NBT Bancorp Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 23, 2024

There are 8 speakers on the call.

Operator

Good day, everyone. Welcome to the conference call covering NBT Bancorp's First 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 atntbbancorp.com. Before the call begins, NBT's management would like to remind listeners that as noted on Slide 2, today's presentation may contain forward looking statements as defined by the Securities and Exchange Commission.

Operator

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.

Operator

Instructions will follow at that time. As a reminder, this call is being recorded. I will now turn the conference over to NBT Bancorp's President and CEO, John H. Watt Jr. For his opening remarks.

Operator

Mr. Watt, please begin.

Speaker 1

Thank you, Victor, and good morning and thank you all for participating in this earnings call covering NBT Bancorp's Q1 2024 results. Joining me today are NBT's Chief Financial Officer, Scott Kingsley our Chief Accounting Officer, Annette Burns and our President of Retail Banking, Joe Stagliano. As we announced in January, I will step down from my role as President and CEO on May 21. At that time, we will complete what has been a very thoughtful and disciplined succession process led by our Board of Directors. I could not be happier for our shareholders, customers, employees and communities that my successor is Scott Kingsley, a highly regarded professional who will make this a seamless transition.

Speaker 1

In addition, Joe Stagliano will assume the title of President of NBT Bank and my colleague of over 15 years, Annette Burns, will become our Chief Financial Officer. Each of these internal promotions will help assure that NBT maintains its momentum in 2024 and beyond. And as I have said many times since the January announcement, all the constituents of NBT are averaging up in every way with this team. I want to take this opportunity to thank the institutional investment community and the sell side analysts who covered Alliance Financial while I was there and NBT over the years for your interest in our story. It has been a pleasure to get to know you and to work with you for over 20 years.

Speaker 1

As I turn over the leadership of NBT, the wind is at our back and NBT is poised to participate in the transformational growth that will occur in the core markets we serve in Upstate New York as the result of multiple game changing investments in semiconductor manufacturing. Last week, it was announced that the U. S. Department of Commerce has entered into an agreement with Micron Technology to provide a CHIPS Act that will in part support its plans to invest as much as $100,000,000,000 in a complex of semiconductor fabrication plants in the town of Clay near Syracuse. Additional support for the Clay complex includes $5,500,000,000 in jobs tax credits from the New York State Green Chips Act program and significant infrastructure investments by the state and Onondaga County.

Speaker 1

This follows an announcement in February by Global Foundries in the Capital District that the CHIPS Act will provide direct funding of 1 point $5,000,000,000 to build another fab manufacturing facility in Malthill, New York and to upgrade its facility in Essex Junction, Vermont. New York State will also provide $575,000,000 in direct funding for the Malta project, Combined an additional 1500 manufacturing jobs and 9,000 construction jobs are projected from this investment alone. 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 chip corridor. So now I will turn over to the team for discussion of our financial performance in the last quarter in the Q1 and in doing so assure you that our shareholders are in very capable and experienced hands going forward. Scott?

Speaker 1

Good morning and thank you. John, we have sincerely appreciated your support and guidance and look forward to your continued engagement as Board Vice Chairman as

Speaker 2

well as your energy and leadership in capitalizing on the exciting opportunities in our markets in the Upstate New York Semiconductor Manufacturing Corridor. Our first quarter operating results including earnings per share of $0.68 were in line with our expectations. Our team generated $78,000,000 of incremental loan growth or 3.6% annualized in the Q1 in our core portfolios. Customer health and sentiment continues to be favorable. We grew deposit funding in the 1st quarter, primarily from seasonal municipal inflows, while importantly adding net new accounts.

Speaker 2

Our non interest income generation continued to improve and represented 31% of total revenues in the Q1. Despite some AOCI declines related to higher midterm interest rates, our tangible equity ratio ended the quarter higher and our Tier 1 leverage ratio of 10.09% is more than 2 times the regulatory required level. The team is productively working through our planned leadership transition and I am very grateful for their continued focus and discipline. With that, I will turn it over to Annette for some more detailed comments on Q1 financial results. Annette?

