Merger And Upstate New York Expansion Will Unlock New Opportunities

Key Takeaways

• The merger with Evans Bancorp and expansion into key markets is positioned to boost loan growth and future revenues.
  
• Strategic involvement in Upstate New York's semiconductor ecosystem and enhanced noninterest income bolster NBT Bancorp’s revenue diversification and earnings.
  
• Macro uncertainties, commercial real estate exposure, and integration challenges pose risks to NBT Bancorp's revenue growth, net margins, and asset quality.

Catalysts

A financial holding company, provides commercial banking, retail banking, and wealth management services.

• The merger with Evans Bancorp, expected to finalize soon, will expand NBT Bancorp’s footprint into the Buffalo and Rochester markets, providing opportunities to leverage a larger balance sheet to increase loan growth, impacting future revenue positively.
  
• NBT Bancorp’s involvement in the developing semiconductor and advanced electronics manufacturing ecosystem in Upstate New York, specifically around the Micron complex, presents opportunities to offer financial services, which could drive revenue growth as the regional economy strengthens.
  
• Improvements in noninterest income, which now represents 31% of total revenues, are driven by enhancements in NBT Bancorp’s wealth management, insurance, and retirement plan services, contributing to earnings growth by diversifying and strengthening its revenue base.
  
• Proactive management of funding costs, especially by actively lowering deposit costs, has improved NBT Bancorp's net interest margin, positively impacting net interest income and future earnings potential.
  
• The successful integration and potential strategic growth in upstate New York, combined with solid capital flexibility from productive earnings and increased equity, position NBT Bancorp well for organic growth, which is expected to contribute to earnings and shareholder value improvement.

NBT Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NBT Bancorp's revenue will grow by 19.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.2% today to 27.9% in 3 years time.
• Analysts expect earnings to reach $271.8 million (and earnings per share of $4.78) by about April 2028, up from $143.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, down from 14.1x today. This future PE is lower than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

NBT Bancorp Future Earnings Per Share Growth

Risks

• The semiconductor sector's reliance on the CHIPS Act brings uncertainties; any changes in government support or delays in projects like those with Micron could impact NBT Bancorp's revenue and growth plans associated with these initiatives.
  
• Potential concerns over commercial real estate exposure, given charge-offs and write-downs on certain loans, could affect the bank's asset quality and overall earnings.
  
• The ongoing integration of Evans Bancorp could bring unforeseen challenges that may affect the expected accretive impact on earnings, potentially impacting net margins.
  
• Rate sensitivity remains, especially with a significant amount of deposits being price-sensitive. Changes in the rate environment could affect net interest margins and therefore earnings.
  
• Macro uncertainties affecting loan demand might lead to slower growth, thereby impacting expected revenue growth and the pace at which financial goals are achieved.

Valuation

• The analysts have a consensus price target of $50.6 for NBT Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $975.4 million, earnings will come to $271.8 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $42.8, the analyst price target of $50.6 is 15.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.