NBT Bancorp Inc.

Good day, everyone. Welcome to the conference call covering NBT Bancorp's fourth quarter and full year 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 mbtbancorp.com. Before the call begins, NBT's management we'd 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 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, Daniel. Good morning, and thank you for joining us this morning. With me in snowy Norwich today are NVT's Chief Financial Officer Annette Burns and Joe Stagliano, President of NVT Bank NA. Our operating performance for the quarter and full year 2024 continued to reflect the strength of our balance sheet, our diversified business model, and the collaboration and diligence of our team. During the fourth quarter, we productively grew loans, improved our funding profile, and boosted net interest margin for the third consecutive quarter. Incrementally lower funding costs more than offset a five basis points decline in earning asset yields. Non-interest income continued to be a highlight, making up 30% of total revenues for 2024, with each of our non-banking businesses achieving new record years for revenue and earnings generation. We also declared a $0.34 quarterly cash dividend to shareholders, which was 6.3% above the 32-cent dividend we declared in last year's first quarter. This represents our 12th consecutive year of annual dividend increases, and it demonstrates our commitment to provide consistent and favorable long-term returns to our shareholders. We added $100 million to shareholders' equity in 2024 from productive earnings generation, despite the higher level of dividends paid, adding to our already desirable level of capital flexibility. Activity continued to progress across upstate New York's semiconductor chip corridor in the fourth quarter, including several announcements about new expansion and structural investments as well as certain site-specific milestones being reached at Micron's planned complex outside of Syracuse. NBT is uniquely positioned to play a significant role in providing financial services to all types of customers and prospects living and working along the upstate New York semiconductor chip corridor. In September, we announced that NBT reached an agreement to merge with Evans Bank Corp., a $2.3 billion community bank, headquartered in Williamsville, New York. Our partnership with Evans is a natural geographic expansion of NBT's footprint into the western region of New York. Expanding into Buffalo and Rochester, Upstate New York's largest markets by population, complements our meaningful presence in Central New York, the Capital District, and the Hudson Valley, and it will position us as the community bank with the largest deposit market share in Upstate New York. In December, we received the required regulatory approvals to proceed with the merger, as well as approval from Evans shareholders, who demonstrated strong support for the partnership. We continue to work toward a second quarter 2025 closing and a concurrent core systems conversion. Our transition and integration activities with the Evans team these past four months have reaffirmed our belief that they are a customer, employee, and community-focused organization with dedicated and talented professionals. At this time, I'll turn the meeting over to Annette to review our fourth quarter results with you in detail. Annette?

Thank you, Scott, and good morning. Turning to the results overview page of our earnings presentation, for the fourth quarter, we reported net income of $36 million or 76 cents per share. Excluding merger costs and securities gains, our operating earnings per share were 77 cents, a decrease of 3 cents per share compared to the prior quarter. Tangible book value per share of $23.88 as of December 31st was up 5 cents per share from the end of the third quarter, marking another all-time high for NBT. The next page shows trends in outstanding loans. Total loans were up $319 million for the year, or 3.3%. It 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 $479 million, or 6%. Our loan portfolio of $10 billion remains very well diversified and is comprised of 53% commercial relationships and 47% consumer loans. Fourth quarter loan yields declined by nine basis points from the third quarter of 2024, as approximately $2.1 billion of loans repriced downward with a decrease in short-term rates, partially offset by the reinvestment of earning asset cash flows into instruments with rates higher than existing portfolio yields. On page six, total deposits of $11.6 billion were up $578 million or 5.3% from the December 2023 timeframe. 58% of our deposit portfolios consist of no and low cost checking and savings accounts and 42% in time and money market accounts. The company's quarterly cost of total deposits decreased 12 basis points from the third quarter to 1.60%. The next slide highlights the detailed changes in our net interest income and margin. Our net interest income in the fourth quarter of 2024 was 3.34%, which was up seven basis points from the prior quarter, primarily due to a decrease in the cost of deposits and a more favorable funding mix, including increases in demand deposits. The fourth quarter's net interest income was $4.4 million above the linked third quarter. The primary drivers to the increase in net interest income were the decrease in the cost of interest-bearing liabilities and the $257.5 million growth in average earning assets. Our asset liability management positioning remains fairly neutral with approximately $2.1 billion in variable rate loans repricing almost immediately with changes in short-term rates, which requires us to actively manage our funding costs downward to more than offset that impact, as evidenced by the 12 basis point decline in our deposit costs for the quarter. As a reminder, approximately $5 billion of our deposits are price sensitive. The amount of potential positive lift in yield from the reinvestment of loan portfolio cash flows 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 was $42.2 million, an increase of 11.1% compared to the fourth quarter of 2023, but consistent with prior years, was seasonally lower than the previous quarter. The diversification of our revenue sources remains a core strength for the company. 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 9%. Total operating expenses, excluding merger costs, were $99.8 million for the quarter, a 4.8% increase above the linked third quarter. Salaries and employee benefit costs were $61.7 million, an increase of $2.1 million from the prior quarter. This increase is primarily driven by higher health and welfare costs and an increase in other employee benefits, including higher levels of performance-based incentive compensation. Slide 10 provides an overview of key asset quality metrics. We recorded a loan loss provision expense of $2.2 million in the fourth quarter, which was $700,000 lower than the prior quarter. This decrease was primarily due to the runoff of the other consumer and residential solar portfolios, partially offset by a higher level of net charge-offs. Net charge-offs to total loans were 23 basis points in the fourth quarter of 2024, compared to 16 basis points in the prior quarter. The increase in net charge-offs during the quarter was driven by two commercial relationships totaling $2.4 million, of which $1.7 million was previously specifically reserved. Non-performing assets to total assets increased $14.4 million from the prior quarter attributable to a commercial real estate relationship that was placed into non-accrual status in the fourth quarter of 2024. This relationship is being actively managed and its remaining carrying value is supported by the fair value of the underlying real estate. Reserve coverage was 1.16% of total loans and covered more than two times the level of non-performing loans. We believe that the expected balance sheet growth and continued changes in loan mix will be the drivers of future provisioning needs. In closing, net interest margin and net interest income trends are positive with growth for the three consecutive quarters. Our well-balanced loan growth granular deposit base stable asset quality trends, and strong fee income generation contributed to our solid operating performance in 2024. The continued strength of our capital position has provided the flexibility to deliver 12 consecutive years of dividend increases to our shareholders, the ability to support organic growth and to capitalize on opportunities, all while effectively managing risk. Thank you for your continued support, and at this time, we welcome any questions you may have.