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NBT Bancorp Inc.
4/25/2025
Good day, everyone. Welcome to the conference call covering NBT Bancorp's first quarter 2025 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, 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. Reconciliation 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. As a reminder, this call is being recorded. I will now turn the conference over to MBT Bank Corp's President and CEO, Scott Kingsley, for his opening remarks. Mr. Kingsley, please begin.
Thank you, Kevin, and good morning, and thank you for joining us for this earnings call covering NBT Bancorp's first quarter 2025 results. With me today are Annette Burns, NBT's Chief Financial Officer, Joe Stagliano, President of NBT Bank, and Joe Andesco, our Treasurer. Our operating performance for the first quarter continued to reflect the strength of our balance sheet, our diversified business model, and strong collaboration by our team. Operating return on assets was 1.11% for the first quarter with a return on equity of 10% and ROTCE of 14%. Certainly not records for us, but each metric demonstrates continued improvement over the linked and prior year quarters and, importantly, reflects the generation of positive operating leverage. We diligently grew earning assets and lowered funding costs, which improved net interest margin for the fourth consecutive quarter. Non-interest income continued to be a highlight, making up 31% of total revenues for the quarter, with each of our non-banking businesses achieving productive improvements in both revenue and earnings generation. We have added over $100 million to shareholders' equity in the past 15 months from productive earnings generation while also paying a higher level of dividends, adding to our already desirable levels of capital flexibility. Turning to updates on our growth strategies, we continue to see activity across upstate New York's semiconductor chip corridor, including news about site-specific milestones related to Micron's planned complex outside of Syracuse. Team members at NVT are engaged in supporting our customers and communities in participating in the growing ecosystem around semiconductor and advanced electronics manufacturing in our markets. Our ability to provide financial services to those living and working along the chip corridor will only be enhanced by the merger of Evans Bancorp into NVT in early May. Last September, we announced our partnership with Evans. In December, we received all the regulatory approvals required to move forward, as well as approval from Evans shareholders. Our integration team is poised to complete our core systems conversion next weekend after we close the merger at the end of the day on Friday, May 2nd. As a result, we will welcome over 200 Evans employees and more than 40,000 customers to NBT. Adding the Buffalo and Rochester markets is a natural extension of our footprint in upstate New York, and we look forward to building on the relationships Evans has established with customers, communities, and shareholders. At this time, I'll turn the meeting over to Annette to review our first quarter results with you in detail. Annette?
Thank you, Scott, and good morning. Turning to the results overview page of our earnings presentation, in the first quarter, we reported net income of of $36.7 million, or 77 cents per share. Excluding merger costs and securities losses, our operating earnings per share were 80 cents, an increase of 3 cents per share compared to the prior quarter. Revenues were 4.4% from the prior quarter and almost 12% from the first quarter of the prior year, driven by improvements in both net interest income and fee-based revenues. Tangible book value per share of $24.74 as of March 31st was up 86 cents per share from the end of the fourth quarter of 2024, marking another all-time high for NBT. The next page shows trends in outstanding loans, excluding the other consumer and residential solar portfolios that are in a planned contractual runoff status. Loans increased $40 million, or 1.8% annualized. Our total loan portfolio of $10 billion remains very well diversified and is comprised of 53% commercial relationships and 47% consumer loans. On page six, total deposits of $11.7 billion were up $162 million from the linked fourth quarter, primarily due to the inflow of seasonal municipal deposits during the quarter. Generally, in most of our markets, municipal tax collections are concentrated in the first and third quarters of each year. 58% of our deposit portfolio consists of no and low cost checking and savings accounts, while 42% is held in time and money market accounts. We have included a summary of our deposit mix by type, which illustrates the diversification and deep granularity of our customer base. The next slide highlights the detailed changes in our net interest income and margin. Our net interest margin in the first quarter increased 10 basis points to 3.44% from the linked fourth quarter, primarily driven by the decrease in the cost of interest-bearing deposits. Net interest income for the first quarter was $107.2 million, an increase of $1.1 million above the linked fourth