NBT Bancorp Inc (NBTB) 2025 Q2 法說會逐字稿

Good day, everyone. Welcome to the conference call covering NBT Bank Corp's second quarter 2025 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 nbtbankcorp.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.

Actual results may differ from those rejected. In addition, certain non-GAAP measures will be discussed. Reconciliations for these numbers can be contained within the appendix of today's presentation. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the call over to NBT Bank Corp President and CEO, Scott Kingsley for his opening remarks. Mr. Kingsley, please begin.

Good morning. Thank you for joining us for this earnings call covering NBT Bancorp's second quarter 2025 results. I would like to extend a special welcome today to our newest investors who joined us in May with the Evans Bancorp merger.

With me today are Annette Burns, MBT's Chief Financial Officer; Joe Stagliano, President of NBT Bank; and Joe Odesko, our Treasurer.

Our operating performance for the second quarter reflected the positive attributes of productive asset-repricing trends, the diversification of our revenue streams, prudent balance sheet growth, and the additive impact of our recently completed merger with Evans Bank Corp.

Operating return on assets was 1.19% for the second quarter, with a return on equity of 10.5% and ROTCE of 15.25%. Each metric demonstrates continued improvement over the linked and prior year quarters and importantly, reflects the generation of positive operating leverage.

Our tangible book value per share of $24.57 at June 30, is 9% higher than a year ago. And our tangible equity ratio is already back above the level it was when we announced the Evans merger 10 months ago. This continued capital strength has us very well positioned to support all of our strategic growth initiatives.

The continued remix of earning assets and diligent management of funding costs, combined with the addition of the Evans balance sheet resulted in an improvement in net interest margin for the fifth consecutive quarter.

Growth and non-interest income continues to be a highlight with each of our non-banking businesses achieving productive improvements in both revenue and earnings generation year-over-year.

We were also pleased to announce an 8.8% improvement to our dividend to shareholders marking our 13th consecutive year of increases. This reflects our strong capital position and our generation of consistent and improving operating earnings.

We continue to see activity across upstate New York's semiconductor chip corridor, including progress on site-specific milestones related to Micron's planned complex outside of Syracuse, as well as the enhanced partnership announced between Micron and the federal government that notably included additions to Micron's previous capital commitments.

Team members at NBT are engaged in supporting our customers and communities and participating in the growing ecosystem around semiconductors and advanced electronics manufacturing in several of our markets.

Before turning the meeting over to Annette to review our second quarter results with you in detail, Joe Stagliano will provide some additional commentary around the completion of the Evans merger. Joe?

Thank you, Scott. We closed our merger with Evans Bank Corp on Friday, May 2, and successfully converted all Evans customer accounts to the NBT core operating systems over the weekend. The following Monday, we opened 18 Evans Bank branches as NBT Bank locations, including 14 in and around Buffalo and four in Greater Rochester.

We believe the approach of closing and simultaneously completing the system's conversion enhances both the employee and customer experience. It reduces execution risk and it expedites the integration process.

Through this transaction, we added approximately $1.7 billion of loans, $1.9 billion of deposits, and issued 5.1 million additional shares as consideration valued at $222 million as of the closing date. So far in cost energies, with the remainder expected by the end of 2025.

We achieved a smooth transition made possible by our dedicated integration team with over 100 members from both organizations. They worked tirelessly with the shared vision of delivering a positive experience to over 40,000 Evans Bank customers.

As a result of the conversion, we added more than 100,000 accounts and over 25,000 digital banking and debit card users. We also welcomed 200 Evans employees to the NBT team, and three seasoned executives from Evans assumed leadership positions with NBC Bank: Ken Pollack as President of the Western region of New York and Buffalo Regional President; Tim Brown as Rochester Regional President; and Audrey Meyers as Senior Territory Manager for Retail Banking in the Buffalo and Rochester markets.

I personally want to thank everyone who joined NBT for their professionalism, their enthusiasm, and their partnership. The response from our customers and communities has been overwhelmingly positive. They have embraced our enhanced suite of products and technology offerings, and they've shared their appreciation for the care and attention we've shown throughout this process.

