NBT Bancorp Inc.

Good day, everyone, and welcome to the MBT's Bancorp Third Quarter 2020 Financial Results Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. Corresponding presentation slides can be found on the company's website at mbtbancorp.com. Before the call begins, MBT's management would like to remind listeners that as noted on slide two, Today's presentation may contain forward-looking statements as defined by the Securities and Exchange Commission. Actual results may differ from those projected. In addition, certain non-GAAP measures will be discussed. Reconciliations for these numbers are contained within the appendix of today's presentation. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. Anyone requiring operator assistance can press the star key and then zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to turn the conference over to NBT Bancorp President and CEO, John H. Watt, Jr., for his opening remarks. Mr. Watt, please begin.

Welcome and thank you for joining us today for the NBT third quarter earnings call. Our Chief Financial Officer, John Moran, and our Chief Credit and Risk Officer, Amy Wiles, will join me in reviewing highlights with you, and then we will take your questions. As I stated in our last quarter call, NBT is focused on the long term. It is in our DNA to prosper and grow in times of disruptions. That was the case during the financial crisis and it will be the case now. While focusing on the health and safety of our employees, customers, and the communities we serve, we are executing on our plans to expand in New England and acquiring new customers in each of the states where we do business there. While 2020 has required us all to pivot in response to impacts of the COVID-19 pandemic, I'm also proud to share that NBT has maintained momentum on key customer-focused technology initiatives despite this very challenging environment. During the third quarter, we implemented a new digital banking platform for mobile and online banking. This platform offers customers a consistent experience across all devices and delivers many new updated services. It has allowed us to advance our aggressive digital focus. We've also launched a new market leading mortgage origination system from Encompass that is supporting digital mortgage origination to provide a streamlined experience for our borrowers. The accelerated adoption of digital banking by customers propelled by the pandemic serves to reinforce the importance of a well-developed long-term technology roadmap like the one we have at NBT. Our ability to implement, execute, and deliver during this volatile period is a testament to the talent of our team and our focus on our customers. So let me turn to some financial highlights of the quarter. NBT achieved earnings of 80 cents per share, demonstrating our core underlying strengths. This outcome was supported by a lower provision focused expense control and strong fee-based income, including higher income from retirement plan administration fees driven in part by our acquisition of Peoria-based ABG on April 1. Through the strong collaboration of our bankers and our borrowers in the last 90 days, we saw loan deferrals drop to 2% from a peak of 15%. Amy will tell us more about these efforts. Finally, yesterday, the board approved a 27-cent dividend payable on December 15th and reaffirmed our dividend strategy for the quarters ahead. At the end of September, our board of directors expanded the number of board seats and appointed Johanna Ames as our newest director. As a leader in business and in her community, Johanna is a strong addition who brings new perspective to our board. So at this time, I'll turn the call over to our Chief Financial Officer, John Moran, who will provide greater detail on our third quarter financial performance.

