Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NBT Bancorp Inc (NBTB, Financial) reported net income of $32.7 million or $0.69 per share for the second quarter of 2024.
- The net interest margin increased to 3.18%, up 4 basis points from the prior quarter.
- Noninterest income reached a new quarterly all-time high, making up 31% of total revenues.
- The company announced a 6.3% increase in its quarterly cash dividend, marking the 12th consecutive year of annual dividend increases.
- Total deposits grew by $302.5 million from December 2023, showing strong consumer and municipal deposit growth.
Negative Points
- The loan loss provision expense increased by $3.3 million from the first quarter, primarily due to loan growth and specific reserves.
- Net charge-offs to total loans were 15 basis points, indicating some level of credit risk.
- The company continues to experience remixing from no interest and low interest accounts into higher yielding instruments, increasing funding costs.
- The cost of total deposits increased by 7 basis points from the prior quarter to 1.68%.
- There is uncertainty around the resolution of a specific reserve relationship, making it difficult to predict future provisioning needs.
Q & A Highlights
Q: Could you talk about your expectations on the current pace of CRE and C&I loan growths and if we should expect a similar pace to continue through 2024?
A: We had a very strong second quarter in both C&I and CRE. Some of the C&I growth came from line utilization, which has been low for the past few years. This tends to be seasonal, with stronger activity in the mid-quarters of the year. We expect opportunities to remain stable and growing, but second-quarter results were above expectations. We anticipate a slight tick down for the rest of the year.
Q: Could you give us some color on the breakdown of this quarter's provision expense, specifically how much was for portfolio extension and how much was for a specific credit?
A: The specific reserve was $1.7 million of the provision expense. The rest of the increase was fairly evenly split between supporting loan growth and the extension of payments, along with covering loan charge-offs for the quarter.
Q: When do you expect that specific reserve relationship to be fully resolved?
A: It's difficult to predict. We are cautiously optimistic about improvement plans for that credit, but it's uncertain if it will be resolved in 2024 or later.
Q: Could you touch on your thoughts around the NIM outlook and where you see it going throughout the rest of the year?
A: We are pleased to see some stabilization this quarter. Deposit costs have stabilized, and we expect a few basis points of continued increase. Asset repricing is ongoing, and we hope for further improvement as we move forward.
Q: Could you provide the percentage of pure floating rate loans on the books and their blended yields today?
A: Our pure floating rate loans, primarily commercial and some home equity, are about $2.2 billion with a yield of around 7.4%. The fixed-rate portion might be in the high 4s to low 5s.
Q: Why not a more optimistic outlook on the NIM given the loan yield expansion opportunity on your fixed-rate portfolio?
A: Customers are finding more efficient outcomes for their net liquidity, which impacts our ability to raise rates. We are focused on balance retention and doing the right things for the customer, which means the process of finding efficiency in liquidity still has more to go.
Q: Can you give us some sense of the duration of the loan portfolio and how it has changed?
A: Duration extension has been ongoing since the Fed started raising rates. Fixed-rate commercial loans and residential mortgages have extended durations as customers have no motivation to pay off quickly. We made changes this quarter to better manage this volatility.
Q: When do you expect the Micron chip plant investments to have a meaningful impact on balance sheet growth and fee income?
A: Construction is expected to begin in Q1 2025 and take about two years. We expect the first chip production in 2028, with significant job creation during and after construction. We are staying close to Micron and government officials to capitalize on these opportunities.
Q: Where are new CDs being priced, and how much of the CD book has to reprice in the second half of 2024?
A: New CDs are priced in the low 4s to high 3s. About $700 million of the CD book will reprice in the second half of the year, with opportunities to reprice down.
Q: Any seasonal factors or fluctuations expected in the fee income businesses for the back half of the year?
A: Retirement plan administration typically sees stronger first halves. Market performance has been a tailwind, and we expect continued good quarters if this persists. Insurance has minor seasonality in the third quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
