Q1 2024 NBT Bancorp Inc Earnings Call

Good day, everyone and welcome to the conference call covering and boutique 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.

Unknown Executive: Good morning, 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 ntbbancorp.com.

Corresponding presentation slides can be found on the company's website and TB Bancorp dotcom before the call begins and <unk> management would like to remind listeners that as noted on slide two today's presentation may contain forward looking statements.

Unknown Executive: Before the call begins, 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 used. Reconciliations for these members are contained within the appendix of today's presentation. At this time, all participants are in a listen-only mode.

Fine 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.

Speaker Change: At this time all participants are in a listen only mode. Later, we will conduct a question answer session instructions will follow at that time as a reminder, this call is being recorded I will now turn the conference over to N. B T Bancorp's, President and CEO, John H, what junior for his opening remarks, Mr. Wang Please begin.

Unknown Executive: 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 H. Watt: Thank you Victor and good morning, and thank you all for participating in this earnings call covering <unk> Bancorp's first quarter 2024 results John.

John H. 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.

John H. Watt: Joining me today are <unk>, Chief Financial Officer, Scott Kingsley, Our Chief Accounting Officer, and net Burns, our president of retail banking Jo Stagg Liana.

John H. Watt: As we announced in January I will step down from my role as President and CEO on May 21.

John H. Watt: 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.

John H. Watt: At that time, we will complete what has been a very thoughtful and disciplined succession process led by our board of directors.

John H. Watt: I could not be happier for our shareholders customers employees and communities that my successor as Scott Kingsley, a highly regarded professional who will make this a seamless transition.

John H. Watt: In addition, Joe Stag Liana will assume the title of President of NPT Bank.

John H. Watt: And my colleague of over 15 years, and it Burns will become our Chief Financial Officer.

John H. Watt: Each of these internal promotions will help assure that <unk> maintains its momentum in 2024 and beyond.

John H. Watt: 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 and NBT over the years for their interest in our story.

John H. Watt: And as I have said many times since the January announcement, all the constituents of MBT are averaging up in every way with this team.

John H. Watt: 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 MBT over the years for your interest in our story.

John H. Watt: 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 backs, 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, 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.

John H. Watt: It has been a pleasure to get to know you and to work with you for over 20 years.

Speaker Change: As I turn over the leadership of MBT. The Windows that are back and MPT 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 and semiconductor.

Speaker Change: <unk>.

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 chipset that will and poor and part support its plans to invest as much as 100 billion.

Speaker Change: In a complex of semiconductor fabrication plants and the ton of clay near Syracuse.

Speaker Change: Additional support for the <unk> 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 Onondaga County.

John H. Watt: 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 Onondaga County. This follows an announcement in February by Global Foundries in the Capital District that the CHIPS Act will provide direct funding of $1.5 billion to build another fab manufacturing facility in Malthill, 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.

Speaker Change: This follows an announcement in February by global foundries in the capital District that the chips Act will provide direct funding of one 5 billion to build another fab manufacturing facility in Malta, New York and to upgrade its facility in Essex Junction.

Speaker Change: <unk>.

Speaker Change: New York State will also provide $575 million in direct funding for the multiple project combined an additional 1500 manufacturing jobs are 9000 construction jobs are projected from this investment alone.

John H. Watt: 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 quarter and in the first quarter and, in doing so, assure you that our shareholders are in very capable and experienced hands going forward. Good morning, and thank you.

Speaker Change: MPT 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.

Speaker Change: So now I will turn it over to the team for a discussion of our financial performance in the last core in the first quarter and in doing so assure you that our shareholders are in very capable and experienced hands going forward.

Speaker Change: Hi.

Speaker Change: 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 and capitalizing on the exciting opportunities in our markets and the upstate New York semi conductor manufacturing corridor.

Scott A. Kingsley: 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 continue to be favorable.

Speaker Change: Our first quarter operating results, including earnings per share of <unk> 68 were in line with our expectations are.

Speaker Change: Our team generated $78 million of incremental loan growth or three 6% annualized in the first quarter in our core portfolios.

Customer health and sentiment continues to be favorable.

Scott A. Kingsley: We grew deposit funding in the first quarter, primarily from seasonal municipal inflows, while importantly adding net new accounts. Our non-interest 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 the first quarter financial results. Annette?

Speaker Change: We grew deposit funding in the first quarter, primarily from seasonal municipal inflows, while importantly, adding net new accounts.

Speaker Change: Our noninterest income generation continued to improve and represented 31% of total revenues in the first quarter.

Speaker Change: Despite some LCI declines related to higher mid term interest rates, our tangible equity ratio ended the quarter higher than our tier one leverage ratio of 10, 9% is more than two times the regulatory required level.

Net: 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 a net for some more detailed comments on first quarter financial results and Ed.

Annette L. 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.

Ed: Thank you Scott and good morning, everyone.

Ed: Turning to the results overview page of our earnings presentation.

First quarter earnings per share were <unk> 71.

Ed: Operating earnings per share were <unk>, 68, which excludes <unk> <unk> per share of securities gains.

Annette L. Burns: Our net interest margin in the first quarter of 2024 was 3.14%, which was down one basis point from the linked fourth quarter of 2023, as our five basis points of earnings 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.

Ed: Our net interest margin in the first quarter of 2024 was $3, one, 4%, which was down one basis point from the linked fourth quarter of 2023, as our five basis points of earning asset yield improvement nearly offset our increase in funding costs in the quarter.

Ed: Tangible book value per share of $22 seven at March 31 was up 35 per share from the end of the fourth quarter and up 55 from the first quarter of 2023.

Annette L. Burns: 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 seven basis points from the fourth quarter of 2023, reflective of continued higher new origination

Ed: The next page shows trends in outstanding loans.

Ed: Total loans were up 37 $4 million for the quarter or one 6% annualized and included growth in both our consumer and commercial portfolios exclude.

Ed: Excluding the other consumer and residential solar portfolios that are in a planned contractual runoff status.

Ed: Increased 78 million or three 6% annualized.

Ed: First quarter loan yields were up seven basis points from the fourth quarter of 2023 reflective of continued higher new origination rates, our total loan portfolio of 969 billion.

Annette L. Burns: 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 an 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.

Ed: It remains very well diversified and is comprised of 52% commercial relationships and 48% consumer loans.

Ed: Page six total deposits of $11 $2 billion were up $226 million from the linked fourth quarter.

Ed: Inflow of seasonal municipal deposits during the quarter.

Ed: Generally in most of our markets municipal tax collections are concentrated in the first and third quarters of each year.

Ed: 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 are <unk>.

Annette L. Burns: 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.

Ed: 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 one less calendar day in the first quarter.

Ed: Although we experienced a slower rate of growth in the cost of funds in the quarter, we expect modest additional funding pressures to continue.

Ed: The trends in noninterest income are summarized on page eight 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.

Annette L. Burns: One of the primary drivers of the decrease in net interest income was a decline in the company's quarterly average Fed fund selling position and one 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 and non-interest income are summarized on page eight. 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.

Ed: Revenues from our retirement plan administration business were up three point million $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.

Ed: Growth insurance agency revenues are also seasonally stronger and reflect a higher level of policy renewals in the first quarter.

Ed: The diversification of our revenue generation sources continues to be a core strength of the company and represented 31% of total revenues.

Ed: Turning to noninterest expense, our total operating expenses were $91 8 million for the quarter, which were $4 million or four 6% above the linked fourth quarter, excluding acquisition expenses and an impairment charge in Q4 23.

Annette L. Burns: 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. In 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.

Ed: Salaries and employee benefit costs of $55 7 million.

Ed: We're 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 costs compared to the very low level of incentive costs recorded in Q4 of 2023.

Ed: The higher first quarter benefit costs accounted for approximately <unk> <unk> per share, which will be partly offset by a full quarter impact of merit increases for the remainder of the year.

Ed: And one additional day of payroll in the last two quarters of the year.

Ed: 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 off.

Annette L. Burns: Turning to non-interest expense, our total operating expenses were $91.8 million for the quarter, which was $4 million or 4.6% above the linked fourth quarter. Excluding acquisition expenses and an impairment charge in Q4-23, 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.

Ed: Operating costs and the remainder remaining three quarters of 2024.

Ed: 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 $500000 higher than the $5 $1 million provision recorded in the linked fourth quarter.

Ed: 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.

Ed: Reserve coverage of one 9% of total loans was consistent with the linked fourth quarter.

Annette L. Burns: Merit pay increases effective in March and higher incentive compensation costs 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. 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.

Ed: 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.

Ed: Nonperforming loans were also consistent with the prior quarter.

Ed: 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 are well balanced organic loan growth granular deposit base positive results from our recurring fee income line.

Ed: <unk> and solid credit quality have allowed us to productively offset a portion of the challenges on net interest income generation.

Ed: Lastly, our capital levels continue to put us in a favorable position as we consider future growth and deployment opportunities.

Speaker Change: With that we're happy to answer any questions you may have at this time.

Speaker Change: Thank you and anyone with a question at this time, Ken Press Star one on your telephone and wait for NIM to be announce to withdraw your question. Please press star one again.

Annette L. Burns: The elevated occupancy expense in the first quarter is historically offset by higher other operating costs in the remaining 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.

Speaker Change: One moment for our questions to compile the Q&A roster.

Speaker Change: One moment for our first question.

Speaker Change: Our first question comes from the line of Steve Moss from Raymond James Your line is open.

Speaker Change: Hey, Good morning, this is thomas pinch hitting for Steve.

Thomas: Good morning, Tom Good morning.

Thomas: Hey, good morning, John Scott.

Annette L. Burns: 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 a linked fourth quarter. We believe that charge-off activity will continue to trend toward more historical norms, and expected balance sheet growth and continued mixed changes will likely be the drivers of future provisioning needs. Non-performing loans were also consistent with the prior quarter.

Tom: Sounds like there was a lot of seasonal noise in the fee income line. This quarter I was wondering maybe you can provide us with a range for a run rate for that through the rest of this year.

John H. Watt: Sure Thomas I would be happy to answer that.

Run rate or the seasonal activity in the first quarter was probably about one to two basis, 1% to two cents.

Speaker Change: In the quarter.

Speaker Change: Thinking forward another tailwind for the quarter, we had some very strong market performance in both our wealth management and our retirement plan businesses. So that continues.

Speaker Change: Or that's a variable when we think about our run rate for non interesting our noninterest income.

Annette L. Burns: 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 in net interest income generation. Lastly, our capital levels continue to put us in a favorable position as we consider future growth and deployment opportunities.

Speaker Change: Okay. Thank you for that color.

Speaker Change: I guess, then just maybe moving to credit here.

Speaker Change: See the indirect auto charge offs stepped up a little bit.

Speaker Change: Basis points.

Speaker Change: So really both but can you maybe provide us with a normalized charge off ratio for that line and maybe any color on trends you're seeing there.

Speaker Change: So sure Tom we really haven't seen much of an inflection.

Speaker Change: Those levels.

Speaker Change: Higher than the 2022, 2023 levels, which were exaggeratedly low by any historical comparison first of all the way back to 2019 charge offs in indirect auto we're closer to 30 basis points.

Annette L. Burns: With that, we're happy to answer any questions you may have at this time. Thank you, and anyone with a question at this time can press star 11 on their telephone and wait for a name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: And it.

Tom: It doesn't look like our trends will take us there instantaneously, but if you think about it on a long term basis, we would still think the portfolio was performing very close to our expectations on a longer term basis, if that low twenty's moved closer to 30.

Unknown Executive: One moment for questions to compile on our Q&A roster. One moment for our first question. Our first question comes from Steve Moss from Raymond James. Hey, good morning. This is Thomas pinch hitting for. Good morning, Tom.

Tom: As we start to forward project debt.

Tom: Customer still looks like Theyre very healthy relative to serving their obligations and again as a reminder, if you think about most of the geographies that we are in.

Unknown Executive: Morning. Hey, morning, John, Scott. Sounds like there was a lot of seasonal noise in the fee income line this quarter. I was wondering if you could provide us with a range for a run rate for that through the rest of this year. Sure, Thomas. I'd be happy to answer that.

Tom: There is not a big plethora of public transportation. So people are servicing their their auto obligations that they are trying to get to work.

Speaker Change: Okay, great. Thanks for that and then just one more from me.

Speaker Change: It looks like the residential solar reserve continued to build aided by continued run off.

Scott A. Kingsley: Our run rate or seasonal activity in the first quarter was probably about one to two basis points, one to two cents in the quarter. Thinking forward, you know, another tailwind for the quarter, we had some very strong market performance in both our wealth management and our retirement plan businesses. So if that continues, or that's a variable when we think about our run rate for non-interesting. Okay, thank you for that color.

Speaker Change: Can you share with us where you see that reserve ratio, peaking out.

Speaker Change: Sure I wouldn't expect it to change significantly from where it's at today, we continue to it's a longer term asset. So some of that increase is just the extension.

