NBT Bancorp Annual Report 2013

Plain-text annual report

2013 ANNUAL REPORT 2013 NBT Bancorp Annual Report 2013 Corporate Headquarters NBT Bancorp Inc. 52 South Broad Street Norwich, N.Y. 13815 607.337.6416 Stock Traded on: NASDAQ Global Select Market Symbol: NBTB Independent Auditors KPMG LLP 515 Broadway Albany, N.Y. 12207 contents 2 > To Our Shareholders 7 > NBT Bancorp Leadership ﬁ nancial highlights (all dollar amounts in thousands except per share data) FOR THE YEAR 2013 2012 CORE PERFORMANCE* Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted earnings per common share . . . . . . $ Return on average assets . . . . . . . . . . . . . . . . . . Average tangible equity . . . . . . . . . . . . . . . . . . . PERFORMANCE Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Return on average assets . . . . . . . . . . . . . . . . . . Return on average tangible equity . . . . . . . . Net interest margin . . . . . . . . . . . . . . . . . . . . . . . PER COMMON SHARE DATA Basic earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31 69,857 1.65 0.96% 14.76% 61,747 0.85% 13.11% 3.66% $ $ $ 1.47 1.46 0.81 3.13% $ $ 54,801 1.63 0.93% 14.20% $ 54,558 0.93% 14.14% 3.86% 1.63 1.62 0.80 3.95% BALANCE SHEET DATA Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,652,175 Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,406,795 Allowance for loan losses . . . . . . . . . . . . . . . . . $ 69,434 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,890,224 Total shareholders’ equity . . . . . . . . . . . . . . . . . $ 816,569 $ 6,042,259 $ 4,277,616 $ 69,334 $ 4,784,349 $ 582,273 ASSET QUALITY Nonperforming loans . . . . . . . . . . . . . . . . . . . . . $ Nonperforming assets . . . . . . . . . . . . . . . . . . . . $ Nonperforming loans to total loans . . . . . . . 53,702 56,606 0.99% $ $ 42,124 44,400 0.98% CAPITAL 11.74% Tier 1 capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . 12.99% Total risk-based capital ratio . . . . . . . . . . . . . . . 18.77 Book value per share . . . . . . . . . . . . . . . . . . . . . . $ 12.09 Tangible book value per share . . . . . . . . . . . . $ 25.90 Closing stock price . . . . . . . . . . . . . . . . . . . . . . . . $ Ending shares outstanding . . . . . . . . . . . . . . . . 43,513,050 Market capitalization . . . . . . . . . . . . . . . . . . . . . . $ 1,126,988 11.00% 12.25% 17.24 $ 12.23 $ 20.27 $ 33,775,350 $ 684,626 ASSETS UNDER MANAGEMENT Assets managed in a ﬁ duciary capacity . . . $ 4,576,541 $ 3,365,790 8 > Board Listings and Company Proﬁ le Inside Back > Shareholder Information Cover * CORE PERFORMANCE excludes merger-related expenses, gains on sales of securities, reorganization expenses and other non-core items. A reconciliation of core results with GAAP results and information regarding why these measures provide useful information about our results is included in Item 7 of the 2013 Form 10-K. 2013 ANNUAL REPORT RETURN ON AVERAGE ASSETS 1.20% % 5 0 . 1 % 6 0 . 1 % 6 9 . 0 0.80% % 6 9 . 0 % 3 9 . 0 0.40% 0.00% NET INCOME DILUTED EARNINGS PER SHARE $1.75 1 7 . 1 $ 3 6 . 1 $ 5 6 . 1 $ 6 6 . 1 3 $ 5 . 1 $ 7 5 8 , 9 6 $ 4 0 4 , 7 5 $ 1 0 9 , 7 5 $ 1 0 8 , 4 5 $ 1 1 0 , 2 5 $ $75,000 $65,000 $55,000 $45,000 $35,000 $25,000 2009 2010 2011 2012 CORE 2013 CORE RETURN ON AVERAGE TANGIBLE EQUITY 16.00% 12.00% % 6 8 . 5 1 % 4 1 . 5 1 % 5 7 . 4 1 % 6 7 . 4 1 % 0 2 . 4 1 8.00% 4.00% 0.00% $1.50 $1.25 $1.00 $0.75 $0.50 $250,000 $225,000 $200,000 $175,000 $150,000 2009 2010 2011 2012 CORE 2013 CORE 2009 2010 2011 2012 CORE 2013 CORE NET INTEREST INCOME NONINTEREST INCOME* 9 7 0 , 8 3 2 $ 8 2 5 , 2 0 2 $ 6 7 2 , 0 0 2 $ 3 0 2 , 4 0 2 $ 9 6 4 , 6 9 1 $ $105,000 $95,000 $85,000 $75,000 $65,000 9 8 7 , 1 0 1 $ 8 2 7 , 6 8 1 $ 6 1 , 0 8 $ 7 8 9 , 9 7 $ 4 1 6 , 0 8 $ 2009 2010 2011 2012 CORE 2013 CORE 2009 2010 2011 2012 CORE 2013 CORE 2009 2010 2011 2012 2013 NET CHARGE-OFFS TO AVERAGE LOANS 0.80% 0.60% % 0 7 . 0 % 9 6 . 0 % 6 5 . 0 % 5 5 . 0 % 4 4 . 0 0.40% 0.20% 0.00% ALLOWANCE FOR LOAN LOSSES TO NONPERFORMING LOANS % 7 9 . 1 7 1 % 0 6 . 4 6 1 % 5 2 . 1 6 1 % 3 0 . 9 5 1 % 9 2 . 