NBT Bancorp Inc. (NBTB) Earnings Call Transcript & Summary

Good day, everyone. Welcome to the conference call covering NBT Bancorp Second Quarter 2026 Financial Results. This call is being recorded and has been made accessible to the public in accordance with the 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 at 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. [Operator Instructions] 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, Shari. 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 Ondesko, 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 1 year ago. More than a year after completing the acquisition of Evans Bancorp, we continue to benefit from the talented team members, strong 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 NBT'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 long-standing 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 noninterest 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 6 months of the year. The increase in commercial loans was well balanced between C&I 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 6, total deposits were $13.5 billion at quarter end and increased modestly from year-end levels. Deposits declined $205.7 million from March 31, 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 disbursed 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 1 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 -- 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 1 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 noninterest 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. Noninterest 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 3 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 2x the level of nonperforming 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 your interest in our results. At this time, we welcome any questions you may have.

[Operator Instructions] And our first question will come from the line of Feddie Strickland with Hovde Group.

Congratulations on your family addition.

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

So thanks for the question. And I think if you heard from us in the first quarter, what we said was we thought that there were some delays in both loan closings and activity generation in the first quarter, some of that weather related and some of that's just timing. So 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 the CRE and C&I 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 deals had stepped down a decent bit. Is that just competitive pressures there? Or what was more of the driver?

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

Got it. And if I can just squeeze in one more. Just wanted to ask 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 could pick up talent.

Yes. 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 south of Portland, we had a new branch that we opened earlier in the year, and we have plans to do another one in in early 2027. We're looking at some continued opportunities in Southern New Hampshire, again, to 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 representations 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, to 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, we think that our platform is something that they can thrive in and grow with.

One moment for our next question, and that will come from the line of Matthew Breese with Stephens.

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 when we think about looking forward, our originations are probably going to be probably more concentrated in commercial, 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, so kind of stable to a few positive points of margin expansion over the next couple of quarters.

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, and then I'll start on this one. Spot costs and where we are so close to what [indiscernible] 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. I think the direction we're 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. We're actually seeing really responsible activities across most of our markets, so that person -- if somebody is 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.

Understood. Okay. A couple of 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.

Yes. Yes. Sure, Matt. So 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 probably seeing some increased activities associated with just revenue growth in the market and the associated incentive compensation with that and as well as some technology investments, so 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 onetime in there or unusual in there? Or maybe just timing based on the way fees are calculated?

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.

And our next question will come from the line of Manuel Navas with Piper Sandler.

I understand deposits declined a bit on seasonality. But what's kind of your thoughts on the deposit pipeline going forward? How are you converting your strong C&I growth into deposits? Anything you could add color on that front.

Yes. So thanks for the question. I'll start with that. So 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, does help them manage their funds. So at some point in time, when we see customers move certainly of their excess balances and 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 on 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 deposits that follow this loan growth?

Yes. It's a bit of a -- when you open a new relationship, it's a bit of a longer cycle. I mean, I think the world has sort of commented to this that 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, 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, we're really focused on is how we incentivize our folks. So I think we feel really good about the initiatives that are in place to continue to grow there.

[Operator Instructions] And our next question will come from the line of Jacob Civiello with D.A. Davidson.