Q4 2020 NBT Bancorp Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly.
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Good day, everyone welcome to the N V T Bancorp fourth quarter 2020 financial results Conference call.
This call is being recorded and has been made accessible to the public in accordance with the SEC's regulation FD.
Funding presentation slides can be found on the company's website at M. D T Bancorp dotcom.
Before the call begins Mpt's management would like to remind listeners that as noted on slide two today's presentation may contain forward looking statements as defined by the Securities and Exchange Commission.
Actual results may differ from those projected Inc.
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 and instructions will follow at that time.
Anyone requiring operator assistance compress the starkey than the zero on your Touchtone telephone.
As a reminder, this call is being recorded.
I would now like to turn the conference over to N V T Bancorp, President and CEO, John H Watt junior for his opening remarks, Mr. Watt. Please begin.
Welcome and thank you for joining us today for <unk> earnings call covering our fourth quarter and full year 2020 results.
Joining me to review highlights with you our Mbt's Chief Financial Officer, John Moran, and our Chief credit risk Officer, Amy Winehouse.
Following our remarks, we will take your questions.
The events of 2020 were unexpected and unprecedented with that said in BT enters this year with momentum on many fronts.
Our strong and diversified balance sheet, our capital base, which.
Which was enhanced by an opportunistic capital raise and the resilient performance of our credit portfolios in 2020 provides us the optionality to grow in 2021, as we did when we exited the financial crisis.
Our mortgage business experienced record production in 2020 and the pipeline is at an all time high for this time of the year.
Since last August our indirect auto originations continue to build month over month.
Commercial loan production in 2020 was close to 1 billion.
And the pipelines are active in building across our seven states platform.
Finally, our fee based wealth and retirement services platforms exited the year strongly and are well positioned for 2021 with assets under management and under administration at record highs.
This outcome demonstrates the core underlying strengths of our organization in a year like no other.
Strong customer relationships managed by our focused team of bankers are continuing to result in positive outcomes related to the management of deferrals, which Amy will discuss.
We have already funded our first PPP loans in the latest round of the program and plan to lean heavy into this program to support main street businesses across our footprint.
MPT achieved earnings of 78 per share for the fourth quarter and $2 37 for the year. After a $4 $8 million, one time charge associated with branch optimization that will yield significant expense say.
<unk> going forward.
Finally yesterday the board approved a 27% dividend payable on March 15th and Reloaded, our stock repurchase program to double the number of shares authorized to $2 million.
To talk in greater detail about our financial performance I will turn the call over to our Chief Financial Officer, John Moran.
Thanks, John turning to slide for as John highlighted our fourth quarter earnings per share were <unk> 78.
We did record $4 $1 billion of branch optimization charges this quarter and a total of $4 $8 million of such charges for the year that puts adjusted earnings per share at <unk> 85 for the quarter and $2 46 for the full year.
As you can see the provision for loan losses was down as compared to <unk> levels and down substantially from the levels of the first half of 2020.
Charge offs ticked up to 22 basis points, excluding PPP loans, but remain below historical averages our reserve coverage decreased slightly to 156%, excluding PPP loans from 162% in <unk>.
Our underlying operating performance continues to hold in well with pre provision net revenue of just under $50 million up 11% as compared to the year ago period tangible book value per share continued to grow up 2% with TCE up 14 basis points and our CET, one ratio improving 21 basis points as compared to the third.
Yeah.
Slide five shows trends in outstanding loans on a core basis, excluding PPP loans were up $22 million for the quarter.
As John suggested earlier commercial activity has steadily improved as we exited the year with good momentum in several of our businesses substantially all parts of our footprint remain reopened more fully and pipelines continued to rebuild in both consumer and commercial lending.
Non utilization remains a headwind, but new originations have been fairly brisk.
Moving to slide six deposits were up about $125 million point to point for the quarter with our core deposits up an even stronger $150 million customer cash remains elevated on increased liquidity associated with various government support programs as we highlighted last quarter. These deposits have remained stickier than we would've expected.
<unk>, we have continued to actively manage our funding costs. Both in the exception price book and in rack rates those actions combined with higher levels of demand deposits are evident in our low 17 basis point cost of total deposits.
The additional deposit pricing actions, we took during the quarter helped support our margins.
While we do have some opportunities to lower costs and our back book, particularly around legacy Cds. The majority of our planned rate actions are now completed.
Core deposit funding has long been a hallmark of the <unk> franchise, and we remain very pleased with the results of our active repricing strategy.
Next on slide seven you'll see the detailed changes in our net interest income and margin.
Mixed shift and fees from PPP forgiveness drove a better than expected outcome for the quarter NII was up $2 2 million and a reported margin increased three basis points.