9 2 1 180.00% 120.00% 60.00% 0.00% 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 All dollar amounts in thousands except per share data Prior to 2012, core performance approximated reported performance. * Shown excluding net securities gains 1 NBT BANCORP to our shareholders Fellow Shareholders, It’s not easy getting noticed in today’s ﬁ ercely competitive world. In business—just like in athletics—it often takes a personal best or an all-time record to stand out. Happily, we can report that the 2013 performance of NBT Bancorp Inc. (NBT) featured both: our employees gave us their best, and in doing so helped your company surpass some very important records. $69.9 MILLION Core Net Income 2013 Among the most signiﬁ cant, NBT generated a record $69.9 million in core net income for the year ended December 31, 2013, and at the same time completed the largest acquisition in our history. These accomplishments alone would make for a pretty good year at the oﬃ ce, but there’s more. Fueled by our merger activity, organic loan growth of 5.3% and a concerted eﬀ ort to become more eﬃ cient, NBT also eclipsed several other records in 2013: • Total assets at year-end were $7.7 billion, up 26.6% • Loans ﬁ nished the year at $5.4 billion, up $1.1 billion • Net interest income totaled $238.1 million, up 16.6% • Noninterest income increased to $103.2 million, up 18.2% NBT Bancorp Corporate Values Customer Service Empowerment Accountability Open Communication Mutual Respect Integrity Community Involvement Teamwork Continuous Improvement Positive Attitude Proﬁ tability 2 NBT Bancorp President and Chief Executive Oﬃ cer Martin Dietrich (left) and NBT Bancorp Chairman Daryl Forsythe These high marks are actually the exclamation point on a remarkable run of proﬁ tability. Over the last decade, NBT posted ten consecutive years of earnings over $50 million—overcoming the ﬁ scal doom and gloom of the Great Recession (December 2007 through June 2009), massive upheaval in the ﬁ nancial services industry and the onset of heightened government regulation. Through it all, we’ve also continued to stack up well against banks in our peer group based on key measures of proﬁ tability. In 2013, NBT ranked #2 when compared to 20 other banks with similar attributes. In fact, we have placed among the top ﬁ ve in these peer comparisons since 2009. The secret to your company’s ongoing success really isn’t a secret at all. It comes down to several important elements, including: • Talented, trained, motivated people • Strong ﬁ nancial fundamentals • A willingness to change—well before we must Whether reviewing our achievements for 2013, or setting goals for 2014 and beyond, this strategic combination plays a role in almost everything we do. A Welcome “Alliance” These core competencies were instrumental in the seamless acquisition of Alliance Financial Corporation, completed in March 2013. Healthy numbers on both sides of the merger, a shared vision and hard work by dedicated people from both companies made it happen. The Alliance merger, our largest ever, added $1.4 billion in assets to our balance sheet and 26 locations to our branch network. Beyond the sheer numbers, the two companies ﬁ t each other perfectly. • Culturally, we shared a commitment to the highest level of personalized, community-based customer service. • Structurally, there was no overlap between our separate, yet contiguous, banking footprints in upstate New York. It was a natural, completely complementary extension of each company’s market area. Industry analysts reacted to the merger with comments like: “strategically compelling”…“a natural extension with a strategic twist”…and “adding tangential markets with little execution risk makes sense.” Not only was the integration of Alliance a logistical success, the merger also: • Achieved a 35% cost savings • Resulted in no material runoﬀ of loans and deposits • Retained all key personnel • Created a franchise that began growing immediately Our combined capacity enables us to oﬀ er more products, services and convenience to a larger customer base. The merger also enhanced our reputation as a skilled acquiring entity, which should serve us well moving forward. 