Speaker Change: Given prepayment assumptions, we're very comfortable with the level of reserves are at today, and probably wouldnt expect it to tick up much higher.

Speaker Change: Okay. Thank you for all the detail I'll step out.

Speaker Change: I appreciate the questions Thomas Thank you.

Speaker Change: Thank you one moment for our next question.

And our next question comes from the line of Matthew Breese from Stephens. Your line is open.

Scott A. Kingsley: Um, I guess I'm just maybe moving to credit here. I see that indirect auto charge-off stepped up a little bit, you know, 20 ish basis points, you know, still really low. But can you maybe provide us with a normalized charge-off ratio for that line and maybe any color on trends you're seeing there? Sure, Thomas.

Matthew M. Breese: Hey, good morning.

Matthew M. Breese: Hey, good morning, Matt.

Matthew M. Breese: Sure.

I'm not sure.

Matthew M. Breese: Answered this question, but I was curious on the solar portfolio.

Matt: So what is the ultimate goal there in terms of run off what are we defining as kind of like the appropriate size for that as a percentage of total loans.

Speaker Change: So I would frame it this way Matt is that as you know our strategy, even a couple of years ago or even before that was to bring the assets on the balance sheet.

Scott A. Kingsley: We really haven't seen much of an inflection, you know, those levels higher than the 2022-2023 levels, which were exaggeratedly low by any historical comparison. If we were to go all the way back to 2019, charge-offs and indirect auto were closer to 30 basis points. And, you know, it doesn't look like our trends will take us there instantaneously.

Speaker Change: To sum number just below a $1 billion depending on market demand.

Speaker Change: And we've reached that.

Speaker Change: Initially we thought from that point in time, we would inflect and become more of a servicer of obligations.

Speaker Change: With our partner that we would probably be selling or they would be selling future originations.

Speaker Change: It's probably an understatement to say that the solar residential industry.

Scott A. Kingsley: But if you think about it on a long-term basis, we would still think the portfolio was performing very close to our expectations on a longer-term basis if that low 20s moved closer to 30. You know, as we start to forward project that, the customer still looks like they're very healthy relative to serving their obligations. And again, as a reminder, if you think about most of the geographies that we are in, there's not a big plethora of public transportation.

Under assault since rates started to go up and it's really just a function of liquidity capacity to be able to service or to be able to add people to the roster of.

Speaker Change: Forward liquidity source.

Speaker Change: So for US I would say at this point in time.

Speaker Change: We don't think we'll be adding to that line in fairness, we think contractual runoff just based on.

Terms and conditions of the loans, we've already made.

Speaker Change: Bring those portfolios down overtime like we experienced in the first quarter.

Speaker Change: That combined with we still have about $100 million of some consumer specialty credit on the balance sheet. So I would frame. It this way, there's probably a $1 billion that is currently sits on the balance sheet that we would not expect to grow at a mid single digit rate like we talked about with most of our other portfolios and instead, we'll probably experienced contractual runoff.

Scott A. Kingsley: So people are servicing their, you know, their auto obligations because they're trying to get to work. Okay, great. Thanks for that. And just one more for me.

Scott A. Kingsley: It looks like the residential solar reserve continued to build, you know, aided by continued runoff. Can you maybe share with us where you see that reserve ratio peaking out? Sure, I wouldn't expect it to change significantly from where it's at today, but we continue to believe it's a longer-term asset. So some of that increases just the extension, you know, given prepayment assumptions, we're very comfortable with the level of reserves as today and probably wouldn't expect it to tick up much higher. Okay, thank you for all those details.

Speaker Change: So again similar to what we experienced in the first quarter, where we said we had one 6% annualized growth across the whole portfolio, but three five or three 6% upon the portfolios, we're actually anticipating growing.

Speaker Change: Understood Okay.

Speaker Change: And then just looking at the components of the NIM. One thing that does stand out is your securities portfolio is well behind current market rates.

Speaker Change: And I was curious your thinking around potential restructurings work, even nibbling at restructuring to kind of accelerate how.

Scott A. Kingsley: I'll step out. I appreciate the questions, Thomas. Thank you. One moment for our next question, and our next question will come from the line of Matthew Breese from Stevens. Hey, good morning.

Speaker Change: How fast we can get that to market levels.

Speaker Change: Yes, Matt.

Speaker Change: We continue to evaluate that from an opportunity standpoint.

Speaker Change: Again, we evaluate that against other utilization of capital today.

Unknown Executive: Good morning, Matt. Good morning, Matt. I'm not sure who should answer this question.

Speaker Change: So I think where we stand today.

Unknown Executive: But I was curious about the solar portfolio. What is the ultimate goal there in terms of, you know, runoff? What are we defining as the appropriate size for that as a percentage of total runoff?

Speaker Change: As we look at that portfolio and say, where our portfolio is dominated by amortizing mortgage backed and backed instruments. So we have natural cash flows coming off the portfolio probably to the tune of $14 million to $16 million a month.

Scott A. Kingsley: So I would frame it this way, Matt, is that, as you know, our strategy, even a couple of years ago, or even before that, was to bring the assets on the balance sheet to some number just below a billion dollars, you know, depending on market demand. And we reached that, you know, initially, we thought from that point in time, we would inflect and become more of a servicer of obligations, you know, that with our partner, we would probably be selling, or they would be selling, future originations.

Speaker Change: And those have been excellent sources to fund incremental loan growth or some of our other liquidity needs.

Speaker Change: We don't have plans in the near term to change that approach yes.

Speaker Change: The yield on that portfolio is in and around 2%.

Speaker Change: And certainly so it holds us back relative to NIM expansion.

Speaker Change: But again, if we can't make a solid case for taking that essentially risk free assets and using capital to restructure it.

Speaker Change: We're fine where it sits today it helps us from a interest rate risk management.

Scott A. Kingsley: It's probably an understatement to say that the solar residential industry has been under assault since rates started to go up. And it's really just a function of liquidity capacity to be able to service or to be able to add people, you know, to the roster of a forward liquidity source. So for us, I would say at this point in time, you know, we don't think we'll be adding to that line.

Speaker Change: And we just think that today there are still better uses for our incremental capital other than.

Speaker Change: Turning out some portion of the investment securities only to replace it with Likeminded instruments that are three years or 400 basis points higher.

Speaker Change: Got it okay.

Speaker Change: And.

I was curious.

Speaker Change: Thoughts around the NIM the NIM outlook.

Speaker Change: When do we finally hit that kind of the parity moment between deposit cost increases in earning assets increases.

Scott A. Kingsley: In fairness, we think contractual runoff, just based on, you know, terms and conditions of the loans we've already made, will bring those portfolios down over time, like we experienced in the first quarter. That combined with we still have about $100 million of some consumer specialty credit on the balance sheet. So I would frame it this way, there's probably a billion dollars that currently sits on the balance sheet that we would not expect to grow at a mid-single-digit rate that we talk about with most of our other portfolios, and instead, we'll probably experience contractual runoff. So, again, similar to what we experienced in the first quarter where we said we had 1.6% annualized growth across the whole portfolio but 3.5% or 3.6% on understood.

Speaker Change: Now I'll run at that and if that is more comments you can chime in too.

Speaker Change: I think what we're pleased with is that the pace of decline has slowed down.

Speaker Change: A $3 15 to $3 14 outcome quarter over quarter.

Speaker Change: As promising relative to finding a floor.

Speaker Change: But that being said.

Speaker Change: If you looked at us from a just a sheer interest rate risk profile, we're very very neutral.

Speaker Change: So as much as.

Speaker Change: I think there is a school of thought out there that lower rates would allow for a huge pickup relative to the banking industry for us we thought it could have a positive impact but that positive impact is almost more tactical which is if the fed were to lower rates. It would it would create an opportunity for us.

Speaker Change: Go to our customer base and say, we have to lower some of our funding costs cost that we have supported our we supported our customers outcome for the last year and a half we would have a reason to be able to say the fed is coming down and so our weeks, we're having that dialogue today on a tactical basis.

Scott A. Kingsley: Okay, and then just looking at the components of the NIM, one thing that does stand out is your security portfolio is well behind current market rates. And I was curious about your thinking around potential restructurings or even nibbling at restructurings to kind of accelerate how fast you can get that to market rates. Yeah, Matt, we continue to evaluate that from an opportunity standpoint, and again, we evaluate that against other uses of capital today.

Speaker Change: But it's more centered around our inability to be able to say, if we're going to offer competitive loan rates and those are typically priced off the midpoint of the curve if incremental funding sources are coming from the front end that inversion is just not very pleasant and it's been out there for quite a while.

Speaker Change: And.

Speaker Change: So from that practical standpoint.

Speaker Change: I believe we think margin management in and around where we're at today is probably likely to continue.

Speaker Change: And if the opportunity presents itself for our assets to re price a little bit faster than any kind of mix.

Scott A. Kingsley: So I think where we stand today, you know, as we look at that portfolio and say, our portfolio is dominated by amortizing mortgage-backed instruments. So we have natural cash flows coming off the portfolio, probably to the tune of $14 to $16 million a month. And those have been excellent sources to fund incremental loan growth, you know, or some of our other liquidity needs. We don't have plans in the near term to change that approach.

Speaker Change: Change in the deposit side, we could be the net beneficiary of that but I think we're pretty happy that we again, we've sort of reached a point that we think is sort of stable and supportable.

Speaker Change: Okay.

Speaker Change: And then understanding there was some a few onetime or I should say seasonal items and expenses.

Speaker Change: Would just love kind of have.

Speaker Change: An idea of what we should expect expenses to shake out in the second quarter.

Speaker Change: For the remainder of the year, given some of those seasonal aspects.

Speaker Change: Sure Matt.

Speaker Change: The seasonal cost, we've said, where it's about <unk>. So.

Scott A. Kingsley: Yes, you know, the yield on that portfolio is in and around 2%, and certainly, it holds us back relative to NIM expansion. But again, if we can't make a solid case for taking that essentially risk-free asset and using capital to restructure it, we're fine where it sits today. It helps us from an interest rate risk management perspective. We just think that today there are still better uses for our incremental capital other than, you know, turning out some portion of the investment securities only to replace it with like-minded instruments that are 300 or 400 basis points higher. I got it.

Speaker Change: Back that off and then we know that the occupancy we're expecting that to be offset by other upticks in costs like travel and training is both.

Speaker Change: Resurface after the after the winter.

Speaker Change: So I think.

Where we're at today, plus plus or minus a few hundred thousand depending on the activity going forward, probably the second quarter.

Speaker Change: Being down from the first and then as we said additional payroll days will impact the back half of the year.

Speaker Change: Okay and then the last one for me and John I think this is in.

Speaker Change: Your ballpark is just.

Speaker Change: Optimism around upstate New York in the chip dollars flowing towards Micron and Globalfoundries, it's hard it's hard to fathom how much money is actually go into these companies.

Speaker Change: When do you realistically start to see some of the benefits permit down to your customers.

Scott A. Kingsley: Okay. And, you know, I was curious about thoughts around the NIM and the NIM Outlook. When do we finally hit that kind of parody moment between deposit cost increases and earning assets? Now, I'll run that, and if Annette has more comments, she can chime in, too.

Speaker Change: Micron is set to break ground I believe by the end of the year.

Speaker Change: Can we start to feel the impacts sometime in early 2025 is that is that a good guess.

Speaker Change: So I think first Q 'twenty five the shovel goes in the ground.

Speaker Change: And I think.

Speaker Change: Depending on what sector you're in.

Scott A. Kingsley: I think what we're pleased with is that the pace of decline has slowed down, you know, a 315 to a 314 outcome quarter over quarter, you know, is promising relative to, quote, finding a floor, but that being said, you know, and if you looked at us from just a sheer interest rate risk profile, we're very, very neutral. So, as much as, you know, I think there's a school of thought out there that lower rates would allow for a, you know, a huge pickup relative to, you know, the banking industry, for us, we thought it could have a positive impact, but that positive impact is almost more tactical, which is if the Fed were to lower rates, it would create an opportunity for us to go to our customer base and say, we have to lower some of our funding costs.

Speaker Change: On the commercial and small business side youre going to start feeling lift.

Speaker Change: Right around then.

Speaker Change: The number of sub contractors that are going to be necessary to accomplish this.

Speaker Change: No.

Speaker Change: <unk> is very large.

Speaker Change: The planning around additional.

Speaker Change: Additional housing needs is well underway and.

Speaker Change: Projects will go in the ground next year.

Speaker Change: Market rate.

Speaker Change: Workforce housing all of those things.

Pick up momentum with this announcement.

Speaker Change: Sure.

Speaker Change: The grant.

Speaker Change: Last week so.

It will build it will build in 2025 2026.

Speaker Change: I think the first fabricated chip rolls off the lineup, there and 26% to 27.