Our normalized NIM, excluding the impact of excess liquidity and PPP lending was fairly stable due to the aforementioned reduction in deposit costs and mix shift towards higher yielding consumer loans.
The fees recognized due to PPP forgiveness provided about five basis points of margin support this quarter.
Looking forward as assets continue to reprice at a lower rate environment, we would expect to see core margin compression over the course of 'twenty, one excluding the impact of PPP and excess liquidity.
Slide eight shows trends in noninterest income.
Excluding modest securities gains and losses, our fee income was stable linked quarter at $38 million more broadly non spread revenue was nearly 32% of our total revenue and this remains a key strength for MBT as compared to peers.
Retail banking fees have continued to rebound from <unk> depressed levels, while higher cash balances have held service charges at lower levels compared to a year ago, they improved from third quarter.
ATM and debit card fees have continued to demonstrate better growth than we would've expected as activity levels improved over the course of 2020, but were modestly lower in <unk> versus <unk> on normal seasonality.
The RPI line benefited from our recent AVG acquisition and most other lines were stable other revenue was up on strong swap income.
Turning to noninterest expense on slide nine our total operating expenses were just over $75 million for the quarter.
Adjusting for the $4 $1 million in branch optimization charges, our core operating expenses were $71 million increases in several categories were driven by timing and normal seasonality.
The other expense line included approximately $1 million of increase in the provision for unfunded commitments as pipelines for up and line utilization was down.
We have continued to effectively manage our expenses and our net overhead ratio remains below peers. We're.
We're pleased with that outcome and we remain committed to operational excellence, while focusing on managing our cost structure.
During 2020 plans to consolidate 10 branches or 7% of the footprint for approved.
We expect to realize about $2 $5 million in annualized savings from these actions.
On slide 10, we provide an overview of key asset quality metrics.
Excluding the impact of PPP net charge offs remained lower than normal at 22 basis points.
Both Npls and Npa's moved higher again, this quarter, but they remain at low levels and the absolute Amy.
Amy will provide some more detail on migration in a moment, but we are continuing to benefit from the diversity and granularity of our loan portfolios. The prime nature of our consumer book and our conservative underwriting.
Jamie will share our deferrals are now running at one five percentage of total loans down from a peak of approximately 15% during the second quarter.
On slide 11, we provide a walk forward of our reserve from the prior quarter to year end and the reserve allocations by loan category.
In terms of outlook on provisions clearly the economic outlook continues to improve but there is still uncertainty around the path of the virus vaccine rollout in compliance and ultimately the efficacy of the latest stimulus package.
Excluding PPP, our allowance to loan ratio was 156 basis points and appropriately conservative estimate of the credit risk in our portfolio today.
We continue to believe that the path of charge off activity and balance sheet growth will be heavier factors and future provisioning needs versus the model driven reserving that we experienced in the first two quarters of 2020.
With that I'll turn it over to Amy whilst our chief credit risk officer for some additional details on the credit front Amy.
Thank you John.
The return to pay ratio on deferrals has continued to be very strong at 88% bank wide, reducing total deferral substantially from their peak of $1 1 billion to $107 million as of January 19th are down to one 5% of total loans.
Our larger commercial loans represent the largest category of deferrals at 81% or $86 million, which represents two 8% of the commercial portfolio.
Our small business is very strong with only $2 7 million and deferral of <unk>, 5% of the total portfolio.
We have completed modifications on all loans in commercial that needed additional forbearance beyond 180 days and these are included in the numbers shown here and have various maturities that run through the fourth quarter of 2021. This represents only 11 relationships. So it's a very manageable number and represents 77% of all commercial deferral.
Performance in our consumer loan portfolios are particularly encouraging with our home lending, which is a real estate secured and our consumer lending portfolios each reporting deferrals of less than 1% down two 3% and 8% of total portfolio loans respectively.
It is also noteworthy we are not seeing an increase in the rate of new deferrals compared to prior years. These positive trends are supported by the stimulus payments and improving unemployment rates in our markets and I would also note that our consumer portfolio have strong fundamentals at origination with average FICO scores of 750 and a focus on price.
Borrowers.
The next slide shows that remaining deferrals are centered in three areas.
Hospitality represents the largest at 37% of total deferrals.
As we've mentioned on our prior calls these were underwritten with conservative loan to value and strong sponsors and I would note that only 23% of the segment remain on deferral. So we are down just a handful of credits here in fact, two relationships make up 75% of this total.
Each with very strong sponsors and strong liquidity and top tier operating history pre COVID-19.
Restaurant and entertainment and $15 million is a relatively small number with only 10% of the segment on deferral and includes some smaller credit.
Noted on the slide virtually all our general retailer and automotive retailers have returned to pay.
