 21,056 $ 32,743 $ 47,796 OREO - 105 167 1,458 Total nonperforming assets $ 37,874 $ 21,161 $ 32,910 $ 49,254 Total nonaccrual loans to total loans 0.35 % 0.21 % 0.40 % 0.60 % Total nonperforming loans to total loans 0.39 % 0.26 % 0.44 % 0.64 % Total nonperforming assets to total assets 0.28 % 0.18 % 0.27 % 0.45 % Total allowance for loan losses to nonperforming loans 302.05 % 478.72 % 280.98 % 230.14 % Total allowance for loan losses to nonaccrual loans 334.38 % 584.92 % 303.78 % 246.38 % (1) TDRs prior to adoption of ASU 2022-02. 40 Table of Contents The following tables are related to nonperforming loans in prior periods.
General NBT Bancorp Inc. is a financial holding company headquartered in Norwich, NY, with total assets of $11.74 billion at December 31, 2022.
General NBT Bancorp Inc. is a financial holding company headquartered in Norwich, NY, with total assets of $13.31 billion at December 31, 2023.
The yield on average loans increased from 4.01% in 2021 to 4.28% in 2022, as loans re-priced upward due to the interest rate environment in 2022. FTE interest income from loans increased 10.1%, from $302.3 million in 2021 to $333.0 million in 2022. This increase was due to the increases in yields and an increase in the average balance.
The yield on average loans increased from 4.28% in 2022 to 5.26% in 2023, as loans re-priced upward due to the interest rate environment in 2023. FTE interest income from loans increased 39.1%, from $333.0 million in 2022 to $463.3 million in 2023. This increase was due to the increases in yields and an increase in the average balance.
As of December 31, 2022, there were $51.3 million in residential construction and development loans included in total loans. 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.
As of December 31, 2023, there were $39.9 million in residential construction and development loans included in total loans. 35 Table of Contents 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.
The Company’s management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio. 38 Table of Contents The allowance for credit losses totaled $100.8 million at December 31, 2022, compared to $92.0 million at December 31, 2021.
The Company’s management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio. 42 Table of Contents The allowance for credit losses totaled $114.4 million at December 31, 2023, compared to $100.8 million at December 31, 2022.
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.
All commitments to extend credit in the form of loans, including unused lines of credit, expire within one year. 45 Table of Contents 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 does not expect the impact to be material and will continue to monitor the impacts of the IRA on the business to determine if any future tax impacts may result from this legislation. Income tax expense for the year ended December 31, 2022 was $44.2 million, down $0.8 million, or 1.8%, from the year ended December 31, 2021.
The Company does not expect the impact to be material and will continue to monitor the impacts of the IRA on the business to determine if any future tax impacts may result from this legislation. Income tax expense for the year ended December 31, 2023 was $34.7 million, down $9.5 million, or 21.5%, from the year ended December 31, 2022.
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. For derivatives designated and that qualify as cash flow hedges, changes in fair value of the cash flow hedges are reported in AOCI.
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. For derivatives designated and that qualify as cash flow hedges, changes in fair value of the cash flow hedges are reported in accumulated other comprehensive income or loss (“AOCI”).
(Dollars in thousands) 2022 2021 2020 Balance at January 1* $ 92,000 $ 110,000 $ 75,999 Loans charged-off Commercial 1,870 4,638 4,005 Residential 633 979 1,135 Consumer** 16,140 14,489 21,938 Total loans charged-off $ 18,643 $ 20,106 $ 27,078 Recoveries Commercial $ 2,430 $ 723 $ 786 Residential 852 1,069 618 Consumer** 7,014 8,571 8,541 Total recoveries $ 10,296 $ 10,363 $ 9,945 Net loans charged-off $ 8,347 $ 9,743 $ 17,133 Provision for loan losses $ 17,147 $ (8,257 ) $ 51,134 Balance at December 31 $ 100,800 $ 92,000 $ 110,000 Allowance for loan losses to loans outstanding at end of year 1.24 % 1.23 % 1.47 % Commercial net charge-offs to average loans outstanding (0.01 %) 0.05 % 0.04 % Residential net charge-offs to average loans outstanding - - 0.01 % Consumer net charge-offs to average loans outstanding 0.12 % 0.08 % 0.18 % Net charge-offs to average loans outstanding 0.11 % 0.13 % 0.23 % * 2020 includes an adjustment of $3.0 million as a result of our January 1, 2020, adoption of Accounting Standards Codification (“ASC”) 326. ** Consumer charge-off and recoveries include consumer and home equity.
(Dollars in thousands) 2023 2022 2021 2020 Balance at January 1* $ 100,152 $ 92,000 $ 110,000 $ 75,999 Loans charged-off Commercial 4,154 1,870 4,638 4,005 Residential 517 633 979 1,135 Consumer** 22,107 16,140 14,489 21,938 Total loans charged-off $ 26,778 $ 18,643 $ 20,106 $ 27,078 Recoveries Commercial $ 3,625 $ 2,430 $ 723 $ 786 Residential 496 852 1,069 618 Consumer** 5,859 7,014 8,571 8,541 Total recoveries $ 9,980 $ 10,296 $ 10,363 $ 9,945 Net loans charged-off $ 16,798 $ 8,347 $ 9,743 $ 17,133 Allowance for credit loss on PCD acquired loans $ 5,772 $ - $ - $ - Provision for loan losses 25,274 17,147 (8,257 ) 51,134 Balance at December 31 $ 114,400 $ 100,800 $ 92,000 $ 110,000 Allowance for loan losses to loans outstanding at end of year 1.19 % 1.24 % 1.23 % 1.47 % Commercial net charge-offs to average loans outstanding 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 0.18 % 0.12 % 0.08 % 0.18 % Net charge-offs to average loans outstanding 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.