Speaker 3

Thank you, Scott, and good morning, everyone. Turning to the results overview page of our earnings presentation. Our Q1 earnings per share were $0.71 Operating earnings per share were $0.68 which excludes $0.03 per share of securities gains. Our net interest margin in the Q1 of 2024 was 3.14%, which was down one basis point from the linked Q4 of 2023 as our 5 basis points of earning asset yield improvement nearly offset our increase in funding costs in the quarter. Tangible book value per share of $22.07 at March 31st was up $0.35 per share from the end of the 4th quarter and up $0.55 from the Q1 of 2023.

Speaker 3

The next page shows trends in outstanding loans. Total loans were up $37,400,000 for the quarter or 1.6% annualized and included growth in both our consumer and commercial portfolios. Excluding the other consumer and residential solar portfolios that are in a planned contractual runoff status, loans increased 78,000,000 percent annualized. 1st quarter loan yields were up 7 basis points from the Q4 of 2023, reflective of continued higher new origination rates. Our total loan portfolio of $9,690,000,000 remains very well diversified and is comprised of 52% commercial relationships and 48% consumer loans.

Speaker 3

On Page 6, total deposits of $11,200,000,000 were up $226,000,000 from the linked 4th quarter due to 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. The company continues to experience some remixing from no interest and low interest savings and checking accounts into higher yielding money market and time deposit instruments. Our quarterly cost of total deposits increased to 161 basis points, up 10 basis points from the prior quarter. We have included a summary of our deposit mix by type, which illustrates the diversification and deep granularity of our customer base.

Speaker 3

The next slide looks at detailed changes in our net interest income and margin. The 1st quarter net interest income was $4,000,000 below the linked 4th quarter results. The primary drivers to the decrease in net interest income was a decline in the company's quarterly average Fed funds sold position and one less calendar day in the Q1. Although we experienced a slower rate of growth in the cost of funds in the quarter, we expect modest additional funding pressures to continue. The trends in non interest income are summarized on page 8.

Speaker 3

Excluding securities gains of $2,300,000 our fee income was $43,000,000 up 5 point $2,000,000 or 14% from the linked 4th quarter and up $6,800,000 or 19% from the Q1 of 2023. Revenues from our retirement plan administration business were up $3,100,000 from the 4th quarter comprised of actuarial and other activity based fees in the Q1, customer account growth and positive market performance. The Q1 Wealth Management Services benefited from favorable market performance and organic growth. Insurance agency revenues are also seasonally stronger and reflect a higher level of policy renewals in the Q1. The diversification of our revenue generation sources continues to be a core strength of the company and represented 31% of total revenues.

Speaker 3

Turning to non interest expense. Our total operating expenses were $91,800,000 for the quarter, which were $4,000,000 or 4.6% above the linked 4th quarter, excluding acquisition expenses and an impairment charge in Q4, 2023. Tyler's employee benefit costs of $55,700,000 were 11 point 4% higher than the linked 4th quarter. The increase can be attributed to seasonally higher payroll taxes and stock based compensation expense, merit pay increases effective in March and higher incentive compensation costs compared to the very low level of incentive costs recorded in Q4 2023. The higher first quarter benefit costs accounted for approximately $0.03 per share, which will be partly offset by a full quarter impact of merit increases for the remainder of the year and one additional day of payroll in the last two quarters of the year.

Speaker 3

The quarter over quarter increase in occupancy expenses was expected driven by increases in seasonal costs including utilities and higher maintenance costs. Professional services and other expenses were lower due to timing of initiatives. The elevated occupancy expense in the first quarter is historically offset by higher other operating costs in the remainder remaining 3 quarters of 2024. On the next slide, we provide an overview of key asset quality metrics. We recorded a loan loss provision expense of $5,600,000 in the 1st quarter, which was $500,000 higher than the $5,100,000 provision recorded in the linked 4th quarter.

