NBT BANCORP INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Net income was $36 million ($0.76 per share) in Q4 2024. Tangible book value per share was $23.88, an all-time high. Declared a $0.34 quarterly dividend, 12th consecutive annual increase.
• Business Expansion: Announced merger with Evans Bancorp ($2.3 billion community bank), targeting second quarter 2025 closing and core systems conversion. Received regulatory approvals and Evans shareholder support.
• Market Position: Unique in Upstate New York's semiconductor chip corridor, with activity in the corridor including Micron's expansion near Syracuse.
• Fee-Based Businesses: Retirement plan administration, wealth management, and insurance agency had 9% five-year compounded annual growth. Mid to high single-digit growth expected for these businesses, with robust organic growth and acquisitions.

Segment Performance

• Loans: Total loans increased $319 million for the year (3.3%), with growth in C&I, commercial real estate, indirect auto, and residential lending. Excluding specific runoff portfolios, loans rose $479 million (6%). The loan portfolio is $10 billion, 53% commercial relationships and 47% consumer loans. Fourth quarter loan yields declined 9 basis points.
• Deposits: Total deposits reached $11.6 billion, up $578 million (5.3%). 58% of deposits are no/low-cost checking/savings, 42% in time/money market. Quarterly cost of total deposits decreased 12 basis points to 1.60%.
• Net Interest Income: Fourth quarter net interest income was 3.34%, up 7 basis points from prior quarter. Driven by lower cost of interest-bearing liabilities and $257.5 million growth in average earning assets.
• Non-Interest Income: Non-interest income made up 30% of total revenues in 2024. Fee income was $42.2 million in Q4 2024, a 11.1% increase from Q4 2023 but seasonally lower than prior quarter.
• Loan Loss Provision: Fourth quarter loan loss provision was $2.2 million, $700,000 lower than prior quarter. Net charge-offs to total loans were 23 basis points in Q4 2024 vs. 16 basis points prior quarter. Non-performing assets increased due to a commercial real estate relationship placed in non-accrual status.

Guidance

• Net Interest Margin: Positive trends with three consecutive quarters of growth. $2.1 billion of commercial loans are SOFR-based, changing with short-term rate changes. Loan cash flows expected to reprice into higher rates.
• Expenses: Run rate of expenses around $97-$99 million quarterly, with first quarter potentially higher due to payroll, stock-based, and occupancy costs. Full-year 2025 operating costs expected to increase 4%-5% from 2024.
• Evans Merger: Targeting second quarter 2025 closing, focusing on core systems conversion at the same time.

Risks

• Loan Quality: Commercial real estate relationship placed in non-accrual status impacted non-performing assets. Reserve coverage at 1.16% of total loans, but provisioning needs could change with balance sheet growth and loan mix changes.
• Regulatory/Integration: Potential risks associated with merging with Evans Bancorp, including core systems conversion challenges and managing two separate systems during transition.

Question and Answer

Q: On margin trends and loan pricing A: $2.1 billion of commercial loans are SOFR-based, changing with short-term rates. Loan pricing for auto, commercial, and residential is higher than portfolio rates.

Q: On expenses A: Run rate of expenses around $97-$99 million quarterly, first quarter potentially higher, with full-year 2025 costs expected to increase 4-5%.

Q: On loan loss reserve ratio A: Decline in consumer portfolio due to runoff, CRE non-performing related to reserve release. Reserve mix changing with solar and specialty consumer runoff.

Q: On Evans merger A: Targeting second quarter 2025 closing, focus on core systems conversion, no overlap in markets, technical conversion of core systems is a task.

Q: On NIM and deposit costs A: More room to lower deposit costs as $5 billion of assets can reprice, with $3.4 billion money market accounts and $1.4 billion CDs having potential for further cost reduction.

Q: On commercial real estate non-performer A: Multifamily housing project in Upstate New York, slow to lease up, in a market with historical strong performance.

Q: On fee business growth and Evans merger cross-sell A: Mid to high single-digit growth expected, cross-sell opportunities in western New York market post-merger, but materiality in 2025 likely not significant.

Q: On capital and sub-debt A: Sub-debt issuance due mid-year, considering replacing with another instrument or paying off, with flexibility due to cash reserves at holding company.