The remaining deferrals are commercial real estate, primarily office with only 2% of the total commercial real estate segment remaining on deferral, So again very manageable and strong results.
I'll close by saying, we are seeing strong resiliency across the board and are pleased how we ended the year.
Back to you John Thank you John and Amy.
I will mention as we take your questions. This morning that also joining us on the call is our chief accounting officer, and that Burns corporate Treasurer, Mark Marshawn and F. BNA manager Bill Whitaker.
Thank you.
Anyone with a question at this time, Ken Press Star then the one key on your Touchtone telephone.
If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
We ask that you limit yourself to one question and one follow up.
One moment for our question.
Our first question comes from Alex <unk> with Piper Sandler.
Hey, good morning, all.
Good morning, Alex.
First off.
Wanted to dig in a little bit to capital I noticed you increased the buyback authorization, which is something you guys haven't.
Typically used too much Alex So I was just curious if your thought process has changed a little bit around the buyback and then.
Now that you are above $10 billion I know theres been a little bit more of a focus on M&A and I was wondering if you could sort of.
Rank the priorities for capital deployment, and then talk a little bit about what youre seeing out there in the M&A market. If there is.
Conversations are picking up or any additional color you could get.
Glad to take that one Alex.
Thank you.
You've heard this story from us many times.
We primarily allocated capital to our organic growth within our expansion strategies.
In addition, we think about M&A come back for that in a moment.
And we feel that it's appropriate for half of the arrows in the quiver.
We.
What normally have as a bank for the size so.
We asked the board yesterday to make sure that we had plenty of flexibility with respect for the buyback.
We'll do that opportunistically throughout the year.
That's.
That of course.
And yesterday as well.
Absolutely.
Thank you.
Capital allocation and return of capital to shareholders.
On the M&A front.
I think more.
Price.
Understanding credit.
Actual partner is.
For the management.
Mike.
We are fortunate to have had the durbin.
Net pushed out a year or so we can go into 2022.
Before we feel the impact of a reduction of net fee that gives us time to.
Keith.
Compensation is that we've been having in identifying.
For Ya.
As we said in the past.
Look for.
There are some that are.
Yes.
The failure to $3 billion range as being.
Most appropriate to align with our strategy.
I have to be.
Geographically.
<unk>.
And a great holiday.
Alliance cultures.
Yes.
The timelines for their continued for the most part.
As you might imagine.
Our mix is.
For two Joe Johnson for more.
Deep understanding of risk.
John.
Us too.
Thank you.
Thanks, Tom.
Great. That's good color and then just as a follow up you talked about organic growth as being sort of priority number one and you alluded to the loan types being in pretty good shape and I was just wondering if you guys have adjusted how youre thinking about loan growth with respect to what you put on the balance sheet versus selling into the secondary market or any other adjustments that you've made.
And then.
If you had sort of a target for for for loan growth for the next couple of quarters that you could share with us.
I'll give you a little color about what.
With respect to the markets and then I'll turn it over to John to talk about targets, we've set for ourselves so I.
I've been on the fall now I'll wait for all across our seven state platform.
The pipelines in New Hampshire, and Connecticut.
In Suffern, New York are building an active this week there was a flurry.
Screenings.
John as well.
John I will observe its competitive edge.
We're going to have to fight hard to maintain appropriate structure and pricing.
There is activity, particularly.
We're excited about.
The pipeline that's building in Connecticut.
There is sort of lower end.
Herschel high and business banking.
And we've got a great team in place there.
Yes.
Arguing about NPT under the radar during the pandemic and is now ready to.
Execute on our pipeline.
That momentum makes us feel pretty good so.
That's sort of color across the markets John why don't you handle the targets we set for ourselves.
Yes, Alex has it gone so John alluded to it the pipelines are pretty full activity certainly picking up production last year was it was a really good story.
Translating that production into net growth has been a little bit more challenging given some of the some of the headwinds that we faced on on Paydowns in line utilization.
I think as we look forward certainly we're cautiously optimistic that we'll be able to get back to.
Sort of historical growth rates in terms of.
Net loan growth on the balance sheet into next year.
One thing that we did sort of shift in terms of strategic approach.
We have started the portfolio again in 1% for family versus versus selling.
Yes.
Think that we'll stay flexible around that that's a lever that we can kind of pull one way or another but for now we're going to we're going to keep most of that on balance sheet.
Great. Thanks for taking my questions.
Again, if you have a question. Please press Star then the one key on your Touchtone telephone.
Our next question comes from Matthew Breese with Stephens.
Good morning.
And maybe just following up on on the loan growth question.
Question, you mentioned some of the geographies and it sounds like strength is pretty widespread.
Give us a little bit of insight as to what lending segments CRE C&I.
