NBT Bancorp Inc.

Good day, everyone. Welcome to the NBT Bancorp first quarter 2021 financial results conference call. This call is being recorded and has been made accessible to the public in accordance with the SEC's regulation FD. Corresponding presentation slides can be found on the company's website at nbtbancorp.com. Before the call begins, NBT's management would like to remind listeners that, as noted on slide two, Today's presentation may contain forward-looking statements as defined by the Securities and Exchange Commission. Actual results may differ from those projected. In addition, certain non-GAAP measures will be discussed. Reconciliations for these numbers are contained within the appendix of today's presentation. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. Anyone requiring operator assistance can press the star key, the star then zero on your touch tone telephone. As a reminder, this call is being recorded. I would now like to turn the conference over to NBT Bancorp President and CEO, John H. Watt Jr. for his opening remarks. Mr. Watt, please begin.

Welcome and thank you for joining us today for NBT's earnings call covering our first quarter 2021 results. Joining me to review the highlights with you are NBT's Chief Financial Officer John Moran and our Chief Accounting Officer Annette Burns. Following our remarks, we will take your questions. At NBT, we are optimistic about the momentum in the U.S. economy and The growing economic activity in the markets where we conduct business. Looking back at the first quarter, we earned 91 cents per share and pre-provision net revenue was up 6% year over year. As we look to participate in the upcoming snapback of the economy, NBT is well positioned to serve our customers with great products and services. For example, adoption of digital banking services is up across our customer base. including year-over-year increases of 31% in consumer digital adoption, 60% in online account opening, and 95% in mobile dollars deposited. Commercial loans grew in Q1 and our pipelines continue to build. Business banking and commercial activity associated with our expansion in Connecticut is strong. Our mortgage business remains very active with a shift from refi to purchase underway. Indirect auto originations exceeded our targets in each of the three months of the first quarter. Assets under management and under administration in our wealth management business ended the quarter at a record level of $9.3 billion. At NVT, leveraging market disruption is a core competency. John Moran Thanks, John.

Turning to slide four, as John highlighted, our first quarter earnings per share were 91 cents. These results were driven by favorable credit and well-controlled operating expenses. As you can see, we had a negative provision of $2.8 million. Charge-offs remained a very low 13 basis points, excluding PPP loans. and our reserve coverage decreased slightly to 1.48% excluding PPP from 1.56% in the fourth quarter. Outside of credit, we continued to be very pleased with our underlying operating performance. Pre-provisioned net revenue was fairly consistent with the fourth quarter levels and up 6% as compared to the year ago period. Tangible book value per share was up 1% on the quarter and has grown nearly 10% year over year. Slide five shows trends in outstanding loans. On a core basis, excluding PPP, loans were up approximately $30 million for the quarter. As John suggested earlier, commercial activity has steadily improved, and we continue to have good momentum in several of our businesses. Commercial loans were up nearly 7% on a linked quarter annualized basis. Line utilization remains a headwind, but new originations have been fairly brisk. We have added additional information on PPP lending to slide 14 in the appendix of today's presentation. Our total PPP balances are now just under $570 million With forgiveness now well underway for the 2020 vintage loans, we have recognized $15.6 million in fees associated with PPP lending to date We have an additional $14.3 million in unamortized fees remaining We expect the bulk of these to be recognized in the back half of this year Moving to slide six, deposits were up about $735 million point-to-point for the quarter, and our core deposits were up an even stronger $760 million. Obviously, customer cash remains elevated on increased liquidity associated with various government support programs. As we highlighted last quarter, these deposits have remained stickier than we would have expected. Next, on slide seven, you'll see the detailed changes in our net interest income and margins. As we suggested last quarter, NII dollars remained relatively constant as compared to fourth quarter. The NIM was down three basis points with compression in asset yields partially offset by lower funding costs. Excess liquidity and PPP created a net eight basis point drag on margin, and that was unchanged from the prior quarter. Looking forward, as assets continue to reprice in a lower rate environment, we would expect to continue to see some additional core margin compression over the course of 2021, excluding any impact of PPP or excess liquidity. As we deploy liquidity into more productive earning assets over the next several quarters, we would expect continued stability in NII dollars. Slide 8 shows trends in non-interest income. Excluding securities gains and losses, our fee income was down slightly linked quarter at $37 million. More broadly, non-spread revenue was 32% of our total revenue, and this remains a key strength for NBT as compared to peers. Retail banking fees were down linked quarter, mostly due to lower levels of overdrafts and service charges. RPA and wealth both had strong quarters on new business wins and market appreciation. Insurance was stable. and other revenue was down on a tough link quarter comp due to exceptionally strong swap income in the fourth quarter. Turning to non-interest expense on slide nine, our total operating expenses were $68 million for the quarter and we continue to demonstrate cost discipline. Other expenses ran lower than we expected in several areas including professional services, advertising, loan collection, travel, training and other, other. These differences were driven by timing and normal seasonality. Also, we experienced a $1.4 million link quarter decrease in the provision for unfunded commitments. We'd expect operating expense to gradually drift upward over the course of this year, especially as our footprint continues to reopen more fully and the operating environment normalizes. On slide 10, we provide an overview of key asset quality metrics. Excluding the impact of PPP, net charge-offs remained lower than normal at 13 basis points. Both NPLs and NPAs decreased this quarter. Amy Wiles, our Chief Credit and Risk Officer, is available in Q&A for detailed questions, but generally we are continuing to benefit from our conservative underwriting, and thus far observed credit metrics have been much better than what would have been predicted by the CECL models this time last year. Our deferrals are down more than 40% in dollar terms from our last report and now stand at less than 1% of loans. That's down from a peak of approximately 15% during the second quarter of last year. Likewise, past due loans were down 40% from last quarter. As usual on slide 11, we provide a walk forward of our reserve. Clearly, the economic outlook continues to improve, but uncertainty remains elevated. Excluding PPP, our allowance to loan ratio was 148 basis points. An appropriately conservative estimate of the credit risk in our portfolio today. We continue to believe that the path of charge-off activity and balance sheet growth will drive future provisioning needs with the model-driven reserving that we experienced in the first two quarters of 2020 now a potential tailwind for 2021. As I wrap up my prepared remarks, some closing thoughts. We started 2021 on strong footing, and we are very pleased with the fundamental results of the quarter. Stable net interest income, good results from our recurring fee income lines, and sustained expense discipline are the clear highlights. Moreover, our credit quality metrics continue to exceed our expectations. With that, we do have the full team here, and we're happy to answer any questions that you may have at this time.