Speaker Change: That means there is probably 9000 workers, who have been hired in or will be hired.

Speaker Change: And that will also generate a lot of activity. That's just centrally or think about also bringing.

Scott A. Kingsley: Now, not that we have supported or we've supported our customer's outcome for the last year and a half, we would have a reason to be able to say, you know, the Fed's coming down and so are we. We're having that dialogue today on a tactical basis, but it's more centered around, you know, our inability to be able to say if we're going to offer competitive loan rates, and those are typically priced off the midpoint of the curve, if incremental funding sources are coming from the front end, you know, that inversion is just not very pleasant, and it's been out there for quite a while, and, you know, so from that practical standpoint, you know, I believe we think, you know, margin management in and around where we're at today is probably likely to continue, and if the opportunity presents itself for our assets to reprice a little bit faster than any kind of mixed change in the deposit side, we could be the net beneficiary of that, but I think we're pretty happy that, again, we've sort of reached a point that we think is sort of stable and supportable.

Speaker Change: <unk> plant out of the ground next to the existing Globalfoundries plant in multiple New York.

Speaker Change: I cited the number of construction workers.

Speaker Change: And full time technicians that are going to be necessary to man that plant. Once it's operational so that also creates momentum.

Speaker Change: Sure.

Speaker Change: So on the consumer side every one of them needs a car in a truck to get to work every one of them.

Speaker Change: Needs a house to live in our apartment to rent all of that is going to generate positive.

Speaker Change: Economic activity and I think Scott Internet.

Speaker Change: Given some thought about when to start quantifying that.

Speaker Change: We still have to give that a little bit of time before we.

Speaker Change: Get out there with actual.

Speaker Change: Percentage growth.

Forecast, but it's coming it's real.

Speaker Change: And.

Speaker Change: That's shovels going into ground and claim in New York.

Speaker Change: First Q2 thousand 25.

Speaker Change: I appreciate that and John just congratulations on retirement, well deserved and I'm excited to see what you have in store for the next chapter thanks guys.

Speaker Change: I appreciate that Matt it's been a pleasure.

Speaker Change: Thank you and as a reminder, that star one for questions started 111 moment for our next question.

Scott A. Kingsley: And then understanding there were a few one-time, or I should say seasonal, items and expenses, I would just love kind of an idea of what we should expect expenses to shake out in the second quarter and for the remainder of the year given some of those seasonal aspects. Sure, Matt. We said the seasonal cost was about three cents. So, you know, you back that off.

Speaker Change: Our next question comes from the line of Christopher O'connell from Keefe, Bruyette and Woods. Your line is open.

Christopher O'Connell: Hey, good morning.

Christopher O'Connell: Good morning, Chris just wanted to circle back on the.

Christopher O'Connell: On the residential solar portfolio.

Christopher O'Connell: Am I understanding it right.

Christopher O'Connell: Is that going to run down to zero now or is it just.

Scott A. Kingsley: And then we know that, you know, the occupancy rate, we're expecting that to be offset by other upticks and costs like travel and training as those, you know, kind of resurface after the winter. So I think, you know, where we are at today, plus, plus or minus a few hundred thousand, depending on the activity going forward, probably the second quarter being down from the first, and then, as we said, additional payroll days will impact the back half of the year.

Christopher O'Connell: For the next few quarters, it's in run off mode and kind of reassess that.

Christopher O'Connell: Another point in time down the line.

Speaker Change: I think that's a great way to frame that Chris.

Speaker Change: For the foreseeable future certainly in 2024, we would not expect incremental originations to end up on our balance sheet.

Speaker Change: And then as we go forward.

Speaker Change: We'll see if that becomes an attractive spot for us to allocate our capital to.

Speaker Change: Quote grow some of that back over time, we still like the asset class, it's performed very well probably better than our expectations.

Scott A. Kingsley: And then the last one for me, and John, I think this is in. Your ballpark is just, you know, optimism around upstate New York and the chip dollars that are flowing towards Micron and global foundries. It's hard.

Speaker Change: Remember this is a homeowner who has decided to put.

Speaker Change: Meaningful improvements to try to have a solar cost savings.

Speaker Change: On their property.

Scott A. Kingsley: It's hard to fathom how much money is actually going to these companies. When do you realistically start to see some of the benefits, you know, permeate down to your customers? Micron set the ground breaking ground, I believe, by the end of the year. Do we start to feel the impacts sometime in early 2025? Is that a good guess?

Speaker Change: We liked the FICO band at that customer is in.

Speaker Change: We quite frankly think that's a customer that makes really good decisions for us.

For us we've always had to look at that and say to.

Speaker Change: To the extent that not all of those originations were in the seven states that we operate branches and it is somewhat difficult to bank the customer on a holistic basis.

John H. Watt: So I think first Q25, the shovel goes in the ground, and I think depending on what sector you're in on the commercial and small business side, you're going to start feeling left right around then. The number of subcontractors that are going to be necessary to accomplish this, you know, is very large. The planning around additional housing needs is well underway, and projects will go in the ground next year. Market rate, workforce housing, all of those things picked up momentum with this announcement of the grant last week.

Speaker Change: But that being said, we like the asset class.

Speaker Change: That asset classes capable being pledged as collateral.

Speaker Change: And again to date it has performed above our expectations relative to asset quality performance.

Speaker Change: Great.

Speaker Change: Yes.

Speaker Change: Quarterly.

Speaker Change: Runoff similar to Q1, you think for the rest of the year.

Speaker Change: I think thats, a pretty good estimate Chris.

Speaker Change: Okay.

Speaker Change: And then.

Speaker Change: Can you remind us what the yields are on the resi solar and then also on.

On the consumer specialty also running off what the yields are on those.

John H. Watt: So you know, it'll build in 2025, 2026. I think the first fabricated chip rolls off the line at the end of 26 or 27. That means there are probably 9000 workers who have been hired and or will be hired. And that will also generate a lot of activity. That's just central New York.

Speaker Change: So Chris we should probably go offline to get that from a detail standpoint, but if you looked at our existing portfolio today of consumer loans and we're around 6% in total I would argue that solar residential price, it's right down the middle of that yield outcome. Some of the specialty stuff that we're in a relationship with.

Speaker Change: Spring Stone and lending club that again is in runoff status those rates might be a touch higher but again, that's mostly unsecured credit. So we would have expected that.

John H. Watt: Think about also bringing a fab plant out of the ground next to the existing Global Foundries plant in Malta, New York. You know, I cited the number of construction workers and full-time technicians who are going to be necessary to man that plant once it's operational. So that also creates momentum. On the consumer side, you know, every one of them needs a car and a truck to get to work. Every one of them needs a house to live in or an apartment to rent.

Speaker Change: Great.

Speaker Change: And can you just give us an update as far as.

The loan origination yields.

Speaker Change: Coming to on these days.

Speaker Change: Sure.

Speaker Change: On the commercial and the consumer side.

Speaker Change: We're in the low to mid 7% range.

Speaker Change: Again, depending on the asset class and residential real estate, we're probably six in a quarter to six and a half currently and Thats really a function of mix.

Speaker Change: 30 year versus 15 year instruments or adjustable rate mortgages versus fixed long term rates to date.

John H. Watt: All of that is going to generate positive economic activity. You know, I think Scott and Annette have given some thought about when to start quantifying that. We still have to give that a little bit of time before we get out there with actual percentage growth forecasts, but it's coming. It's real.

Speaker Change: Because volume characteristics in residential real estate.

Speaker Change: Certainly lower than certain past years, we've been putting all of that into portfolio.

Speaker Change: Rates get to the point, where we start to see a productive pickup and that we always have the opportunity to sell to Fannie Mae Freddie Mac.

Speaker Change: And but today the amount of originations are not forcing us to do that from a liquidity sources standpoint.

John H. Watt: And, you know, that shovel's going in the ground in Clay, New York, and in first Q 2025. I appreciate that. And John, just congratulations on your retirement. Well deserved.

Speaker Change: Great.

Speaker Change: And what's the run off of these portfolios and expected.

Speaker Change: Strong pick up on kind of the commercial book going forward.

John H. Watt: And I'm excited to see what you have in store for the next chapter. Thanks, guys. Appreciate that, Matt. It's been a pleasure.

Speaker Change: How are you thinking about holistic.

Speaker Change: Net loan growth.

Speaker Change: This year has that changed at all criminals.

Speaker Change: Sure.

Speaker Change: Part of the year.

Speaker Change: So I think that the first quarter loan growth is a good proxy for how we're thinking about the rest of the year that mix might change a little bit but that that's somewhere in the 3% to 5% changed excluding the runoff portfolios is a good proxy.

Unknown Executive: And as a reminder, that's star 11 for questions, star, moment for our next question. This question comes from Christopher O'Connell. From Keith, Breguet, and Woods, your line is open. Hey, good morning. Morning, Chris. Just wanted to circle back on the residential solar portfolio. Am I understanding it right?

Speaker Change: Great that's helpful.

Speaker Change: And just wanted to confirm.

Comments on the expenses.

Speaker Change: There are some shifts from occupancy to kind of other areas and other and travel.

Unknown Executive: Is that going to run down to zero now? Or is it just, you know, for the next few quarters, it's in runoff mode, and we kind of, you know, reassess that, you know, another point in time down the line? I think that's a great way to frame it, Chris.

Speaker Change: Kind of net out.

Speaker Change: The second quarter.

Speaker Change: And some of the compensation.

Speaker Change: Still a couple of months left.

Speaker Change: <unk> come in and we're settling out pretty.

You said pretty similar to the first quarter give or take a couple of hundred thousand alright.

Scott A. Kingsley: For the foreseeable future, certainly in 2024, we would not expect incremental originations to end up on our balance sheet. And then, as we go forward, we'll see if that becomes an attractive spot for us to, you know, allocate our capital to, you know, quote, grow some of that back over time. We still like the asset class. It's performed very well, probably better than our expectations. You know, remember, this is a homeowner who has decided to make, you know, meaningful improvements to try to have a solar cost savings on their property.

Speaker Change: So Chris I mean, I'll jump in and in that please feel free that I think within the categories that are not salaries and benefits.

Speaker Change: We expect some modest shift between occupancy and other costs that are probably modestly net beneficial for us.

Speaker Change: The out quarters.

Speaker Change: As it relates to the salary and benefits line, we did incur about <unk> <unk> a share of equity compensation costs and payroll taxes that are first quarter higher than the natural run rate for the balance of the year on a quarterly basis, we think some of that will be offset.

Speaker Change: By a full quarter impact of the two 5% range.

Scott A. Kingsley: We like the, you know, the FICO band that that customer is in, and we quite frankly think that's a customer that makes really good decisions. For us, you know, we've always had to look at that and say, you know, to the extent that not all of those originations were in the seven states that we operate branches in, it is somewhat difficult to bank the customer on a holistic basis.

Speaker Change: Merit raises that we actually processed in March so a full quarter impact in the second quarter, and then going forward and then again I think as a net pointed out and we're getting pretty granular that theres, one extra payroll day in the third and the fourth quarter compared to the first and the second but Theres also an extra day of earning asset improvement.

Speaker Change: Okay.

Speaker Change: Alright got it.

Speaker Change: And then any thoughts around.

Scott A. Kingsley: So, but that being said, we like the asset class, you know, that asset class is capable of being pledged as collateral. And again, to date, it has performed above our expectations relative to asset quality performance. Great.

Speaker Change: Any appetite for share repurchases here.

Speaker Change: Or.

Speaker Change: Looking at pretty strong growth.

Speaker Change: Down into 2000 22025 and beyond.

Speaker Change: But.

Speaker Change: Youre not an 8% Tc regulatory capital is robust and it seems like net growth this year still.

Scott A. Kingsley: And is the quarterly runoff similar to Q1, you think, for the rest of the year? I think that's a pretty good estimate, Chris. And the, can you remind us what the yields are on the resi solar and then also on the consumer specialty, what the yields are on those. Yeah, so Chris, we should probably go offline to get that from a detailed standpoint.

Speaker Change: A relatively contained.

Speaker Change: You guys have any thoughts on that.

Speaker Change: Sure Chris So great.

Chris: Great question and timely by the way so again I would say that we look at share repurchases.

Chris: As probably something close to the end of our capital allocation process.

Chris: First and foremost we're committed to the shareholder getting a better outcome on an annual basis. So trying to keep our streak of 11 years of dividend improvements in place. That's clearly a function of making sure. The earnings can support that but if we were to just use our first quarter as an example.

Scott A. Kingsley: But if you looked at our existing portfolio today of consumer loans, and we're around 6% in total, I would argue that solar residential probably fits right down the middle of that yield outcome. Some of the specialty stuff that was in our relationship with Springstone and Lending Club, which are in a runoff status, those rates might be a touch higher. But again, that's mostly unsecured credit. So we would have expected that.

