NBT Bancorp Inc.

Good day, everyone. Welcome to the MBT Bank Corp. Fourth Quarter 2021 Financial Results Conference Call. This call has been recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. Correspondent presentation slides can be found on the company's website at mbtbankcorp.com. Before the call begins, MBT'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 the 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 and then zero on your touchtone 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.

Why, thank you. And good morning and welcome from 14 degree below zero Norwich, New York. And thank you for participating in our earnings call covering NBT Bank Corp's fourth quarter and full year 2021 results. Joining me today is Scott Kingsley, our Chief Financial Officer, as well as Annette Burns, our Chief Accounting Officer, and Joanne Desco, our Treasurer. At NBT, we achieved record results in a year defined by great progress and consistently building momentum. We are very pleased to report earnings per share of 86 cents for the quarter and $3.54 for the year. Our capital position is strong with tangible book value per share up 8% from the prior year end. This foundation provides us with optionality as we consider strategic investments to drive NBT's continued growth. Our fee-based businesses achieved new levels of success year over year, and at the end of the fourth quarter, AUM and AUA exceeded $10 billion. Loan growth. Excluding PPP was 5% with the commercial business and our SunGage solar lending business finishing strong in the fourth quarter. Across our markets and despite the recent COVID surge, our commercial customers are active and their sentiment is optimistic. In 2021, our customers continued to embrace digital services with a 64% increase in consumer adoption. Yesterday, our board approved a 28-cent dividend payable on March 15th, and that would be our 520th consecutive dividend payment, and it is one cent higher than the prior year. Yesterday, the board also welcomed our newest director, Heidi Huller, a former partner with PWC. With over 25 years of experience in public accounting and financial services, we look forward to adding Heidi's valuable perspective to the discussions guiding NBT forward. So I'll conclude my remarks by emphasizing that it was the talented and dedicated team at NBT who made our 2021 success possible. we could not be more optimistic about how well the team has positioned us as we enter 2022. And now I'll turn it over to Scott, and he'll walk us through our financial performance on a more detailed basis. Scott, it's yours.

Thank you, John, and good morning, everyone. Turning to slide four of our earnings presentation, as John mentioned, our fourth quarter earnings per share were 86 cents, which was consistent with the linked third quarter and $0.08 a share above the fourth quarter of 2020. These results were driven by increases in net interest income, including a higher level of PPP interest and fees, favorable credit results, and strong fee income offset by higher operating expenses. We recorded a provision expense of $3.1 million after four consecutive quarters of provision benefits. Charge-offs increased to 22 basis points of loans compared to 11 basis points in the prior quarter, with almost all of that change related to one commercial relationship that had been specifically reserved for in a previous period. Our reserve coverage decreased to 1.24 percent, excluding PPP loans, from 1.28 percent in the third quarter of 2021. We continue to be pleased with our underlying operating performance. Slide five shows trends in outstanding loans. On a core basis, excluding PPP, loans were up approximately $107 million for the quarter and included strength in our consumer mortgage and consumer specialty lending portfolios, as well as growth in commercial outstandings. The lack of vehicle inventories has continued to challenge net results in our indirect auto portfolio, and we experienced another quarter of declines in outstandings. Also, as a reminder, We have some additional information on PPP lending on slide 13 in the appendix of today's presentation. Our total PPP balances as of year-end 2021 were just over $100 million, with forgiveness almost complete for both the 2020 and 2021 vintage loans. We recognize $7.5 million of interest and fees associated with PPP lending during the quarter and and have $3.4 million in unamortized fees remaining. We expect a significant portion of these to be recognized in 2022. Moving now to slide six, deposits were up $39 million for the quarter. Customer balances remain elevated from liquidity associated with the various government support programs and continued higher savings rates. Our quarterly cost of deposits declined to eight basis points, and we continued to add new accounts in the quarter. Next on slide 7, you'll see the detailed changes in our net interest income and margin. Net interest income increased $7.5 million as compared to the third quarter and included $4.7 million of additional PPP income. The net interest margin was up 20 basis points, primarily due to PPP forgiveness, but also included a modest increase in earning asset yields and a decline in the cost of interest-bearing liabilities. Excess liquidity continued to be a drag on our margin, but we again remind ourselves that low-cost core funding should always be viewed as a long-term value driver. Looking forward, despite the growing sentiment of rising short-term rates in 2022, we would expect to experience general core margin stability, excluding the impact of PPP income recognition, before reaching an upward inflection point later in the year. We would plan to deploy some of our $1.1 billion of excess liquidity into more productive earning assets over the next several quarters to improve coordinate interest income results as those opportunities present themselves. Slide 8 shows trends in non-interest income. Excluding securities gains and losses, our fee income was up linked quarter to $41.1 million. More broadly, non-spread revenue was 33% of our total revenue, which remains a key strength for NBT, and we liked the trajectory of each of the non-banking businesses we are in. Our wealth management and retirement plan administration businesses continued their trends of strong quarterly growth from new business wins and market appreciation. Turning now to non-interest expense on slide 9, our total operating expenses were $75.1 million for the quarter. We did incur an additional $.3 million of non-recurring costs in the quarter related to a litigation settlement we've referenced in previous quarters. Fourth quarter operating expenses were again seasonably higher than the linked third quarter consistent with previous results in previous years. We'd expect core operating expenses to continue to drift upward over the next several quarters, including expected 2022 merit-related wage increases, as well as our continued efforts to fill a higher-than-historical level of open positions in support of customer engagement and growth objectives. In addition to investing in our people, we continue to expect to invest in technology-related applications and tools that in order to advance our customer-facing and processing infrastructure. On slide 10, we provide an overview of key asset quality metrics. As I previously mentioned, excluding the impact of PPP, charge-offs increased to 22 basis points of loans compared to 12 basis points in the prior quarter. Both NPLs and NPAs declined again this quarter. We are continuing to benefit from our conservative underwriting, and thus far, observed credit metrics have been much better than we would have been suggested in those CECL models from 12 to 18 months ago. 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 124 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 will return to more historical norms and, along with expected balance sheet growth, will likely be the drivers of future provisioning needs for the company. As I wrap up prepared remarks, some closing thoughts. We started 2021 on strong footing, and we are pleased with the fundamental results, considering everything that has been impacted by COVID-19 pandemic. Stable net interest income, solid results from our recurring fee income lines, sustained expense discipline, and exceptional credit quality outcomes have been clear highlights. It's also worth mentioning we've added over $130 million to capital over these last historically challenging eight quarters, while at the same time paying dividends to our shareholders of $95 million and buying back $30 million of our own shares. These meaningful capital accumulation results put us in an enviable position as we consider growth opportunities for 2022 and beyond. With that, we're happy to answer any questions you may have at this time.