Speaker 3

Net charge offs to total loans were 19 basis points in the Q1 of 2024 compared to 22 basis points in the prior quarter. Reserve coverage of 1.19% of total loans was consistent with the linked Q4. We believe that charge off activity will continue to trend toward more historical norms and expected balance sheet growth and continued mix changes will likely be the drivers of future provisioning needs. Non performing loans were also consistent with the prior quarter. In closing, in this interest rate environment, we would expect to see the continuation of slowing NIM compression as our earning assets continue to reprice higher, mostly offsetting increases to our cost of funds.

Speaker 3

Our well balanced organic loan growth, granular deposit base, positive results from our recurring fee income lines and solid credit quality have allowed us to productively offset a portion of the challenges on net interest income generation. Lastly, our capital levels continue to put us in a favorable position as we consider future growth and deployment opportunities. With that, we're happy to answer any questions you may have at this time.

Operator

Thank you. Our first question comes from the line of Steve Moss from Raymond James. Your line is open.

Speaker 4

Hey, good morning. This is Thomas pinching for Steve.

Speaker 1

Good morning, Tom. Good morning.

Speaker 4

Hey, good morning, John and Scott. It sounds like there was a lot of seasonal noise in the fee income line this quarter. I was wondering maybe you can provide us with a range for a run rate for that through the rest of this year?

Speaker 3

Sure, Thomas. I'd be happy to answer that. Our run rate or the seasonal activity in the Q1 was probably about $0.01 to 2 basis 0 point 0 $0.02 in the quarter. Thinking forward, another tailwind for the quarter, we had some very strong market performance in both our wealth management and our retirement plan businesses. So if that continues or that's a variable when we think about our run rate for noninterest income.

Speaker 4

Okay. Thank you for that color. I guess then just maybe moving to credit here. I see that indirect auto charge offs stepped up a little bit, 20 ish basis points, still really low. But can you maybe provide us with a normalized charge off ratio for that line?

Speaker 4

And maybe any color on trends you're seeing there?

Speaker 2

So sure, Thomas. We really haven't seen much of an inflection, those levels higher than the 2022, 2023 levels, which were exaggeratedly low by any historical comparison. If we were to go all the way back to 20 19, charge offs in indirect auto were closer to 30 basis points. And I know it doesn't look like our trends will take us there instantaneously. But if you think about it on a long term basis, we would still think the portfolio was performing very close to our expectations on a longer term basis, If that low 20s moved closer to 30.

Speaker 2

As we start to forward project that the customer still looks like they're very healthy relative to serving their obligations. And again, as a reminder, if you think about most of the geographies that we are in, there's not a big plethora of public transportation. So people are servicing their auto obligations because they're trying to get to work.

Speaker 4

Okay, great. Thanks for that. And then just one more for me. It looks like the residential solar reserve continued to build, aided by continued runoff. Can you maybe share with us where you see that reserve ratio peaking out?

Speaker 3

Sure. I wouldn't expect it to change significantly from where it's at today. We continue to it's a longer term asset. So some of that increase is just the extension given prepayment assumptions. We're very comfortable with the level of reserves that are at today and probably wouldn't expect it to tick up much higher.

Speaker 4

Okay. Thank you for all those details. I'll step out.

Speaker 2

Appreciate the questions, Thomas. Thank you.

Operator

Thank you. One moment for our next question. And our next

Speaker 5

I'm not sure who should answer this question. But I was curious on the solar portfolio. What is the ultimate goal there in terms of runoff? What are we defining as kind of like the appropriate size for that as a percentage of total loans?

Speaker 2

So I would frame it this way, Matt, is that, as you know, our strategy, even a couple of years ago or even before that was to bring the assets on the balance sheet to some number just below $1,000,000,000 depending on market demand and we reached that. Initially, we thought from that point in time, we would inflect and become more of a servicer of obligations that with our partner that we would probably be selling or they would be selling future originations. It's probably an understatement to say that the solar residential industry has been under assault since rates started to go up. And it's really just a function of liquidity capacity to be able to service or to be able to add people to the roster of forward liquidity source. So for us, I would say at this point in time, we don't think we'll be adding to that line.