quarter and $12 million above the first quarter of 2024. The increase in net interest income from the prior quarter was primarily driven by a decrease in the cost of deposits, partially offset by the impact of two less calendar days in the quarter. Loan yields decreased three basis points from the prior quarter to 5.62%, primarily due to the repricing of $2.1 billion in variable rate loans following the prior quarter's federal funds rate decreases. We were able to actively manage our funding costs downward to more than offset that impact, as evidenced by the 11 basis point decline in our total cost of deposits to 1.49% for the quarter. As a reminder, approximately $5 billion of our deposits, principal money market and CD accounts, remain price sensitive. Looking ahead, the opportunity for upward movement in yields will depend on the shape of the yield curve and how we reinvest loan portfolio cash flows. The trends in non-interest income are outlined on page eight. Excluding securities gains and losses, our fee income was $47.6 million, an increase of 12.7% compared to the linked fourth quarter. Non-interest income represented 31% of total revenues in the first quarter, reflecting continued improvement and strength of our diversified revenue base. Total operating expenses, excluding acquisition expenses, were $98.7 million for the quarter, a 1.1% decrease from the linked fourth quarter. Salaries and employee benefit costs were $60.7 million a decrease of $1.1 million from the prior quarter. This decrease was primarily driven by lower medical and other benefit costs, lower levels of incentive compensation, and lower salary expense resulting from two fewer payroll days in the quarter. These increases were partially offset by seasonally higher payroll taxes and an increase in stock-based compensation. The quarter-over-quarter increase in occupancy expenses was expected driven by increases in seasonal costs, including utilities and higher maintenance costs. Slide 10 provides an overview of key asset quality metrics. Net charge-offs to average loans were 27 basis points in the first quarter of 2025, compared to the 23 basis points in the prior quarter. Included in that charge-off was a $2.1 million write-down of a commercial real estate loan that has been in a non-performing status for the past several quarters. The loan was charged down to its updated estimated fair value based on new information received during the quarter. Excluding the $2.1 million write-down, net charge-offs to average loans were 18 basis points for the quarter. Past due loans to total loans were 32 basis points and was in line with the past several quarters. Reserve coverage was 1.17% of total loans and covered more than two times the level of non-performing loans, We believe that expected balance sheet growth, economic forecast conditions, and continued changes in loan mix will be the drivers of future provisioning needs. In closing, growth in both net interest income and fee-based income drove the generation of the sequential and year-over-year positive operating leverage and contributed to our solid operating performance in the first quarter of 2025. Our continued capital strength has us well positioned to support organic growth and our other strategic initiatives. Thank you for your continued support. And at this time, we welcome any questions you may have.
Thank you. Anyone with a question at this time can press star 1 1 on your telephone. If your question has been answered, you receive yourself from the queue. Please press star 1 1 again. One moment for our questions. Our first question comes from Steve Moss with Raymond James. Your line is open.
Hey, Scott and Annette, this is Thomas on for Steve. Good morning, and thank you for taking my question. Good morning. I just wanted to see, you know, maybe can you share your high-level thoughts on the demand for credit in your markets? You know, are pipelines good? Where are you seeing strength and weakness? And maybe what are some of the things you're hearing from clients anecdotally? Thanks.
Thomas, excellent question, and thanks for that. So pipelines are good, consistent with the levels we were enjoying most of last year. And in terms of individual markets, very consistent across our footprints, whether that's northern New England, upstate New York, Pennsylvania, Connecticut, so really good pipelines. Will we acknowledge that macro uncertainties have people asking questions about timing of certain things? For sure. And generally, I think a little bit more certainty when you're making a capital expenditure or when you're hiring people is always welcomed and certainly always easier. But to date, we haven't seen customers... who are abandoning projects, you know, who are looking at the current levels of uncertainties and saying, I'm not sure how to step forward. So I would say pretty consistent and pretty stable and probably pretty in line or requisite with our markets.
Okay, that's good to hear. And then maybe, you know, shifting gears to the other side of the equation, the supply of credit, you know, how is competition or, you know, what are you seeing in terms of spreads? You know, is pricing remaining rational?