Chris: We're paying 32 a share we made 71, that's a 45% payout ratio. If you went back to operating earnings of <unk> 47, we're very comfortable with that level and think that the ability to continue to improve on that still persists.

Chris: And for our environment.

Chris: You pointed out a good thing in 2024, because we know we have some planned run off on the loan side the balance sheet, probably does not grow holistically at four 5% it probably grows less than that so we will accrete capital again, most likely hopefully.

Scott A. Kingsley: Great. And can you just give us an update as far as, you know, the loan origination yields and what's going on these days? Sure. On the commercial and the consumer side, we're in the low to mid 7% range, again, depending on the asset class. In residential real estate, we're probably six and a quarter to six and a half currently. And that's really a function of the mix, 30-year versus 15-year instruments or adjustable rate mortgages versus fixed long-term rates. To date, because of volume characteristics in residential real estate, they are certainly lower than certain past years.

Chris: And again, how to use that capital we're really happy that we are now back to the point from a capital ratio standpoint that we enjoyed prior to the cells very transaction closing at least on the tangible side.

Chris: So we don't think we have any sort of restrictions or limitations around that.

Chris: I think most people understand that the dynamic of economics around M&A transactions are challenged at the current time, but we're still having very productive conversations with like minded smaller community banks.

Scott A. Kingsley: We've been putting all of that into our portfolio. If rates get to the point where we start to see a productive pickup in that, we always have the opportunity to sell to Fannie Mae or Freddie Mac. But today, the amount of originations is not forcing us to do that from a liquidity sources standpoint. Great. And what's the runoff of these portfolios and, you know, expected, you know? How are you thinking about holistic net loan growth for this year?

Chris: Across our seven state franchise, and if something presents itself that we think is actionable I think we feel like we have the capital to support to do that and support our primary organic growth objectives at the same time so.

I don't think that Theres any limitations, just where we are from a capital standpoint.

Scott A. Kingsley: Great. Thanks, Scott.

Speaker Change: I appreciate you taking my questions and congratulations on the retirement John.

Speaker Change: Alright, Thank you Chris.

Speaker Change: Thank you one moment for our next question.

LG: And our next question will come from the line banner LG from Piper Sandler Your line is open.

Scott A. Kingsley: Has that changed at all from the start of the year? So I think that the first quarter loan growth is a good proxy for how we're thinking about the rest of the year. The mix might change a little bit, but that somewhere in the three to 5% change excluding the runoff portfolios is a good proxy. Great, that's helpful. And just wanted to confirm the comments on the expenses, you know, there are some shifts from occupancy to kind of other areas and, you know, other in travel, kind of net out into the second quarter, and, you know, some of the compensation, you know, still has a couple months left to come in, and we're settling out pretty, you said pretty similar to the first quarter, give or take, you know, Is that right?

LG: Hey, good morning, guys just filling in for Alex today.

LG: Good morning, good morning.

LG: I just wanted to touch on the NIM can you guys give us.

LG: Or at least from the loan yield side can you guys give us a sense for the lift in loan yields that's left.

LG: Moving forward.

LG: Loan yields have been slowing down a little.

Speaker Change: So Peter if I go back and look at sort of the period of time post the cells very transaction just to think about it for the last three quarters, we've been picking up somewhere between eight and nine basis points on the loan yield on a quarterly basis.

Speaker Change: Think that thats, probably sustainable back to that whole idea of new originations being.

Speaker Change: 100 to 125 basis points above what expiring loans are going off the balance sheet.

Scott A. Kingsley: So Chris, I'll jump in and Annette, please feel free, that I think within the categories that are not salaries and benefits, you know, we expect some modest shift between occupancy and other costs that are probably modestly net beneficial for us in the out-quarters. As it relates to the salary and benefits line, we did incur about three cents a share of equity compensation costs and payroll taxes that were higher in the first quarter than the natural run rate for the balance of the year on a quarterly basis.

Peter: So no reason to think that that can't be sustained.

Peter: And again I think in terms of.

Peter: On the higher for longer side does it make it easier to actually generate new loans.

Peter: With that construct behind them you would think yes. The question is does that stifled demand a little bit so I think thats the.

Peter: The holistic tradeoff that we're looking at.

Peter: We've had some opportunities in our market for some additional growth.

Peter: And I would argue that we're turning away single asset opportunities that we don't think meet our pricing characteristics and instead promoting our best sponsors and using our balance sheet to fulfill full relationship banking for them.

Scott A. Kingsley: We think some of that will be offset by, you know, a full quarter impact of the two and a half percent merit range, merit raises that we actually processed in March. So, you know, a full quarter impact in the second quarter and then going forward. And then again, I think, as Annette pointed out, and we're getting pretty granular, that there's one extra payroll day in the third and the fourth quarter compared to the first and the second, but there's also an extra day of earning assets. Okay. All right, I've got it.

Speaker Change: Got it thanks.

Speaker Change: Do you think that is.

Speaker Change: And to drive the rebound in the NIM.

Speaker Change: Funding side also need experienced season pressures for us to see the inflection.

Speaker Change: Yes, I mean, we've been really close for the last two or three quarters.

Speaker Change: So I think we're.

Speaker Change: Mystic that that opportunity presents itself.

Speaker Change: But that being said.

Speaker Change: That means that we're out in front of our customers and remember, we're providing treasury management services to those same customers, we're providing timely and appropriate advice to our customer base and we're never going to ask our folks to change that as their primary focus. So it's incumbent upon us to have competitive products to be able to hold funds.

Scott A. Kingsley: And then any thoughts around, you know, any appetite, you know, for share repurchases here? And I know you guys are probably, you know, looking at pretty strong growth down into 2025 and beyond. But, you know, you're now at an 8%, regulatory capital is robust, and it seems like net growth this year will still be relatively contained. Do you guys have any thoughts on that? For sure, Chris.

Speaker Change: <unk> levels in and at the same time create profitability opportunities for us as a company.

Speaker Change: Got it.

Speaker Change: One last question on the other side.

Speaker Change: The funding side.

Speaker Change: Assuming muni deposits flow out next quarter and you guys replaced that with borrowings is it fair to assume that at least until next quarter. We continue to see NIM decline.

Scott A. Kingsley: So great question, and timely, by the way. So again, I would say that we look at share repurchases, you know, as probably something close to the end of our capital allocation process. You know, first and foremost, we're committed to the shareholder getting a better outcome on an annual basis. So trying to keep our streak of 11 years of dividend improvements in place, that's clearly a function of making sure the earnings can support that.

Speaker Change: And a delay in the NIM and flex in.

Speaker Change: Cost of borrowings.

Speaker Change: This up.

Speaker Change: Cost on the funding side.

I would say that the cost of borrowings are definitely higher than most of the deposit classes that we have on the balance sheet today.

Speaker Change: But again, that's tactical funding management 101.

Speaker Change: And hopefully we're pretty good at that so.

Speaker Change: We're not just conceding that everything that leaves the balance sheet becomes replaced by borrowing instrument, we have objectives to grow our funding base and that's consistent with historical results.

Scott A. Kingsley: But if we were to just use our first quarter as an example, you know, we're paying 32 cents a share, and we made 71. That's a 45% payout ratio. If you went back to operating earnings, it's 47.

Speaker Change: Got it thanks, thanks for answering my questions.

Speaker Change: And congrats on retirement John.

Speaker Change: Got it Joe and congrats on the promotion as well.

Joe: Thanks, so much thank you.

Joe: <unk>.

Joe: Thank you.

Joe: And I'm not showing any further questions at this time I will now turn the call back over to John Locke for his closing remarks.

Scott A. Kingsley: We're very comfortable with that level and think that, you know, the ability to continue to improve on that still persists in our environment. I think you pointed out a good thing in 2024, because we know we have some planned runoff on the loan side; the balance sheet probably does not grow holistically at four or 5%. It probably grows less than that.

John H. Watt: Thank you Victor and thank you all for your interest and your time this morning.

Thank you for all of your questions.

I'll end, where we started.

John H. Watt: Shareholder is averaging up here.

John H. Watt: The wind is at our back so thank you.

Speaker Change: Thank you Mr. <unk>. This concludes our program you may now disconnect everyone have a great day.

Scott A. Kingsley: So we will accrete capital again, most likely, hopefully. And, you know, again, how to use that capital. We're really happy that we are now back to the point from a capital ratio standpoint that we enjoyed prior to the Salisbury transaction closing, at least on the tangible side. So we don't think we have any, you know, sort of restrictions or limitations around that.

[music].

Scott A. Kingsley: You know, I think most people understand that the dynamics of the economics around M&A transactions are challenged at the current time. But we're still having very productive conversations with like-minded smaller community banks across our seven-state franchise, and if something presents itself that we think is actionable, I think we feel like we have the capital to support to do that and support our primary organic growth objectives at the same time. So don't think that there are any limitations just where we are from in a capital, Great.

Scott A. Kingsley: Thanks, Scott. I appreciate you taking my questions, and congratulations on the retirement, John. Hey, thank you, Chris.

Unknown Executive: Thank you. One moment for our next question. Our next question comes from Bader Hilje from Piper Sandler. Your line is open. Hey, good morning, guys. Just filling in for Alex today.

Unknown Executive: Morning. I just want to touch on the NIM. Can you guys give us, or at least from the loan yield side, can you guys give us a sense for the lift in loan yields that's left, you know, moving forward? You know, I see the loan yields have been slowing down a little. So, Peter, if I go back and look at, you know, sort of the period of time post the Salisbury transaction, you know, just to think about it for the last three quarters, we've been picking up somewhere between 8 and 9 basis points on the loan yield on a quarterly basis.

Unknown Executive: I think that that's probably sustainable back to that whole idea of new originations being, you know, 100 to 125 basis points above what expiring loans are going off the balance sheet debt. So, you know, no reason to think that that can't be sustained. And again, I think in terms of, you know, on the higher for longer side, does it make it easier to actually generate new loans, you know, with that construct behind them? You would think, yes, but the question is, does that stifle demand a little bit?

Scott A. Kingsley: So, you know, I think that's the, you know, the holistic tradeoff that we're looking at. We've had some opportunities in our market for some additional growth. And I would argue that we're turning away single asset opportunities that we don't think meet our pricing characteristics and instead promoting our best sponsors and using our balance sheet to fulfill full relationship banking for them.

Scott A. Kingsley: Thanks. And, Do you think that is sufficient to drive the rebound in NIM, or does the funding side also need to experience easing pressures for us to see the inflection? Yeah, I mean, we've been really close for the last two or three quarters.

Scott A. Kingsley: You know, so I think we're, you know, optimistic that that opportunity presents itself. But that being said, you know, that means that we're out in front of our customers. And remember, we're providing treasury management services to those same customers. We're providing timely and appropriate advice to our customer base. And we're never going to ask our folks to change that as their primary focus.

Scott A. Kingsley: So it's incumbent upon us to have competitive products to be able to hold funding levels in and, at the same time, you know, create profitability opportunities for us as a company. Got it. Thanks. And one last question on the funding side, you know, assuming muni deposits flow out next quarter, and you guys replace that with borrowing, is it fair to assume that at least until next quarter, we continue to see NIM decline and a delay in the NIM inflection?

Scott A. Kingsley: you know, the cost of borrowing pushes up the costs on the funding side. I would say the cost of borrowing is definitely higher than most of the deposit classes that we have on the balance sheet today. But again, that's tactical funding management 101.

Scott A. Kingsley: And hopefully, we're pretty good at that. So you know, we're not just conceding that everything that leaves the balance sheet becomes replaced by a borrowing instrument. We have objectives to grow our funding base, and that's consistent with historical results. Thanks for asking my questions, and congratulations on your retirement, John and Scott, Joe and Annette, and congratulations on the promotion as well. Thanks so much.

Unknown Executive: Thank you. Thank you, and I'm not taking any further questions at this time. I will now turn the call back over to John Watt for his closing remarks. Thank you, Victor. And thank you all for your interest and your time this morning. And thank you for all of your questions.

Speaker Change: [music].

John H. Watt: I'll end where we started. The shareholder is averaging up here, and the wind is at our backs. So thank you. Thank you, Mr. Watt. This concludes our program. You may now disconnect. Everyone have a great day.

Unknown Executive: Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Unknown Executive, Annette Burns, John Watt, Unknown Executive, Annette Burns, Announcer, Unknown Executive, Annette Burns, John Watt, Unknown Executive, Annette Burns, Annette, 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 ntbbancorp.com.

Unknown Executive: Before the call begins, 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 used. Reconciliations for these numbers are contained within the appendix of today's presentation. At this time, all participants are in a listen-only mode.

John H. Watt: 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. Thank you, Victor. And good morning.

John H. Watt: 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, and at that time, we will complete what has been a very thoughtful and disciplined succession process led by our Board of Directors.

John H. Watt: 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.

John H. Watt: 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 and NBT over the years for their interest in our story.

John H. Watt: 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 backs, 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, 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.