Speaker 2

In fairness, we think contractual runoff just based on terms and conditions of the loans we've already made will bring those portfolios down over time like we experienced in the Q1. That combined with we still have about $100,000,000 of some consumer specialty credit on the balance sheet. So I would frame it this way. There's probably $1,000,000,000 that currently sits on the balance sheet that we would not expect to grow at a mid single digit rate that we talked about with most of our other portfolios. And instead, we'll probably experience contractual runoff.

Speaker 2

So again, similar to what we experienced in the Q1 where we said we had 1.6% annualized growth across the whole portfolio, but 3.5% or 3.6% upon the portfolios we're actually anticipating growing. Understood.

Speaker 5

Okay. And then just looking at the components of the NIM, one thing that does stand out is your securities portfolio is well behind current market rates. And I was curious, your thinking around potential restructurings or even nibbling at restructurings to kind of accelerate how fast you can get that to market rate levels?

Speaker 2

Yes. Matt, we continue to evaluate that from an opportunity standpoint. And again, we evaluate that against other utilization of capital today. So I think where we stand today, as we look at that portfolio and say, we're our portfolio is dominated by amortizing mortgage backed instruments. So we have natural cash flows coming off the portfolio probably to the tune of $14,000,000 to $16,000,000 a month.

Speaker 2

And those have been excellent sources to fund incremental loan growth or some of our other liquidity needs. We don't have plans in the near term to change that approach. Yes, the yield on that portfolio is in and around 2%. And certainly so it holds us back relative to NIM expansion. But again, if we can't make a solid case for taking that essentially risk free asset and using capital to restructure it, we're fine where it sits today.

Speaker 2

It helps us from an interest rate risk management. And we just think that today there are still better uses for our incremental capital other than turning out some portion of the investment securities only to replace it with like minded instruments that are 300 or 400 basis points higher. Got it. Okay.

Speaker 5

And I was curious thoughts around the NIM, the NIM outlook and when do we finally hit that kind of the parity moment between deposit cost increases and earning asset increases?

Speaker 2

I'll run at that and if Annette has more comments, she can chime in too. I think what we're pleased with is that the pace of decline has slowed down a 315% to a 314% outcome quarter over quarter. It's promising relative to finding a floor. But that being said, if you looked at us from just a sheer interest rate risk profile, we're very, very neutral. So as much as I think there's a school of thought out there that lower rates would allow for a huge pickup relative to the banking industry.

Speaker 2

For us, we thought it could have a positive impact, but that positive impact is almost more tactical, which is if the Fed were to lower rates, it would create an opportunity for us to go to our customer base and say, we have to lower some of our funding costs, costs that we have supported or we've supported our customers outcome for the last year and a half, we would have a reason to be able to say, the Fed is coming down and so are we. We're having that dialogue today on a tactical basis, but it's more centered around our inability to be able to say if we're going to offer competitive loan rates and those are typically priced at the midpoint of the curve. If incremental funding sources are coming from the front end, that inversion is just not very pleasant. And it's been out there for quite a while. And so from that practical standpoint, I believe we think margin management in and around where we're at today is probably likely to continue.

Speaker 2

And if the opportunity presents itself for our assets to reprice a little bit faster than any kind of mix change in the deposit side. We could be the net beneficiary of that. But I think we're pretty happy that we've sort of reached point that we think is sort of stable and supportable.

Speaker 5

Okay. And then understanding there was some a few one time or I should say seasonal items and expenses, I would just love kind of an idea of what we should expect expenses to shake out in the second quarter and then for the remainder of the year given some of those seasonal aspects?

Speaker 3

Sure, Matt. The seasonal cost we said was about $0.03 So you back that off. And then we know that the occupancy, we're expecting that to be offset by other upticks in costs like travel and training as those kind of resurface after the winter. So I think where we are at today plus or minus a few 100,000 depending on on the activity going forward probably the Q2 being down from the first and then as we said additional payroll days will impact the back half of the year. Okay.