In the days and weeks following the merger, members of our leadership team have visited branches and met with customers and employees. The reception has been warm and the conversations encouraging.

We are continuing to work together toward a common goal: to serve our customers better, support our communities more deeply, provide enhanced shareholder value, and grow stronger together. Now I will turn it over to Annette to review our second quarter results with you in detail. Annette?

Thank you, Joe, and good morning. Turning to the results overview page of our earnings presentation. In the second quarter, we reported net income of $22.5 million or $0.44 per diluted common share. Excluding acquisition expenses, acquisition related provision for credit losses, and securities gains, our operating earnings per share were $0.88, an increase of $0.08 per share compared to the prior quarter.

Revenues grew approximately 10.5% from the prior quarter and 22% from the second quarter of the prior year, driven by improvements in net interest income, including the impact of the Evans merger.

The next page shows trends in outstanding loans. As Joe mentioned, we added $1.7 billion of loans from Evans and recorded fair value marks on loans totaling $95.2 million net of a $7.7 million reclassification to loan loss reserves for purchase credit deteriorated loans.

Excluding consumer loans and a planned contractual runoff status and the loans acquired from Evans, loans grew nearly 1% from December of 2024. Growth in commercial and industrial, indirect auto, home equity were partly offset by decreasesing in residential mortgage and commercial real estate, which experienced higher level of payoffs during the quarter.

Our total loan portfolio of nearly $12 billion remains very well diversified and is comprised of 56% commercial relationships and 44% consumer loans.

I should also mention that we completed the sale of the $255 million Evans Securities portfolio in May, which contributed to the increase in short-term interest bearing accounts at the end of the second quarter and leaves us some near-term liquidity optionality.

On page 7, total deposits of $13.5 billion were up almost $2 billion from December 2024. Excluding the deposits acquired from Evans, deposits increased $104 million from the end of 2024.

Deposit mix characteristics also improved with an increase in demand deposits, savings, interest bearing checking, and money market accounts, offset by a decrease in time deposits. 59% of our deposit portfolio consists of no and low cost checking and savings accounts, while 41% is held in higher cost time and money market accounts.

The next slide highlights the detailed changes in our net interest income and margin. Our net interest margin in the second quarter increased 15 basis points to 3.59% from the prior quarter, primarily driven by the increase in earning asset yields and acquisition-related net accretion.

Net interest income for the second quarter was $124.2 million an increase of $17 million above the prior quarter, and $27 million above the second quarter of 2024. The increase in net interest income from the prior quarter was primarily driven by the Evans acquisition, as well as higher earning asset yields partially offset by a 2 basis point increase in the cost of deposits.

Evans' higher cost of deposits, primarily an interest bearing checking and savings account, was partly offset by a decrease in the cost of time deposits. The trends in non-interest income are outlined on page 9. Excluding securities gains, our fee income was $46.8 million, an expected seasonal decrease of 1.5% compared to the previous quarter, and increased 8% from the second quarter of 2024.

The decrease from the prior quarter was primarily attributable to the first quarter's $1.2 million bank-owned life insurance gain and lower seasonal insurance revenues, partially offset by incremental Evans activity.

Non-interest income represented 27% of total revenues in the second quarter, reflecting the strength of our diversified revenue base, but down from 31% in the prior quarter, reflective of the Evans mix.

Total operating expenses, excluding acquisition expenses were $105.4 million for the quarter, a 6.3% increase from the prior quarter. Salaries and employee benefit costs were $64.2 million an increase of $3.5 million from the prior quarter.

This increase was primary driven by the impact of the Evans acquisition, a full quarter of merit pay increases and higher medical costs. These increases were partially offset by lower payroll taxes and stock-based compensation expenses, which are historically higher in the first quarter of each year.

The quarter-over-quarter increase in technology and data services, occupancy, and all other expenses were driven primarily by the Evans acquisition, as well as timing of planned initiatives and continued investment in digital platform solutions.