2013 ANNUAL REPORT Strong Fundamentals: Our Hedge Against Uncertainty From a ﬁ scal standpoint, we believe NBT is well positioned for continued success despite uncertainties in the ﬁ nancial markets. Margin compression remains a challenge for all ﬁ nancial institutions, and NBT has pursued several tactics designed to counter the potential squeeze. Core deposit growth. We have grown deposits in noninterest- bearing checking accounts by an annual average rate of over 17% since 2010 (23% including mergers). These low-cost funds represented 28% of total deposits at the end of 2013. Overall core deposits (including checking, savings and money market accounts) represented 83% of total deposits at the end of 2013. This strong core deposit funding base helps us optimize net interest income. Short positions on assets. Seventy percent of our investment and loan portfolio is expected to reprice within the next three years—preparing us well for a rising rate environment. High quality, diversifi ed loans. While growing loans 5.3% organically in 2013, we also sustained good asset quality. Our well-balanced loan portfolio is a strong contributor to our interest income. Commercial 18% Residential Real Estate 21% Home Equity 11% Commercial Real Estate 25% Consumer 25% 3 NBT BANCORP to our shareholders Less dependence on net interest income. Noninterest income now accounts for 30% of total revenues, up from about 20% ten years ago. This shift away from margin income decreases our sensitivity to rate volatility and downturns in the economy. BASIS POINTS 266 Leaner, meaner, smarter. We trimmed more than $15 million from annual operating costs through internal initiatives and the Alliance merger. These cost savings combined with our revenue growth improved our eﬃ ciency ratio a formidable 266 basis points from 63.93% in 2012 to 61.27% in 2013. A focus on eﬃ ciencies, including internal cost-saving initiatives, is critical when market conditions are unfavorable, and these eﬀ orts will continue in 2014. Eﬃ ciency Ratio Improvement 2013 Remaining Regulation Ready Government regulators are holding banks to higher standards than ever before, and we plan to meet the challenges proactively—as a team. 1,900 compliance-focused employees. We have prevailed upon all NBT employees to keep compliance top of mind in their respective roles with the company. Approaching compliance as a shared responsibility will help us keep pace with what promises to be an active, complex regulatory environment. Lead the target. Preparing the company to meet new requirements in advance will result in greater eﬃ ciency and avoid missteps that could be costly. Be $10 billion ready. The growth we are experiencing comes with added responsibilities and challenges. New rules for banks with assets over $10 billion impose lower debit card processing fees and more stringent stress testing, among other things. We estimate that crossing this threshold will cost NBT several millions of dollars, and we need to prepare for this impact. 4 Shoring Up Core Markets, Expanding New Ones NBT solidiﬁ ed its position as a dominant banking franchise in upstate New York with the addition of the 26 Alliance branches in and around Syracuse. In fact, we now maintain a strong presence along all of the major traﬃ c corridors that crisscross our core markets in New York and northeastern Pennsylvania. This makes NBT easily accessible to higher concentrations of people and businesses. Our expansion initiative in New England, which now includes 14 branches in Massachusetts, Vermont and New Hampshire, continues to perform well with $620 million in assets and $332 million in deposits as of year-end 2013. With the addition of our most recent banking location in Pittsﬁ eld, Massachusetts, early in 2014, we continue to build on our talent base and branch network to take advantage of the upside potential we see in this part of New England. We also have announced plans to open an oﬃ ce in Portland, Maine, later in 2014. The oﬃ ce will target corporate clients, oﬀ ering commercial banking and wealth management services. Maine will become the sixth state served by NBT. Achievements Contributing to Our Success While the Alliance merger received a lot of attention, there were many other outstanding eﬀ orts that contributed to our record performance in 2013: • Grew commercial loans organically by 5.5% compared to 2012, led by the eﬀ orts of our teams in the Capital Region, Mohawk Valley and North Country/Saratoga markets in New York, as well as our team in the Vermont market • Increased wealth management income by 20% over 2012, including trust and ﬁ nancial services, but excluding the impact of the Alliance merger • Added over 10,000 checking accounts and increased average checking balances 17.6% over the prior year, again excluding the Alliance merger • Launched a new mobile banking service 2013 ANNUAL REPORT • Began installing enhanced ATMs with deposit functionality that eliminates the need for deposit slips and envelopes by directly