The yield on average taxable securities was 1.78% for 2022 compared to 1.67% in 2021. The average balance of tax-exempt securities AFS and HTM increased from $220.8 million in 2021 to $233.5 million in 2022. The FTE yield on tax-exempt securities decreased from 2.23% in 2021 to 2.17% in 2022.
The yield on average taxable securities was 1.90% for 2023 compared to 1.78% in 2022. The average balance of tax-exempt securities AFS and HTM decreased from $233.5 million in 2022 to $214.1 million in 2023. The FTE yield on tax-exempt securities increased from 2.17% in 2022 to 3.14% in 2023.
Excluding net securities (losses) gains, noninterest income for the year ended December 31, 2022 was $156.7 million, down $0.5 million or 0.3%, from the year ended December 31, 2021.
Excluding net securities (losses) gains, noninterest income for the year ended December 31, 2023 was $151.5 million, down $5.2 million or 3.3%, from the year ended December 31, 2022.
Net cash flows provided by operating activities totaled $183.2 million and $159.2 million in 2022 and 2021, respectively.
Net cash flows provided by operating activities totaled $157.5 million and $183.2 million in 2023 and 2022, respectively.
The following table reflects the loan portfolio by major categories (1) , net of deferred fees and origination costs, for the years indicated: Composition of Loan Portfolio December 31, (In thousands) 2022 2021 2020 2019 2018 Commercial & industrial $ 1,265,082 $ 1,155,240 $ 1,121,224 $ 1,112,616 $ 1,158,113 Commercial real estate 2,807,941 2,655,367 2,526,813 2,331,650 2,064,197 Paycheck protection program 949 101,222 430,810 - - Residential real estate 1,649,870 1,571,232 1,466,662 1,445,156 1,380,836 Indirect auto 989,587 859,454 931,286 1,193,635 1,216,144 Residential solar 856,798 440,016 282,224 219,210 129,038 Home equity 314,124 330,357 387,974 444,082 474,566 Other consumer 265,796 385,571 351,892 389,749 464,815 Total loans $ 8,150,147 $ 7,498,459 $ 7,498,885 $ 7,136,098 $ 6,887,709 (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 represent approximately 72.5% of assets as of December 31, 2023, as compared to 69.4% as of December 31, 2022. 34 Table of Contents The following table reflects the loan portfolio by major categories (1) , net of deferred fees and origination costs, for the years indicated: Composition of Loan Portfolio December 31, (In thousands) 2023 2022 2021 2020 2019 Commercial & industrial $ 1,353,725 $ 1,265,082 $ 1,155,240 $ 1,121,224 $ 1,112,616 Commercial real estate 3,626,910 2,807,941 2,655,367 2,526,813 2,331,650 Paycheck protection program 523 949 101,222 430,810 - Residential real estate 2,125,804 1,649,870 1,571,232 1,466,662 1,445,156 Indirect auto 1,130,132 989,587 859,454 931,286 1,193,635 Residential solar 917,755 856,798 440,016 282,224 219,210 Home equity 337,214 314,124 330,357 387,974 444,082 Other consumer 158,650 265,796 385,571 351,892 389,749 Total loans $ 9,650,713 $ 8,150,147 $ 7,498,459 $ 7,498,885 $ 7,136,098 (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.
(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%. 2022 OPERATING RESULTS AS COMPARED TO 2021 OPERATING RESULTS Net Interest Income Net interest income for the year ended December 31, 2022 was $362.2 million, up $41.1 million, or 12.8%, from 2021.
(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%. 33 Table of Contents 2023 OPERATING RESULTS AS COMPARED TO 2022 OPERATING RESULTS Net Interest Income Net interest income for the year ended December 31, 2023 was $378.2 million, up $16.0 million, or 4.4%, from 2022.
As of December 31, (Dollars in thousands) 2019 % 2018 % Nonaccrual loans: Commercial $ 12,379 49 % $ 11,804 46 % Residential real estate 5,233 21 % 6,526 26 % Consumer 4,046 16 % 4,068 16 % Troubled debt restructured loans 3,516 14 % 3,089 12 % Total nonaccrual loans $ 25,174 100 % $ 25,487 100 % Loans over 90 days past due and still accruing: Commercial $ - - $ 588 12 % Residential real estate 927 25 % 1,182 23 % Consumer 2,790 75 % 3,315 65 % Total loans over 90 days past due and still accruing $ 3,717 100 % $ 5,085 100 % Total nonperforming loans $ 28,891 $ 30,572 OREO 1,458 2,441 Total nonperforming assets $ 30,349 $ 33,013 Total nonaccrual loans to total loans 0.35 % 0.37 % Total nonperforming loans to total loans 0.40 % 0.44 % Total nonperforming assets to total assets 0.31 % 0.35 % Total allowance for loan losses to nonperforming loans 252.55 % 237.16 % Total allowance for loan losses to nonaccrual loans 289.84 % 284.48 % Total nonperforming assets were $21.2 million at December 31, 2022, compared to $32.9 million at December 31, 2021.