Amortization of intangible assets included $1 million related to Evans in the second quarter. We recorded a $33.2 million core deposit intangible related to the Evans core funding base. We are expecting to amortize that intangible over the next 10 years on an accelerated basis.

Slide 11 provides an overview of key asset quality metrics. Provision expense for the three months ended June 30, 2025, was $17.8 million compared to $7.6 million for the first quarter of 2025.

The increase in the provision for loan losses during the quarter was due to $13 million of acquisition-related provision for loan losses and a modest deterioration in the economic forecast partially offset by a decrease in net charge-offs from the prior quarter.

Reserve coverage was 1.21% of total loans. And covered 3 times the level of non-performing loans. The increase in the allowance for loan losses in the second quarter of 2025 included $21 million of allowance for acquired Evans loans.

In closing, the successful completion of the Evans merger was a significant milestone for the quarter, and the impact on our financial position is aligned with our expectations.

Continued growth in both net interest income and fee-based income drove the generation of the sequential year -- sequential and year-over-year positive operating leverage, and contributed to our solid operating performance in the second quarter of 2025.

Thank you for your continued support. At this time, we'll continue. We will welcome any questions you may have.

(Operator Instructions) Mark Fitzgibbon, Piper Sandler.

Hey guys, good morning.

Hey, good morning, Mark.

First question I had, maybe in that -- what does a 25-basis-point rate cut mean for your margin, assuming the short end comes down and the rest of the curve?

Happy to answer that, Mark. The impact of rate cuts on our balance sheet, we're fairly neutrally positioned. So we have about $2.5 billion in loans that almost reprice immediately with a downward change in rates. And then on the funding side, we have about 40% of our deposit base. Somewhere around $5.5 billion, that we can actively reprice downward as well. There might be a little bit of lag because that takes some active management on our part. But we feel like that's not going to have a significant impact on us because we're so neutrally positioned. But there might be a little bit of lag on the funding side.

Okay. And then if you look at like the third quarter with all the moving parts with Evans and the purchase accounting impact, how are you thinking about the net interest margin for say 3Q? Assuming no Fed rate cuts.

Okay, there was a lot of noise in the second quarter. When we think about net interest margin going forward, we know that there is one additional month of accretion related to Evans to have a full quarter impact, and that's somewhere between $1 billion and $1.5 million. So that'll have a couple basis points improvement on our net interest margin. And then just thinking about the rest of our our book, we'll probably continue to see a few basis points improvement as it relates to our earning asset yields repricing.

That's probably going to get a little bit more less impactful over time as our book continues to fully reprice. For example, our indirect [autobook] is already fully repriced, but there's a little bit more room in the CNI and recent mortgage book, but that happens a little bit slower. And we think our funding costs are pretty well stabilized. We might get a few basis points, but certainly not the same level of impact that we experienced the last two quarters.

And Mark, this is Scott. Thanks for the question. I think we both know at some point in an improving NIM cycle it's likely that some of that benefit from a repricing standpoint gets competed away. So we're not going to be immune to that either.

Okay, great. And then when deals are announced, nobody really wants to talk or give credit for potential revenue synergies, but now that the Evans deal is complete, I wonder if you could help us think about the size of the opportunity, particularly on wealth management insurance going forward.

So great question, and thanks for asking that one. For us, Evans had a very modest participation in wealth management. Like us, they had a handful of advisers that are on the LPL platform, so great opportunity for us not only to expand the base of advisers in western New York. But to have the synergistic outcomes of bringing them into a larger established program like ours. It's kind of a similar thought on the insurance side, Evans had an insurance business several years ago and sold that business before we got together with them transactionally.

With that in mind, a lot of customers that can utilize our services on a more broad basis on the insurance side, probably takes a little bit longer to get going, because those tend to be in annual renewal cycles. But opportunistically, we think we'll grow in both attributes.

Okay great and then from a credit perspective, any types of lending that you know give you concern or areas where maybe you're easing off the throttle a little bit, any particular types of particular in the commercial side?

