NBT Bancorp Inc.

Good day, everyone. Welcome to the conference call covering NBT Bancorp's second quarter 2026 financial results. This call is being recorded and has been made accessible to the public in accordance with SEC Regulation FD. Corresponding presentation slides can be found on the company's website at nbtbancorp.com. Before the call begins, NBT Management would like to remind listeners that, as noted on slide 2, today's presentation may contain forward-looking statements as defined in 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. Currently, 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, Cherie. Good morning, and welcome to this earnings call covering NBT Bancorp's second quarter 2026 results. With me today are Annette Burns, NBT's Chief Financial Officer, Joe Stagliano, President of NBT Bank, and Joe Ondesco, our Treasurer. We are pleased with our solid operating performance for the second quarter, which demonstrated the strength and momentum of NBT's diversified financial services franchise. We generated significantly stronger earnings than in the prior year quarter, grew loans across every business line, and expanded our net interest margin to 3.73%. An increase of 14 basis points from one year ago. More than a year after completing the acquisition of Evans Bancorp, we continue to benefit from the talented team members, strong customer relationships, and established market presence. The acquisition created a strong foundation for our franchise in Buffalo and Rochester, and we have continued to build on that momentum by expanding opportunities for our customers through NVT's broader capabilities and ongoing growth initiatives. During the second quarter, the Buffalo region generated the highest loan origination volume across our franchise. As we mentioned in our first quarter conference call, the difficult winter conditions impacted loan activity across our markets and we experienced a higher than expected level of commercial real estate payoffs in the first quarter. Since then, activity levels have been quite good and we have achieved growth of 2.4% in total loans for the first half of 2026. Operating return on assets was 1.32% for the second quarter with operating return on tangible equity of 15.61%. These metrics represent continued meaningful improvement over the prior year and have provided incremental capital flexibility. Our tangible book value per share of $27.71 at quarter end was 12.8% higher than a year ago. Our capital utilization priorities remain focused on supporting organic growth while continuing our longstanding commitment to annual dividend improvement. Accordingly, we are pleased to announce that we have increased our quarterly cash dividend for the 14th consecutive year. At $0.40 per share for the third quarter of 2026, This increase of 8.1% over the prior year quarter affirms our continued commitment to providing favorable long-term returns to our shareholders. In addition, our strong capital levels continue to allow us to evaluate a variety of strategic opportunities, as well as opportunistic share repurchases, including 318,000 shares purchased in the first half of 2026. Momentum across upstate New York's semiconductor corridor continues to build. Construction activity at the Micron site near Syracuse has advanced meaningfully, and we are beginning to see related opportunities materialize across infrastructure, construction, and professional services sectors throughout the region. In addition to activity at the site itself, there is increasing focus on housing and community development initiatives designed to support workforce needs. Taken together, these investments reinforce our positive outlook for long-term economic growth across Central New York. More broadly, we remain encouraged by the opportunities we see across our seven-state footprint. Through support of economic development projects, customer expansion activity, and our own recently announced investments in new locations in the Rochester and Southern Maine markets, We continue to position NBT for sustainable growth while supporting the communities we serve. With strong balance sheet fundamentals, healthy loan growth, and continued momentum across our franchise, we are well positioned going into the second half of 2026. I will now turn the meeting over to Annette to review our second quarter results with you in detail. Annette?