For the most part, I would say. You know, there are certainly episodic situations in some of our markets because we compete with such a broad group of financial institutions. But generally, pretty reasonable, pretty disciplined. You know, might there be a handful of small banks defending, you know, smaller markets or 13 to 15 branch type setups? somewhere that are competing maybe a little bit outside of our comfortability levels a few times, but not overarching.
Okay. And then just one more from me. You know, with Evans here set to close shortly, you know, they were a smaller institution. Are you guys seeing, you know, do you have any, do you see opportunities for those bankers to maybe leverage your balance sheet in the near term to expand their existing client relationships, you know, could help loan growth there? Do you see any potential for that?
Yeah, absolutely. And that was really a piece of our value proposition when we started speaking with the Evans folks, is that ability to use a larger balance sheet so that they can compete or that they could fully cover certain client relationships where maybe the size of their balance sheet forced them to participate differently. at a lower level. So our onboarding process and our transition process with the bankers from Evans is going exceptionally well. It's a really high quality group of people in Western New York and as much as I think we'll be defending existing client relationships after the close of the transaction, I think we'll also have some opportunities for some assertive growth characteristics relatively soon.
Great. All of that is good to hear. Thanks again, Scott and Annette, for taking my questions. Appreciate it, Thomas. Thank you.
One moment for our next question. Our next question comes from Matthew Breeze with Steven Sink. Your line is open.
Hey, good morning. Good morning, Matt. I was hoping we could start just with the CHIPS Act, given some of Trump's comments to Congress, you know, From everything you know, is there any ability or intent to actually rescind or revisit some of the committed dollars? And ultimately, do you expect what was said to factor into any delays for Micron or other chips-related projects?
So let me take a run at both ends of those, Matt, quickly, is... Are there contractual obligations that the government has relative to the CHIPS Act, relative to the projects that have been awarded? Absolutely. What have we found in the last four to six weeks is that maybe that matters and maybe it doesn't. So I won't say that there can't be adjustments. Maybe it's not rescinding, but there could be adjustment in some of those. That being said, you know, the underlying tone of wanting to, you know, source manufacturing for semiconductor high electronics, I think, still resonates with the existing and the current administration. So I think maybe you'll see some rebranding of that, and maybe somebody will take credit for renegotiating something and calling it something else. But I think the general tenor is this is stuff we should be manufacturing in the United States. So to answer that one, and I'm far from being able to answer the legal question relative to commitments from a legal standpoint. Your question about timing, we've been reminded of this a couple of times because Micron has pushed back their shovels in the ground timing a couple of times since the original announcement. So I think all of these projects are more company-specific situations, as the folks in Columbus, Ohio are finding out with Intel, that maybe there's going to be a delay. So we get reminded that infrastructure moves along. This is a long-term project, and we would expect meaningful start points out there. Acquisition of land is happening in multiple spots in central New York today to support the project. Things on the water and the sewer projects are underway currently. We know that Micron has filed their environmental impact report. So I think it's moving along at a pace that's probably pretty reasonable. So for now, I think we're sort of hanging in there and thinking it's late this year, underway from a shovels in the ground standpoint. and still looking at a production window sometime in mid-27, early 28. Appreciate all that.
Maybe just turning to some of the forecasting items. You know, fee income drivers, particularly, you know, the big ones, wealth, insurance, retirement, all look pretty solid this quarter. And, you know, the market's been volatile. So I'm curious if you have any updated thoughts on how 2Q might shape up. I'm not sure when those or how those fees are calculated on an average market basis or end of period. Could you update us on fees and expected loan growth in the second quarter as well?
Sure, Matt. I can help frame that for you. So when we back out the bully gain that we had during the quarter, our fee income was about $46 million. There was a little bit of seasonality in our retirement plan services and our insurance. But in the second quarter, things like service charges on deposit accounts will kind of pick up. So, you know, all in, you know, the $46 million is probably a good run rate. From a market sensitivity, our most sensitive fee-based income to market is our wealth management business. About 70% of the revenue is sensitive to market rates. And typically that, you know, it's priced all along the quarter, but a lot of it happens near quarter end. And RPS, our retirement plan services, that's probably about 30% market sensitive, and that kind of happens all throughout the quarter. So market volatility could have an impact on our run rate for the second quarter, but that probably helps you get a picture of the sensitivity towards that.