I can frame it this way from an asset quality standpoint, really, nothing. From a holistic desire to have more banking relationships on both the CNI front or the owner occupied CRE front where the opportunity presents itself to be able to deliver multiple services as opposed to just the loan, we. Have a focus there.

It does not mean that we aren't interested in commercial real estate transactions across our geography. The sheer size of our geography makes natural diversification inherent for us anyways. But I'm kind of frame it, Mark, that we're spending more time focusing on those relationships where we can provide multiple services as opposed to just close a transaction, on the on the commercial real estate side.

Okay. And then last one is non-interest expenses. Can you help us think about sort of what a good run rate might be for the third quarter?

Sure. So excluding merger costs and expenses, I think we came in somewhere around $105 million for the quarter. Evans, probably adds somewhere in the $11 million to $12 million a quarter. So you know there's probably a little bit of seasonality quarter over quarter with the 4th quarter probably being a little bit heavier, but I think if you think of one additional month of Evans added to the 3rd quarter's run rate, that's probably a good place to be.

Appreciate it, Mark.

Stephen Moss, Raymond James.

Good morning.

Good morning Steve. Good morning Steve. Congratulations on the family edition.

Hi Scott. Just wanted to ask here in terms of the outlook for you guys, with regard to, the loan pipeline, just kind of curious, how your sense of business activity is there and what you guys are thinking about the second half.

Yeah, thanks for that tee up for that one. So the pipeline is very good, we're actually at the highest level in the pipeline that we've ever experienced. Now a portion of that obviously came with the with the addition of Evans.

But what have we noticed in the second quarter or, late in the first quarter into the second quarter that speeds of completion has experienced hesitation. So one of my favorite quotes now is uncertainty does not inspire action, and we saw that during the 2nd quarter. It doesn't mean that our customers are not interested in the initiatives that they had planned to do. They've just taken a little bit of a pause and rethought, where does that position, not only in the second half of 2025, but longer term.

Generally see people who had projects in place from a capital expansion, or a capacity adding are moving forward with most of them. We've heard of a couple that decided to slow down because the machine they're ordering from Germany suddenly became 28% more expensive. But that's more episodic than systematic.

But what we have seen is that people are having some about adding people because they don't want to be in a position where they have to hire now and send some people home in and around the end of the year. So generally I feel pretty strong about we are where we are from the activities on the pipeline side, but probably will not experience a real meaningful change in the growth rate that we had in the first half of the year in the second half of the year.

Okay. Got you. And then in terms of of low pricing, you mentioned, the ability to reprice, to benefit from massive pricing or lower pricing is moderating, where are you seeing more competition these days?

So I'll start with that, and if Joe and Annette have comments, you're welcome to chime in on this, but competitively kind of across the board. Certainly, we saw competition in the second quarter in the indirect auto space and quite frankly, we were participating and growing still in the second quarter. But by the time we reached the end of the quarter, competition had changed pricing to the point where we're probably just trying to replace cash flows in that portfolio.

And why is that is remember the inversion in the belly of the curve actually got worse in the quarter. So for a competitive standpoint, from a -- that creates an issue for us relative to pricing. We are holding the line relative to spread dynamics. And as I mentioned before, we're really focused on supporting those customers and those activities that allow us to gain some funding and some deposit growth, and at the same time, build out our holistic delivery.

Okay. And maybe on on the commercial side, are you just seeing more competition these days from the larger guys coming back into the market? Just kind of curious dynamics there.

Yeah, not so much on the -- not so much the larger firms backing into to where we are. Some of the smaller people we compete with. Everyone's best customer has a different definition. So in certain of our markets we're seeing a little bit more defending, from the smaller banks. But I won't say that the competition has generally changed radically. And I don't think the discipline and pricing from most of the competition has really changed dramatically either.

Okay. Great. Well, I appreciate all the calling here. I'll step back thank you.

Appreciate it.

Matthew Breese, Stephens Inc.

Hey, good morning. Good morning. I was hoping we could touch on liquidity. Annette, you had talked a little bit about that in your comments. Just curious what the plans are there in terms of deployment over what time frame and into what?

