Prepared remarks
Good day, everyone. Welcome to the conference call covering NBT Bancorp's Second Quarter 2026 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 nbtbancorp.com. Before the call begins, NBT management would like to remind listeners that 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. Currently, 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 President and CEO, Scott A. Kingsley, for his opening remarks. Mr. Kingsley, please begin.
Thank you, Sherry. Good morning, and welcome to this earnings call covering NBT Bancorp's second quarter 2026 results. With me today are Annette L. 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 one year ago. More than a year after completing the acquisition of Evans Bancorp, we continued to benefit from talented team members, strong customer relationships, and an 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 thousand 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 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 quarterly net income of $53 million or $1.20 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, total loans ended the quarter at $11.9 billion, increasing $276 million or 2.4% from 12/31/2025. All business lines experienced growth with commercial loans increasing $178 million and consumer loans increasing $98 million during the first six 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 $106 million from 3/31/2026, 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 funds are dispersed, 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. 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 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 three months ended 6/30/2026 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.
Questions and answers
Thank you. To ask a question, please press *1 on your telephone and wait for your name to be announced. To withdraw your question, press *1 again. Our first question will come from the line of Feddie Strickland with Hovde Group. Your line is open.
Hey, good morning, Scott and Annette. Just congratulations on your family addition. Thank you very much. I wanted to start on loans. Pretty positive step-up in growth in the second quarter, really healthy amount of commercial in particular. Scott, based on your opening comments, is it fair to expect maybe a step-up in net new growth in the second half?
Thanks for the question. If you heard from us in the first quarter, we said there were some delays in loan closings and activity in the first quarter. Some of that was weather-related and some of that was timing. I am not sure we can replicate second quarter growth activity exactly, but I think the first half is indicative of what we are really capable of achieving for the balance of the year and on a go-forward trend basis. We had 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 strong in the second quarter, and we participated in that strong growth. I would not think that on the indirect auto side the second half would be quite as strong as we enjoyed in the second quarter. Regarding indirect auto, I noticed new origination yields had stepped down a decent bit. Is that just competitive pressures there, or what was more of the driver? Your observation is correct; I think that is competitive pressure. Remember that asset class is a good spot for us because it is a very fast-turning, low-duration portfolio. If you compare that to other opportunities to deploy some of our net liquidity on our balance sheet, something that has a yield north of 5% with desirable loss characteristics and a 24- to 36-month expected duration is very positive for us.
Got it. And if I can squeeze in one more: where do you see the most opportunity for organic fill-in across the footprint? I think you talked about some opportunities in New England last quarter. Are you seeing areas where you could pick up talent?
Good question. Joe and his teams on the bank side have been focused in a number of spots where we have had activity, whether due to other M&A activities where there has been some disruption or just natural fill-in growth. We have made commitments south of Portland: we opened a new branch earlier in the year and plan another in early 2027. We are looking at continued opportunities in Southern New Hampshire to better position our branding in those markets because they are performing well. We have committed to two sites in the Greater Rochester market and are probably looking at a couple more; we did not have representation in the city side of Rochester, so we focused on that. There are other opportunities in communities south of Rochester that fit our business model well. Broadly, filling in what is now a Buffalo, New York to Portland, Maine and Wilkes-Barre, Pennsylvania to Burlington franchise, there are plenty of opportunities for geographic enhancements. We are landing people from banks our size and larger. We think our platform is something talented people can thrive in and grow with.
Alright. Great. Thank you for the color and for hosting us today.
One moment for our next question. Our next question will come from the line of Matthew Breese with Stephens. Your line is open.
Hey, good morning. Annette, you talked about the margin and the yield curve a little bit. Curious what the NIM outlook is from here, and within that, expectations for deposit costs and loan yields given intensifying competition and some of the new origination data provided in the deck.
Sure, Matthew. Happy to unpack that. Looking forward, our originations will probably be more concentrated in commercial and a little bit in residential mortgage, and those still have the opportunity to reprice upward. We do think there is competition in our markets, so some upward opportunity may be influenced by deposit-related costs. Given where the yield curve is today, we still think there is opportunity for modest margin improvement over the next couple of quarters — potentially a few positive points of margin expansion over the next couple of quarters.
If you look at the spot cost of deposits at period end versus the average, are you starting to see an inflection there, or do you see one by the end of the year?