Speaker 5

And then the last one for me. And John, I think this is in your ballpark is just optimism around upstate New York and the chip dollars that are flowing towards Micron and Global Foundries. It's hard to fathom how much money is actually going in these companies. When do you realistically start to see some of the benefits permeate down to your customers? Micron is at the break ground, I believe, by the end of the year.

Speaker 5

Can we start to feel the impacts sometime in early 2025? Is that a good guess?

Speaker 1

So I think 1st Q 'twenty five, the shovel goes in the ground. And I think depending on what sector you're in on the commercial and small business side, you're going to start feeling lift right around then. The number of subcontractors that are going to be necessary to accomplish this is very large. The planning around additional housing needs is well underway and projects will go in the ground next year, market rate, workforce housing, all of those things pick up momentum with this announcement of the grant last week. So it'll build.

Speaker 1

It'll build in 2025, 2026. I think the first fabricated chip rolls off the lineup there end of 'twenty six into 'twenty seven. That means there's probably 9,000 workers who have been hired and or will be hired. And that will also generate a lot of activity. That's just Central New York.

Speaker 1

Think about also bringing a fab plant out of the ground next to the existing GlobalFoundries plant in Malpa, New York, I cited the number of construction workers and full time technicians that are going to be necessary to man that plant once it's operational. So that also creates momentum. So on the consumer side, every one of them needs a car and a truck to get to work. Every one of them needs a house to live in or apartment to rent. All of that is going to generate positive economic activity.

Speaker 1

I think Scott and Annette have given some thought about when to start quantifying that. We still have to give that a little bit of time before we get out there with actual percentage growth forecast. But it's coming, it's real, and that shovel is going in the ground in Clay, New York in 1st Q 2025.

Speaker 5

I appreciate that. And John, just congratulations on retirement, well deserved, and I'm excited to see what you have in store for the next chapter. Thanks guys.

Speaker 1

Appreciate that, Matt. It's been a pleasure.

Operator

Thank

Speaker 1

you.

Operator

Our next question comes from the line of Christopher O'Connell from Keefe, Brugget and Woods. Your line is open.

Speaker 6

Hey, good morning. Good morning, Chris. So just wanted to circle back on the residential solar portfolio. Am I understanding it right? Is that going to run down to 0 now or is it just for the next few quarters it's in runoff mode and kind of reassess that another point in time down the line?

Speaker 2

I think that's a great way to frame it, Chris. For the foreseeable future, certainly in 20 24, we would not expect incremental originations to end up on our balance sheet. And then as we go forward, we'll see if that becomes an attractive spot for us to allocate our capital to grow some of that back over time. We still like the asset class. It's performed very well, probably better than our expectations.

Speaker 2

Remember, this is a homeowner who has decided

Speaker 4

We like the

Speaker 2

FICO band that that customer is in, We like the FICO band that that customer is in and we quite frankly think that's a customer that makes really good decisions. For us, we've always had to look at that and say, to the extent that not all of those originations were in the 7 states that we operate branches in, it is somewhat difficult to bank the customer on a holistic basis. So but that being said, we like the asset class. That asset class is capable of being pledged as collateral. And again, to date, it has performed above our expectations relative to asset quality performance.

Speaker 6

Great. And is the quarterly runoff similar to Q1 you think for the rest of the year?

Speaker 2

I think that's a pretty good estimate, Chris.

Speaker 6

Great. And can you remind us what the yields are on the resi solar and then also on the consumer specialty also running off, what the yields are on those?

Speaker 2

Yes. So Chris, we should probably go offline to get that from a detail standpoint. But if you looked at our existing portfolio today of consumer loans, and we're around 6% in total, I would argue that solar residential price fits right down the middle of that yield outcome. Some of the specialty stuff that we're in our relationship with Springstone and LendingClub that again is in a runoff status, those rates might be a touch higher. But again, that's mostly unsecured credit.

Speaker 2

So we would have expected that.

Speaker 6

Great. And can you just give us an update as far as the loan origination yields and what's coming on these days?