And then along with that the last couple of years, the third quarter has been kind of a high water mark for cash and just curious how that plays out this year.

Yeah, I'll start and let Annette chime in with some of the details. But so not unexpectedly, we ended up with more liquidity post the Evans transaction because we had opted to liquidate their portfolio. Remember, if we -- when we talked about this six months ago or for the last six months, we said we were legging in somewhere between $25.30 million of investment purchases. So we were at a point that More than covered collateral requirements that Evans had for their municipal funding base.

So that was on purpose. Why we -- why did we end the quarter with a little bit more liquidity in fairness, loan growth was fairly modest for the second quarter so we ended up with a little bit more. And deposit growth in the second quarter that normally for us is actually negatively impacted by municipal flows was very positive.

So and I think that's a holistic effort by our people across all lines of business to say, let's secure the additional funding because that's where the core value of the franchise is. So Matt, when we think about that, just in terms of that from a funding standpoint, we did clearly have some known redemption outcomes because we did liquidate or redeem the trust preferred -- I'm sorry, the of debt securities that we initiated that we initiated five years ago during the pandemic and so we did keep ourselves in a position to be able to be that liquid.

That said, balance sheet still has ample liquidity to support all of our growth attributes. And probably most importantly here in the near term is holding company liquidity is still very strong, above 1 times our annual requirements. So really like where we're positioned.

And I would just add, as we think about the quarter. Then the following quarter, Scott mentioned the sub-debt repayment, but we also expect to have some many outflows and then you know the remaining liquidity is probably going to support some loan growth.

Securities assets in at just over 16%, the last couple of years it's been more like 17% to 18.5%. Do we get back there or is this kind of a new good level for securities assets?

Great question. I think we're reinvesting cash flows that are coming off the portfolio. And if an opportunity presents itself, for a slightly above-average yield, I think we're capable of analyzing that opportunity.

Got it. Okay. Scott, maybe just updates on the CHIPS Act. It seems like we're still on by year end and despite some, bluster from the current administration about the CHIPS Act earlier this year, I think I read today that Micron in fact got a bigger tax break.

And so I just wanted to hear the latest and greatest on that. That's a great.

Great update. Thank you for asking. So to your point, you're right that, not only, did Micron recommit to the expansion in Central New York, but they have a secondary program that I think they're already underway with for a second ship fab in Boise, Idaho, and my impression is that that's underway.

Probably a lot easier to get started with something that's an add to an existing facility than something that's coming from the ground up, so probably not a surprise that that's where they went with that outcome. To your question on additional tax breaks, that's our understanding as well that the approval of the of the BBB gave them some additional opportunities from an investment tax credit standpoint.

How large that is? Not 100% sure because I'm not the expert on the Tax Act, but that being said, it looks like it's a net positive for them. If you remember, Matt, and you've been engaged with this before, they've been very specific about this, that without the tax incentives and without the governmental support that they were receiving, that landing in the United States with incremental production would have been more difficult for them.

Thank you. Appreciate it. Last one is just -- Scott would love to get your take on M&A in this environment with the Evans deal behind you. I think in the past, you've made the comment that you know we need to be 100% focused on integration and get the culture, right? And here's what your updated thoughts are there. That's all I --

Think you're spot on. We are completely focused from an integration standpoint, the team in Western New York is doing a fabulous job out of the gates. We are getting the opportunity as senior leadership to meet a lot of their customers, spend a lot of the time with their people. They've been very patient and willing to learn some of our systems and the protocol about getting things through our systems. So really appreciate that effort by them.

But in general, I would say we feel really good about where we are from a capital position post acquisition. We always talk to every transaction today with purchase accounting adjustments it's going to have some dilution characteristics. But in the meantime along the way to the closing, you're still running your institution and hopefully you're accreting capital every single day.

Definitely the case with us. We're at a higher level of tangible equity ratio than we were when we announced the transaction. So to the extent that there was any concern about dilution and the longer term dilution and payback, I think we've answered that question spot on.