accepting cash and checks; expect 25% of the ATM network will be converted by the end of 2014 • Designated a preferred lender by the U.S. Small Business Administration (SBA), giving us more autonomy in the approval and processing of loans, which means faster service for clients. For the third consecutive year, the SBA named NBT the most active large community lender in Central New York, the Capital Region and the Southern Tier—all part of the SBA’s 34-county Syracuse District where we approved a total of 50 loans valued at $5.8 million. • Continued to educate children and young adults about money and personal ﬁ nances though the Strive® program, making 150 presentations to school groups and community organizations 155+ LOCATIONS 400,000+ CUSTOMERS High Praise from National Press NBT consistently earns recognition from national trade media and industry analysts for outstanding ﬁ nancial performance, and 2013 was no exception. • Forbes.com ranked NBT in the top 25 on its list of “America’s Best and Worst Banks” for the ﬁ fth consecutive year. • Bank Director magazine ranked NBT #32 on its “performance scorecard” for banks with assets between $5 billion and $50 billion. • SNL Financial, a leading banking industry analyst, ranked NBT #26 on its list of top U.S. regional banks. Our People Are the Future When we look at the records set by your company in 2013, or at the strong fundamentals we depend on in uncertain times, or at the successful completion of a complex merger…we are looking at the hard work of our employees. Ultimately, they are the ones creating shareholder value. We’re also looking at our future—because success in 2014 and beyond will require new “personal bests.” • In branches, we’ll need to skillfully address the changing and more complex needs of customers, expanding relationships and creating new opportunities within households and businesses. • Commercial relationship managers will need to ﬁ nd customers in new, niche markets—such as nonproﬁ ts, institutions and associations—to drive more organic growth. • Our wealth management professionals will need to build on their momentum—helping more clients create and preserve wealth through ﬁ nancial planning, insurance and retirement plan services. • Our operations and systems personnel will need to enhance self-service options like mobile banking, expand our enhanced ATM service and usher in modern branch designs—improving customer convenience and creating eﬃ ciencies. • Finally, we’ll need everyone—including our designated teams—to suggest how a process can be streamlined or a piece of technology leveraged to make our company even more eﬃ cient. The good news is, based on our most recent employee culture survey, we know our people are equal to the task. Ninety percent are proud to work for NBT, believe the company puts customers ﬁ rst and understand their role in our success. This is well above the national norm for such measures of employee engagement. We will continue to support our employees with the training, tools and incentives they need to get the job done. 5 NBT BANCORP to our shareholders Moving Forward Together In 2013, we rebranded Hampshire First Bank, acquired the year before, to NBT Bank. The former Alliance branches were converted to NBT right from the start. During the ﬁ rst quarter of 2014, we converted our Pennstar Bank branches in Pennsylvania to the NBT Bank brand. Uniting our banking divisions under a single brand will create operational eﬃ ciencies and enable all of our customers to readily recognize the depth and breadth of resources available from NBT. As our company becomes larger and more dispersed, it’s important to reinforce that we are one entity with a singular focus on customer care. We hope joining together under the NBT banner serves this purpose as well. On many levels, the business of banking has become commoditized. Easy, economical access to technology and other resources has created unprecedented parity in our industry. That said, one thing we continue to rely on to diﬀ erentiate NBT from the competition is our outstanding people and the service they provide. So, to win the ongoing race for customer conﬁ dence, to deliver innovative new banking services, and to extend our record of proﬁ tability, we will need the best eﬀ ort our employees can bring each and every day. And they, in turn, deserve ours. We thank all of you—our directors, shareholders and, of course, our