NBT Bancorp Inc.

Good day, everyone. Welcome to the conference call covering NBT Bancorp's third 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 nbtbancorp.com. Before the call begins, NBT'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. As a reminder, this call is being recorded. I will now turn the conference over to NBT Bancorp President and CEO, Scott Kingsley, for his opening remarks. Mr. Kingsley, please begin.

Thank you, DeeDee. And good morning, and thank you, everyone, for joining us for this call covering NBT Bancorp's third quarter 2024 results. With me today are NBT's Chief Financial Officer, Annette Burns, Joe Stagliano, President of NBT Bank N.A., and Joe Ondesco, our Treasurer. Our operating performance for the quarter in the first nine months of 2024 continues to reflect the strength of our balance sheet our diversified business model, and the collaboration and diligence of our team. During the quarter, we productively grew loans and deposits across our footprint and improved our net interest margin for the second consecutive quarter as earning asset yields increased incrementally higher than funding costs. Non-interest income continued to be a highlight, making up 31% of total revenues for the quarter and reaching a new quarterly all-time high. We also declared a $0.34 quarterly cash dividend to shareholders, which was 6.3% above the $0.32 dividend we declared in last year's fourth quarter. This represents our 12th consecutive year of annual dividend increases, and it demonstrates our commitment to providing consistent and favorable long-term returns to our shareholders. The increase also represents a 27% improvement over the past three years. In September, we were pleased to announce that NVT reached an agreement to merge with Evans Bank Corp. Inc., a $2.3 billion community bank headquartered in Williamsville, New York. Our partnership with Evans is a natural geographic extension of NVT's footprint into the attractive Buffalo and Rochester markets of western New York. This expansion into Buffalo and Rochester, upstate New York's largest two markets by population, complements our meaningful presence in Central New York, the Capital District, and the Hudson Valley, positioning us as the largest community bank in upstate New York. Our integration activities with the Evans folks over the past six weeks have reaffirmed our belief that they are a customer, employee, and community-focused organization with dedicated and talented professionals. Their openness and engagement have been greatly appreciated. We are diligently working through the required filings for both shareholder and regulatory approvals. Pending those approvals, we expect a second quarter 2025 closing. In April, it was announced that the U.S. Department of Commerce entered into an agreement with Micron Technology to provide a $6.1 billion grant under the CHIPS and Science Act, the largest to date, that will in part support its plans to invest as much as $100 billion in a new complex of semiconductor chip manufacturing plants in the town of Clay near Syracuse. Although advanced planning and site-specific activities continue to progress, Micron has moved their expected commencement of construction to the second half of 2025. As we've said before, 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 upstate New York CHIP corridor. At this time, I will turn the meeting over to Annette to review our third quarter results with you in detail. Annette?

Thank you, Scott, and good morning, everyone. Turning to the results overview page of our earnings presentation, For the third quarter, we reported net income of $38.1 million, or 80 cents per share, an increase of $5.4 million, or 11 cents per share, from the prior quarter. Tangible book value per share of $23.83 as of September 30th was up $1.29 per share from the end of the second quarter and was at an all-time high for NBT. The next page shows trends in outstanding loans. Total loans were up $256 million for the year, or 3.5% annualized, and included growth in our CNI, commercial real estate, indirect auto, and residential lending portfolios. Excluding the other consumer and residential solar portfolios that are in a planned contractual runoff status, loans increased $384 million, or 6% annualized. Third quarter loan yields were up 11 basis points from the second quarter of 2024, reflective of continued higher new origination rates. Our total loan portfolio of $9.9 billion remains very well diversified and is comprised of 53% commercial relationships and 47% consumer loans. On page six, total deposits of $11.6 billion were up $619.3 million from December 2023, with growth in commercial and consumer balances combined with a higher level of municipal deposits. We have included a summary of our deposit mix by type, which shows the diversification and deep granularity of our customer base. The company's full cycle deposit beta was 31%, and our quarterly cost of total deposits increased four basis points from the prior quarter to 1.72%. The next slide looks at the detailed changes in our net interest income and margin. Our net interest margin in the third quarter of 2024 was 3.27%, which is up nine basis points from the prior quarter, resulting from nine basis points of earning asset yield improvement, while our funding costs were consistent with the prior quarter. The third quarter's net interest income was $4.5 million above the linked second quarter results. The primary drivers to the increase in net interest income were an increase in asset yields and loan growth while funding costs were stable. The third quarter was minimally impacted from the 50 basis point decrease in the federal funds rate in the middle of December. Our asset liability management positioning remains fairly neutral with approximately $2 billion in variable rate loans repricing almost immediately. which requires us to actively manage our funding costs downward to more than offset that impact. The amount of potential positive lift in yield in the reinvestment of our cash flows from our loan portfolios will be dependent on the shape of the yield curve. The trends in non-interest income are outlined on page eight. Excluding securities gains and losses, our fee income reached a record high of $45.3 million an increase of 12.1% from the third quarter of 2023, and was an increase of 4.6% from the previous quarter. Our combined revenues from retirement plan services, wealth management, and insurance services exceeded 30 million in quarterly revenues for the first time. As a reminder, consistent with historical trends, the fourth quarter is typically our lowest quarter in revenue generation for these businesses by approximately 4 cents from the linked third quarter. The diversification of our revenue sources remains a core strength for the company, with fee income accounting for 31% of total revenues. Our fee income business lines of retirement plan administration, wealth management, and the insurance agency have demonstrated a meaningful five-year compounded annual growth rate of nearly 10%. Moving on to non-interest expense, our total operating expenses were $95.7 million for the quarter, which is $6.2 million or almost 7% above the linked second quarter. Salaries and employee benefit costs were $59.6 million, an increase of $4.2 million from the prior quarter. This increase is primarily due to one additional payroll day and higher levels of benefit costs, including incentive compensation. Technology and data services expenses increased $700,000 from the second quarter of 2024, due to the timing of planned initiatives and continued investment in customer-facing digital platform solutions. We remain committed to managing our non-interest expenses effectively, balancing cost efficiency with the necessary investments to support our engagement with customers and our people. On slide 10, we provide an overview of key asset quality metrics. We recorded a loan loss provision expense of $2.9 million in the third quarter. which was $6 million lower than the prior quarter. This decrease was primarily due to the establishment of a specific reserve in the prior quarter, lower levels of loan growth than the second quarter, and the stabilization of the portfolio prepayment assumptions. Net charge-offs to total loans were 16 basis points in the third quarter of 2024, compared to 15 basis points in the prior quarter. Non-performing assets to total assets was consistent with the past three quarters. Reserve coverage of 1.21% of total loans was consistent with the prior quarter and covered more than three times the level of non-performing loans. We believe that the expected balance sheet growth and continued mix changes will be the drivers of future provisioning needs. In closing, we were pleased to see net interest margin and net interest income growth for the second consecutive quarter. Our well-balanced organic loan growth, granular deposit base, Stable credit quality, strong fee income generation, and active expense management contributed to our solid operating performance for the first nine months of 2024. The continued strength of our capital position has allowed us the flexibility to provide 12 consecutive years of dividend increases to our shareholders, the ability to support organic growth, and to capitalize on opportunities while effectively managing risk. Thank you for your continued support. And at this time, we welcome any questions you may have.