Net income for the three months ended March 31, 2019 was $29.1 million, up 1.7% from $28.7 million for the fourth quarter of 2018 and up 12.1% from $26.0 million for the first quarter of 2018. Diluted earnings per share for the three months ended March 31, 2019 was $0.66, as compared with $0.65 for the prior quarter, an increase of 1.5%, and $0.59 for the first quarter of 2018, an increase of 11.9%.
- Net Income up 12.1% from the first quarter of 2018
- Diluted earnings per share up 11.9% from the first quarter of 2018
- Average demand deposits up 2.2% from the first quarter of 2018
- FTE net interest margin of 3.64%, up 3 bps from the prior quarter
- Full cycle deposit beta of 11.7% through the quarter ending March 31, 2019
- Tangible equity ratio of 8.06%, up 54 bps from the first quarter of 2018
“In the first quarter of 2019, we achieved double-digit year-over-year earnings growth with net income and earnings per share up 12% over first quarter 2018. In addition, we continued to build our tangible capital which increases our ability to be opportunistic in executing on our long-term growth strategies,” said NBT President and CEO John H. Watt, Jr. “Our strong financial results affirm the quality of our team and their commitment to providing our customers with the best service and financial products while constantly working to enhance the experience we deliver. This customer-focused approach drives our success and is the foundation of our efforts to build shareholder value.”
Net interest income was $77.7 million for the first quarter of 2019, down $1.2 million, or 1.5%, from the previous quarter. The fully taxable equivalent (“FTE”) net interest margin was 3.64% for the three months ended March 31, 2019, up 3 basis points (“bps”) from the previous quarter, as higher rates on lower average interest-earning assets more than offset higher funding costs on higher average interest-bearing liabilities. Interest income increased $0.8 million, or 0.9%, as the yield on average interest-earning assets increased 14 bps from the prior quarter to 4.28%, while average interest-earning assets of $8.7 billion remained relatively consistent with prior quarter. Interest expense was up $2.0 million, or 17.2%, as the cost of interest-bearing liabilities increased 15 bps to 0.92% for the quarter ended March 31, 2019, driven by interest-bearing deposit costs increasing 16 bps along with increased short-term borrowings cost. The Federal Reserve has raised its target fed funds rate nine times from December 2015 through March 2019 for a total increase of 225 bps. During this same cycle of increasing rates, the Company’s average cost of deposits increased by 26 bps, resulting in a full cycle deposit beta of 11.7%.
Net interest income was $77.7 million for the first quarter of 2019, up $4.2 million, or 5.7%, from the first quarter of 2018. The FTE net interest margin of 3.64% was up 7 bps from the first quarter of 2018. Interest income increased $10.6 million, or 13.1%, as the yield on average interest-earning assets increased 36 bps from the same period in 2018, and average interest-earning assets increased $314.0 million, or 3.7%, primarily due to a $294.2 million increase in average loans. Interest expense increased $6.4 million, as the cost of interest-bearing liabilities increased 41 bps, driven by interest-bearing deposit costs increasing 38 bps combined with a 72 basis point increase in short-term borrowing costs.
Noninterest income for the three months ended March 31, 2019 was $33.8 million, up $7.9 million, or 30.4%, from the prior quarter and up $2.5 million, or 8.1%, from the first quarter of 2018. The increase from the prior quarter was primarily driven by lower net securities losses and seasonal increases in both insurance and other financial services revenue and retirement plan administration fees. In the fourth quarter of 2018, the Company restructured the investment portfolio by selling $109 million of lower-yielding bonds and reinvesting the proceeds in higher-yielding bonds, which resulted in a $6.6 million loss on securities sold. Excluding net securities gains (losses), noninterest income for the three months ended March 31, 2019 would have been $33.8 million, up $0.9 million, or 2.7% from the prior quarter and up $2.6 million, or 8.2% from the first quarter of 2018. The increase from the first quarter of 2018 was primarily due to higher retirement plan administration fees resulting from the acquisition of Retirement Plan Services, LLC (“RPS”) in the second quarter of 2018.
Noninterest expense for the three months ended March 31, 2019 was $68.5 million, down $0.4 million, or 0.6%, from the prior quarter and up $4.2 million, or 6.5%, from the first quarter of 2018. The decrease from the prior quarter was primarily due to a $1.1 million decrease in other noninterest expense due to the timing of expense items combined with $0.4 million in non-recurring items in the fourth quarter of 2018, partially offset by a $0.7 million increase in pension interest and amortization costs. Advertising expense decreased from the prior quarter by $0.5 million due to the timing of expenses in the fourth quarter of 2018. These decreases were partially offset by a $1.0 million increase in occupancy expense due to seasonal expenses. The increase from the first quarter of 2018 was driven by increases in salaries and employee benefits expense, equipment expense and other noninterest expense, which were partially offset by a decrease in loan collection and other real estate owned. Salaries and employee benefits expense increased from the first quarter of 2018 due primarily to the acquisition of RPS in the second quarter of 2018 and related employee benefits expenses combined with a $0.4 million increase in salaries related to the tax reform initiatives implemented in the first quarter of 2018.
