Q3 2023 NBT Bancorp Inc Earnings Call

Okay.

Good day, everyone welcome to the MBT Bancorp's third quarter 2023 financial results Conference call. This call is being recorded and has been made accessible to the public in accordance with the SEC regulation FD corresponding presentation slides can be found on the company's website at N B T.

<unk> Bancorp Dot com before the call begins I'd be teeth management would like to remind listeners that as noted on slide two today's presentation may contain forward looking statements as defined by the security and Exchange Commission actual results may differ from those projected in addition, certain non-GAAP measures will be discussed reconfirm.

Lea's shouldn't have these numbers are contained within the appendix of today's presentation at.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time as a reminder, this conference is being recorded.

I'd now like to turn the conference over to N V T Bancorp's, President and CEO, John H, what junior for his opening remarks, Mr. Wang Please begin.

Thank you Michelle.

Good morning, and thank you all for participating in this earnings call covering NBC Bancorp's third quarter 2023 results.

Joining me today are <unk>, Chief Financial Officer, Scott Kingsley, Our Chief Accounting Officer, and Ed Burns, our treasurer, Joe on desktop and our Chief Information Officer, and President of retail banking Jo Stagg Liana.

It was a very active quarter at NBC, we continue to successfully navigate the volatile interest rate environment and its impact on our company and our customers.

We closed on the acquisition of Salisbury Bancorp on August 11th the simultaneous.

<unk> core systems conversion was successful and the integration is substantially complete.

We welcomed over 40000, new customers 141, new colleagues and we brought 13 additional branches.

Onto our platform, allowing us to add scale in Connecticut and to expand south into the Hudson Valley.

We also welcomed Salisbury CEO, Rick can totally to our executive management team and our board of directors.

The successful closing of this acquisition positions <unk> well for future strategic growth.

Let me take a moment to highlight <unk> activity across our businesses.

First we are very pleased with our operating results, including EPS at <unk> 84.

And return on tangible equity of $16 two 5%.

We've achieved commercial and consumer loan growth at an annualized growth rate of six 1% in the third quarter.

That growth was diverse with our commercial lending and indirect auto businesses, leading the way.

Through nine months, we continue to observe a resilient consumer and small business owner.

<unk>, our indirect auto business had a strong quarter with originations of over $148 million.

Our residential mortgage business experienced a seasonal lift despite the interest rate environment.

Credit quality at MBT is strong and each of the core credit portfolios continue to perform at levels better than those we experienced prior to the pandemic.

Like the rest of our industry our cost of funds has risen as customers seek out higher yielding deposit products with that said total deposits grew during the third quarter, including the seasonal municipal inflow we experience.

Our full cycle deposit beta is at 24% including acquired deposits.

We continue to enjoy high account retention levels.

Unknown Executive: Good day, everyone. Welcome to the NBT Bancorp's third quarter, 2023 Financial Results Conference call. This call is being recorded and has been made accessible to the public in accordance with the SEC 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 Security and Exchange Commission.

Our funding sources are robust and we have the headroom, we need to execute on our organic growth plans.

Our fee based businesses continued their solid performance in Q3, RF Epic retirement services administration business experienced organic account growth and was additionally, supported by the acquisition of retirement direct in early July.

Total noninterest income was 30% of total revenue in the third quarter.

Unknown Executive: Actual results may differ for most projected. In addition, certain non-get measures will be discussed. Reconciliation of 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 and instructions will follow at that time. As a reminder, this conference is being recorded.

In August we announced that Michael Riley joined the <unk> team in Portland, as our main regional President. In addition, he will oversee the execution of our strategy across our markets in northern New England.

<unk> focus on the diversification of our approach in those markets is the next phase of our long term organic expansion plans.

John Watt: I would now like to turn the conference over to nbtbancorp's president and CEO, John H. Wat, Jr, for his opening remarks. Mr. Wat, please begin. Thank you, Michelle, and good morning, and thank you all for participating in this earnings call covering NBT Bancorp's third quarter, 2023 Results. Joining me today are NBT's Chief Financial Officer, Scott Kingsley, our Chief Accounting Officer, Annette Burns, our Treasurer, Johan Desko, and our Chief Information Officer, and President of Retail Banking, Joe Stagliano.