employees—for your continued support during these transformational times for NBT. Martin A. Dietrich President and Chief Executive Oﬃ cer Daryl R. Forsythe Chairman of the Board 6 2013 ANNUAL REPORT NBT Bancorp Executive Management Team members during 2013 included (standing , l-r) David Raven, Jeﬀ rey Levy, Joseph Stagliano, Martin Dietrich, Jack Webb, Timothy Brenner, (seated, l-r) Howard Atkinson, Catherine Scarlett, Sheldon Prentice and Michael Chewens. Executive Management Team Martin A. Dietrich President and Chief Executive Oﬃ cer Michael J. Chewens Senior Executive Vice President and Chief Financial Oﬃ cer Howard L. Atkinson Executive Vice President, Strategic Operations Timothy L. Brenner Executive Vice President and President of Wealth Management Jeff rey M. Levy Executive Vice President and President of Commercial Banking F. Sheldon Prentice Executive Vice President, General Counsel and Corporate Secretary David E. Raven Executive Vice President, President of Retail Banking and President of Pennsylvania Catherine M. Scarlett Executive Vice President and Chief Human Resources Oﬃ cer Joseph R. Stagliano Executive Vice President and Chief Information Oﬃ cer Jack H. Webb Executive Vice President, Strategic Support NBT Bancorp leadership Additional information regarding our Executive Management Team and the NBT Bancorp Board of Directors can be found in the proxy statement for our 2014 Annual Meeting of Shareholders. 7 NBT Bancorp company proﬁ le › Financial holding company › Incorporated in 1986 in the state of Delaware › Primarily operates through NBT Bank, N.A. and two ﬁ nancial services companies › NBT Bank, N.A. oﬀ ers personal banking, asset management and business services through over 155 locations in ﬁ ve states including New York, Pennsylvania, Vermont, Massachusetts and New Hampshire. › EPIC Advisors, Inc., based in Rochester, N.Y., is a full-service 401(k) plan recordkeeping ﬁ rm. › Mang Insurance Agency, LLC, based in Norwich, N.Y., is a full-service insurance agency. › More information about NBT Bancorp and its divisions can be found at www.nbtbancorp.com, www.nbtbank.com, www.epic1st.com and www.manginsurance.com. NBT BANCORP board listings NBT Bancorp Inc. Daryl R. Forsythe, Chairman Martin A. Dietrich, President and CEO Richard Chojnowski Patricia T. Civil Timothy E. Delaney James H. Douglas John C. Mitchell Michael M. Murphy Joseph A. Santangelo Lowell A. Seifter, Esq. Paul M. Solomon Robert A. Wadsworth Jack H. Webb NBT Bank, N.A. Daryl R. Forsythe, Chairman Martin A. Dietrich, President and CEO Patricia T. Civil Timothy E. Delaney Donald H. Dew James H. Douglas Brian K. Hanaburgh Andrew S. Kowalczyk III, Esq. Thomas G. Mazzotta, Esq. John C. Mitchell V. Daniel Robinson III Matthew J. Salanger Joseph A. Santangelo Lowell A. Seifter, Esq. Paul M. Solomon Russell B. Strait Robert A. Wadsworth Jack H. Webb Honorary Directors Carl Barbic J. Peter Chaplin Peter B. Gregory, DDS Paul D. Horger, Esq. Janet H. Ingraham Andrew S. Kowalczyk Jr., Esq. Van Ness D. Robinson Paul O. Stillman J.K. Weinman NASDAQ SYMBOL NBTB 8 shareholder information Annual Meeting Shareholder Relations Information regarding NBT Bancorp, our dividend reinvestment and stock repurchase plan, and direct deposit of dividends can be found on our website at www.nbtbancorp.com. Those seeking additional information should contact Shareholder Relations by phone at 800.NBT.BANK (Option 7) or by mail in the care of NBT Bank at 20 Mohawk Street, Canajoharie, N.Y. 13317. Tuesday, May 6, 2014, 10:00 a.m. DoubleTree by Hilton Hotel 225 Water Street Binghamton, N.Y. 13901 607.722.7575 Financial Reports and Releases Copies of the company’s annual report to the Securities and Exchange Commission on Form 10-K, quarterly reports on Form 10-Q and news releases may be obtained without charge by visiting our website at www.nbtbancorp.com or by writing to Chief Financial Oﬃ cer Michael J. Chewens at the corporate headquarters address provided on the inside front cover. NEW YORK PENNSYLVANIA Stock Transfer and Registrar Agent NBT Bank 20 Mohawk Street Canajoharie, N.Y. 13317 800.NBT.BANK, Option 7 VERMONT NEW HAMPSHIRE 91 MASSACHUSETTS 495 90 90 84 395 95 93 495 93 95 495 195 195 NBT Bank Mang Insurance Agency NBT Bank and Mang Insurance Agency EPIC Advisors NBT Bancorp Inc. 52 South Broad Street Norwich, N.Y. 13815 www.nbtbancorp.com 3/2014

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