Matt, I'll pick it up from there on your question relative to loan growth. Obviously, in the first quarter, we had very modest loan growth. A couple things. We did not enjoy winter this year, or I take that back. If you like winter, you had a really robust year in our marketplaces. I think some of the projects for some of our customers got underway a little bit late. That being said, residential mortgage that we have historically been putting on the balance sheet, long-term resi mortgage, did not have a very positive first quarter. I don't think it's just our marketplaces where home sales were not robust in the first part of the year. And we did actually sell a few more long-dated 30-year instruments in the secondary market than we had in past quarters, more because we think that the demand going forward, including the western part of New York State, will mean that we should have all of our funding sources capable and retested, which is what we did in the first quarter. If we were talking to you, Matt, a quarter of a go, and we said sort of a 3% to 5% growth rate, we're probably more in like the 2% to 3% thought process now after seeing the first quarter and understanding how some of our customers are dealing with macro uncertainty. Got it.
I appreciate that. Last one for me is just on the charge-off, and I could totally be connecting the wrong dots here, but I feel like there was a larger commercial real estate credit from late 23 for a bunch of the upstate New York banks, the participation. Am I right in kind of connecting those dots and could you re-familiarize us with the size of the credit, your portion, and how do you feel about the reserve and where it was valued at relative to the collateral?
So you're correct. It is the same credit. And we now have remaining exposure to that credit right around 11 and a half to 12 million. On our books, it was written down to fair value, so we're feeling comfortable that we're good and there will be no further exposure there. It's been disclosed that that's moving into foreclosure, so expect it might continue to be a non-performing asset but move into ORE sometime in the second quarter.
I think the only other thing to add to that is the occupancy rate of that property is in the low 80%, so generating positive cash flow today. But the dynamics of the ownership base and the principal, whether it makes itself all the way through to foreclosure, we'll probably know that in the next four to six weeks. But generally speaking, you know, the revised appraisal based on existing tenants and, you know, other fixed costs in the property suggested that another write-down was appropriate for this quarter. Great. I appreciate that. Thank you. I'll leave it there.
Appreciate it, Matt. One moment for our next question. Our next question comes from Manuel Neves with DA Davidson. Your line is open.
Hey, good morning. The strong deposit cost pushdowns really helped amend this quarter. Is there any more of that still to come? I'm sure there'll be some CD renewals, but other accounts as well. Or is that kind of more stable and on pause with the Evans deals?
I'll start that, and then please jump in. I think you're accurate relative to we are making sure from a liquidity standpoint, from an all sources of liquidity, that as we go into the Evans closing, that we have ample, in fact, more than we need probably, just to be cautious. With that said, we probably accelerated some of the deposit declines in the first quarter at a pace probably faster than we thought we were initially capable of, which probably means going forward without another Fed funds rate action, those will slow down. Our ability to stay competitive and to keep our balances, it will be challenged unless there's another stimulus out there in the market to do that.
I heard a little bit slower growth just because of macro uncertainty, but you're still entering this deal with much stronger NIMH. Any other kind of shifts to Evan's expectations, or we'll kind of wait more for an update next quarter?
I can share a little bit of our thought process around that based on some of our recent modeling. When we announced the deal in September, we were expecting to see maybe about 5% tangible book value dilution and right around $0.38 of earnings accretion. Purchase accounting marks have decreased a little bit in our modeling. So we're probably 100 basis points lower on tangible book value dilution, so right around 4%. And accretion for earnings is probably closer to $0.30. And that's assuming that all our cost savings achievements are in place, which we think that'll probably occur probably by the end of 2025. So hopefully that helps.
Yeah, that is helpful. is there any shifts in your kind of go-forward cost base, just kind of on the legacy basis? How should I kind of think of the expense run rate going into the deal? And then we'll layer it as it's on top of it.