During the quarter activity associated with the upstate New York Chip Corridor was notable in Central New York Micron filed its application with the Commerce Department for multimillion dollar grants and other support under the chipset.

The International Semiconductor company advanced micro devices announced that it opened research and development facilities and Fishkill and Rochester.

The Albany Nano-tech complex was designated by the Federal government as a center for workforce training and received significant federal funding commitments.

John Watt: It was a very active quarter in NBT. We continued to successfully navigate the volatile interest rate environment and its impact on our company and our customers. We closed on the acquisition of Salisbury Bank Corp on August 11th. The simultaneous core systems conversion was successful, and the integration is substantially complete. We welcomed over 40,000 new customers, 141 new colleagues, and we brought 13 additional branches onto our platform, allowing us to add scale and Connecticut and to expand south into the Hudson Valley. We also welcomed Salisbury CEO Rick Cantelli to our Executive Management Team and our Board of Directors. The successful closing of this acquisition positions NBT well for future strategic growth.

At the end of the quarter. The U S Department of defense awarded a new 10 year contract to global foundries in the capital district to produce semiconductors for defense and aerospace applications total spend under this contract will be over $3 billion.

As we have discussed in prior calls the economic activity generated along the chip corridor will drive long term transformational economic growth across our core markets.

That growth will promote long term success at MPT as our platform is uniquely positioned along the corridor.

As we head into the final months of the year <unk> continues to be on offense enhanced by the successful integration of Salisbury into our model and the continued focus on growth in new England, and the organic growth occurring along the chip corridor.

John Watt: Let me take a moment to highlight three Q activity across our businesses. First, we are very pleased with our operating results, including EPS at 84 cents, and return on tangible equity of 16.25%. We've achieved commercial and consumer loan growth at an annualized growth rate of 6.1% in the third quarter. That growth was diverse with our commercial lending and indirect auto businesses leading the way. Through nine months, we continue to observe a resilient consumer and small business owner.

We are well positioned with strong liquidity and capital levels, a diversified business mix.

Effective risk management practices and an experienced team of professionals.

I will turn the call over to Scott and that now to talk in greater detail about the outcomes associated with the Salisbury merger and our financial performance in the third quarter.

Following their remarks, we will take your questions. So Scott I'll turn it over to you. Thank you John and good morning, everyone. Before we get started with some additional color on quarterly results I would like to ask a net to summarize some of the specific outcomes related to the Salisbury acquisition our net.

John Watt: As stated, our indirect auto business had a strong quarter with originations of over $148 million. Our residential mortgage business experienced a seasonal lift despite the interest rate environment. Credit quality at NBT is strong and each of the core credit portfolios continue to perform at levels better than those we experienced prior to the pandemic. Like the rest of our industry, our cost of funds has risen as customers seek out higher yielding deposit products.

Thank you Scott and good morning, as John mentioned, we closed the merger on August 11, and successfully converted all Salisbury customer accounts to the MBT core operating systems simultaneously with the closing.

We acquired approximately $1 2 billion of loans $1 $3 billion of deposits and issued four $4 3 million additional shares as consideration with a value of $162 million as of the closing date. Thus far we have achieved the greater part of our estimated 30% in cost synergy.

John Watt: With that said, total deposits grew during the third quarter, including the seasonal municipal inflow we experience. Our full cycle deposit beta is at 24 percent, including acquired deposits. We continue to enjoy high account retention levels. Our funding sources are robust and we have the headroom we need to execute on our organic growth plans. Our fee-based businesses continued their solid performance in Q3. Our epic retirement services administration business experienced organic account growth and was additionally supported by the acquisition of retirement direct in early July. Total non-interest income was 30 percent of total revenue in the third quarter.

<unk> with the remaining expected to be realized by the end of 2023.

As outlined on page four of our earnings presentation, we recorded fair value marks on loans of $78 $7 million net of a $5 8 million reclassification to loan loss reserves for PCB loan.

In the third quarter, we recognized $1 $6 million of accretion income based on current prepayment fees. This fair value Mark will be accreted over the estimated remaining life of the loans, which we've assumed at just over seven years. We also recorded a fair value discount of $3 million on Salisbury 25 million.

A subordinated debt obligations, which will amortize over the next three and a half years.