As of December 31, (Dollars in thousands) 2019 % Nonaccrual loans: Commercial $ 12,379 49 % Residential real estate 5,233 21 % Consumer 4,046 16 % Troubled debt restructured loans 3,516 14 % Total nonaccrual loans $ 25,174 100 % Loans over 90 days past due and still accruing: Residential real estate $ 927 25 % Consumer 2,790 75 % Total loans over 90 days past due and still accruing $ 3,717 100 % Total nonperforming loans $ 28,891 OREO 1,458 Total nonperforming assets $ 30,349 Total nonaccrual loans to total loans 0.35 % Total nonperforming loans to total loans 0.40 % Total nonperforming assets to total assets 0.31 % Total allowance for loan losses to nonperforming loans 252.55 % Total allowance for loan losses to nonaccrual loans 289.84 % Total nonperforming assets were $37.9 million at December 31, 2023, compared to $21.2 million at December 31, 2022.
The following table sets forth information by category of noninterest income for the years indicated: Years Ended December 31, (In thousands) 2022 2021 2020 Service charges on deposit account $ 14,630 $ 13,348 $ 13,201 Card services income 29,058 34,682 28,611 Retirement plan administration fees 48,112 42,188 35,851 Wealth management 33,311 33,718 29,247 Insurance services 14,696 14,083 14,757 Bank owned life insurance income 6,044 6,217 5,743 Net securities (losses) gains (1,131 ) 566 (388 ) Other 10,858 12,992 19,254 Total noninterest income $ 155,578 $ 157,794 $ 146,276 Noninterest income for the year ended December 31, 2022 was $155.6 million, down $2.2 million, or 1.4%, from the year ended December 31, 2021.
The following table sets forth information by category of noninterest income for the years indicated: Years Ended December 31, (In thousands) 2023 2022 2021 Service charges on deposit account $ 15,425 $ 14,630 $ 13,348 Card services income 20,829 29,058 34,682 Retirement plan administration fees 47,221 48,112 42,188 Wealth management 34,763 33,311 33,718 Insurance services 15,667 14,696 14,083 Bank owned life insurance income 6,750 6,044 6,217 Net securities (losses) gains (9,315 ) (1,131 ) 566 Other 10,838 10,858 12,992 Total noninterest income $ 142,178 $ 155,578 $ 157,794 Noninterest income for the year ended December 31, 2023 was $142.2 million, down $13.4 million, or 8.6%, from the year ended December 31, 2022.
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 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 increase from the prior year was driven by higher salaries and employee benefits due to increased salaries and wages including merit pay increases and higher levels of incentive compensation accruals.
The increase from the prior year was driven by higher salaries and employee benefits due to the Salisbury acquisition, increased salaries and wages including merit pay increases and higher health and welfare benefits, which were partially offset by lower levels of incentive compensation.
Total nonaccrual loans were $17.2 million or 0.21% of total loans at December 31, 2022, compared to $30.3 million or 0.40% of total loans at December 31, 2021. Past due loans as a percentage of total loans was 0.33% at December 31, 2022, up slightly from 0.29% of total loans at December 31, 2021.
Total nonaccrual loans were $34.2 million or 0.35% of total loans at December 31, 2023, compared to $17.2 million or 0.21% of total loans at December 31, 2022. Past due loans as a percentage of total loans was 0.32% at December 31, 2023, down slightly from 0.33% of total loans at December 31, 2022.
Net cash flows used in investing activities totaled $926.2 million and $547.6 million in 2022 and 2021, respectively. Critical elements of investing activities are loan and investment securities transactions. Net cash flows used in financing activities totaled $328.7 million in 2022 and net cash flows provided by financing activities totaled $984.8 million in 2021.
Net cash flows used in investing activities totaled $44.2 million and $926.2 million in 2023 and 2022, respectively. Critical elements of investing activities are loan and investment securities transactions. Net cash flows used in financing activities totaled $105.4 million and $328.7 million in 2023 and 2022, respectively.
At December 31, 2022, the Company’s Basic Surplus measurement was 13.2% of total assets, or $1.55 billion, as compared to the December 31, 2021 Basic Surplus of 28.5%, or $3.43 billion, and was above the Company’s minimum of 5% (calculated at $587.0 million and $600.6 million, of period end total assets as of December 31, 2022 and December 31, 2021, respectively) set forth in its liquidity policies. 40 Table of Contents At December 31, 2022 and 2021, FHLB advances outstanding totaled $443.8 million and $14.0 million, respectively.
At December 31, 2023, the Company’s Basic Surplus measurement was 11.6% of total assets, or $1.54 billion, as compared to the December 31, 2022 Basic Surplus of 13.2%, or $1.55 billion, and was above the Company’s minimum of 5% (calculated at $665.5 million and $587.0 million, of period end total assets as of December 31, 2023 and December 31, 2022, respectively) set forth in its liquidity policies.