Sure, I can speak to that. Our expenses were about $98.7 million for the quarter. We think that's probably a good run rate for us, excluding Evans. During the quarter, you know, salaries and benefits were right around $61 million. We have some higher seasonal payroll taxes and stock-based comp, but that was offset by fewer calendar days, payroll days. So when we look into the second quarter, you're adding an additional payroll day, and we have our annual merit increases in the month of March. So really that's going to kind of offset each other, and we'll probably land right around $61 million. and salaries and benefits as a good proxy for the quarter. You know, occupancy costs, you know, a couple hundred thousand dollars higher this quarter just because of seasonal maintenance and the harsher winter that we experience. So that'll come in just a little bit. But all in all, I think the current quarter's run rate is a good proxy.
Okay, that's very helpful. Thank you for the commentary.
Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. Our next question comes from Christopher O'Connell with KBW. Your line is open.
Good morning. I just wanted to follow up on... Hey, Scott. I just wanted to follow up on the, you know, Evans update, you know, given that, you know, you provided the, you know, EPS accretion and dilution, which is helpful. Do you have an update as far as the overall, you know, purchase accounting accretion in the margin?
I think it's safe to say, Chris, that any decline from what we described when we released in September on EPS accretion is all mark-related.
Okay, got it. And then, you know, as you guys are looking forward for your margin, can you remind us how much, you know, fixed asset repricing, you know, I know you guys give the securities flows in the deck, but You know, in particular, I guess, on the loan side over the remainder of 2025 and 2026 and, you know, what those yields are coming off that.
Yeah. So, you know, I think we have a short description of that in the deck, Chris. But as a quick reminder, we've had $2 billion of cash flows off the loan portfolio that we expect an opportunity to reprice on. And if I was framing that today, I would tell you that on the consumer side for us, which is really dominated by indirect auto, new production and existing portfolio yields are really close to each other. So we've probably gotten or crossed over on that one. Whereas there's still a lot of pickup is on the commercial side, where new production is in the ballpark of 75 to 100 basis points over where we are today. And then secondarily is residential real estate. So we're not assuming a lot of volume in resi real estate where new loans are going on somewhere between 6.25% and 7% versus the existing portfolio yields, which are in the low fours. So if we were portfolioing all of our production, you might get a little bit more, you know, beta on that particular side. But I think for now, just given where we are from a volume expectation, that opportunity for improvement is probably mostly focused on commercial cash flows.
Okay, great. And then, you know, as you guys are, you know, looking at your markets and you know, observing, I guess, in particular, some of the, you know, other consumer, you know, runoff portfolios as well as the indirect. I mean, just a general sense of health on the consumer, you know, in your markets more recently.
So we're seeing, you know, not a lot of change to our delinquencies. We're, you know, feeling like their, you know, balance sheets are strong and What will really impact defaults and ultimately charge-offs is really linked to unemployment rates. So if economic conditions deteriorate and we're seeing higher unemployment, that's when we'll probably see the uptick in delinquencies and expectation of higher charge-offs.
We've yet, Chris, to see where any of our customers have told us that their inputs Their price of raw material has been impacted by tariffs or certain other price changes. But remember, so much of that happened late in the month of March. As we continue to have dialogue with our customers in the month of April, we've seen a few circumstances around that, a few episodic things. Some of our customers that are more in northern New York that might be buying things like feed from southern Ontario are already experiencing tariff outcomes. So, you know, but again, I would call them more episodic at this point than systematic.
Okay. Yep. And then just, you know, on the, you know, closing of the Evans deal, you know, you're obviously, you know, kind of pretty much there a week away at this point. So is there any, you know, runoff actions, balance sheet actions, you know, You know, anything else kind of contemplated with, you know, the pro forma, you know, loan or securities books and kind of how to manage that, especially, you know, you guys have, you know, a good amount of liquidity here or anything that you'll be changing, you know, with your balance sheet just, you know, subsequent to deal close?