Income tax expense for the three months ended March 31, 2019 was $8.1 million, up $7.4 million, from the prior quarter and up $1.1 million from the first quarter of 2018. The effective tax rate of 21.8% for the first quarter of 2019 was up from 2.5% for the fourth quarter of 2018 and up from 21.2% for the first quarter of 2018. The increase in income tax expense from the prior quarter was primarily due to a $5.5 million tax benefit recorded in the fourth quarter of 2018 primarily related to one-time income tax return accounting method changes during the fourth quarter of 2018. The increase in income tax expense from the first quarter of 2018 was primarily due to a higher level of taxable income.
Net charge-offs of $6.9 million for the three months ended March 31, 2019 were comparable to $6.8 million for the prior quarter and for the first quarter of 2018. Provision expense was lower at $5.8 million for the three months ended March 31, 2019, as compared with $6.5 million for the prior quarter and as compared with $7.5 million for the first quarter of 2018. Annualized net charge-offs to average loans for the first quarter of 2019 was 0.41%, up from 0.39% for the prior quarter and down from 0.42% for the first quarter of 2018.
Nonperforming loans to total loans was 0.42% at March 31, 2019, down 2 bps from 0.44% for the prior quarter and down 1 bp from 0.43% at March 31, 2018. Past due loans as a percentage of total loans were 0.52% at March 31, 2019, down from 0.55% at December 31, 2018 and down from 0.53% at March 31, 2018.
The allowance for loan losses totaled $71.4 million at March 31, 2019, compared to $72.5 million at December 31, 2018 and $70.2 million at March 31, 2018. The allowance for loan losses as a percentage of loans was 1.04% (1.09% excluding acquired loans) at March 31, 2019, compared to 1.05% (1.10% excluding acquired loans) at December 31, 2018 and 1.06% (1.12% excluding acquired loans) at March 31, 2018.
Total assets were $9.5 billion at March 31, 2019 compared with $9.6 billion at December 31, 2018. Loans were $6.9 billion at March 31, 2019, comparable to December 31, 2018. In the first quarter of 2019, loan growth in commercial and commercial real estate was offset by run-off in our dealer finance portfolio. This is consistent with the Company’s strategy to focus on our higher returning portfolios thus reducing the need to rely more on price sensitive deposits to fund loan growth during the current interest rate environment. Total deposits were $7.6 billion at March 31, 2019, up $249.4 million, or 3.4%, from December 31, 2018, reflecting growth in core and municipal deposits. Stockholders’ equity was $1.0 billion, representing a total equity-to-total assets ratio of 10.85% at March 31, 2019, compared with $1.0 billion or a total equity-to-total assets ratio of 10.65% at December 31, 2018.
On March 25, 2019, the Company announced that the Board of Directors approved a second-quarter 2019 cash dividend of $0.26 per share. The dividend will be paid on June 14, 2019 to shareholders of record as of May 31, 2019.
NBT Bancorp Inc. is a financial holding company headquartered in Norwich, N.Y., with total assets of $9.5 billion at March 31, 2019. The Company primarily operates through NBT Bank, N.A., a full-service community bank and through two financial services companies. NBT Bank, N.A. has 149 banking locations in New York, Pennsylvania, Vermont, Massachusetts, New Hampshire and Maine. EPIC Retirement Plan Services, based in Rochester, N.Y., is a full-service 401(k) plan recordkeeping firm. NBT Insurance Agency, LLC, based in Norwich, N.Y., is a full-service insurance agency. More information about NBT and its divisions is available online at: www.nbtbancorp.com, www.nbtbank.com, www.epic1st.com and www.nbtinsurance.com.
This news release contains forward-looking statements. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of NBT and its subsidiaries and on the information available to management at the time that these statements were made. There are a number of factors, many of which are beyond NBT’s control, which could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others: (1) competitive pressures among depository and other financial institutions may increase significantly, including as a result of competitors having greater financial resources than NBT; (2) revenues may be lower than expected; (3) changes in the interest rate environment may reduce interest margins; (4) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit; (5) legislative or regulatory changes, including changes in accounting standards and tax laws, may adversely affect business and results; (6) NBT’s ability to successfully integrate acquired businesses and employees; and (7) adverse changes may occur in the securities markets or with respect to inflation. Forward-looking statements speak only as of the date they are made. Except as required by law, NBT does not update forward-looking statements to reflect subsequent circumstances or events.
This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These measures adjust GAAP measures to exclude the effects of acquisition related intangible amortization expense on earnings, equity and assets as well as providing a FTE yield on securities and loans. Where non-GAAP disclosures are used in this press release, a reconciliation to the comparable GAAP measure, is provided in the accompanying tables. Management believes that these non-GAAP measures provide useful information that is important to an understanding of the results of NBT’s core business as well as provide information standard in the financial institution industry. Non-GAAP measures should not be considered a substitute for financial measures determined in accordance with GAAP and investors should consider NBT’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of NBT.
 The change in the Company’s quarterly deposit costs from December 31, 2015 to March 31, 2019 of 0.26% divided by the change in Federal Reserve’s target fed funds rate from December 2015 to March 2019 of 2.25%