John H. Watt: 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 Onondaga County. This follows an announcement in February by GlobalFoundries in the Capital District that the CHIPS Act will provide direct funding of $1.5 billion to build another fab manufacturing facility in Malta, 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.

Speaker Change: [music].

John H. Watt: 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 quarter and in the first quarter and, in doing so, assure you that our shareholders are in very capable and experienced hands going forward.

John H. Watt: 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 and 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 continue to be favorable.

Scott A. Kingsley: We grew deposit funding in the first quarter, primarily from seasonal municipal inflows, while importantly adding net new accounts. Our non-interest 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 the first quarter financial results. Annette?

Speaker Change: Good day, everyone and welcome to the conference call covering and boutique 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.

Speaker Change: Responding presentation slides can be found on the company's website at MTBE Bancorp Dot com before the call begins and <unk> 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.

Speaker Change: 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 answer session instructions will follow at that time as a reminder, this call is being recorded.

Annette L. 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.

Annette L. Burns: Our net interest margin in the first quarter of 2024 was 3.14%, which was down one basis point from the linked fourth quarter of 2023, as our five basis points of earnings 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 35 cents per share from the end of the fourth quarter and up 55 cents from the first quarter of 2023.

I will now turn the conference over to Anne <unk>, Bancorp's, President and CEO, John H, what junior for his opening remarks, Mr. Watt. Please begin.

John H. Watt: Thank you Victor and good morning again, thank you all for participating in this earnings call covering <unk> Bancorp's first quarter 2024 results joining.

John H. Watt: Joining me today are <unk>, Chief Financial Officer, Scott Kingsley, Our Chief Accounting Officer, and net Burns, our president of retail banking Jo Stagg Liana.

Anne: As we announced in January I will step down from my role as President and CEO on May 21.

Anne: At that time, we will complete what has been a very thoughtful and disciplined succession process led by our board of directors.

Annette L. Burns: 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 seven basis points from the fourth quarter of 2023, reflective of continued higher new origination

Anne: I could not be happier for our shareholders customers employees and communities that my successor as Scott Kingsley, a highly regarded professional who will make this a seamless transition.

Anne: In addition, Joe Statically Onno will assume the title of President of NPT Bank.

Anne: And my colleague of over 15 years, and it Burns will become our Chief Financial Officer.

Anne: Each of these internal promotions will help ensure that <unk> maintains its momentum in 2024 and beyond.

Anne: And as I have said many times since the January announcement, all the constituents of MBT are averaging up in every way with this team.

Anne: 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 and BT over the years for your interest in our story.

Annette L. Burns: 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 an 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.

Anne: It has been a pleasure to get to know you and to work with you for over 20 years.

Anne: As I turn over the leadership of MBT. The Windows that are back and MPT 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 and semiconductor.

Anne: <unk>.

Anne: 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 and part support its plans to invest as much as 100 billion.

Annette L. Burns: 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.

Anne: In a complex of semiconductor fabrication plants and the ton of clay near Syracuse.

Anne: Additional support for the <unk> 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 Onondaga County.

Annette L. Burns: The primary drivers to the decrease in net interest income were a decline in the company's quarterly average Fed fund selling position and one 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 non-interest 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 length fourth quarter and up $6.8 million or 19% from the first quarter of 2023.

Anne: This follows an announcement in February by global foundries in the capital District that the chips Act will provide direct funding of one 5 billion to build another fab manufacturing facility in Malta, New York and to upgrade its facility in Essex Junction.

Anne: <unk>.

Anne: New York State will also provide $575 million in direct funding for the Malta project combined an additional 1500 manufacturing jobs are 9000 construction jobs are projected from this investment alone.

Anne: MPT 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.

Speaker Change: So now I will turn it over to the team for a discussion of our financial performance in the last core in the first quarter and in doing so I assure you that our shareholders are in very capable and experienced hands going forward.

Annette L. Burns: Revenues from our retirement plan administration business were up 3.1 million dollars 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.

Speaker Change: Hi.

Speaker Change: 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 and capitalizing on the exciting opportunities in our markets and the upstate New York semi conductor manufacturing corridor.

Speaker Change: Our first quarter operating results, including earnings per share of <unk> 68 were in line with our expectations are.

Speaker Change: Our team generated $78 million of incremental loan growth or three 6% annualized in the first quarter in our core portfolios.

Annette L. Burns: Turning to non-interest expense, our total operating expenses were $91.8 million for the quarter, which was $4 million or 4.6% above the linked fourth quarter. Excluding acquisition expenses and an impairment charge in Q4-23, salaries and employee benefit costs of $55.7 million were 11.4% higher than the linked fourth quarter.

Speaker Change: Customer health and sentiment continues to be favorable.

Speaker Change: We grew deposit funding in the first quarter, primarily from seasonal municipal inflows, while importantly, adding net new accounts.

Speaker Change: Our noninterest income generation continued to improve and represented 31% of total revenues in the first quarter.

Speaker Change: Despite some LCI declines related to higher mid term interest rates, our tangible equity ratio ended the quarter higher than our tier one leverage ratio of 10, 9% is more than two times the regulatory required level.

Annette L. Burns: 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 costs 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. A quarter-over-quarter increase in occupancy expenses was expected, driven by increases in seasonal costs, including utilities and higher maintenance costs.

Speaker Change: 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 net for some more detailed comments on first quarter financial results the net.

Net: Thank you Scott and good morning, everyone.

Net: Turning to the results overview page of our earnings presentation, our first quarter earnings per share were <unk> 71.

Net: Operating earnings per share were 68 cents.

Which excludes <unk> <unk> per share of securities gains.

Net: Our net interest margin in the first quarter of 2024 was $3, one, 4%, which was down one basis point from the linked fourth quarter of 2023, as our five basis points of earning asset yield improvement nearly offset our increase in funding costs in the quarter.

Annette L. Burns: Professional services and other expenses were lowered due to the timing of initiatives. The elevated occupancy expense in the first quarter is historically offset by higher other operating costs in the 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: Tangible book value per share of $22 seven at March 31 was up 35 per share from the end of the fourth quarter and up 55 from the first quarter of 2023.

Net: The next page shows trends in outstanding loans.

Net: Total loans were up 37 $4 million for the quarter or one 6% annualized and included growth in both our consumer and commercial portfolios.

Net: Excluding the other consumer and residential solar portfolios that are in a planned contractual runoff status.

Net: It has increased 78 million or three 6% annualized.

Annette L. Burns: 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 a linked fourth quarter. We believe that charge-off activity will continue to trend toward more historical norms, and expected balance sheet growth and continued mixed changes will likely be the drivers of future provisioning needs. Non-performing loans were also consistent with the prior quarter.

Net: First quarter loan yields were up seven basis points from the fourth quarter of 2023 reflective of continued higher new origination rates.

Net: Our total loan portfolio of $969 billion remains.

Net: <unk> remains very well diversified and is comprised of 52% commercial relationship and 48% consumer loans.

Net: Page six total deposits of $11 2 billion were up $226 million from the linked fourth quarter.

Net: The flow of seasonal municipal deposits during the quarter.

Net: And most of our markets municipal tax collections are concentrated in the first and third quarters of each year.

Annette L. Burns: 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 in net interest income generation. Lastly, our capital levels continue to put us in a favorable position as we consider future growth and deployment opportunities.

Net: 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.

Net: Our quarterly cost of total deposits increased to 161 basis points.

Net: At 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.

Net: 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 one less calendar day in the first quarter.

Annette L. Burns: With that, we're happy to answer any questions you may have at this time. Thank you. And anyone with a question at this time can press star 1 1 on their telephone and wait for a name to be announced. To withdraw your question, please press star 1 1 again.

Net: Although we experienced a slower rate of growth in the cost of funds in the quarter, we expect modest additional funding pressures to continue.

Unknown Executive: One moment for questions to compile on our Q&A roster. One moment for our first question. Our first question comes from Steve Moss from Raymond James. Hey, good morning. This is Thomas pinch-hitting for Steve.

Net: The trends in noninterest income are summarized on page eight excluding securities gains of $2 $3 million, our fee income was $43 million up.

Net: $5 2 million or 14% from the linked fourth quarter and up $6 8 million or 19% from the first quarter of 2023.

Unknown Executive: Morning, Tom. Morning, John, Scott. Sounds like there was a lot of seasonal noise in the fee income line this quarter. I was wondering if you could provide us with a range for a run rate for that through the rest of this year. Sure, Thomas. I'd be happy to answer that.

Net: Revenues from our retirement plan administration business were up $3 8 million $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.

Scott A. Kingsley: Our run rate or seasonal activity in the first quarter was probably about one to two basis points, one to two cents in the quarter. Thinking forward, you know, another tailwind for the quarter, we had some very strong market performance in both our wealth management and our retirement plan businesses. So if that continues, or that's a variable when we think about our run rate for non-interesting, Okay, thank you for that color. Um, I guess then maybe moving to credit here.

Net: The first quarter wealth management services benefited from favorable market performance and organic growth.

Net: Lawrence Agency revenues are also seasonally stronger and reflect a higher level of policy renewals in the first quarter.

Net: The diversification of our revenue generation sources continues to be a core strength of the company and represented 31% of total revenue.

Net: Turning to noninterest expense.

Net: Total operating expenses were $91 $8 million for the quarter, which were $4 million or four 6% above the linked fourth quarter, excluding acquisition expenses and an impairment charge in Q4 to 'twenty three.

Scott A. Kingsley: I see that indirect auto charge off stepped up a little bit, you know, 20 ish basis points, you know, still really low. But can you maybe provide us with a normalized charge off ratio for that line and maybe any color on trends you're seeing there? So, Thomas, we really haven't seen much of an inflection, you know, those levels higher than the 2022-2023 levels, which were exaggeratedly low by any historical comparison. If we were to go all the way back to 2019, charge-offs and indirect auto were closer to 30 basis points. And, you know, it doesn't look like our trends will take us there instantaneously.

Net: Salaries and employee benefit costs of $55 7 million or.

Net: Our 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 costs compared to the very low level of incentive costs recorded in Q4 of 2023.

Net: The higher first quarter benefit costs accounted for approximately <unk> <unk> per share, which will be partly offset by a full quarter impact of merit increases for the remainder of the year.

Net: And one additional day of payroll in the last two quarters of the year.

Net: 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.

Scott A. Kingsley: But if you think about it on a long-term basis, we would still think the portfolio was performing very close to our expectations on a longer-term basis if that low 20s moved closer to 30. You know, as we start to forward project that, the customer still looks like they're very healthy relative to serving their obligations. And again, as a reminder, if you think about most of the geographies that we are in, there's not a big plethora of public transportation.

Net: <unk> costs and 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 $500000 higher than the $5 1 million provision recorded in the linked fourth quarter.

Net: 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.

Net: Reserve coverage of 119% of total loans was consistent with the linked fourth quarter.

Net: 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 need non.

Scott A. Kingsley: So people are servicing their, you know, their auto obligations because they're trying to get to work. Okay, great. Thanks for that. And just one more for me.

Net: Nonperforming loans were also consistent with the prior quarter.

Scott A. Kingsley: It looks like the residential solar reserve continued to build, you know, aided by continued runoff. Can you maybe share with us where you see that reserve ratio peaking out? Sure.

Net: In closing in this interest rate environment, we would expect to see the continuation of flowing NIM compression as our earning assets continue to reprice higher mostly offsetting increases to our cost of funds are well balanced organic loan growth granular deposit base positive results from our recurring fee income line.

Scott A. Kingsley: I wouldn't expect it to change significantly from where it is today. It's a longer-term asset, so some of that increase is just the extension given prepayment assumptions. We're very comfortable with the level of reserves that it has today and probably wouldn't expect it to tick up much higher. Okay, thank you for all those details.

<unk> and solid credit quality have allowed us to productively offset a portion of the challenges on net interest income generation.

Net: Lastly, our capital levels continue to put us in a favorable position as we consider future growth and deployment opportunities.

Speaker Change: With that we're happy to answer any questions you may have at this time.

Speaker Change: Thank you and anyone with a question at this time, Ken Press Star one on one on your telephone and wait for NIM to be announce to withdraw your question. Please press star one again.

Scott A. Kingsley: I'll step out. I appreciate the question, Thomas. Thank you. One moment for our next question, and our next question will come from the line of Matthew Breese from Stevens. Hey, good morning.

Unknown Executive: Good morning, Matt. Good morning, Matt. I'm not sure who should answer this question, but I was curious about the solar portfolio. What is the ultimate goal there in terms of runoff? What are we defining as kind of like the appropriate size for that as a percentage total? So I would frame it this way, Matt, is that, as you know, our strategy, even a couple of years ago, or even before that, was to bring the assets on the balance sheet to some number just below a billion dollars, you know, depending on market demand.

Speaker Change: One moment for our questions to compile the Q&A roster.