So, Chris, not significant. But I will say this, you know, once we knew that, you know, once we had announced the Evans transaction, We started to deploy some of, on a leverage basis, buying some investments in advance of the transaction. So maybe in the ballpark of $25 million of securities a month for the last six to eight months. And why do we want to do that? We want to put ourselves in a position that if we made the decision to sell the Evans portfolio, both from a duration or some other factor outcome, that we were now buying securities all in one day or essentially all in one block of time. That's been pretty successful. Actually, that's worked really appropriately for us. Remembering that we have to probably think about having at least $200 million of investment securities to be able to collateralize the municipal deposits of Evans. So I would never expect the investment base to be lower than that on a going forward basis on the Evans portfolio. And in fairness, if we see some other opportunities to add to our investment portfolio productively where we think yields and durations peacefully coexist, we would probably do that. Aventana Next Portfolio, the assets were well selected for them. Is our preference for maybe something with a little bit lower duration? Probably. So I think it's likely we see some modest churn of that portfolio after the close.
Great. And then just on overall M&A, I guess what's your appetite here in this market given the You know, the kind of, you know, overall market sell-off, a little bit more economic uncertainty. You know, are you guys still, you know, looking for deals post, you know, Evans close and integration? And, you know, any change in kind of, you know, what you would be looking for, you know, given the change in environment?
Yeah, so a reasonable question. I will say this with no uncertainty. We are fixated on one acquisition right now, and that is Evans. and we will be fixated on that for a while because we think there's really, really good opportunities. They have a really high-quality group of people in the Rochester and Buffalo marketplaces, and we really would like to be able to support natural growth post-acquisition in those spots first. That said, are we capable of having discussions with other like-minded, smaller community banks to either fill in spots in our existing franchise that now is about to go from Portland to Buffalo, improve some of our concentration in a few spots. You know, natural dialogue with smaller institutions happens all the time, and we've continued to have productive conversations. We'd like to think that we're a high-quality buyer, you know, from a standpoint of we're really looking for institutions that fit our needs. But I think, you know, we're, again, a credible buyer, and I think people look at us from a currency standpoint for their own shareholders. and say partnering with us is a reasonable way forward. So no current plans, but absolutely looking at our opportunities. At the same time, I think we've looked at some of our marketplaces, and I think we've said this before, where some of our concentration characteristics or we have some gaps in some of our coverage. In 2024, we opened an incremental branch in the Malta area outside of Albany and in Binghamton. In the first quarter, we added South Burlington, and we added our first branch in Rochester up in Webster. So we think we're capable of doing that on a selected basis. And there's some other marketplaces in a couple of parts of northern New York, southern and lower Hudson Valley, certainly some spots in Vermont, New Hampshire, and Maine where we're underrepresented from a concentration standpoint. So I think we'll be very deliberate about how we fill those in. But I see us doing that on both an organic basis and then evaluating whether there's a way to accelerate that with an M&A transaction.
Great. Appreciate it. Thanks, Scott. Thanks, Annette.
Thanks, Chris. Thank you.
Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. Our next question comes from Freddie Strickland with Havde Research. Your line is open.
Hey, good morning. I apologize I hopped on a little late, but I was just wondering on the credit side, is it fair to assume charge-offs are still likely led by auto and residential solar for the next quarters? And is there any other portfolios you're looking at a little bit more closely just with, you know, all the uncertainties?
That's a good question. I would say yes. The majority of our charge-offs will probably come from auto and the residential solar book. Our commercial charge-offs are much more episodic and generally can appropriately manage those. So I think that's a good way to frame it.
Perfect. And just what was the total level of wealth assets under management and retirement assets under administration as fast forward? I didn't see it in the deck this quarter.
Yeah, Fetty, Annette or I will get with you offline on that after. I'm not sure that we brought that forward into any of the things that we presented today.
Understood. Perfect. I think everything else has been asked and answered. So thank you very much. Appreciate you taking my questions. Appreciate the question. Thanks so much.
And I'm not showing any further questions at this time. I'll turn the call back over to Scott Kingsley for his closing remarks.
Thank you, Kevin. In closing, I want to thank everyone on the call for participating this morning and your continued interest in NVT. And we look forward to catching up with you at the end of July after we've gotten through the Evans transaction, which for us is really, really exciting and something we're really looking forward to. So appreciate the support and appreciate the questions. Talk soon.
Thank you, Mr. Kingsley. This concludes our program. You may now disconnect. Have a great day.