NBT Bancorp Inc. (NASDAQ:NBTB) is a leading financial holding company that has consistently demonstrated its ability to navigate challenging economic environments and deliver solid financial performance for its shareholders. With a diversified business model, strong balance sheet, and prudent risk management practices, NBT Bancorp has emerged as a formidable player in the banking industry.

Financials

For the fiscal year 2023, NBT Bancorp reported annual net income of $118,782,000 and annual revenue of $665,037,000. The company's annual operating cash flow stood at $159,448,000, while its annual free cash flow reached $150,194,000. These impressive financial metrics underscore the company's operational efficiency and its ability to generate sustainable cash flows to support its growth initiatives and shareholder returns.

In the second quarter of 2024, NBT Bancorp reported net income of $32.7 million, or $0.69 per share. The company's net interest margin in the second quarter was 3.18%, up four basis points from the prior quarter, as earning asset yields improved by eight basis points, more than offsetting the increase in funding costs. Tangible book value per share reached a new all-time high of $22.54 as of June 30, 2024, up $0.47 per share from the end of the first quarter.

Loan Growth and Diversification

NBT Bancorp's loan portfolio, which stood at $9.85 billion as of the second quarter of 2024, remains well-diversified, with 53% commercial relationships and 47% consumer loans. Total loans increased by $204 million, or 4.2% annualized, for the year, with growth in the commercial and indirect auto portfolios. Excluding the other consumer and residential solar portfolios that are in a planned contractual runoff status, loans increased by $295 million, or 6.9% annualized.

Deposit Growth and Funding Mix

Total deposits for NBT Bancorp reached $11.27 billion as of the second quarter of 2024, up $302.5 million from December 2023. The company experienced growth in consumer balances and accounts, as well as higher levels of municipal deposits. While the company continues to see a migration from no-interest and low-interest checking and savings accounts into higher-yielding money market and time deposit instruments, its deposit base remains highly diversified and granular, with over 561,000 accounts and an average per-account balance of $19,947 as of March 31, 2024.

Net Interest Income and Margin

NBT Bancorp's net interest income in the second quarter of 2024 was $2 million above the linked first quarter results, driven by an increase in asset yields and loan growth, partially offset by an increase in interest-bearing deposit costs. The company's net interest margin stabilized at 3.18% in the second quarter, as the pace of increase in funding costs slowed during the quarter.

Noninterest Income and Diversified Revenue Streams

Noninterest income, excluding securities losses, reached a record high of $43.3 million in the second quarter of 2024, up 18% from the same period in 2023 and consistent with the previous quarter. This strong performance was driven by growth in the company's retirement plan administration, wealth management, and insurance agency businesses, which collectively accounted for 31% of total revenues. These fee-based business lines have demonstrated a meaningful compounded annual growth rate of 9.3% over the past five years, underscoring the strength and diversification of NBT Bancorp's revenue streams.

Expense Management and Efficiency

NBT Bancorp remains committed to effective expense management, balancing cost efficiencies with necessary investments to support customer engagement and employee development. In the second quarter of 2024, the company's total operating expenses were $89.6 million, a decrease of $2.2 million, or 2.4%, from the linked first quarter. Salaries and employee benefit costs decreased by $311,000, primarily due to seasonal factors, while technology and data service expenses and occupancy costs also declined.

Asset Quality and Credit Performance

NBT Bancorp's asset quality metrics remain strong, with non-performing assets to total assets unchanged at 28 basis points for the past three quarter-ends. The company recorded a loan loss provision expense of $8.9 million in the second quarter of 2024, up $3.3 million from the first quarter, primarily due to provisioning for loan growth, changes in prepayment speeds, and a specific reserve related to a commercial relationship previously placed on non-accrual. Net charge-offs to total loans were 15 basis points in the second quarter, compared to 19 basis points in the prior quarter.

Geographic Footprint and Emerging Opportunities

NBT Bancorp operates across a seven-state footprint, with a strong presence in Upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine, and central and northwestern Connecticut. The company is uniquely positioned to capitalize on the significant investments being made in the Upstate New York "Chip Corridor," which includes a $6.1 billion grant from the U.S. Department of Commerce to support Micron Technology's plans to invest up to $100 billion in a new semiconductor chip manufacturing complex in the town of Clay near Syracuse. NBT Bancorp is actively engaged with economic development agencies across the region to support this transformative initiative and ensure its customers and prospects can fully benefit from the emerging opportunities.

Outlook

While the company remains cautious about pronouncing the recent net interest margin stabilization as a trend, management is optimistic about the company's ability to navigate the current interest rate environment. NBT Bancorp expects to see continued growth in its commercial and consumer loan portfolios, with the exception of the planned runoff in the other consumer and residential solar segments. The company also anticipates that charge-off activity will trend towards more historical norms, with future provisioning needs driven primarily by balance sheet growth and changes in portfolio mix.

Shareholder Returns and Capital Position

NBT Bancorp's strong capital position has enabled the company to provide consistent and favorable long-term returns to its shareholders. In the second quarter of 2024, the company announced a 6.3% increase in its quarterly cash dividend, representing the 12th consecutive year of annual dividend increases and a 26% improvement over the past three years. As of June 30, 2024, the company's capital ratios remained well above regulatory minimums, with a common equity tier 1 capital ratio of 11.68% and a total risk-based capital ratio of 14.87%.

Conclusion

NBT Bancorp's diversified business model, prudent risk management, and consistent financial performance have positioned the company as a leader in the banking industry. With a strong balance sheet, growing loan and deposit portfolios, and a diversified revenue stream, NBT Bancorp is well-equipped to navigate the evolving economic landscape and capitalize on emerging opportunities, such as the significant investments in the Upstate New York "Chip Corridor." The company's commitment to shareholder returns, as evidenced by its consistent dividend increases, further underscores its focus on delivering long-term value for its investors.