The allowance for credit losses was 478.72% of nonperforming loans at December 31, 2022 as compared to 280.98% at December 31, 2021. The allowance for credit losses was 584.92% of nonaccrual loans at December 31, 2022 as compared to 303.78% at December 31, 2021.
The allowance for credit losses was 302.05% of nonperforming loans at December 31, 2023 as compared to 478.72% at December 31, 2022. The allowance for credit losses was 334.38% of nonaccrual loans at December 31, 2023 as compared to 584.92% at December 31, 2022.
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 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.
Throughout 2022, the Company, along with other financial services companies, experienced lingering disruptions from the COVID-19 pandemic.
Throughout 2023, the Company, along with other financial services companies, experienced lingering disruptions from the coronavirus (“COVID-19”) pandemic.
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.
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.
The following table sets forth the major components of noninterest expense for the years indicated: Years Ended December 31, (In thousands) 2022 2021 2020 Salaries and employee benefits $ 187,830 $ 172,580 $ 161,934 Technology and data services 35,712 34,717 32,294 Occupancy 26,282 26,048 25,756 Professional fees and outside services 16,810 16,306 15,082 Office supplies and postage 6,140 6,006 6,138 FDIC expenses 3,197 3,041 2,688 Advertising 2,822 2,521 2,288 Amortization of intangible assets 2,263 2,808 3,395 Loan collection and other real estate owned, net 2,647 2,915 3,295 Merger expenses 967 - - Other 19,795 20,339 24,863 Total noninterest expense $ 304,465 $ 287,281 $ 277,733 35 Table of Contents Noninterest expense for the year ended December 31, 2022 was $304.5 million, up $17.2 million or 6.0%, from the year ended December 31, 2021.
The following table sets forth the major components of noninterest expense for the years indicated: Years Ended December 31, (In thousands) 2023 2022 2021 Salaries and employee benefits $ 194,250 $ 187,830 $ 172,580 Technology and data services 38,163 35,712 34,717 Occupancy 28,408 26,282 26,048 Professional fees and outside services 17,601 16,810 16,306 Office supplies and postage 6,917 6,140 6,006 FDIC assessment 6,257 3,197 3,041 Advertising 3,054 2,822 2,521 Amortization of intangible assets 4,734 2,263 2,808 Loan collection and other real estate owned, net 2,618 2,647 2,915 Acquisition expenses 9,978 967 - Other 29,684 19,795 20,339 Total noninterest expense $ 341,664 $ 304,465 $ 287,281 39 Table of Contents Noninterest expense for the year ended December 31, 2023 was $341.7 million, up $37.2 million or 12.2%, from the year ended December 31, 2022.
The allowance for losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. 26 Table of Contents 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.
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.
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.
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.
Interest income for tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory Federal income tax rate of 21% for 2022, 2021 and 2020. 29 Table of Contents Average Balances and Net Interest Income 2022 2021 2020 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Assets: Short-term interest-bearing accounts $ 440,429 $ 3,072 0.70 % $ 932,086 $ 1,229 0.13 % $ 372,144 $ 610 0.16 % Securities taxable (1) 2,424,925 43,229 1.78 % 1,910,641 31,962 1.67 % 1,531,237 33,653 2.20 % Securities tax-exempt (1) (3) 233,515 5,070 2.17 % 220,759 4,929 2.23 % 173,031 5,144 2.97 % Federal Reserve Bank and FHLB stock 27,040 995 3.68 % 25,255 616 2.44 % 33,570 2,096 6.24 % Loans (2) (3) 7,772,962 333,008 4.28 % 7,543,149 302,331 4.01 % 7,461,795 308,080 4.13 % Total interest-earning assets $ 10,898,871 $ 385,374 3.54 % $ 10,631,890 $ 341,067 3.21 % $ 9,571,777 $ 349,583 3.65 % Other assets 893,197 983,809 942,274 Total assets $ 11,792,068 $ 11,615,699 $ 10,514,051 Liabilities and stockholders’ equity: Money market deposit accounts $ 2,447,978 $ 4,955 0.20 % $ 2,587,748 $ 5,117 0.20 % $ 2,320,947 $ 10,313 0.44 % NOW deposit accounts 1,578,831 2,600 0.16 % 1,452,560 738 0.05 % 1,194,398 716 0.06 % Savings deposits 1,829,360 592 0.03 % 1,656,893 829 0.05 % 1,393,436 745 0.05 % Time deposits 464,912 1,776 0.38 % 577,150 4,030 0.70 % 733,073 10,296 1.40 % Total interest-bearing deposits $ 6,321,081 $ 9,923 0.16 % $ 6,274,351 $ 10,714 0.17 % $ 5,641,854 $ 22,070 0.39 % Federal funds purchased 14,644 588 4.02 % 17 - - 14,727 302 2.05 % Repurchase agreements 69,561 67 0.10 % 100,519 132 0.13 % 154,383 266 0.17 % Short-term borrowings 46,371 1,968 4.24 % 1,302 26 2.00 % 183,699 2,840 1.55 % Long-term debt 6,579 161 2.45 % 15,479 389 2.51 % 62,990 1,553 2.47 % Subordinated debt, net 98,439 5,424 5.51 % 98,259 5,437 5.53 % 51,394 2,842 5.53 % Junior subordinated debt 101,196 3,749 3.70 % 101,196 2,090 2.07 % 101,196 2,731 2.70 % Total interest-bearing liabilities $ 6,657,871 $ 21,880 0.33 % $ 6,591,123 $ 18,788 0.29 % $ 6,210,243 $ 32,604 0.53 % Demand deposits 3,696,957 3,565,693 2,895,341 Other liabilities 237,857 240,434 259,992 Stockholders’ equity 1,199,383 1,218,449 1,148,475 Total liabilities and stockholders’ equity $ 11,792,068 $ 11,615,699 $ 10,514,051 Net interest income (FTE) $ 363,494 $ 322,279 $ 316,979 Interest rate spread 3.21 % 2.92 % 3.12 % Net interest margin (FTE) 3.34 % 3.03 % 3.31 % Taxable equivalent adjustment $ 1,304 $ 1,191 $ 1,301 Net interest income $ 362,190 $ 321,088 $ 315,678 (1) Securities are shown at average amortized cost.