Thank you, Scott, and good morning. Turning to the results overview page of our earnings presentation, We reported second quarter net income of $53 million, or $1.02 per diluted common share. Compared to the second quarter of 2025, we have improved operating earnings by 15%. Earnings benefited from record revenues driven by net interest margin expansion, loan growth, and strong contributions from our non-interest income sources. We continue to generate year-over-year positive operating leverage during the quarter, with revenue growth of 9% outpacing expense growth of 6%. Turning to loans on the next page, total loans ended the quarter at $11.9 billion, increasing $276 million, or 2.4%, from December 31, 2025. All business lines experienced growth with commercial loans increasing $178 million and consumer loans increasing $98 million during the first six months of the year. The increase in commercial loans was well balanced between CNI and CRE relationships with all markets across our footprint experiencing positive customer activity and contributing to the growth. Commercial loan payoffs remained elevated compared to last year but decreased from the prior quarter. On page six, total deposits were $13.5 billion at quarter end and increased modestly from year end levels. Deposits declined $205.7 million from March 31st, 2026, primarily due to expected seasonal municipal outflows. Municipal deposit balances typically build during the first and third quarters with tax collection activity and decline as those funds are dispersed resulting in seasonal fluctuations throughout the year. We have maintained a strong funding profile with almost 60% of total deposits in no and low cost checking and savings accounts at a blended cost of just under 40 basis points. Total deposit costs declined by one basis point during the quarter to 1.33% while the total cost of funds declined to 1.41%. From year end levels, we have experienced a favorable change in our mix of deposits out of higher cost time deposits and into checking, savings, and money market products. We continue to tactically manage funding strategies to grow relationships while still maintaining better than peer cost of funds. The next slide highlights changes in net interest income and margin. Our net interest margin increased to a record, excuse me, our net interest income increased to a record $137 million up $3 million from the first quarter and more than 10% above the second quarter of 2025. The increase from the first quarter was driven by organic growth in interest earning assets and a decrease in funding costs, along with the benefit of one additional calendar day in the quarter. Net interest margin increased one basis point to 3.73% compared with the prior quarter. Our balance sheet remains well positioned across a variety of interest rate environments and continues to demonstrate relatively low sensitivity to rate changes. The opportunity for further upward movement in earning asset yields and net interest margin will largely depend on the shape of the yield curve with the reinvestment of loan and investment portfolio cash flows. The trends in non-interest income are outlined on page 8. Excluding securities gains, our fee income was $49.6 million, consistent with the prior quarter, and increased 5.8% from the second quarter of 2025. Growth was led by retirement plan administration revenue, which increased 7.8% from the prior year. Combined revenues from the retirement plan services, wealth management, and insurance services generated more than $32 million in quarterly revenues. Non-interest income represented approximately 27% of total revenues in the second quarter and reflects the strength of our diversified revenue base. Total operating expenses declined 0.7% from the prior quarter. Salaries and employee benefit costs were $69 million, a modest increase from the prior quarter. This increase was primarily driven by the full quarter impact of merit increases implemented in March, one additional payroll day, and higher medical costs, partially offset by lower payroll taxes and stock-based compensation costs, which are seasonally higher in the first quarter. The quarter-over-quarter decrease in occupancy expenses was expected, driven by the decline in seasonal costs, primarily maintenance and utilities. Slide 10 provides an overview of key asset quality metrics. Provision expense for the three months ended June 30, 2026, was $6.1 million compared to $5.6 million for the first quarter of 2026. The increase in the provision for loan losses during the quarter was primarily due to providing for the second quarter's loan growth. Reserves were 1.18% of total loans and covered more than two times the level of non-performing loans. Our second quarter results continued our positive momentum over the last several quarters with quality earnings and strong activity levels across all our markets and business lines. We continue to benefit from a diversified balance sheet, strong fee-based businesses, disciplined risk management, and ample capital levels. We remain well positioned to support our customers, invest in our franchise, and create long-term value for our shareholders. Thank you for our interest in our results. At this time, we welcome any questions you may have.

Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. One moment while we compile the Q&A roster. And our first question will come from the line of Seti Strickland with Hovday Group. Your line is open.

Hey, good morning Scott and Annette.

Morning, Freddie. Congratulations on your family addition.

Thank you very much. I wanted to start on loans. Pretty positive step up in growth in the second quarter. Really healthy amount of commercial in particular. Scott, based on your opening comments, is it fair we expect maybe a step up in net new growth in the second half?