We also recorded a $31 $2 million core deposit intangible related to Salisbury core funding base, we are expecting to amortize that intangible over the next 10 years on an accelerated basis. Lastly, we added $4 7 million dollar wealth management customer lists and Tanja.

John Watt: In August, we announced that Michael Riley joined the NBT team in Portland as our main regional president. In addition, he will oversee the execution of our strategy across our markets in northern New England. Mike's focus on the diversification of our approach in those markets is the next phase of our long-term organic expansion plans.

Paul which would amortize over the next 12 years again on accelerated basis together the amortization of these two Salisbury related intangibles added $1 million of expense in the third quarter.

John Watt: During the quarter, activity associated with the upstate New York chip corridor was notable. In Central New York, micron filed its application with the Commerce Department for multi-million dollar grants and other support under the chip set. The International Semiconductor Company Advanced Micro Devices announced that it opened research and development facilities in Fishkill and Rochester. The Albany Nanotech complex was designated by the federal government as a center for workforce training and received significant federal funding commitments.

The net of these four items added approximately $400000 to our third quarter pretax income is roughly a half a quarter's impact in.

In addition, we recorded $1 $8 million and amortizing intangibles related to the retirement direct acquisition during the quarter Scott.

Thank you Annette.

Turning to page five of our earnings presentation, our third quarter reported earnings per share were <unk> 54, while third quarter operating earnings per share were <unk> 84.

Compared to <unk> 80 per share in the linked second quarter at <unk> 91 in the third quarter of last year.

John Watt: At the end of the quarter, the U.S. Department of Defense awarded a new 10-year contract to global foundries in the capital district to produce semiconductors for defense and aerospace applications. Total spend under this contract will be over $3 billion. As we have discussed in prior calls, the economic activity generated along the chip corridor will drive long-term transformational economic growth across our core markets. That growth will promote long-term success at NBT as our platform is uniquely positioned along the corridor.

Tangible book value per share of $20 39 at September 30 was down $1 16 per share from the end of the second quarter influenced by the Salisbury acquisition as well as an additional 37 per share of unfavorable OCI impacts.

Our quarter end tangible equity ratio of 715% was very close to our projected capital levels at the announcement of the merger last December despite the higher level of OCI related dilution.

The next page shows trends in outstanding loans, new origination yields have continued to move productively higher our now larger loan total loan portfolio of $9 $67 billion remains very well diversified and is roughly 52% commercial and 48% consumer outstandings.

John Watt: As we head into the final months of the year, NBT continues to be on offense enhanced by the successful integration of solid variant to our model. The continued focus on growth in New England and the organic growth occurring along the chip corridor. We are well positioned with strong liquidity and capital levels, a diversified business mix, highly effective risk management practices, and an experienced team of professionals.

Total deposits of 11 $4 billion were up $1 9 billion in 2023, which included $1 3 billion of deposits acquired from Salisbury. The company continues to experience Remixing from its no interest and low interest checking and savings accounts into higher yielding money market in <unk>.

John Watt: I will turn the call over to Scott and Annette now to talk in greater detail about the outcomes associated with the Salisbury merger and our financial performance in the third quarter. Following their remarks, we will take your questions. So Scott, I'll turn it over to you. Thank you, John, and good morning, everyone.

Time deposit instruments, our quarterly cost of total deposits increased to 118 basis points compared to 85 basis points in the linked second quarter and total cost of funds increased 28 basis points from the prior quarter and included the impact of the acquired Salisbury deposits, which did carry G.

Annette Burns: Before we get started with some additional color on quarterly results, I would like to ask Annette to summarize some of the specific outcomes related to the Salisbury acquisition. Annette? Thank you, Scott, and good morning. As John mentioned, we closed the merger on August 11th and successfully converted all Salisbury customer accounts to the NBT core operating systems simultaneously with the closing. We acquired approximately $1.2 billion of loans, $1.3 billion of deposits, and issued 4.3 million additional shares as consideration with a value of $162 million as of the closing date.

Generally higher interest rates and the legacy <unk> portfolios.

In addition, our total cost of deposits for the month of September was 131 basis points, which is 13 basis points above the reported quarterly level.

We have also again included a summary of our deposit mix by type, which illustrates the diversification and deep granularity of our customer base.