Average Balances and Net Interest Income 2023 2022 2021 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Assets: Short-term interest-bearing accounts $ 126,765 $ 6,259 4.94 % $ 440,429 $ 3,072 0.70 % $ 932,086 $ 1,229 0.13 % Securities taxable (1) 2,377,596 45,176 1.90 % 2,424,925 43,229 1.78 % 1,910,641 31,962 1.67 % Securities tax-exempt (1) (3) 214,053 6,730 3.14 % 233,515 5,070 2.17 % 220,759 4,929 2.23 % Federal Reserve Bank and FHLB stock 48,641 3,368 6.92 % 27,040 995 3.68 % 25,255 616 2.44 % Loans (2) (3) 8,803,228 463,290 5.26 % 7,772,962 333,008 4.28 % 7,543,149 302,331 4.01 % Total interest-earning assets $ 11,570,283 $ 524,823 4.54 % $ 10,898,871 $ 385,374 3.54 % $ 10,631,890 $ 341,067 3.21 % Other assets 923,850 893,197 983,809 Total assets $ 12,494,133 $ 11,792,068 $ 11,615,699 Liabilities and stockholders’ equity: Money market deposit accounts $ 2,418,450 $ 62,475 2.58 % $ 2,447,978 $ 4,955 0.20 % $ 2,587,748 $ 5,117 0.20 % NOW deposit accounts 1,555,414 8,298 0.53 % 1,578,831 2,600 0.16 % 1,452,560 738 0.05 % Savings deposits 1,715,749 650 0.04 % 1,829,360 592 0.03 % 1,656,893 829 0.05 % Time deposits 1,006,867 33,218 3.30 % 464,912 1,776 0.38 % 577,150 4,030 0.70 % Total interest-bearing deposits $ 6,696,480 $ 104,641 1.56 % $ 6,321,081 $ 9,923 0.16 % $ 6,274,351 $ 10,714 0.17 % Federal funds purchased 24,575 1,269 5.16 % 14,644 588 4.02 % 17 - - Repurchase agreements 70,251 747 1.06 % 69,561 67 0.10 % 100,519 132 0.13 % Short-term borrowings 450,377 23,592 5.24 % 46,371 1,968 4.24 % 1,302 26 2.00 % Long-term debt 24,247 925 3.81 % 6,579 161 2.45 % 15,479 389 2.51 % Subordinated debt, net 105,756 6,076 5.75 % 98,439 5,424 5.51 % 98,259 5,437 5.53 % Junior subordinated debt 101,196 7,320 7.23 % 101,196 3,749 3.70 % 101,196 2,090 2.07 % Total interest-bearing liabilities $ 7,472,882 $ 144,570 1.93 % $ 6,657,871 $ 21,880 0.33 % $ 6,591,123 $ 18,788 0.29 % Demand deposits 3,463,608 3,696,957 3,565,693 Other liabilities 285,310 237,857 240,434 Stockholders’ equity 1,272,333 1,199,383 1,218,449 Total liabilities and stockholders’ equity $ 12,494,133 $ 11,792,068 $ 11,615,699 Net interest income (FTE) $ 380,253 $ 363,494 $ 322,279 Interest rate spread 2.61 % 3.21 % 2.92 % Net interest margin (FTE) 3.29 % 3.34 % 3.03 % Taxable equivalent adjustment $ 2,034 $ 1,304 $ 1,191 Net interest income $ 378,219 $ 362,190 $ 321,088 (1) Securities are shown at average amortized cost.