So I feel really good about that. That said, I think that there are opportunities from an M&A standpoint. I think we continue to very methodically evaluate those. If you think about the franchise we have right now from Buffalo to Portland and Wilkes-Barre, Pennsylvania to Burlington, filling in opportunistically is probably our prime focus. And whether we do that organically, with the branch fill-ins and teams that are serving the market or we find a like-minded culture consistent smaller community bank to partner with, looking at both for sure.

Thank you, appreciate that

Thanks, man.

(Operator Instructions) Manuel Navas, DA Davidson.

Hey, just stepping back to the NIM for a moment, do you have like a quarter and nim spot rate, hopefully that's like a good proxy to the third quarter.

Manuel, I don't have a spot rate for you, but I would say that, June's margin included the full impact of the accretion for the quarter. So you know we only had two months of the Evans accretion and the second quarter will have a full impact in the third quarter that's going to increase the margin in and of itself a couple basis points from 3.59%.

I appreciate that and just wanted to confirm one other piece earlier you talked about there might be a few basis points improvement from asset yield repricing higher and and just new yields. Was that you base point NIM improvement or just loan yield improvement?

I would say overall NIM improvement.

And with funding costs kind of stabilized.

Correct.

Correct, okay, I appreciate the reiteration of that guidance. I just wanted to clarify whether it was asset yields or Nim, so that that's a good trajectory.

Emanuel, as we said before too, that you know this would also presume that at some point in time we get out of the current inversion that we have into that very important belly of the curve because that's where we're pricing most of our assets off. So there was pressure on that in the second quarter. If some of that pressure could relieve, I think our opportunities would be even better.

Shifting over, the fee income ratio to revenues is tick lower because you added a spread heavy bank. Does that increase your kind of, appetite on the fee side for for either additions or or lift outs or just is is that something that you have extra focus on or is it is just, are you being opportunistic in general?

I'm going to frame it this way is we love all three of those businesses and so we are motivated to organically grow them or opportunistically add to our base via M&A.

Remember that.what do we like about those businesses that generally over time if you can grow them organically yourself they're the gift that keeps on giving because they don't take regulatory capital. If you decide to engage in an M&A transaction, yeah. For a short period of time you're using some capital, but using the return characteristics are so positive on those that, we're very interested in that. That being said, to your point, acquiring Evans that had a different mix than us makes that a little bit more difficult.

But I think again, finding a balance and continuing to focus on the fact that having a diversified revenue stream is a net positive will remain in our strategic focus forever.

I I appreciate the commentary, thank you. Thanks.

Feddie Strickland, Hovde Group.

Hey, good morning, was just wondering if we could talk about the impact of the sub debt redemption in terms of interest cost differential there. I mean, I know you said there was other liquidity sources you used to repay that. Were those, a kind of similar 5.45% rate?

That's correct. So $118 million of sub debt was right around 5.45% on a weighted average basis. That was going to tick up to close to 9% as as we turn to a variable rate, so we're, we pay that debt off using our liquidity.

And you know we have to borrow which is somewhere in the you know 4.25%, 4.40% so you know kind of the differential between the 9% and the 4.40% is is kind of what our savings would be on a on a go forward basis.

Understood and it sounds like you even had savings versus the the pre reset rate as well.

A little bit using overnight, yes.

And they just wanted to switch gears to credit. I mean, do you think charge offs can stay at this sort of lower level you have this quarter? Do we see them tick back up a little bit given you still have some more runoff in consumer and solar.

It's a great question. We think that the second quarter was a great quarter from a performance perspective on net charge-offs. We don't think that that's going to recur, our average net charge offs are probably more in the $3 million to $5 million dollar range a quarter, so that's probably more likely.

Alright great thanks for taking my questions.

Thank you.

This does conclude the question and answer session of today's program. I'd like to hand the program back to Scott Kingsley for any further remarks.

Thank you. In closing, I want to thank everyone on the call for, participating with us today and for your continued interest in NBT. We look forward to catching you up, late October on our 3rd quarter results and go bills.

Thank you, ladies and gentlemen for your participation in today's conference. This does include the program. You may now disconnect. Good day.