Speaker Change: One moment for our first question.

Ken: Our first question comes from the line of Steve Moss from Raymond James Your line is open.

Ken: Hey, Good morning, this is thomas pinch hitting for Steve.

Thomas: Good morning, Todd Good morning.

Thomas: Hey, good morning, Jonathan.

Thomas: Sounds like there was a lot of seasonal noise in the fee income line. This quarter I was wondering maybe you can provide us with a range for a run rate for that.

Thomas: This year.

Jonathan: Sure Thomas I would be happy to answer that.

Unknown Executive: And we reached that, you know, initially, we thought from that point in time, we would inflect and become more of a servicer of obligations, you know, that with our partner, we would probably be selling, or they would be selling, future originations. It's probably an understatement to say that the solar residential industry has been under assault since rates started to go up.

Jonathan: <unk> run rate or the seasonal activity in the first quarter was probably about one to two basis, 1% to two cents.

Speaker Change: In the quarter.

Speaker Change: Thinking forward another tailwind for the quarter, we had some very strong market performance in both our wealth management and our retirement plan businesses. So that continues.

Speaker Change: Or that's a variable when we think about our run rate for non interesting alright noninterest income.

Speaker Change: Okay.

Scott A. Kingsley: And it's really just a function of liquidity capacity to be able to service or to be able to add people, you know, to the roster of a forward liquidity source. So for us, I would say at this point in time, we don't think we'll be adding to that line. In fairness, we think contractual runoff, just based on the terms and conditions of the loans we've already made, will bring those portfolios down over time, like we experienced in the first quarter.

Speaker Change: You for that color.

Speaker Change: I guess, then just maybe moving to credit here.

Speaker Change: I see the indirect auto charge offs stepped up a little bit.

Speaker Change: Basis points.

Speaker Change: So really both but can you maybe provide us with a normalized charge off ratio for that line and maybe any color on trends you're seeing there.

Speaker Change: So sure Thomas we really haven't seen much of an inflection.

Speaker Change: Those levels.

Speaker Change: Higher than the 2022, 2023 levels, which were exaggeratedly low by any historical comparison. If you were to go all the way back to 2019 charge offs in indirect auto we're closer to 30 basis points.

Scott A. Kingsley: That combined with We still have about $100 million of some consumer specialty credit on the balance sheet. So I would frame it this way, there's probably a billion dollars that are currently sitting on the balance sheet that we would not expect to grow at a mid-single-digit rate that we talk about with most of our other portfolios, and instead, we'll probably experience contractual runoff. So, again, similar to what we experienced in the first quarter, where we said we had 1.6% annualized growth across the whole portfolio but 3.5% or 3.6% on the portfolios we were actually anticipating growing. Understandable.

Speaker Change: It doesn't look like our trends will take us there instantaneously, but if you think about it on a long term basis, we would still think the portfolio was performing very close to our expectations on a longer term basis, if that low twenty's moved closer to 30.

Speaker Change: As we start to forward project debt.

Speaker Change: The customer still looks like Theyre very healthy relative to serving their obligations and again as a reminder, if you think about most of the geographies that we are in.

Speaker Change: There is not a big plethora of public transportation. So people are servicing their their auto obligations, because theyre trying to get to work.

Speaker Change: Okay, great. Thanks for that and then just one more for me.

Scott A. Kingsley: Okay, and then just looking at the components of the NIM, one thing that does stand out is your security portfolio is well behind current market rates. And I was curious about your thinking around potential restructurings or even nibbling at restructurings to kind of accelerate how fast you can get that to market rates. Yeah, Matt, we continue to evaluate that from an opportunity standpoint, and again, we evaluate that against other uses of capital today.

Speaker Change: It looks like the residential solar reserve continued to build aided by continued run off.

Speaker Change: Would you share with us where you see that reserve ratio, peaking out.

Speaker Change: Sure I wouldn't expect it to change significantly from where it's at today, we continue to have longer term assets. So some of that increase is just as the extension.

Speaker Change: Given prepayment assumptions, we're very comfortable with the level of reserves are at today, and probably wouldnt expect it to tick up much higher.

Speaker Change: Okay. Thank you for all the detail I'll step out.

Speaker Change: I appreciate the questions Thomas Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Matthew Breese from Stephens. Your line is open.

Scott A. Kingsley: So I think where we stand today, you know, as we look at that portfolio and say, our portfolio is dominated by amortizing mortgage-backed instruments. So we have natural cash flows coming off the portfolio, probably to the tune of $14 to $16 million a month. And those have been excellent sources to fund incremental loan growth, you know, or some of our other liquidity needs. We don't have plans in the near term to change that approach.

Matthew M. Breese: Hey, good morning.

Matthew M. Breese: Hey, good morning, Matt Good morning.

Matthew M. Breese: I'm not sure.

Matthew M. Breese: Answer to this question, but I was curious on the solar portfolio.

Matthew M. Breese: So what is the ultimate goal there in terms of.

Matthew M. Breese: Run off what are we defining as kind of like the appropriate size for that as a percentage of total loans.

Matthew M. Breese: So I would frame it this way Matt is that as you know our strategy, even a couple of years ago or even before that was to bring the assets on the balance sheet.

Scott A. Kingsley: Yes, you know, the yield on that portfolio is in and around 2%, and certainly, it holds us back relative to NIM expansion. But again, if we can't make a solid case for taking that essentially risk-free asset and using capital to restructure it, we're fine where it sits today. It helps us from an interest rate risk management perspective. And you know, we just think that today there are still better uses for our incremental capital other than, you know, turning out some portion of the investment securities only to replace it with like-minded instruments that are 300 or 400 basis points higher. I got it.

To sum number just below a $1 billion depending on market demand.

Matthew M. Breese: And we've reached that.

Initially we thought from that point in time, we would inflect and become more of a servicer of obligations.

Matthew M. Breese: With our partner that we would probably be selling or they would be selling future originations.

Matthew M. Breese: It's probably an understatement to say that the solar residential industry has been under assault since rates started to go up and it's really just a function of liquidity capacity to be able to service or to be able to add people to the roster of.

Scott A. Kingsley: Okay. And, you know, I was curious about thoughts around the NIM, the NIM Outlook. When do we finally hit that kind of parody moment between deposit cost increases and earning assets? I'll run at that.

Matthew M. Breese: Forward liquidity source.

Matthew M. Breese: So for US I would say at this point in time.

Matthew M. Breese: We don't think we'll be adding to that line in fairness, we think contractual runoff just based on.

Matthew M. Breese: Terms and conditions of the loans, we've already made.

Scott A. Kingsley: And if Annette has more comments, you can chime in too. I think what we're pleased with is that the pace of decline has slowed down, you know, a 315 to a 314 outcome quarter over quarter is promising relative to, quote, finding a floor. But that being said, you know, if you looked at us from just a sheer interest rate risk profile, we're very, very neutral. So as much as I think there's a school of thought out there that lower rates would allow for a, you know, a huge pickup relative to, you know, the banking industry.

Matthew M. Breese: Bring those portfolios down overtime like we experienced in the first quarter.

Matthew M. Breese: That combined with we sell about $100 million of some consumer specialty credit on the balance sheet. So I would frame. It this way, there's probably a $1 billion that is currently sits on the balance sheet that we would not expect to grow at a mid single digit rate like we talked about with most of our other portfolios and instead, we'll probably experienced contractual runoff.

Matthew M. Breese: So again similar to what we experienced in the first quarter, where we said we had one 6% annualized growth across the whole portfolio, but three five or three 6%.

Matthew M. Breese: The portfolios, we're actually anticipating growing.

Scott A. Kingsley: For us, we thought it could have a positive impact. But that positive impact is almost more tactical, which is, if the Fed were to lower rates, it would create an opportunity for us to go to our customer base and say, we have to lower some of our funding costs, costs that we have supported, or we've supported our customers' outcomes for the last year and a half. We would have a reason to be able to say, you know, the Fed's coming down, and so are we.

Speaker Change: Understood Okay.

And then just looking at the components of the NIM you know one thing that does stand out.

Speaker Change: The securities portfolio is well behind current market rates.

I was curious your thinking around potential restructurings or even nibbling at restructuring to kind of accelerate.

Speaker Change: How fast you can get that to market levels.

Speaker Change: Yes, Matt.

Speaker Change: We continue to evaluate that from an opportunity standpoint.

Speaker Change: Again, we evaluate that against other utilization of capital today.

Scott A. Kingsley: We're having that dialogue today on a tactical basis. But it's more centered around, you know, our inability to be able to say if we're going to offer competitive loan rates, and those are typically priced off the midpoint of the curve, if incremental funding sources are coming from the front end. That inversion is just not very pleasant, and it's been out there for quite a while.

Speaker Change: So I think where we stand today.

Speaker Change: As we look at that portfolio and say, where our portfolio is dominated by amortizing mortgage backed and <unk> instruments. So we have natural cash flows coming off the portfolio probably to the tune of $14 million to $16 million a month.

Speaker Change: And those have been excellent sources to fund incremental loan growth or some of our other liquidity needs.

Speaker Change: We don't have plans in the near term to change that approach yes.

Speaker Change: The yield on that portfolio is in and around 2%.

Scott A. Kingsley: And, you know, from that practical standpoint, I believe we think margin management in and around where we're at today is probably likely to continue. And if the opportunity presents itself for our assets to reprice a little bit faster than any kind of mixed change on the deposit side, we could be the net beneficiary of that. But I think we're pretty happy that we've again reached a point that we think is sort of stable and supportable.

Speaker Change: And certainly so it holds us back relative to NIM expansion.

Speaker Change: But again, if we can't make a solid case for taking that essentially risk free assets and using capital to restructure it we're fine where it sits today it helps us from a interest rate risk management.

Speaker Change: And we just think that today there are still better uses for our incremental capital other than.

Speaker Change: Turning out some portion of the investment securities only to replace it with Likeminded instruments that are three years or 400 basis points higher.

Speaker Change: Got it okay.

Speaker Change: And.

Speaker Change: I was curious.

Speaker Change: Thoughts around the NIM and the NIM outlook and.

Speaker Change: When do we finally hit that kind of that parity moment between deposit cost increases in earning assets increases.

Scott A. Kingsley: And then understanding there were a few one-time, or I should say seasonal, items and expenses, I would just love kind of an idea of what we should expect expenses to shake out in the second quarter and for the remainder of the year given some of those seasonal aspects. Sure, Matt. We said the seasonal cost was about three cents.

Speaker Change: Now I'll run at that and if that is more comments you can chime in too.

Speaker Change: I think what we're pleased with is that the pace of decline has slowed down.

A $3 15 to $3 14 outcome quarter over quarter.

Speaker Change: As promising relative to finding a floor.

Speaker Change: But that being said.

Speaker Change: If you looked at us from a just a sheer interest rate risk profile, we're very very neutral.

Scott A. Kingsley: So, you know, you back that off, and then we know that, you know, the occupancy rate, we're expecting that to be offset by other upticks in cost, like travel and training, as those, you know, kind of resurface after the winter. So I think, you know, where we are at today, plus, plus or minus a few hundred thousand, depending on the activity going forward, probably the second quarter being down from the first, and then, as we said, additional payroll days will impact the back half of the year.

Speaker Change: So as much as I think there is a school of thought out there that lower rates would allow for.

A huge pickup relative to the banking industry for us we thought it could have a positive impact but that positive impact is almost more tactical which is if the fed were to lower rates. It would it would create an opportunity for us to go to our customer base and say, we have to lower some of our funding costs.

Speaker Change: That we have supported our we supported our customers outcome for the last year and a half.

Speaker Change: We would have a reason to be able to say the fed is coming down and so our weeks, we're having that dialogue today on a tactical basis, but it's more centered around our inability to be able to say, if we're going to offer competitive loan rates and those are typically priced off the midpoint of the curve if incremental funding sources.

Scott A. Kingsley: And then the last one for me, and John, I think this is in your ballpark is just, you know, optimism around upstate New York and the chip dollars that are flowing towards micron and global foundries. It's hard.

Speaker Change: They're coming from the front end that inversion is just not very pleasant and it's been out there for quite a while.

John H. Watt: It's hard to fathom how much money is actually going into these companies. When do you realistically start to see some of the benefits, you know, permeate down to your customers? Micron set the ground breaking, I believe, by the end of the year. Do we start to feel the impacts sometime in early 2025? Is that a good guess? So I think first in Q25, the shovel goes in the ground.

Speaker Change: So from that practical standpoint I.

Speaker Change: I believe we think margin management in and around where we're at today is probably likely to continue.

Speaker Change: And if the opportunity presents itself for our assets to re price a little bit faster than any kind of mix.

Speaker Change: Change in the deposit side, we could be the net beneficiary of that but I think we're pretty happy that we again, we've sort of reached a point that we think is sort of stable and supportable.

Speaker Change: Okay.