Years Ended December 31, 2022 2021 2020 (In thousands) Average Balance Yield/Rate Average Balance Yield Rate Average Balance Yield/Rate Demand deposits $ 3,696,957 $ 3,565,693 $ 2,895,341 Money market deposit accounts 2,447,978 0.20 % 2,587,748 0.20 % 2,320,947 0.44 % NOW deposit accounts 1,578,831 0.16 % 1,452,560 0.05 % 1,194,398 0.06 % Savings deposits 1,829,360 0.03 % 1,656,893 0.05 % 1,393,436 0.05 % Time deposits 464,912 0.38 % 577,150 0.70 % 733,073 1.40 % Total interest-bearing deposits $ 6,321,081 0.16 % $ 6,274,351 0.17 % $ 5,641,854 0.39 % 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) 2022 2021 2020 Estimated amount of uninsured deposits $ 3,555,342 $ 4,175,208 $ 3,639,731 The following table presents the maturity distribution of time deposits of $250,000 or more: (In thousands) December 31, 2022 Portion of time deposits in excess of insurance limit $ 20,623 Time deposits otherwise uninsured with a maturity of: Within three months $ 4,362 After three but within six months 2,377 After six but within twelve months 2,176 Over twelve months 11,708 34 Table of Contents Borrowings Average federal funds purchased increased to $14.6 million in 2022 as the Company moved from an excess liquidity position to an overnight borrowing position.
Years Ended December 31, 2023 2022 2021 (In thousands) Average Balance Yield/Rate Average Balance Yield Rate Average Balance Yield/Rate Demand deposits $ 3,463,608 $ 3,696,957 $ 3,565,693 Money market deposit accounts 2,418,450 2.58 % 2,447,978 0.20 % 2,587,748 0.20 % NOW deposit accounts 1,555,414 0.53 % 1,578,831 0.16 % 1,452,560 0.05 % Savings deposits 1,715,749 0.04 % 1,829,360 0.03 % 1,656,893 0.05 % Time deposits 1,006,867 3.30 % 464,912 0.38 % 577,150 0.70 % Total interest-bearing deposits $ 6,696,480 1.56 % $ 6,321,081 0.16 % $ 6,274,351 0.17 % 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) 2023 2022 2021 Estimated amount of uninsured deposits $ 4,077,186 $ 3,555,342 $ 4,175,208 The following table presents the maturity distribution of time deposits of $250,000 or more: (In thousands) December 31, 2023 Portion of time deposits in excess of insurance limit $ 113,317 Time deposits otherwise uninsured with a maturity of: Within three months $ 45,070 After three but within six months 32,967 After six but within twelve months 18,131 Over twelve months 17,149 Borrowings Average federal funds purchased increased to $24.6 million in 2023.
These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2022. All else held equal, the changes in the weightings of our forecasted scenarios would impact the amount of estimated allowance for credit losses through changes in the quantitative reserve and scenario-specific qualitative adjustments.
All else held equal, the changes in the weightings of our forecasted scenarios would impact the amount of estimated allowance for credit losses through changes in the quantitative reserve and scenario-specific qualitative adjustments.
The following table sets forth certain financial highlights: Years Ended December 31, 2022 2021 2020 Performance: Diluted earnings per share $ 3.52 $ 3.54 $ 2.37 Return on average assets 1.29 % 1.33 % 0.99 % Return on average equity 12.67 % 12.71 % 9.09 % Return on average tangible common equity 16.89 % 16.92 % 12.48 % Net interest margin (FTE) 3.34 % 3.03 % 3.31 % Capital: Equity to assets 10.00 % 10.41 % 10.86 % Tangible equity ratio 7.73 % 8.20 % 8.41 % Book value per share $ 27.38 $ 28.97 $ 27.22 Tangible book value per share $ 20.65 $ 22.26 $ 20.52 Leverage ratio 10.32 % 9.41 % 9.56 % Common equity tier 1 capital ratio 12.12 % 12.25 % 11.84 % Tier 1 capital ratio 13.19 % 13.43 % 13.09 % Total risk-based capital ratio 15.38 % 15.73 % 15.62 % The following tables provide non-GAAP reconciliations: Years Ended December 31, (In thousands, except per share data) 2022 2021 2020 Return on average tangible common equity: Net income $ 151,995 $ 154,885 $ 104,388 Amortization of intangible assets (net of tax) 1,698 2,106 2,546 Net income, excluding intangible amortization $ 153,693 $ 156,991 $ 106,934 Average stockholders’ equity $ 1,199,383 $ 1,218,449 $ 1,148,475 Less: average goodwill and other intangibles 289,238 290,838 291,787 Average tangible common equity $ 910,145 $ 927,611 $ 856,688 Return on average tangible common equity 16.89 % 16.92 % 12.48 % Tangible equity ratio: Stockholders’ equity $ 1,173,554 $ 1,250,453 $ 1,187,618 Intangibles 288,545 289,468 292,276 Assets $ 11,739,296 $ 12,012,111 $ 10,932,906 Tangible equity ratio 7.73 % 8.20 % 8.41 % Tangible book value: Stockholders’ equity $ 1,173,554 $ 1,250,453 $ 1,187,618 Intangibles 288,545 289,468 292,276 Tangible equity $ 885,009 $ 960,985 $ 895,342 Diluted common shares outstanding 42,858 43,168 43,629 Tangible book value per share $ 20.65 $ 22.26 $ 20.52 28 Table of Contents 2023 Outlook The Company’s 2022 earnings reflected a continued ability to invest in the Company’s future while managing through persistent volatility in the interest rate environment and overall economic conditions which have challenged the financial services industry.