Thanks, John. Turning to slide four, as John highlighted, our third quarter earnings per share were 80 cents. There was nothing in the quarter that we'd call out as non-core other than the small securities gains. As you can see, the provision for loan losses was down substantially as compared to 2Q levels, and at $3.3 million, it was actually down from last year's third quarter. Lower than normal charge-offs and a slight decrease in total loans led to a modest build in our reserve coverage, which increased to 1.62% excluding PPP loans from 1.59% in 2Q. Similar to the first half of the year, our underlying operating performance held in well. Pre-provision net revenue of nearly $50 million was down about $1 million length quarter, but tracked higher against the year-ago period. Our PPNR return on average assets was 183 basis points. Tangible bulk value per share was up approximately 3%. TCE was up 23 basis points. and our CET1 ratio improved approximately 30 basis points as compared to the second quarter. Again, this underscores that strong PPNR provides an engine for capital generation. Slide five shows trends in outstanding loans. On a core basis, excluding PPP, loans were down about 1% for the quarter. As we suggested last quarter, commercial activity has reset somewhat lower as compared to the robust levels we experienced last year and in the early part of 2020. That said, activity did increase over the course of the quarter with substantially all parts of our footprint reopened more fully and pipelines continuing to rebuild. This was especially true in New England where Vermont, Maine and our newest expansion market, Connecticut are all tracking above plan. In fact, New England commercial loans are up approximately 35% year over year anchored by strong commercial real estate activity. Moving to slide six, deposits were up just over $140 million point to point for the quarter, with our core deposits up an even stronger $190 million. Customer cash remains elevated on increased liquidity associated with various government support programs, and these deposits have been stickier than we would have expected. We have continued to actively manage our funding costs, both in the exception price book and in RAC rates. Those actions, combined with the higher levels of demand deposits, are evident in our low 19 basis point cost of total deposits. As a reminder, we drove a 50% decrease in funding costs from 1Q's levels in the second quarter. While we do have some opportunities remaining in the back book around exception pricing and CDs, the majority of our planned rate actions are now complete. Core deposit funding has long been a hallmark of the NBT franchise, and we are very pleased with the results of our active repricing strategy to date. Next on slide seven, you'll see the detailed changes in our net interest income and margin. Earning assets increased during the quarter driven by higher levels of cash and investment securities with loans down modestly. Mixed shift, the ongoing repricing of our assets and excess liquidity caused a decrease in both net interest income and in the margins. NII was down $2.5 million and our reported margin decreased 21 basis points. As a reminder, the full five basis points short-term impact of our recently issued sub-debt is reflected in 3Q's run rate and the impact from excess cash and liquidity cost us an additional three basis points as compared to the second quarter. The total impact from cash drag is now approximately 10 basis points. Continued repricing of our assets in the historically low rate environment will put additional pressure on our net interest margin, though at a somewhat slower pace as compared to the last two quarters. Slide 8 shows trends in non-interest income. Excluding modest securities gains and losses, our fee income increased $2.8 million from last quarter and was up just over 5% from last year. More broadly, non-spread revenue was nearly 33% of our total revenue. As you know, this remains a key strength for NBT as compared to peers. Retail banking fees rebounded from 2Q's depressed levels, with higher cash balances holding service charges at lower levels compared to a year ago, but improving from the lows of the second quarter. ATM and debit card fees have continued to demonstrate better growth than we would have expected as activity improves. The RPA line benefited from our recent ABG acquisition, and new business pipelines for Epic remain strong. Wealth rebounded on very strong markets, and finally, insurance demonstrated a typical seasonal bounce back from 2Q. Turning to non-interest expense on slide nine, our total operating expenses were just over $66 million for the quarter, up very modestly as compared to the second quarter. In a more difficult top line environment, we've continued to effectively manage our expenses and our net overhead ratio improved to a low 104 basis points. While we're very pleased with that outcome, we are thinking through the appropriate level of operating expense as we adjust to the new economic realities of a COVID world. As a reminder, last quarter we announced the consolidation of seven branches later this year. That will result in approximately $1 million in annual savings starting next year. As you know, we're always focused on operational excellence, and we are hard at work on identifying additional opportunities in our cost structure. On slide 10, we provide an overview of key asset quality metrics, excluding the impact of PPP, net charge-offs for a very low 13 basis points. We restarted consumer collection activity during the quarter, and we did see better payment results than we would have expected. Both NPLs and NPAs moved higher, but remain at low levels in the absolute. The migration in nonperformers was driven by two specific relationships, both of which experienced COVID-related issues. We continue to believe that the diversity and granularity of our loan portfolios, our long-established track record of conservative underwriting, and the less dense nature of our upstate New York and New England footprints should help us weather the current environment better than most. As Amy will share, our deferrals are now running at 2% of total loans, which is down from a peak of approximately 15% during the second quarter. On slide 11, we provide a walk forward of our third quarter reserve build and the reserve allocations by loan category. In terms of outlook, obviously the environment remains reasonably fluid. While the recovery appears to have some traction, there is still a great deal of uncertainty around the path of the economy, the ultimate path of the pandemic, and future government actions. That said, we continue to believe that if the current macro forecast more or less holds, the path of charge off activity and balance sheet growth are likely to be heavier factors in future provisioning needs than model driven factors. With that, I'll turn it over to Amy Wiles, our Chief Credit and Risk Officer, for some additional details on the credit front. Amy?