That's a really good question. Spot costs are close to what our quarterly results were, but in terms of initiating new customer relationships, they are coming with a slightly higher blended cost, which makes it incumbent on us to continue to open no-cost or low-cost checking. We are focused on that with good programs, and we have grown those balances productively while separating ourselves from some higher-yielding CDs on both the personal and business side. Our markets are competitive and other institutions have managed funding costs well, so while there may be localized attempts to take share, we are seeing responsible activity across most markets. Most competitors are managing their funding costs on a granular level.
Understood. A couple others: expenses came in a bit better than I expected and occupancy costs were down quite a bit. Maybe talk about the ins and outs this quarter and expectations for the remainder of the year. I think you had talked about maybe 3% year-over-year growth.
Sure, Matthew. As a reminder, in the back half of the year we will see an additional payroll day, which will influence the next two quarters. We will probably see increased activities associated with revenue growth in the market and associated incentive compensation, as well as some technology investments, so we will likely see some creep in OpEx on a quarter-to-quarter basis. Still, we expect to be in that 2.5% to 3% target for the year.
Okay. And then last: it struck me as odd that wealth management fees were down a little this quarter given market dynamics. Many peers are up. Was there anything one-time or timing related?
Great question. There was some timing related to activity-based fees, which were stronger in the last two quarters than in this quarter, as well as some open personnel positions we are looking to fill. That had some impact on expected production and influenced the quarter for Wealth Management.
Great. I will leave it there. Thank you.
Thanks, Matthew.
Our next question will come from the line of Manuel Navas with Piper Sandler. Your line is open.
Hey. I understand deposits declined a bit due to seasonality, but what are your thoughts on the deposit pipeline going forward? How are you converting your strong C&I growth into deposits? Any color on that front?
Thanks for the question. C&I growth opens the opportunity for us to introduce our robust treasury management platform. Our success rate relative to that is very high — customers find it a valuable tool to help manage their funds. When customers move certain excess balances into something with a little higher yield, we should not be surprised because the tool is intuitive, but that makes the relationship sticky. With focus on the C&I side, we think we can capitalize on deposit opportunities as well as we do on the lending side.
Do you have a sense of how much has been funded so far and how much could be funded in the future? Any projections around deposits that follow this loan growth?
When you open a new relationship, it is a longer cycle. It takes a while to move a business banking or commercial relationship. We do think there is more to come with new account openings. That period is measured in quarters, not weeks. Net new accounts on the commercial and business banking side will ultimately result in deposit growth over time because productive, profitable businesses tend to leave balances in the business for future investments. Checking is the lead product, and that is what we focus on and incentivize our teams to grow. We feel good about the initiatives in place to continue deposit growth.
Appreciate that. Thank you. I'll hold and jump back in the queue.
Our next question will come from the line of Jacob Civiello with D.A. Davidson. Your line is open.
Hey, good morning, Scott and Annette. Last quarter you talked about maybe a dozen customers securing contracts associated with the Micron project. I heard your positive take on the pace of construction progress in your prepared remarks, but do you have any other thoughts on direct customer impact this quarter?
Good question. I do not have much new to add — those early-stage site preparation activities mean gains for our customers continue as they work through the build-out. The next phases will involve workforce planning, training, and workforce housing development. There is a community development fund funded by several constituencies in our markets, including NBT, that is getting more attention as dates for workforce needs become more certain. Micron has hired Bechtel to manage the fab build-out, and awards are beginning to be made to businesses in Central and Upstate New York. It is still site preparation now; they are pouring some concrete and the timeline toward production around 2030 remains.
Is there anything anecdotal you're hearing with respect to workforce housing or construction housing needed for the influx of people over the next couple of years?
We are hearing that the region has historically been slower to approve projects, and local industrial development folks are working diligently to improve that. We have not seen the launch of any substantive new large housing projects yet, but we are seeing plans for some multifamily housing in the market, similar to what we experienced in the Greater Saratoga market with the GlobalFoundries build-out over the last five to seven years.
Okay. Thanks. Shifting gears, any thoughts on the sequential increase in the securities portfolio on an absolute dollar basis? Do you expect the yield on that portfolio to continue to increase in the back half of the year given current purchase yields?
We did a little bit of pre-investing based on known cash flows for 2026. We do not expect the second quarter's growth to represent the third and fourth quarters net growth in the portfolio. The portfolio sits with about $350 million to $400 million of expected cash flows on a 12-month basis. Because we did not do a restructuring, new purchase yields are better than portfolio yields, so assuming rates stay stable, it's reasonable to expect the average yield on that portfolio will continue to increase.