And then understanding there was some a few one time or I should say seasonal items and expenses.

John H. Watt: And I think, depending on what sector you're in, on the commercial and small business side, you're going to start feeling left right around then. The number of subcontractors that are going to be necessary to accomplish this, you know, is very large. The planning around additional housing needs is well underway, and projects will go in the ground next year. Market rate, workforce, housing, all of those things picked up momentum with this announcement of the grant last week. So, you know, it'll build. It'll build in 2025, 2026. You know, I think the first fabricated chip rolls off the line at the end of 26 into 27.

Speaker Change: Would just love kind of.

Speaker Change: An idea of what we should expect expenses to shake out in the second quarter.

Speaker Change: For the remainder of the year, given some of those seasonal aspects.

Speaker Change: Sure Matt.

Speaker Change: The seasonal cost we said was about <unk>. So.

Speaker Change: Back that off and then we know that the occupancy we're expecting that to be offset by other upticks in cost like travel and training is those kind of resurface after the after the winter.

Speaker Change: So I think we're.

Speaker Change: Where we are at today, plus plus or minus a few hundred thousand depending on the activity going forward, probably the second quarter.

Speaker Change: Being down from the first and then as we said additional payroll days will impact the back half of the year.

Speaker Change: Okay and then the last one for me and John I think this is in.

Speaker Change: Your ballpark is just.

Speaker Change: Optimism around upstate New York in the chip dollars flowing towards Micron and Globalfoundries, it's hard it's hard to fathom, how much money is actually going to these companies.

John H. Watt: That means there are probably 9000 workers who have been hired and or will be hired, and that will also generate a lot of activity. That's just in central New York.

Speaker Change: When do you realistically start to see some of the benefits permit down to your customers or are your micron said to break ground I believe by the end of the year.

John H. Watt: Think about also bringing a fab plant out of the ground next to the existing Global Foundries plant in Malta, New York. You know, I've cited the number of construction workers and full-time technicians that are going to be necessary to man that plant once it's operational. So that also creates momentum. On the consumer side, you know, every one of them needs a car and a truck to get to work. Every one of them needs a house to live in or an apartment to rent.

Speaker Change: Do we start to feel the impacts sometime in early 2025 is that is that a good guess.

Speaker Change: So I think first Q 'twenty five the shovel goes in the ground.

Speaker Change: And I think.

Speaker Change: Depending on what sector you're in.

Speaker Change: On the commercial and small business side youre going to start feeling lift.

Speaker Change: Right around then.

Speaker Change: The number of sub contractors that are going to be necessary to accomplish this.

Speaker Change: No.

Is very large.

John H. Watt: All of that is going to generate positive economic activity. You know, I think Scott and Annette have given some thought about when to start quantifying that. We still have to give it a little bit of time before we get out there with actual percentage growth forecasts, but it's coming. It's real.

Speaker Change: The planning around.

Speaker Change: Additional housing needs is well underway.

Speaker Change: Projects will go in the ground next year.

Speaker Change: Market rate.

Speaker Change: Workforce housing all of those things.

Pick up momentum with this announcement.

Speaker Change: The grant.

Speaker Change: Last week so.

John H. Watt: And, you know, that shovel's going in the ground in Clay, New York, in First Q 2025. I appreciate that. And John, just congratulations on your retirement. Well deserved.

Speaker Change: It'll build it will build in 2025 2026.

Speaker Change: I think the first fabricated chip rolls off the lineup, there and 26% to 27.

Speaker Change: It means there is probably 9000 workers, who have been hired in or will be hired.

John H. Watt: I'm excited to see what you have in store for the next chapter. Thanks, guys. Appreciate that, Matt. It's been a pleasure. And as a reminder, that's star 11 for questions, Star. Thank you for your time.

Speaker Change: And that will also generate a lot of activity. That's just centrally or think about also bringing a fab fab plant out of the ground next to the existing Globalfoundries plant in multiple New York.

Unknown Executive: We'll take a moment for our next question. This question comes from Christopher O'Connell. From Keith, Breguet, and Woods, your line is open. Hey, good morning. Good morning, Chris.

I've cited the number of construction workers.

Speaker Change: And full time technicians are going to be necessary to man that plant. Once it's operational so that also creates momentum.

Unknown Executive: Just wanted to circle back on the residential solar portfolio. Am I understanding it right? Is that going to run down to zero now? Or is it just, you know, for the next few quarters, it's in runoff mode and kind of, you know, reassess that at another point in time down the line?

Speaker Change: So on the consumer side every one of them needs a car in a truck to get to work every one of them needs.

Speaker Change: Needs a house to live in our apartment to rent.

All of that is going to generate positive.

Speaker Change: Economic activity.

Scott and a net.

Speaker Change: Given some thought about when to start quantifying that.

Speaker Change: We still have to give that a little bit of time before we.

Scott A. Kingsley: For the foreseeable future, certainly in 2024, we would not expect incremental originations to end up on our balance sheet. And then, as we go forward, we'll see if that becomes an attractive spot for us to, you know, allocate our capital to, you know, grow some of that back over time. We still like the asset class. It's performed very well, probably better than our expectations. You know, remember, this is a homeowner who has decided to make, you know, meaningful improvements to try to have a solar cost savings on their property.

Speaker Change: Get out there with actual.

Speaker Change: The percentage growth.

Speaker Change: Forecast, but it's coming it's real.

Speaker Change: And.

Speaker Change: That shovel is going in the ground and clay in New York.

First Q2 thousand 25.

Speaker Change #100: I appreciate that and John just congratulations on retirement, well deserved I'm excited to see what you have in store for the next chapter thanks guys.

Speaker Change #100: I appreciate that Matt it's been a pleasure.

Speaker Change #101: Thank you.

Speaker Change #102: As a reminder that started one one for questions Star 111 moment for our next question.

Our next question comes from the line of Christopher O'connell.

Scott A. Kingsley: We like the, you know, the FICO band that that customer is in, and we quite frankly think that's a customer that makes really good decisions. For us, you know, we've always had to look at that and say, you know, to the extent that not all of those originations were in the seven states that we operate branches in, it is somewhat difficult to bank the customer on a holistic basis.

Christopher O'Connell: From Keefe Bruyette and Woods your line is open.

Christopher O'Connell: Hey, good morning.

Christopher O'Connell: Good morning, Chris just wanted to circle back on the.

Christopher O'Connell: On the residential solar portfolio.

Christopher O'Connell: Am I understanding it right.

Speaker Change #103: Is that going to run down to zero now or is it just for.

Speaker Change #103: For the next few quarters, it's in runoff mode and kind of reassess that.

Speaker Change #103: Another point in time down the line.

Speaker Change #104: I think thats, a great way to frame that Chris is.

Scott A. Kingsley: So, but that being said, we like the asset class; that asset class is capable of being pledged as collateral. And again, to date, it has performed above our expectations relative to asset quality performance. Great. And is the quarterly runoff similar to Q1, you think, for the rest of the year? I think that's a pretty good estimate, Chris. And the, can you remind us what the yields are on the RESi solar and then also on the consumer specialty also running off what the yields are on those? Yeah, so Chris, we should probably go offline to get that from a detailed standpoint.

Speaker Change #104: For the foreseeable future certainly in 2024, we would not expect incremental originations to end up on our balance sheet.

Speaker Change #104: And then as we go forward.

Speaker Change #104: We'll see if that becomes an attractive spot for us to allocate our capital to.

Speaker Change #104: Quote grow some of that back over time, we still like the asset class, it's performed very well probably better than our expectations.

Speaker Change #104: Remember this is a homeowner who has decided to put.

Speaker Change #104: Meaningful improvements to try to have a solar cost savings.

Speaker Change #104: On their property.

Speaker Change #104: We like the FICO band at that customer is in.

Scott A. Kingsley: But if you looked at our existing portfolio today of consumer loans, and we're around 6% in total, I would argue that solar residential probably fits right down the middle of that yield outcome. Some of the specialty stuff that was in our relationship with Springstone and Lending Club that, again, is in a runoff status, those rates might be a touch higher. But again, that's mostly unsecured credit. So we would have expected that.

Speaker Change #104: We quite frankly think that's a customer that makes really good decisions for us we've always had to look at that and say to.

Speaker Change #104: To the extent that not all of those originations were in the seven states that we operate branches and it is somewhat difficult to bank the customer on a holistic basis.

Speaker Change #104: But that being said, we like the asset class.

Speaker Change #104: That asset classes capable being pledged as collateral.

Speaker Change #104: And again to date it has performed above our expectations relative to asset quality performance.

Scott A. Kingsley: Great. And can you just give us an update as far as, you know, the loan origination yields and what's going on these days? Sure. On the commercial and the consumer side, we're in the low to mid 7% range, again, depending on the asset class. In residential real estate, we're probably six and a quarter to six and a half currently. And that's really a function of the mix, 30-year versus 15-year instruments or adjustable rate mortgages versus fixed long-term rates. To date, because of volume characteristics in residential real estate, they are certainly lower than certain past years.

Speaker Change #104: Great.

Speaker Change #104: Yes.

Speaker Change #104: Quarterly.

Speaker Change #104: Run off similar to Q1, you think for the rest of the year.

Speaker Change #105: I think thats, a pretty good estimate Chris.

Speaker Change #105: Okay.

Speaker Change #105: Yeah.

Speaker Change #105: Can you remind us what the yields are on the resi solar and then also on.

Speaker Change #105: <unk>.

Speaker Change #105: On the consumer specialty also running off.

Speaker Change #105: Yields are on those.

Speaker Change #105: So Chris we should probably go offline to get that from a detail standpoint, but if you looked at our existing portfolio today of consumer loans.

Speaker Change #105: We're around 6% in total I would argue that solar residential price, it's right down the middle of that yield outcome.

Speaker Change #105: Some of the specialty stuff that were in our relationship with spring stone and lending club that again is in runoff status those rates might be a touch higher but again thats, mostly unsecured credit. So we would have expected that.

Scott A. Kingsley: We've been putting all of that into the portfolio. If rates get to the point where we start to see a productive pickup in that, we always have the opportunity to sell to Fannie Mae or Freddie Mac. But today, the amount of originations is not forcing us to do that from a liquidity standpoint.

Speaker Change #105: Great.

And can you just give us an update as far as.

Speaker Change #105: The loan origination yields.

Speaker Change #105: Coming on these days.

Speaker Change #105: Sure.

Speaker Change #105: On the commercial and the consumer side, we're in the low to mid 7% range.

Scott A. Kingsley: Great. And what's the runoff of these portfolios and, you know, expected, you know? As a strong pickup on kind of the commercial book going forward, how are you thinking about holistic net loan growth for this year? Has that changed at all from the start of the year? So I think that the first quarter loan growth is a good proxy for how we're thinking about the rest of the year. The mix might change a little bit, but that somewhere in the three to 5% change excluding the runoff portfolios is a good proxy.

Speaker Change #105: Depending on the asset class and residential real estate, we're probably six in a quarter to six and a half currently and Thats really a function of mix.

Speaker Change #105: 30 year versus 15 year instruments or adjustable rate mortgages versus fixed long term rates to date.

Speaker Change #105: Does volume characteristics in residential real estate.

Speaker Change #105: Certainly lower than certain past years, we've been putting all of that into portfolio if rates get to the point, where we start to see a productive pickup and that we always have the opportunity to sell to Fannie Mae Freddie Mac and.

Speaker Change #105: But today the amount of originations are not forcing us to do that from a liquidity sources standpoint.

Scott A. Kingsley: Great, that's very helpful. And just wanted to confirm the comments on the expenses, you know, there's some shifts from occupancy to kind of other areas and, you know, other in travel, kind of net out into the second quarter, and, you know, some of the compensation, you know, still has a couple months left to come in, and you're settling out pretty, you said pretty similar to the first quarter, give or take, you know, a couple hundred thousand. Is that right?

Speaker Change #105: Great.

Speaker Change #105: And with the run off of these portfolios and expected.

Speaker Change #105: Strong pick up on kind of the commercial book going forward.

Speaker Change #105: How are you thinking about holistic.

Speaker Change #105: Net loan growth for this year or has that changed at all criminals.

Speaker Change #105: Sure.

Speaker Change #105: Start of the year.

Speaker Change #106: So I think that the first quarter loan growth is a good proxy for how we're thinking about the rest of the year that mix might change a little bit.

Speaker Change #106: That that's somewhere in the 3% to 5% changed excluding the runoff portfolios is a good proxy.

Scott A. Kingsley: So Chris, I'll jump in and Annette, please feel free, that I think within the categories that are not salaries and benefits, you know, we expect some modest shift between occupancy and other costs that are probably modestly net beneficial for us in the out-quarters. As it relates to the salary and benefits line, we did incur about three cents a share of equity compensation costs and payroll taxes that were higher in the first quarter than the natural run rate for the balance of the year on a quarterly basis.

