NBT Bancorp Inc.

Good day, everyone. Welcome to the conference call covering NBT's Bancorp's second quarter 2024 financial results. 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 in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. As a reminder, this call is being recorded. I will now turn the conference over to NBT Bancorp President and CEO, Scott Kingsley, for his opening remarks. Mr. Kingsley, please begin.

Thank you, Michelle. Good morning, and thank you for joining us for this earnings call covering NBT Bancorp's second quarter 2024 results. With me today are NBT's Chief Financial Officer, Annette Burns, Joe Stagliano, the President of NBT Bank N.A., and Joe Andesco, our Treasurer. This is our first earnings call following our leadership transition in May, and we want to extend our thanks to John Watt and the entire NBT Board of Directors, as well as the management team for supporting us through a very smooth transition. I would also like to congratulate Rick Cantelli on his upcoming retirement from our senior management team in August. Rick's insight and contributions following the completion of the Salisbury merger have been invaluable. He will continue to provide important guidance as a member of our board. We're pleased to now review our second quarter results with you today. Our operating performance for the second quarter and the first half of 2024 continues to reflect the strength of our balance sheet, our diversified business model, and the collaboration of our team. During the second quarter, we productively grew loans across our footprint and improved our net interest margin as earning asset yields increased incrementally higher than funding costs. A positive result, but we're still cautious on pronouncing it as a trend. Non-interest income continued to be a highlight, making up 31% of total revenues for the second quarter and reaching a new quarterly all-time high. We are also pleased to announce a 6.3% increase in our quarterly cash dividend to shareholders. This represents our 12th consecutive year of annual dividend increases and it demonstrates our commitment to providing consistent and favorable long-term returns to our shareholders. The increase also represents a 26% improvement over the past three years. In April, it was announced that the U.S. Department of Commerce has entered into an agreement with Micron Technology to provide a $6.1 billion grant under the Chips and Science Act that will, in part, support its plans to invest as much as $100 billion in a new complex of semiconductor chip manufacturing plants in the town of Clay near Syracuse. Additional support for the Clay complex includes a $5.5 billion tax credit from the New York State Green Chips Program and significant infrastructure investments by the state and Onondaga County. Site-specific progress continues as planned. NBT is uniquely positioned to play a significant role in providing financial services to all types of customers and prospects living and working in the upstate New York CHIP corridor. At this time, I'll turn the meeting over to Annette to review our second quarter results with you in detail. Annette?

Thank you, Scott, and good morning, everyone. Turning to the results overview page of our earnings presentation, For the second quarter, we reported net income of $32.7 million, or 69 cents per share. Our net interest margin in the second quarter of 2024 was 3.18%, which was up four basis points from the prior quarter, as our eight basis points of earning asset yield improvement more than offset our increase in funding costs in the quarter. Tangible book value per share of $22.54 as of June 30th, was up 47 cents per share from the end of the first quarter, and was at an all-time high for NBT. The next page shows trends in outstanding loans. Total loans were up $204 million for the year, or 4.2% annualized, and included growth in our commercial and indirect auto portfolios. Excluding the other consumer and residential solar portfolios that are in a planned contractual runoff status, loans increased $295 million or 6.9% annualized. Second quarter loan yields were up nine basis points from the first quarter of 2024, reflective of continued higher new origination rates. Our loan portfolio of $9.85 billion remains very well diversified and is comprised of 53% commercial relationships and 47% consumer loans. On page six, Total deposits of $11.27 billion were up $302.5 billion from December 2023. We saw growth in consumer balances and accounts, along with a higher level of municipal deposits. We have included a summary of our deposit mix by type, which shows the diversification and deep granularity of our customer base. The company continues to experience some remixing from its no-interest and low-interest checking and savings accounts into higher yielding money market and time deposit instruments. Our quarterly cost of total deposits increased seven basis points from the prior quarter to 1.68%. The next slide looks at the detailed changes in our net interest income and margin. The second quarter net interest income was $2 million above the linked first quarter results. The primary drivers to the increase in net interest income was an increase in asset yields and loan growth, partially offset by an increase in interest-bearing deposit costs. We saw stabilization and net interest margin during the quarter, and although we continued to see an increase in our funding costs, the pace of the increase continued to slow during the quarter. The trends in non-interest income are outlined on page 8. Excluding securities losses, our fee income reached $43.3 million, which is an increase of 18% from the second quarter of 2023, and was consistent with the previous quarter. This marks a record high of quarterly non-interest income driven by new account growth and favorable market performance in our retirement plan administration and wealth management businesses. Retirement plan administration revenue has increased by $500,000 from the first quarter due to organic growth, positive market conditions, and higher activity-based fees. Our wealth management services also increased by $500,000 in the second quarter due to favorable market performance and new account growth. Insurance agency revenues were lower due to the seasonally high revenues recorded in the first quarter. The diversification of our revenue sources remains a core strength for the company, accounting for 31% of total revenues. Our fee income business lines of retirement plan administration, wealth management, and the insurance agency have demonstrated a meaningful compounded annual growth rate of 9.3% over a five-year period. Moving on to non-interest expense, our total operating expenses were $89.6 million for the quarter, which is $2.2 million or 2.4% below the linked first quarter. Salaries and employee benefit costs were $55.4 million and decreased $311,000 from the prior quarter. This decrease is primarily due to seasonal higher payroll taxes and stock-based compensation expense in the first quarter, partly offset by a full quarter of merit pay increases and higher medical costs in the second quarter. Technology and data service expenses decreased $500,000 from the first quarter of 2024 due to cost savings achieved from various efficiency initiatives. Occupancy costs also decreased due to seasonal factors, including lower utility costs. We remain committed to managing our non-interest expenses effectively, balancing cost efficiencies with necessary investments to support our engagement with customers and our people. On slide 10, we provide an overview of key asset quality metrics. We recorded a loan loss provision expense of $8.9 million in the second quarter, which was up $3.3 million higher than the first quarter of 2024. This increase was primarily due to provisioning for the second quarter's loan growth, change in prepayment speeds, which continued to extend the effective life of loans, and $1.7 million in specific reserves related to a commercial relationship previously placed on non-accrual in the fourth quarter of 2023. Net charge-offs to total loans were 15 basis points in the second quarter of 2024 compared to 19 basis points in the prior quarter. Non-performing assets to total assets were unchanged for the past three quarter ends at 28 basis points. Reserve coverage of 1.22% of total loans was three basis points higher than the prior quarter and covered 316% of non-performing loans. We believe that charge-off activity will continue to trend towards more historical norms, and expected balance sheet growth and continued mix changes will likely be the driver of future provisioning needs. In closing, our well-balanced organic growth, granular deposit base, stable credit quality, strong fee income generation, and active expense management continue to help offset a portion of the net interest income challenges experienced over the past several quarters. We were pleased to see net interest margin stabilization and net interest income growth for the quarter. The continued strength of our capital position has allowed us the flexibility to provide a two cent per quarter increase in the dividend to our shareholders, the ability to support organic growth, and to capitalize on emerging opportunities while effectively managing risk. Thank you for your continued support, and at this time, we welcome any questions you may have.