Thanks for the question. I think if you heard from us in the first quarter, what we said was we thought there were some delays in both loan closings and activity generation in the first quarter, some of that weather-related and some of that just timing. I'm not sure we can replicate second quarter growth activity, but I think the first half is indicative of what we're really capable of thinking about for the balance of the year and more on a go-forward trend basis. So really good activity on both CRE and CNI opportunities. Our second quarter was also pretty robust on the indirect auto growth side. Auto sales were really, really strong in the second quarter, and we participated in that strong growth. So I wouldn't think that on the indirect auto side, the second half would be quite as strong as we enjoyed in the second quarter.

Got it. On indirect auto, I noticed the new origination yields had stepped down a decent bit. Is that just competitive pressures there, or what was more the driver?

Yeah, I think your observation is correct. I think that that is competitive. But remember, that asset class is really a good spot for us because it's a very fast-turning asset. Low Duration Portfolio, and if you compare that to other opportunities that we have to deploy some of our net liquidity on our balance sheet, something that has a yield north of 5% and very, very desirable loss characteristics with a 24 to 36-month expected duration is really, really positive.

And if I can just squeeze in one more, just wanted to ask, you know, maybe where you see the most opportunity for organic fill in across the footprint. I think you talked about maybe some opportunities in New England last quarter and just curious if you're seeing maybe some areas where you can pick up talent.

Yeah, so good question again. And Joe and his teams on the bank side have really been focused on that in a number of spots where we've had activities, whether they be other M&A activities where there's been some disruption. or to your point, just sort of natural fill-in growth. So we've made some commitments in, you know, south of Portland. You know, we had a new branch that we opened earlier in the year and we have plans to do another one in early 2027. You know, we're looking at some continued opportunities in southern New Hampshire, you know, again to, you know, better place ourselves from a branding standpoint in those markets because they're doing quite well at the same. I think we've also made some announcements that we've committed to two sites in the greater Rochester market. and in fairness are probably looking at a couple more. And we did not have representation sort of in the city or the city west side in Rochester, so we were focused on that. There's some other opportunities in some communities south of Rochester that really fit our business model well, so we'll spend some additional time looking there. Broadly, filling in what is now a Buffalo, New York to Portland, Maine, Wilkes-Barre, Pennsylvania. It's a Burlington franchise. There's plenty of opportunities for enhancement of that from a geographic fill-in. And we do think that we're landing some additional people from banks our size and larger who think that our platform is something that they can thrive in and grow with.

All right, great. Thank you for the color and for hosting us today. Appreciate the questions.

Thank you. One moment for our next question. and that will come from the line of Matthew Brees with Stevens. Your line is open.

Hey, good morning. Annette, you talked about the margin, the yield curve a little bit. Just curious what the NIM outlook is from here and then within that kind of expectations for deposit costs and loan yields given intensifying competition and some of the new origination data you provided in the deck.

Sure, Matt, happy to unpack that for you. So, you know, when we think about looking forward, you know, our originations are probably going to be probably more concentrated in commercial, you know, a little bit in resi mortgage, and those still have the opportunity to reprice upward. We do think that there is competition in our markets, so some of that upward opportunity is probably going to be influenced by some tightening or some acquisition costs related to deposit costs. But given where the yield curve is today, we still think there's some opportunity for some modest margin improvement over the next couple of quarters, just given where the interest rates are today.

If you look at the spot cost deposits at period end versus the average, are you starting to see an inflection there or do you anticipate one by the end of the year?

It's a really good question, Annette. I'll start on this one. Spot costs and where we are are so close to what the quarterly results were. But in terms of initiating new customer relationships, they are coming with a slightly higher cost on a blended basis, which makes it so incumbent on us to continue to open no-cost or low-cost checking. and we're focused on that we have really good programs for that we've grown those balances this year productively while we've been able to sort of separate ourselves from some higher yielding CD whether that's on the personal side or on the business side so I think the direction we're going you know going to that side I think our markets are definitely competitive and I think there's other people that have looked at our markets and said Not only us, but some of our competition have really effectively managed funding costs for a long period of time. So there might be some opportunities for somebody else from a share take standpoint. But we're actually seeing really responsible activities across most of our markets. So that person, if somebody's going to try to take a little bit of share, that has not been widespread. And I think, quite frankly, like us, most people are tactically managing their funding costs on a very, very granular level.

A couple others. First, just expenses came in a little bit better than I was expecting, and I guess it shouldn't be a surprise. Occupancy costs were down quite a bit given the winter. Maybe just talk a little bit about the ins and outs this quarter and expectations for the remainder of the year. I think we had talked about maybe 3% year-over-year growth, and maybe just talk a little bit about that.

Yeah, yeah, sure, Matt. So, you know, as a reminder, probably the back half of the year we're going to see an additional payroll day, so that's going to influence the next two quarters. And then, you know, probably seeing some increased activities associated with, you know, just revenue growth in the market and the associated incentive compensation with that, and as well as some technology investments. We'll probably see some creep in our OpEx on a quarter-to-quarter basis, but still in that 2.5% to 3% target for the year.

Okay. And then the last one is just, it struck me as odd, just given market dynamics, that wealth management fees were down a little bit this quarter. A lot of your peers are kind of up, and I was curious if there was anything one time in there or unusual in there, or maybe just timing based on the way fees are calculated. That's all I had. Thanks.

Yeah, great question. There was some timing related to some activity-based fees, which were a little bit stronger in the last two quarters than what we saw in this quarter, as well as some personnel open positions looking to hire. So that had a little bit of impact on our expectations around production. So that had an influence on the quarter as well for wealth management.

Great. I'll leave it there. Thank you. Thanks, Matt.

Thank you. And our next question will come from the line of Manuel Navas with Piper Sandler. Your line is open.

Hey, I understand deposits decline a bit on seasonality, but what's kind of your thoughts on the deposit pipeline going forward? How are you converting your strong CNI growth into deposits? Anything you could add on color on that front?

Thanks for the question. I'll start with that. You're spot on. C&I growth opens up that opportunity for us to introduce our very robust treasury management platform, and our success rate relative to that is very, very high. So our customers think that that's a very valuable tool for them. It does help them manage their funds. So at some points in time, you know, when we see customers move certain of their excess balances into something with a little bit higher yield, we shouldn't be surprised because the tool is, quite frankly, very intuitive for that. But that being said, makes the relationship very, very sticky. And with that focus on the C&I side, quite frankly, we think the opportunity to capitalize and deposit opportunities is probably every bit as good as it is on the lending side.

Do you have a sense of how much was funded so far and how much could be funded in the future? Just kind of your projections around that. and the deposits that follow this loan growth.

Yeah, it's a bit of, you know, when you open a new relationship, it's a bit of a longer cycle. I mean, I think the world has, you know, sort of commented to this that it takes a while to move your relationship, especially a business banking relationship or a commercial relationship. So we do think that there's more to come with the success of new account openings. What's that period from an elongation standpoint? You know, probably measured in quarters, not weeks and days, but there should be more there. I think we kind of look at it this way to say net new accounts on the commercial and business banking side will ultimately result in deposit growth over time. Because as customers tend to have productive, profitable businesses, they tend to leave a lot of that in the business for future investment opportunities. So we do think that's an important one. It doesn't really matter whether it's the commercial side of the house or the personal side of the house. Checking is the lead product, and that's what we're really good at, and that's what we're really focused on is how we incentivize our folks. So, you know, I think we feel really good about the initiatives that are in place to continue to grow there.

I appreciate that. Thank you. I'll jump back into the queue.

Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1-1. And our next question will come from the line of Jacob Civello with DA Davidson. Your line is open.

Good morning, Scott. Good morning, Annette.

Hey, good morning, Jake.

Last quarter you talked about maybe a dozen customers securing contracts associated with a Micron project. And I heard your positive take on the pace of construction progress in your prepared remarks, but do you have any other thoughts on an update on the direct customer impact this quarter?

Good question. I don't, Jake. I think it's pretty much the same. You know, those things that, you know, because it's site preparation and the early stages of construction, you know, I think those gains for our customers, you know, continue to work through that. I think what's probably next in line is this continued focus or this renewed focus on workforce planning. So whether that's on the training side, we have some customers who provide those types of services, or if it's on the housing development side. So there's been a community development fund that has been funded by several constituencies in our markets, including us, And so that's getting a little bit more attention as some of the dates for the need for additional people in the marketplace become slightly more certain. The folks from Micron really haven't changed their outline too radically different. It's site preparation now. They're pouring a little cement. It's steel in the ground next year to build up toward production in 2030. So that really hasn't changed. But to your point, additional contracts, Micron has hired the national firm Bechtel to manage the build-out of the actual chip fab facility itself. So they're beginning to start to do subcontracting awards, and a lot of those awards to date are being awarded to businesses in central and upstate New York.

That's great to hear. Is there anything anecdotal that you're hearing with respect to workforce housing for any of the necessary construction housing for the influx of people that are coming over the course of the next couple years?

Good question, Jake. And, you know, what we're hearing today is that we just know that our region historically has been a little slow to approve projects. You know, greater New York State or upstate New York has that reputation. True or not, but it's something that the folks from an industrial development standpoint are working on diligently. We haven't seen the launch of any real substantive new tracks of housing, but we're getting opportunities to look at plans for some multifamily housing in the market, similar to what we experienced in the greater Saratoga market with the build-out of global foundries over the last five to seven years.

Okay, great. Thank you, Scott. Shifting gears, any thoughts on the sequential increase in the securities portfolio on an absolute dollar basis? And then do you expect that the yield on that portfolio can continue to increase in the back half of the year given your current purchase yields?

So where we are, we did do a little bit of, I don't want to call it pre-investing, but we knew what our cash flows were for 2026, and we did take the opportunity to get in front of that. So we do think that our activity, our growth activity in the second quarter is not likely to represent where we are in the third and the fourth from a net growth in the portfolio. That being said, where the portfolio sits today, we're in that ballpark of $350 to $400 million of expected cash flows on a 12-month basis. And because we did not do a restructuring, new yields are better than portfolio yields.

So it's not unreasonable to think that the average yield on that portfolio will continue to increase, assuming rates stay stable.

Oh, for sure, Jake. Absolutely.

Yeah. Okay. And last question for me. I know you spoke a bit about expenses already, but it was nice to see the efficiency ratio back below 60% in the quarter. Do you think you can maintain the efficiency ratio at or below that level in the back half of the year?

So I would say simplistically, yes. I think we have an opportunity in the back half of the year. We typically see our fee-based businesses have a strong third quarter, and some of that expense follows along with that. But generally with where our net interest margin is today, and our fee-based businesses able to grow in that mid-signal digits and how we're managing our operating costs, I think that's a good place for us to be.

And I'll add to that, and Jake, you've heard this from us, so it'll probably sound like a broken record, but We aspire to just grow revenues faster than we grow expenses. And, you know, and over the last sort of six quarters, certainly improvement in net interest margin has aided that effort noticeably. But, you know, regardless of the interest rate environment, that's the tack we take from a management standpoint.

Great. Thank you.

Thanks, Jake.

And we do have a follow-up question that will come from the line of Manuel Navas with Piper Sandler. Your line is open.

A post cannabis stronger growth was in the second quarter with a little bit of delayed closings. If growth normalizes a little bit, could you see the buyback tick back up? Can you just kind of talk about the appetite for the buyback given expected growth in a quarter?

Yeah, so good question, and thanks for asking. You know, our thought process there has been that, and I think we've said this before, is, you know, where we are today from a run rate of EPS generation at four bucks or a little above and a dividend payout of 40 cents a quarter, you know, we're accumulating about $125 million of capital a year. That supports a lot of organic growth, certainly at a level meaningfully above where we are today, despite having a really strong second quarter. So we're focused on that first. And I do think as it relates to the buyback, we like to think of it as an opportunistic way to return proceeds to shareholders. But it's never been the primary source of EPS growth for us. And I kind of think we think about it this way. We work so hard and diligently to generate that capital. We're going to be very disciplined of how we deploy it and use it, including disciplined around the entry points for share buybacks. The authorization is out there. It may make perfect sense for us to continue to utilize that at various levels of our share price. But we're diligent about how we think about that.

I appreciate that update.

Thank you. As a reminder, if you would like to ask a question, please press star 1-1. I am not showing any further questions. Actually, we do have a follow-up from Matthew Brees with Stevens. Your line is open.

Sorry for the little bit of a pause there, but Nobody asked it, so I will. Scott, I felt like you hinted a little bit about filling in between the various geographies, and I'm curious what that meant in terms of updated thoughts around M&A. It's been kind of slow activity-wise in the Northeast, mid-Atlantic, and I'm curious if conversations are mimicking that, meaning conversations are slow as well from your end.

Yeah, Matt, so thanks for asking, by the way. We will accept the modest hesitation to answer that one. So our approach has not changed radically different. We're in the market talking to like-minded, smaller community banks all the time. So we're in front of a dozen, 15 people a year in our markets. Thank you so much for joining us. All we want to make sure is we're in front of people so that they know the opportunity so that if at some point in time independence is not in their future, they understand the value proposition for their company and their shareholders with NBT. So that's what we kind of lean on. But yes, we're active in the market. You know, there's been a handful of transactions in our markets over the last three to six months. You know, some of those, you know, we've done some analysis on and others we have not, you know, What's happened so far has not been the perfect fits for us. Another thing when you think about a fill-in strategy, our aspiration is to be in the top three in market share in most of the markets we participate over a period of time. So when you get to that point, Adding an additional franchise sometimes has a concentration issue attached to it. So there were a couple of transactions in our markets that were really not actionable for us because we were going to have market concentration issues. And frankly, we probably wouldn't do a transaction where we had to embrace divestiture of anything. You know, usually at the size that we're interested in, That's all I had. Appreciate it. Thank you. Thank you, Matt. Thank you.

And we do have a question from the line of Daniel Cardenas with Brain Capital. Your line is open.

Good morning, guys. So just a quick follow-up question on the M&A strategy there. You could remind us, what's the size range of institution that you would be looking for?

Good question. I think that, Dan, we kind of think about something has to be large enough for us to deploy the organization on the analysis and the integration. And so the size of Salisbury Bank a couple of years ago and Evans last year met that criteria spot on. So something that's a billion dollars to three billion dollars, definitely in our sweet spot, and something we think the organization can handle while it is still aspiring to have organic growth at the same time. In certain situations where if an organization was a little smaller than that, but maybe they had a unique non-interest income offering, whether that's on the insurance or wealth side, or the benefits side. Yeah, we would absolutely look at that. But again, deploying our folks and taking them away from their natural activities is something we do think about when we go through that. Do we do some analysis on stuff that's a little bit larger? We probably do. But I think right now we're really, really good at M&A. And I think that takes an effort. both on the structural side as well as the integration and follow-up side. So our people have done a great job, and we've really acquired some really, really talented people in the last four years. So we're always interested in that because we're always interested in adding talented people to our organization, and if that fits some of our geographic strategies, better yet.

Okay, good. Good, and then... It sounds like you're in various stages of conversation, some early, some maybe a little bit further along, but can you comment on kind of the buyer-seller disconnect?

I don't know that there's a disconnect. I'm a complete believer in that organizations that are sellers make the choice as to when they want to do that, and we're okay with that. I mean, if somebody's pursuing an independent strategy, great, and so are we. That's similar to us. So we understand that. When circumstances for either succession or technology investment or something else a shareholder need present themselves, we just want to be in front of someone so that we're top of mind.

Okay, great. That's all I have for right now. Thank you, guys. Thanks, Dan.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back to Scott Kingsley for any closing remarks.

Thank you. I want to thank everyone on the call for participating with us today, and thanks for your continued interest in NBT. We'll talk at the end of next quarter.

Thank you, Mr. Kingsley. This concludes our program. You may disconnect, and have a great day.