What lending segments, our pipelines are the strongest.
Sure John.
We're seeing that.
And the CRA asset class opportunities in multifamily and in warehouse.
And.
In Connecticut, we're seeing it in business banking, which is a mix.
CRE and <unk>.
C&I.
And then.
Customers in our core.
So ex.
And onto C&I relationships and.
CRE.
We're not seeing.
Nor are we looking for opportunities and retail.
Obviously hospitality needs demand before we.
Start thinking about new opportunities there.
Otherwise.
It's a pretty good mix.
Okay.
And then in terms of average.
New loan yields.
I appreciate the detail on slide five.
The one area isn't provided into commercial real estate, where our new commercial real estate loan yields coming on at.
Okay.
Yes, Matt it's John Moran commercial real estate yields today kind of mid mid twos, so call it call. It 250 to 60.
And that's against the book yield that is kind of high twos low threes.
Okay.
John.
And then number 250 to $2 60 versus a lot of your peers. It strikes me as maybe I don't know I'd call. It 50 basis points lower than what Ive heard peers why might that day.
I think it's.
John and Amy certainly can weigh in here as well, but I think part of it is customer selection.
And kind of who we're doing business with.
So we are not doing a lot of sort of it was sort of what I would I would consider.
VC type of type of commercial real estate deals, we're really focused on the best borrowers the best developers.
In our markets and as John mentioned, those those tend to be pretty competitive situations.
When I think about commercial real estate too.
202, and a quarter over LIBOR plus a swap on top.
<unk> is about right for <unk>.
And a quality kind of kind of project Amy.
Amy John I'm not sure if you would.
You would add to that.
No I'd agree, particularly annoying on very competitive but.
We're selective.
We wanted to go down market, we would drive that yield up but wed also have outsized risk.
Although the bulk for Watson never has been so.
Because.
Yes.
Quality of the people, we're talking to there are lots of banks around it.
To fight hard to win.
Understood I appreciate that.
And then just switching to the NIM I know you mentioned that you were likely to see some core NIM pressure throughout the year could you maybe quantify what your expectations are in.
Where we might exit 'twenty, one, whereas the stabilization point.
Yes.
For the.
That's the big question.
It's a little bit tough still to get our arms completely around it because there's so many moving pieces with for <unk>.
TPP.
Another round of PPP coming excess liquidity.
Sort of taken a stab at margin has become more difficult than it was.
In a normal environment, certainly what I would tell you is if we if we take out.
The impact from PPP lending.
This liquidity and everything else I think I think on a core basis, we're still going to see that kind of.
Call it it.
Depending on the quarter I mean, obviously for our first quarter has some.
Some unique things given 28 day in February but.
Call it on a core basis.
Low single digit mid single digit kind of compression.
Out of the core book.
Okay.
Okay understood.
Last one for me just on expenses you had mentioned that there were several seasonal.
It sounds like maybe some some higher than usual type expenses. This quarter could you quantify that for us and just give us a sense for what you would consider to be the.
John.
The core kind of run rate expenses that we should.
We should get to for the first half of 'twenty one.
Yes, I think I think the two biggest pieces of that Matt if youre going off for the $75 million $75 2 million of GAAP expense. Its first $4 $1 million in branch optimization, and then second about $1 million just under $1 million.
Unfunded commitments.
If you took those two out it would be it would be kind of.
At a $1 $3 million increase in the other line.
I would tell you nothing in particular, there, it's just kind of a bunch of little ones that added up.
The other big Delta would be on.
On the professional fees and outside services line.
There, we ran a little bit heavy just given timing of projects.
On the on the salary and employee benefit line little bit of true up a little bit of medical in the fourth quarter.
I think if you kind of normalize for those items.
It puts you back down into the low seventies high sixties I would just remind you in.
<unk>.
Also have some seasonality there as FICA resets equity comp and <unk>.
So normally it's wintertime in upstate New York, So we've got a plow and heat and all of that so <unk> can run a little bit heavy for us as well.
Great Okay.
That's all I had thanks for taking my questions.
Absolutely Thanks, Matt appreciate it.
Again, if you have a question. Please press Star then the one key on your Touchtone telephone.
Yes.
I'm not showing any further questions I will now turn the call back to John what first closing remarks.
Thank you so.
In closing I'd like to thank you all for joining us on the call today, certainly looking back 2020 wasn't the year, we expect it but we're pretty happy about how we are.
Exiting that year and entering 2021 active pipelines growing momentum stability in the markets.
So again, we appreciate your participation today and your continued interest in MDT and good day. Thanks.
Thank you for everyone who participated on this conference call for your interest in MPT Bancorp. This concludes today's program you may disconnect have a great day.
Okay.
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John.
Yes.
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