The following table sets forth certain financial highlights: Years Ended December 31, 2023 2022 2021 Performance: Diluted earnings per share $ 2.65 $ 3.52 $ 3.54 Return on average assets 0.95 % 1.29 % 1.33 % Return on average equity 9.34 % 12.67 % 12.71 % Return on average tangible common equity 13.02 % 16.89 % 16.92 % Net interest margin (FTE) 3.29 % 3.34 % 3.03 % Capital: Equity to assets 10.71 % 10.00 % 10.41 % Tangible equity ratio 7.93 % 7.73 % 8.20 % Book value per share $ 30.26 $ 27.38 $ 28.97 Tangible book value per share $ 21.72 $ 20.65 $ 22.26 Leverage ratio 9.71 % 10.32 % 9.41 % Common equity tier 1 capital ratio 11.57 % 12.12 % 12.25 % Tier 1 capital ratio 12.50 % 13.19 % 13.43 % Total risk-based capital ratio 14.75 % 15.38 % 15.73 % 30 Table of Contents The following tables provide non-GAAP reconciliations: Years Ended December 31, (In thousands, except per share data) 2023 2022 2021 Return on average tangible common equity: Net income $ 118,782 $ 151,995 $ 154,885 Amortization of intangible assets (net of tax) 3,551 1,698 2,106 Net income, excluding intangible amortization $ 122,333 $ 153,693 $ 156,991 Average stockholders’ equity $ 1,272,333 $ 1,199,383 $ 1,218,449 Less: average goodwill and other intangibles 332,667 289,238 290,838 Average tangible common equity $ 939,666 $ 910,145 $ 927,611 Return on average tangible common equity 13.02 % 16.89 % 16.92 % Tangible equity ratio: Stockholders’ equity $ 1,425,691 $ 1,173,554 $ 1,250,453 Intangibles 402,294 288,545 289,468 Assets $ 13,309,040 $ 11,739,296 $ 12,012,111 Tangible equity ratio 7.93 % 7.73 % 8.20 % Tangible book value: Stockholders’ equity $ 1,425,691 $ 1,173,554 $ 1,250,453 Intangibles 402,294 288,545 289,468 Tangible equity $ 1,023,397 $ 885,009 $ 960,985 Diluted common shares outstanding 47,110 42,858 43,168 Tangible book value per share $ 21.72 $ 20.65 $ 22.26 Operating net income: Net income $ 118,782 $ 151,995 $ 154,885 Acquisition expenses 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 - - Litigation settlement cost - - 4,250 Securities losses (gains) 9,315 1,131 (566 ) Adjustment to net income $ 33,629 $ 2,098 $ 3,684 Adjustment to net income (net of tax) $ 25,965 $ 1,623 $ 2,854 Operating net income $ 144,747 $ 153,618 $ 157,739 Operating diluted earnings per share $ 3.23 $ 3.56 $ 3.61 31 Table of Contents 2024 Outlook The Company’s 2023 earnings reflected a continued ability to invest in the Company’s future while managing through significant volatility in the interest rate environment and overall economic conditions which have challenged the financial services industry.
As of December 31, 2022, there were $196.3 million in CRE construction and development loans included in total loans. 31 Table of Contents The Company participated in the Small Business Administration’s (“SBA”) 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.
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.
Significant monetary and fiscal policy actions taken by the federal government during the COVID-19 pandemic have helped to mitigate these risks. Enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the COVID-19 pandemic including increasing the frequency of monitoring and adding additional sources of liquidity.
Note, enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the COVID-19 pandemic including increasing the frequency of monitoring and adding additional sources of liquidity.
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. The Bank also is subject to substantial regulatory restrictions on its ability to pay dividends to the Company.
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.
To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of December 31, 2022, the Company increased the downside scenario weighting by 10% to 60% and decreased the baseline scenario to 40% weighting which resulted in a 3% increase in the overall estimated allowance for credit losses.
To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of December 31, 2023, 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.
The fair value of the Company’s standby letters of credit at December 31, 2022 and 2021 was not significant. 41 Table of Contents The following table sets forth the commitment expiration period for standby letters of credit at: (In thousands) December 31, 2022 Within one year $ 47,744 After one but within three years 4,498 After three but within five years 901 After five years 164 Total $ 53,307 Interest Rate Swaps The Company records all derivatives on the balance sheet at fair value.
The following table sets forth the commitment expiration period for standby letters of credit at: (In thousands) December 31, 2023 Within one year $ 39,521 After one but within three years 4,781 After three but within five years 110 After five years 323 Total $ 44,735 Interest Rate Swaps The Company records all derivatives on the consolidated balance sheet at fair value.
Accordingly, there can be no assurance that other loans will not become over 90 days past due, be placed on nonaccrual, become restructured or require increased allowance coverage and provision for loan losses.
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.
The average balance of Federal Reserve Bank and Federal Home Loan Bank (“FHLB”) stock increased to $27.0 million in 2022 from $25.3 million in 2021. The yield on investments in Federal Reserve Bank and FHLB stock increased from 2.44% in 2021 to 3.68% in 2022.
The average balance of Federal Reserve Bank and Federal Home Loan Bank (“FHLB”) stock increased to $48.6 million in 2023 from $27.0 million in 2022.
