Yahoo Finance NBT Bancorp Inc. (NASDAQ:NBTB) Q1 2024 Earnings Call Transcript
NBT Bancorp Inc. (NASDAQ:NBTB) Q1 2024 Earnings Call Transcript April 23, 2024
NBT Bancorp Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
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 at nbtbancorp.com. Before the call begins, and 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 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. 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. Mr. Watt, please begin.
John Watt: Thank you, Victor, and good morning, and thank you all for participating in this earnings call covering NBT Bancorp's first quarter 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. 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 in 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. 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 $6.1 billion grant under the CHIPS Act that will, import - in part, support its plans to invest as much as $100 billion in a complex of semiconductor fabrication plants in the town of Clay near Syracuse. Additional support for the clay complex includes $5.5 billion in jobs tax credits from the New York State Green Chips Act program and significant infrastructure investments by the state and on Onondaga County. This follows an announcement in February by GlobalFoundries in the Capital District t that the CHIPS Act will provide direct funding of $1.5 billion to build another fab manufacturing facility in Malta [ph] New York, and to upgrade its facility in Essex Junction, Vermont.
New York State will also provide $575 million in direct funding for the Malta project. Combined, an additional 1,500 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 a discussion of our financial performance in the last -- in the first quarter. And in doing so, I assure you that our shareholders are in very capable and experienced hands going forward. Scott?
Scott Kingsley: 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 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 million of incremental loan growth or 3.6% annualized in the first quarter in our core portfolios. Customer health and sentiment continues to be favorable. We grew deposit funding in the first quarter primarily from seasonal municipal inflows, while importantly adding net new accounts.
Our noninterest income generation continued to improve and represented 31% of total revenues in the first quarter. 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 two 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 first quarter financial results. Annette?
Annette Burns: Thank you, Scott, and good morning, everyone. Turning to the results overview page of our earnings presentation. Our first quarter 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 first quarter of 2024 was 3.14%, which was down 1 basis point from the linked fourth quarter 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 31 was up $0.35 per share from the end of the fourth quarter and up $0.55 from the first quarter of 2023. The next page shows trends in outstanding loans. Total loans were up $37.4 million 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 million or 3.6% annualized. First quarter loan yields were up 7 basis points from the fourth quarter of 2023, reflective of continued higher new origination rates. Our total loan portfolio of $9.69 billion remains very well diversified and is comprised of 52% commercial relationships and 48% consumer loans. On Page 6, total deposits of $11.2 billion were up $226 million from the linked fourth 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. The next slide looks at detailed changes in our net interest income and margin. The first quarter net interest income was $4 million below the linked fourth 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 1 less calendar day in the first quarter. 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 noninterest income are summarized on Page 8.
Excluding securities gains of $2.3 million, our fee income was $43 million, up $5.2 million or 14% from the linked fourth quarter and up $6.8 million or 19% from the first quarter of 2023. Revenues from our retirement plan administration business were up $3.1 million from the fourth quarter, comprised of actuarial and other activity-based fees in the first quarter, customer account growth and positive market performance. The first quarter 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 first quarter. The diversification of our revenue generation sources continues to be a core strength of the company and represented 31% of total revenues.
Turning to noninterest expense. Our total operating expenses were $91.8 million for the quarter, which were $4 million or 4.6% above the linked fourth quarter, excluding acquisition expenses and an impairment charge in Q4 2023. Salaries and employee benefit costs of $55.7 million were 11.4% higher than the linked fourth 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 cost 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.
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 three quarters of 2024. On the next slide, we provide an overview of key asset quality metrics. We recorded a loan loss provision expense of $5.6 million in the first quarter, which was $500,000 higher than the $5.1 million provision recorded in the linked fourth quarter. Net charge-offs to total loans were 19 basis points in the first quarter of 2024 compared to 22 basis points in the prior quarter.
Reserve coverage of 1.19% of total loans was consistent with the linked fourth quarter. 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. Nonperforming 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. 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.
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