Speaker 2

Sure. On the commercial and the consumer side, we're in the low to mid 7% range, again depending on the asset class. In residential real estate, we're probably 6.25% to 6.5% currently and that's really a function of mix, 30 year versus 15 year instruments or adjustable rate mortgages versus fixed long term rates. To date, because volume characteristics in residential real estate are certainly lower than certain past years, We've been putting all of that into portfolio. If rates get to the point where we start to see a productive pickup in that, we always have the opportunity to sell to Fannie Mae or Freddie Mac.

Speaker 2

And but today, the amount of originations are not forcing us to do that from a liquidity sources standpoint.

Speaker 6

Great. And what's the runoff of these portfolios and expected strong pickup on kind of the commercial book going forward? How are you thinking about holistic net loan growth for this year? Has that changed at all from the start of the year?

Speaker 3

So I think that the Q1 loan growth is a good proxy for how we're thinking about the rest of the year. The mix might change a little bit, but that somewhere in the 3% to 5% change excluding the runoff portfolios is a good proxy.

Speaker 6

Great. That's helpful. And just wanted to confirm the comments on the expenses. There are some shifts from occupancy to kind of other areas and other and travel, kind of net out into the second quarter and some of the compensation still has a couple of months left to come in and you're settling out pretty you said pretty similar to the Q1 give or take a couple of 100,000. Is that right?

Speaker 2

So Chris, let me I'll jump in and Annette, please feel free. That I think within the categories that are not salaries and benefits, we expect some modest shift between occupancy and other costs that are probably modestly net beneficial for us in the out quarters. As it relates to the salary and benefits line, we did incur about $0.03 a share of equity compensation costs and payroll taxes that are first quarter higher than the natural run rate for the balance of the year on a quarterly basis. We think some of that will be offset by a full quarter impact of the 2.5% merit range merit raises that we actually processed in March. So a full quarter impact in the Q2 and then going forward.

Speaker 2

And then again, I think as Annette pointed out and we're getting pretty granular that there's one extra payroll day in the 3rd Q4 compared to the 1st and the second, but there's also an extra day of earning asset improvement.

Speaker 6

Okay. All right. I got it. And then any thoughts around any appetite for share repurchases here? I know you guys are probably looking at pretty strong growth down into 2025 and beyond.

Speaker 6

But you're now at an 8 percent TC, regulatory capital is robust and it seems like net growth this year is still relatively contained. Do you guys have any thoughts on that?

Speaker 2

For sure, Chris. So great question and timely by the way. So again, I would say that we look at share repurchases as probably something close to the end of our capital allocation process. 1st and foremost, we're committed to the shareholder getting a better outcome on an annual basis. So trying to keep our streak of 11 years of dividend improvements in place, that's clearly a function of making sure the earnings can support that.

Speaker 2

But if we were to just use our Q1 as an example, we're paying $0.32 a share. We made $0.71 that's a 45% payout ratio. If went back to operating earnings, it's 47%. We're very comfortable with that level and think that the ability to continue to improve on that still persists for our environment. I think you pointed out a good thing.

Speaker 2

In 2024, because we know we have some planned runoff on the loan side, The balance sheet probably does not grow holistically at 4% or 5%. It probably grows less than that. So we will accrete capital again most likely, hopefully. And again, how to use that capital. We're really happy that we are now back to the point from a capital ratio standpoint that we enjoyed prior to the Salisbury transaction closing, at least on the tangible side.

Speaker 2

So we don't think we have any sort of restrictions or limitations around that. I think most people understand that the dynamic of economics around M and A transactions are challenged at the current time. But we're still having very productive conversations with like minded smaller community banks across our 7 state franchise. And if something presents itself that we think is actionable, I think we feel like we have the capital to support to do that and support our primary organic growth objectives at the same time. So don't think that there's any limitations just where we are from a capital standpoint.

Speaker 6

Great. Thanks, Scott. I appreciate you taking my questions and congratulations on the retirement, John.

Speaker 1

Thank you, Chris.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Badri Hildjian from Piper Sandler. Your line is open.

Speaker 7

Hey, good morning guys. Just filling in for Alex today.

Speaker 4

Good morning. Good morning.