Securities Portfolio As of December 31, 2022 2021 2020 (In thousands) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value AFS securities: U.S. treasury $ 132,891 $ 121,658 $ 73,016 $ 73,069 $ - $ - Federal agency 248,419 206,419 248,454 239,931 245,590 243,597 State & municipal 97,036 82,851 95,531 94,088 42,550 43,180 Mortgage-backed 536,021 473,694 603,375 606,675 576,497 595,839 Collateralized mortgage obligations 669,111 588,363 623,930 621,595 426,574 437,804 Corporate 60,404 54,240 50,500 52,003 27,500 28,278 Total AFS securities $ 1,743,882 $ 1,527,225 $ 1,694,806 $ 1,687,361 $ 1,318,711 $ 1,348,698 HTM securities: Federal agency $ 100,000 $ 79,322 $ 100,000 $ 95,635 $ 100,000 $ 98,342 Mortgage-backed 267,907 230,473 170,574 172,001 119,447 125,009 Collateralized mortgage obligations 274,366 249,848 138,815 140,280 182,250 190,677 State & municipal 277,244 253,004 323,821 327,344 214,863 222,799 Total HTM securities $ 919,517 $ 812,647 $ 733,210 $ 735,260 $ 616,560 $ 636,827 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”).
The yield on investments in Federal Reserve Bank and FHLB stock increased from 3.68% in 2022 to 6.92% in 2023. 36 Table of Contents Securities Portfolio As of December 31, 2023 2022 2021 (In thousands) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value AFS securities: U.S. treasury $ 133,302 $ 125,024 $ 132,891 $ 121,658 $ 73,016 $ 73,069 Federal agency 248,384 214,740 248,419 206,419 248,454 239,931 State & municipal 96,251 86,306 97,036 82,851 95,531 94,088 Mortgage-backed 473,813 422,268 536,021 473,694 603,375 606,675 Collateralized mortgage obligations 614,886 541,544 669,111 588,363 623,930 621,595 Corporate 48,442 40,976 60,404 54,240 50,500 52,003 Total AFS securities $ 1,615,078 $ 1,430,858 $ 1,743,882 $ 1,527,225 $ 1,694,806 $ 1,687,361 HTM securities: Federal agency $ 100,000 $ 82,216 $ 100,000 $ 79,322 $ 100,000 $ 95,635 Mortgage-backed 245,806 213,630 267,907 230,473 170,574 172,001 Collateralized mortgage obligations 251,335 228,463 274,366 249,848 138,815 140,280 State & municipal 308,126 290,215 277,244 253,004 323,821 327,344 Total HTM securities $ 905,267 $ 814,524 $ 919,517 $ 812,647 $ 733,210 $ 735,260 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”).
This increase in rates caused an increase in interest expense of $3.1 million, or 16.5%, from $18.8 million in 2021 to $21.9 million in 2022. Deposits Average interest-bearing deposits increased $46.7 million, or 0.7%, from 2021 to 2022. Average money market deposits decreased $139.8 million, or 5.4% during 2022 compared to 2021.
This increase in rates caused an increase in interest expense of $122.7 million, or 560.7%, from $21.9 million in 2022 to $144.6 million in 2023. 37 Table of Contents Deposits Average interest-bearing deposits increased $375.4 million, or 5.9%, from 2022 to 2023. Average money market deposits decreased $29.5 million, or 1.2% during 2023 compared to 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−0 removed13 unchanged
Biggest changeIn the declining rate scenario, net interest income is projected to 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.
Biggest changeThe 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.
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 adjusting the Company’s asset/liability position, the Board and management aim to manage the Company’s interest rate risk while minimizing net interest margin compression.
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 net interest margin compression.
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, 2022 balance sheet position: Interest Rate Sensitivity Analysis Change in interest rates (in bps points) Percent change in net interest income +200 2.83 % +100 1.60 % -200 (3.99 %) 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 driven by inflationary pressures and FOMC monetary policy.
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, 2023 balance sheet position: Interest Rate Sensitivity Analysis Change in interest rates (in bps points) Percent change in net interest income +200 (0.06 %) +100 0.27 % -200 (0.36 %) 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 driven by inflationary pressures and Federal Open Market Committee monetary policy.
In the rising rate scenarios, net interest income is projected to experience an increase from the flat rate scenario; however, the potential impact on earnings may be affected by the ability to lag deposit repricing on NOW, savings, money market deposit accounts and time accounts.
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, money market deposit accounts and time accounts.
Post-pandemic, inflationary pressures have resulted in a higher overall yield curve, Fed Funds increases of 425 bps in 2022 and expectations for continued increases to short-term interest rates in 2023.
Post-pandemic, inflationary pressures have resulted in a higher overall yield curve with Federal Funds increases of 425 bps in 2022 with additional 100 bps of increases in 2023.
With deposit rates coming off their historic lows, the Company will focus on managing deposit expense in a rising rate environment while allowing assets to reprice upward. 44 Table of Contents
While deposit rates have increased meaningfully in 2023 in conjunction with the increase to short term interest rates, the Company continues to focus on managing deposit expense in an environment of elevated interest rates while allowing assets to reprice upward. 48 Table of Contents
Added
The Company’s Interest Rate Sensitivity has migrated to 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.

Other NBTB 10-K year-over-year comparisons