Speaker Change #107: Great that's helpful.

Speaker Change #107: And just wanted to confirm the comments on the expenses.

Speaker Change #107: There are some shifts from occupancy to kind of other areas and other and travel.

Speaker Change #107: Kind of net out.

Speaker Change #107: The second quarter.

Speaker Change #107: Sure.

Speaker Change #107: Some of the compensation.

Speaker Change #107: Still a couple months left.

Speaker Change #107: It could come in and you're settling out pretty.

Speaker Change #107: You said pretty similar to the first quarter give or take a couple of hundred thousand alright.

Speaker Change #108: So Chris I'll jump in and in that please feel free that I think within the categories that are not salaries and benefits.

Scott A. Kingsley: We think some of that will be offset by, you know, a full quarter impact of the two and a half percent merit range, merit raises that we actually processed in March. So, you know, a full quarter impact in the second quarter and then going forward. And then again, I think, as Annette pointed out, and we're getting pretty granular, that there's one extra payroll day in the third and the fourth quarter compared to the first and the second, but there's also an extra day of earning assets. Okay. All right, I've got it.

Speaker Change #109: We expect some modest shift between occupancy and other costs that are probably modestly net beneficial for us.

Speaker Change #110: The out quarters.

Speaker Change #111: As it relates to the salary and benefits line, we did incur about <unk> <unk> a share of equity compensation costs and payroll taxes that are first quarter higher than the natural run rate for the balance of the year on a quarterly basis, we think some of that will be offset.

Speaker Change #111: By a full quarter impact of the two 5% range.

Scott A. Kingsley: And then any thoughts around, you know, any appetite, you know, for share repurchase this year? I know you guys are probably, you know, looking at pretty strong growth down into 2025 and beyond. But, you know, you're now at an 8%, regulatory capital is robust, and it seems like net growth this year will still be relatively contained. Do you guys have any thoughts on that? For sure, Chris.

Speaker Change #111: Merit raises that we actually processed in March so a full quarter impact in the second quarter, and then going forward and then again I think as a net pointed out and we're getting pretty granular that theres, one extra payroll day in the third and the fourth quarter compared to the first and the second but Theres also an extra day of earning asset improvement.

Speaker Change #111: Okay.

Alright got it.

Speaker Change #111: And then any thoughts around.

Speaker Change #112: Any appetite for share repurchases here.

Speaker Change #112: Or.

Speaker Change #112: Probably looking at a pretty strong growth down.

Speaker Change #112: Down into 2000 22025 and beyond.

Scott A. Kingsley: So, great question and timely, by the way. So again, I would say that we look at share repurchases, you know, as probably something close to the end of our capital allocation process. You know, first and foremost, we're committed to the shareholder getting a better outcome on an annual basis. So trying to keep our streak of 11 years of dividend improvements in place, that's clearly a function of making sure the earnings can support that.

But.

Speaker Change #112: Youre not at 8% Tc regulatory capital is robust.

Like net growth this year still.

Speaker Change #112: A relatively contained.

Speaker Change #113: You guys have any thoughts on that.

Speaker Change #114: Sure Chris So great.

Chris: Great question and timely by the way so again I would say that we look at share repurchases.

Chris: As probably something close to the end of our capital allocation process.

Chris: First and foremost we are committed to the shareholder getting a better outcome on an annual basis. So trying to keep our streak of 11 years of dividend improvements in place. That's clearly a function of making sure. The earnings can support that but if we were to just use our first quarter as an example.

Scott A. Kingsley: But if we were to just use our first quarter as an example, you know, we're paying 32 cents a share, and we made 71. That's a 45% payout ratio. If you went back to operating earnings, it's 47.

Chris: We're paying <unk> 32, a share we made 71, that's a 45% payout ratio. If you went back to operating earnings of <unk> 47, we're very comfortable with that level and think that the ability to continue to improve on that still persists.

Scott A. Kingsley: We're very comfortable with that level and think that, you know, the ability to continue to improve on that still persists in our environment. I think you pointed out a good thing in 2024, because we know we have some planned runoff on the loan side; the balance sheet probably does not grow holistically at four or 5%. It probably grows less than that.

And for our environment.

Chris: You pointed out a good thing in 2024, because we know we have some planned run off on the loan side the balance sheet, probably does not grow holistically at four 5% it probably grows less than that so we will accrete capital again, most likely hopefully.

Scott A. Kingsley: So we will accrete capital again, most likely, hopefully. And, you know, again, how to use that capital. We're really happy that we are now back to the point from a capital ratio standpoint that we enjoyed prior to the Salisbury transaction closing, at least on the tangible side. So we don't think we have any, you know, sort of restrictions or limitations around that.

Chris: And again, how to use that capital we're really happy that we are now back to the point from a capital ratio standpoint that we enjoyed prior to the Salisbury transaction closing at least on the tangible side.

Chris: So we don't think we have any sort of restrictions or limitations around that.

Scott A. Kingsley: You know, I think most people understand that the dynamics of the economics around M&A transactions are challenged at the current time. But we're still having very productive conversations with like-minded smaller community banks across our seven-state franchise, and if something presents itself that we think is actionable, I think we feel like we have the capital to support to do that and support our primary organic growth objectives at the same time. So don't think that there are any limitations just where we are from in a capital, Great.

Chris: I think most people understand that the dynamic of economics around M&A transactions are challenged at the current time, but we're still having very productive conversations with like minded smaller community banks.

Chris: Across our seven state franchise, and if something presents itself that we think is actionable I think we feel like we have the capital to support to do that and support our primary organic growth objectives at the same time so.

Chris: Don't think that there's any limitations, just where we are from a capital standpoint.

Scott A. Kingsley: Thanks, Scott. I appreciate you taking my questions, and congratulations on the retirement, John. Hey, thank you, Chris.

Scott A. Kingsley: Great. Thanks, Scott.

Speaker Change #115: I appreciate you taking my questions and congratulations on the retirement John.

Speaker Change #116: Alright, Thank you Chris.

Unknown Executive: Thank you. One moment for our next question. Our next question comes from Bader Hilje from Piper Sandler. Your line is open. Hey, good morning, guys. Just filling in for Alex today.

Speaker Change #117: Thank you one moment for our next question.

LG: And our next question will come from the line banner LG from Piper Sandler Your line is open.

LG: Hey, good morning, guys just filling in for Alex today.

Unknown Executive: Morning. I just want to touch on the NIM. Can you guys give us, or at least from the loan yield side, can you guys give us a sense for the remaining loan yields that's left, you know, moving forward? You know, I see the loan yields have been slowing down a little. So, Peter, if I go back and look at, you know, sort of the period of time post the Salisbury transaction, you know, just to think about it for the last three quarters, we've been picking up somewhere between 8 and 9 basis points on the loan yield on a quarterly basis.

LG: Good morning, good morning.

LG: I just wanted to touch on the NIM can you guys give us.

At least from the loan yield side can you guys give us a sense for the lift in loan yields Thats left.

LG: Moving forward.

LG: Loan yields have been slowing down a little.

LG: Sure.

Speaker Change #118: So Peter if I go back and look at.

Speaker Change #118: The period of time post the cells very transaction just to think about it for the last three quarters, we've been picking up somewhere between eight and nine basis points on the loan yield on a quarterly basis.

Unknown Executive: I think that that's probably sustainable back to that whole idea of new originations being, you know, 100 to 125 basis points above what expiring loans are going off the balance sheet debt. So, you know, no reason to think that that can't be sustained. And again, I think in terms of, you know, on the higher for longer side, does it make it easier to actually generate new loans, you know, with that construct behind them? You would think, yes, but the question is, does that stifle demand a little bit?

Speaker Change #118: Think that thats, probably sustainable back to that whole idea of new originations being.

Speaker Change #118: 100 to 125 basis points above what expiring loans are going off the balance sheet.

Speaker Change #118: So no reason to think that that can't be sustained.

Speaker Change #118: And again I think in terms of.

Speaker Change #118: On the higher for longer side does it make it easier to actually generate new loans.

With that construct behind them you would think yes. The question is does that stifled demand a little bit.

Scott A. Kingsley: So, you know, I think that's the, you know, the holistic tradeoff that we're looking at. We've had some opportunities in our market for some additional growth. And I would argue that we're turning away single asset opportunities that we don't think meet our pricing characteristics and instead promoting our best sponsors and using our balance sheet to fulfill full relationship banking for them.

Speaker Change #118: I think thats the.

Speaker Change #118: Holistic tradeoff that we're looking at.

Speaker Change #118: We've had some opportunities in our market for some additional growth.

And I would argue that we're turning away single asset opportunities that we don't think meet our pricing characteristics and instead promoting our best sponsors and using our balance sheet to fulfill full relationship banking for them.

Scott A. Kingsley: Thanks. Um, and do you think that is sufficient to drive the rebound in NIM, or does the funding side also need to experience easing pressures for us to see the inflection? Yeah, I mean, we've been really close for the last two or three quarters.

Speaker Change #119: Got it.

Speaker Change #119: Do you think that is.

Speaker Change #119: Fishing to drive the rebound in the NIM or the funding side also need experienced seasoned pressures for us to see the inflection.

Speaker Change #120: Yes, I mean, we've been really close for the last two or three quarters.

Scott A. Kingsley: You know, so I think we're, you know, optimistic that that opportunity presents itself. But that being said, you know, that means that we're out in front of our customers. And remember, we're providing treasury management services to those same customers. We're providing timely and appropriate advice to our customer base. And we're never going to ask our folks to change that as their primary focus.

Speaker Change #120: So I think we're.

Speaker Change #121: <unk> optimistic that that opportunity presents itself, but that being said.

Speaker Change #121: That means that we're out in front of our customers and remember, we're providing treasury management services to those same customers, we're providing timely and appropriate advice to our customer base and we're never going to ask our folks to change that as their primary focus. So it's incumbent upon us to have competitive products to be able to hold funds.

Scott A. Kingsley: So it's incumbent upon us to have competitive products to be able to hold funding levels in and, at the same time, you know, create profitability opportunities for us as a company. Got it. Thanks. And one last question on the funding side, you know, assuming muni deposits flow out next quarter, and you guys replace that with borrowing, is it fair to assume that at least until next quarter, we continue to see NIM decline and a delay in the NIM inflection?

Speaker Change #121: <unk> levels in and at the same time create profitability opportunities for us as a company.

Speaker Change #122: Got it.

Speaker Change #122: One last question on the other side on the funding side.

Speaker Change #122: Assuming many of.

Speaker Change #122: Deposits flow out next quarter and you guys replaced that with borrowings is it fair to assume that at least until next quarter. We continue to see NIM decline.

Speaker Change #122: And a delay in the NIM and flex in.

Scott A. Kingsley: you know, the cost of borrowing pushes up the costs on the funding side. I would say the cost of borrowing is definitely higher than most of the deposit classes that we have on the balance sheet today.

Cost of borrowings out push up the.

Speaker Change #122: Cost on the funding side.

Speaker Change #122: Yes.

Speaker Change #122: I would say that the cost of borrowings are definitely higher than most of the deposit classes that we have on the balance sheet today, but again, that's tactical funding management 101.

Scott A. Kingsley: But again, that's tactical funding management 101, and hopefully, we're pretty good at that. So you know, we're not just conceding that everything that leaves the balance sheet becomes replaced by a borrowing instrument. We have objectives to grow our funding base, and that's consistent with historical results.

Speaker Change #123: We're pretty good at that so.

Speaker Change #123: We're not just conceding that everything that leaves the balance sheet becomes replaced by a borrowing instrument, we have objectives to grow our funding base and that's consistent with historical results.

Unknown Executive: Thanks for asking my questions and congrats on your retirement, John and Scott, Joe and Annette, and congratulations on the promotion as well. Thanks so much. Thank you. Thank you, and I'm not asking any further questions at this time. I will now turn the call back over to John Watt for his closing remarks. Thank you, Victor. And thank you all for your interest and your time this morning. And thank you for all of your questions. I'll end where we started. The shareholder is averaging up here, and the wind is at our backs. So, thank you. Thank you, Mr. Watt. This concludes our program. You may now disconnect. Everyone have a great day.

Speaker Change #124: Got it.

Speaker Change #125: Thanks for answering my questions.

Speaker Change #126: And congrats on retirement, John and Scott, Joe and congrats on the promotion as well.

Speaker Change #127: Thanks, so much thank you alright crater.

Speaker Change #128: Thank you.

Speaker Change #128: And I'm not showing any further questions at this time I will now turn the call back over to John Locke for his closing remarks.

John H. Watt: Thank you Victor and thank you all for your interest and your time. This morning, and thank you for all of your questions.

John H. Watt: I'll end, where we started.

John H. Watt: Shareholder is averaging up here.

John H. Watt: The wind is at our back so thank you.

John H. Watt: Thank you Mr. <unk>. This concludes our program you may now disconnect everyone have a great day.