Speaker 7

I just want to touch on the NIM. Can you guys give us or at least from the loan yield side, can you guys give us a sense for the lift in loan yields that's left moving forward? I see that loan yields have been slowing down a little.

Speaker 2

So, Peter, if I go back and look at sort of the period of time post the Salisbury transaction, just to think about it for the last three quarters, we've been picking up somewhere between 8 basis points, 9 basis points on the loan yield on a quarterly basis. I think that that's probably sustainable back to that whole idea of new originations being 100 to 125 basis points above what expiring loans are going off the balance sheet at. So no reason to think that, that can't be sustained. And again, I think in terms of on the higher for longer side, does it make it easier to actually generate new loans with that construct behind them? You would think, yes.

Speaker 2

The question is does that stifle demand a little bit. So I think that's the holistic trade off that we're looking at. We've had some opportunities in our market for some additional growth and I would argue that we're turning away single asset opportunities that we don't think meet our pricing characteristics and instead promoting our best sponsors and using our balance sheet to fulfill full relationship banking for them.

Speaker 7

Got it. Thanks. And do you think that is sufficient to drive the rebound in the NIM or does the funding side also need to experience easing pressures for us to see the inflection?

Speaker 2

Yes. I mean, we've been really close for the last 2 or 3 quarters. So I think we're optimistic that that opportunity presents itself. But that being said, that means that we're out in front of our customers. And remember, we're providing treasury management services to those same customers.

Speaker 2

We're providing timely and appropriate advice to our customer base and we're never going to ask our folks to change that as their primary focus. So it's incumbent upon us to have competitive products to be able to hold funding levels in and at the same time create profitability opportunities for us as

Speaker 6

a company.

Speaker 7

Got it. Thanks. And one last question on the other side, on the funding side. Assuming muni deposits flow out next quarter and you guys replace that with borrowings, Is it fair to assume that at least until next quarter, we continue to see NIM decline and a delay in the NIM inflection as cost of borrowings push up the costs on the funding side?

Speaker 2

I would say that cost of borrowings are definitely higher than most of the deposit classes that we have on the balance sheet today. But again, that's tactical funding management 101. And hopefully, we're pretty good at that. So we're not just conceding that everything that leaves the balance sheet becomes replaced by a borrowing instrument. We have objectives to grow our funding base and that's consistent with historical results.

Speaker 7

Got it. Thanks. Thanks for answering my questions. And congrats on retirement, John and Scott, Joe and Annette congrats on the promotion as well.

Speaker 1

Thanks so much. Thank you. Thanks, Peter.

Operator

Thank you. And I'm not showing any further questions at this time. I will now turn the call back over to John Watt for his closing remarks.

Speaker 1

Thank you, Victor, and thank you all for your interest and your time this morning. And thank you for all of your questions. I'll end where we started. The shareholder is averaging up here and the wind is at our back. So thank you.

Operator

Thank you, Mr. Watt. This concludes our program. You may now disconnect. Everyone, have a great day.

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Key Takeaways

  • NBT announced a CEO succession effective May 21 with CFO Scott Kingsley named President and CEO, Joe Stagliano as President of NBT Bank, and Annette Burns as CFO to ensure a seamless transition.
  • In Q1 2024, NBT delivered operating EPS of $0.68 (reported $0.71), a net interest margin of 3.14%, and maintained solid capital ratios with a Tier 1 leverage ratio of 10.09%.
  • The bank generated $78 million of incremental loan growth (3.6% annualized) in core portfolios and grew deposits by $226 million largely from seasonal municipal inflows, while deposit costs rose to 1.61%.
  • Diversified revenue streams remained a strength as noninterest income rose 14% sequentially and accounted for 31% of total revenues, driven by retirement plan administration, wealth management, and insurance fees.
  • Management highlighted the anticipated transformational growth in Upstate New York’s semiconductor corridor from CHIPS Act investments, positioning NBT to support new jobs, housing, and business activity.
AI Generated. May Contain Errors.
Earnings Conference Call
NBT Bancorp Q1 2024
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