Kroll Bond Rating Agency assigned a subordinated debt rating of BBB and a short-term debt rating of K2 to NBT Bancorp. KBRA also assigned a senior unsecured debt rating of BBB+ to the company. In addition, KBRA assigned deposit and senior unsecured debt ratings of A-, a subordinated debt rating of BBB+ and short-term deposit and debt ratings of K2 to NBT Bancorp’s principal subsidiary, NBT Bank. The outlook for all long-term ratings is stable.
The ratings are supported by NBT Bancorp’s strong market share positions in its core New York and Northern Pennsylvania footprint, as well as growing presence in New England, as the company is led by an experienced management team with a clearly defined strategic vision and balanced risk appetite, according to KBRA. The ratings also consider NBT Bancorp’s above peer revenue diversification, including a +30% core fee to revenue component that has supported earnings stability (recent ROA in a 1.2%-1.3% range prior to COVID-19).
According to KBRA, NBT Bancorp’s attractive, low cost deposit base — total average cost of 47 bps in Q1/20 with more than 30% non-interest bearing deposits — fully funds loans and has undoubtedly aided in preserving a defensible NIM. Core capital metrics (TCE and CET1 ratios of 8.6% and 10.9%, respectively, at Q1/20), while moderately below peer averages, are considered appropriately managed given NBT Bancorp’s risk profile. Though NBT Bancorp’s recent NCO ratio (30-40 bps) has tracked modestly above some peers, it is primarily reflective of somewhat higher loss content (but higher yielding) consumer specialty finance loans. According to KBRA, NBT Bancorp’s long-term asset quality performance has been very favorable, including a distinctly better than peer financial crisis period, highlighted by a peak loss rate of just 77 bps. KBRA also noted that exposure to industries considered most vulnerable to COVID-19 is contained at roughly 10% of loans, while loss absorbing capacity is considered ample with recently enhanced reserve coverage, solid earnings power and adequate capital support.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission.