NBT BANCORP INC Q1 FY2025 earnings call

• Operating performance: Operating return on assets was 1.11%, return on equity 10%, and ROTCE 14%, showing continued improvement over prior quarters with positive operating leverage.
• Net interest margin: Improved for the fourth consecutive quarter, driven by growing earning assets and lowering funding costs.
• Non-interest income: Constituted 31% of total revenues, with non-banking businesses achieving productive improvements.
• Shareholders' equity: Added over $100 million in the past fifteen months from productive earnings generation and higher dividends paid.
• Growth strategies: Activity in upstate New York's semiconductor chip corridor, with the Evans Bancorp merger set to close May 2nd, integrating over 200 employees and 40,000 customers.
• Deposit mix: 58% no/low-cost checking/savings, 42% time/money market, with municipal deposits concentrated in Q1 and Q3.
• Net interest income details: Increased $1.1 million from the prior quarter, driven by lower deposit costs, offset by fewer calendar days. Loan yields decreased 3 basis points to 5.62%, deposit costs decreased 11 basis points to 1.49%.
• Non-interest income: Fee income was $47.6 million, up 12.7% from the prior quarter, constituting 31% of total revenues.
• Operating expenses: Down 1.1% from the prior quarter, with salaries and employee benefit costs decreasing due to lower benefits and incentive comp, offset by higher payroll taxes and stock-based comp.
• Asset quality: Net charge-offs to average loans were 27 basis points, excluding a $2.1 million write-down for a commercial real estate loan, it was 18 basis points. Past due loans were 32 basis points, and reserve coverage was 1.17% of total loans.

In the first quarter, NBT Bancorp Inc. reported net income of $36.7 million or $0.77 per share. Operating return on assets was 1.11%, return on equity 10%, and ROTCE 14%. Non-interest income made up 31% of total revenues. Earning assets were grown, and funding costs were lowered, improving net interest margin for the fourth consecutive quarter. Loans totaled $10 billion, with 53% commercial relationships and 47% consumer loans. Deposits were $11.7 billion, with 58% in no and low-cost checking/savings accounts and 42% in time and money market accounts. Net interest margin was 3.44%, net interest income $107.2 million. Non-interest income was $47.6 million, up 12.7% from the prior quarter. Operating expenses were $98.7 million, down 1.1% from the prior quarter. Net charge-offs to average loans were 27 basis points, excluding a $2.1 million write-down for a commercial real estate loan, it was 18 basis points.

• Loan growth: Initially expected 3-5% growth, but now more in the 2-3% range due to macro uncertainty and customer response to economic conditions.
• Evans merger: Expected to provide opportunities for bankers from Evans to leverage NBT's larger balance sheet to expand client relationships.
• Margin outlook: There is $2 billion of loan portfolio cash flows expected to reprice, with more pickup on the commercial side as new production yields are higher than existing portfolio yields.

• Macro uncertainties: Impact on customer timing of capital expenditures and hiring, affecting loan growth and business decisions.
• Competition: Some small banks in certain markets competing outside of NBT's comfort levels.
• Commercial real estate: Exposure to a specific commercial real estate credit, remaining at $11.5-12 million, written down to fair value and moving to foreclosure.
• Market volatility: Impact on fee-based income, especially for wealth management (70% market sensitive) and retirement plan services (32% market sensitive).

Q: Thoughts on demand for credit in your market, where are you seeing strength and weakness, and client anecdotes?

A: Pipelines are good, consistent with last year's levels across markets. Macro uncertainties make people ask about timing of capital expenditures and hiring, but no customers are abandoning projects.

Q: On the supply of credit, how is competition and pricing?

A: Generally reasonable and disciplined, though a few small banks in some markets may compete outside of comfort levels occasionally.

Q: With the Evans deal set to close, do you see opportunities for Evans bankers to leverage NBT's balance sheet to expand client relationships?

A: Absolutely, the ability to use a larger balance sheet will help Evans bankers compete and fully cover client relationships, with the onboarding process going exceptionally well.

Q: Given Trump's comments on the CHIPS Act, is there concern about rescinding committed dollars or delays for Micron projects?

A: There are contractual obligations, but the underlying tone is still in favor of manufacturing semiconductors in the US, with projects moving along though Micron has pushed back shovel-in-the-ground timing.

Q: Thoughts on fee income and expected loan growth in the second quarter?

A: Fee income run rate was about $46 million when backing out BOLI gain, with market volatility potentially impacting second quarter fees. Loan growth is now expected to be in the 2-3% range due to macro uncertainty and customer response.

Q: On the charge-off, which portfolios are leading and your portion of a specific commercial real estate credit?

A: Charge-offs are led by auto and residential solar portfolios. The remaining exposure to the specific commercial real estate credit is around $11.5 to $12 million, written down to fair value and moving to foreclosure.