Oh, for sure, Jacob. Absolutely.
One last one from me: it was nice to see the efficiency ratio back below 60% in the quarter. Do you think you can maintain the efficiency ratio at or below that level in the back half of the year?
Simplistically, yes. We typically see our fee-based businesses have a strong third quarter and some expense follows that. With our net interest margin where it is today, fee-based businesses growing in the mid-single digits, and how we are managing operating costs, we think being around or below 60% is a good place for us to be.
I'll add that we aspire to grow revenues faster than expenses. Over the last six quarters, margin improvement has aided that effort noticeably. Regardless of the interest rate environment, that's our management tack.
Great. Thank you.
We do have a follow-up question from Manuel Navas with Piper Sandler. Your line is open.
Post-quarter, you had stronger growth in Q2 due to delayed closings. If growth normalizes a bit, could you see buybacks tick back up? Talk about appetite for buybacks given expected growth in a quarter.
Good question. Our run rate EPS generation is about $4 or a little above with a quarterly dividend of $0.40. We are accumulating about $125 million of capital a year, which supports a lot of organic growth well above where we are today, even with a strong second quarter. We focus first on organic growth. Regarding buybacks, we view them as opportunistic. They are not our primary source of EPS growth. We generate capital diligently and will be disciplined in how we deploy it, including being disciplined about entry points for share buybacks. The authorization is out there; it may make sense to use it at various levels of our share price, but we will be diligent about how we think about it.
I appreciate that update. Thank you.
As a reminder, if you would like to ask a question, please press *1. We have a follow-up from Matthew Breese with Stephens. Your line is open.
Sorry for the pause. Scott, I felt like you hinted about filling in between various geographies. Curious what that meant in terms of updated thoughts around M&A. Activity has been slow in the Northeast and Mid-Atlantic. Are conversations similarly slow from your end?
Thanks, Matthew. Our approach hasn't changed much. We're in the market talking to smaller community banks all the time — a dozen to 15 people a year in our markets. I don't think there is a ton of activity; many smaller institutions are doing fairly well, so there's not an immediate operating-need driver. However, many are doing forward planning on succession and technology investment, which creates opportunity for us. We want to be in front of people so they understand the NBT value proposition if independence is not in their future. We are active in the market. A handful of transactions in our footprint in the last three to six months have not been a perfect fit for us. For a fill-in strategy, we aspire to be in the top three market share in most markets over time, and sometimes adding another franchise creates concentration issues. There were a couple of transactions that were not for us because of market concentration. We generally avoid transactions that require divestiture; at the size we target, that is difficult. We are always talking to people and understanding their needs in the next two to five years.
That is all I had. Appreciate it. Thank you.
Our next question will come from the line of Daniel Cardenas with Janney Montgomery. Your line is open.
Good morning. Quick follow-up on M&A strategy: remind us what the size range of institution you would be looking for is?
Good question. We generally think something large enough to justify deploying our organization and integration resources. The size of Salisbury Bank a couple of years ago and Evans last year met that criteria. Something in the $1 billion to $3 billion range is in our sweet spot — something our organization can handle while still pursuing organic growth. In certain situations, if a smaller organization had a unique noninterest income offering on the insurance, wealth, or benefits side, we'd look at that too. Deploying our folks and not taking them away from their core activities is a consideration. We do some analysis on slightly larger opportunities as well. Our people have done a great job integrating recent acquisitions and we are always interested in adding talented people if it fits our geographic strategy.
Okay. It sounds like you are in various stages of conversation. Can you comment on buyer-seller disconnects? I believe sellers choose timing, but curious on what you see.
We are okay with sellers deciding the timing. If someone pursues an independent strategy, that's fine — we are pursuing ours. When circumstances change for succession or technology investment or shareholder needs present themselves, we want to be top of mind by being in front of people so they know the opportunity with NBT.
Okay, great. That's all I have for now. Thank you.
I am showing no further questions in the queue at this time. I would now like to turn the call back to Scott A. Kingsley for any closing remarks.
Thank you. I want to thank everyone on the call for participating with us today and for your continued interest in NBT. We will talk at the end of next quarter.
Thank you, Mr. Kingsley. This concludes our program. You may disconnect, and have a great day.