Page eight looks at the detailed changes in our net interest income and margin third quarter net interest income was $6 million above the linked second quarter results, primarily from the Salisbury acquisition as well as one additional calendar day in the third quarter.

Annette Burns: Thus far, we have achieved the greater part of our estimated 30% in cost energies with the remaining expected to be realized by the end of 2023. As outlined on page four of our earnings presentation, we recorded fair value marks on loans of $78.7 million, net of a $5.8 million reclassification to loan loss reserves for PCD loans. In the third quarter, we recognized $1.6 million of accretion income. Based on current prepayment speeds, this fair value mark will be accreted over the estimated remaining life of the loans, which we've assumed at just over seven years.

We believe our granular deposit funding profile remains a core strength. However, we do continue to expect funding pressures to persist persist for the next couple of quarters.

The trends in noninterest income are summarized on the next page excluding securities losses, our fee income was up $3 $7 million from the linked second quarter to $44 million and up eight 3% from the third quarter of 2022.

Consistent with historical results the third quarter of the year continues to be our robot our most robust quarter of revenue generation for our fee based businesses as such we'd expect some seasonal declines in the fourth quarter.

Annette Burns: We also recorded a fair value discount of $3 million on Salisbury's $25 million of subordinated debt obligations, which will amortize over the next three and a half years. We also recorded a $31.2 million core deposit intangible related to Salisbury's core funding base. We are expecting to amortize that intangible over the next 10 years on an accelerated basis. Lastly, we added $4.7 million wealth management customer list intangible, which would amortize over the next 12 years, again, on accelerated basis.

Third quarter revenues in our wealth management business included approximately $650000 from Salisbury, and our retirement plan administration business added $700000 of revenues from the retirement direct acquisition completed on July one.

The diversification of our revenue generation sources continues to be a core strength of the company.

Turning to noninterest expense, our total operating expenses were $82 $9 million for the quarter, which was six 8% above the linked second quarter, excluding merger related expenses.

Annette Burns: Together, the amortization of these two Salisbury related intangibles added $1 million of expense in the third quarter. The net of these four items added approximately $400,000 to our third quarter pre-tax income and is roughly a half a quarter's impact. In addition, we recorded $1.8 million in amortizing intangibles related to the retirement direct acquisition during the quarter. Scott. Thank you, Annette.

Quarter over quarter increases in salaries and employee benefits technology services occupancy advertising and FDIC assessment costs also related to the half quarter impact from Salisbury.

On the next slide we provide an overview of key asset quality metrics a walk forward of our loan loss reserve changes is also available in the appendix to the presentation net charge offs were 18 basis points of loans in the third quarter of 2023 compared to 17 basis points in the prior quarter the increase in quarter end loss reserves.

Scott Kingsley: Turning to page five of our earnings presentation, our third quarter reported earnings per share were 54 cents while third quarter operating earnings per share were 84 cents compared to 80 cents per share in the link second quarter in 91 cents in third quarter of last year. Tangible book value per share of $20.39 that September 30 was down $1.16 per share from the end of the second quarter, influenced by the Salisbury acquisition as well as an additional $0.37 per share of unfavorable AOCI impact.

Reflected in the allowance for acquired Salisbury loans, which included an $8 $8 million day, one provision expense and the $5 $8 million of PCB allowance.

We continue to believe that the path of charge off activity will return to more historical norms and along with expected balance sheet growth will likely be the drivers of future provisioning needs.

Scott Kingsley: Our quarter end tangible equity ratio of 7.15% was very close to our projected capital level at the announcement of the merger last December, despite the higher level of AOCI-related delusion. The next page shows trends in outstanding loans. New origination yields have continued to move productively higher. Our now larger total loan portfolio of $9.67 billion remains very well diversified and is roughly 52% commercial and 48% consumer outstanding. Total deposits of $11.4 billion were up $1.9 billion in 2023, which included $1.3 billion of deposits acquired from Salisbury.

As I wrap up prepared remarks, some closing thoughts the additional market volatility and uncertainty that arose in early March accelerated our funding cost pressures, which has resulted in lower net interest margins, however, well balanced organic loan growth constructive results from our recurring fee income lines stable credit quality.

<unk> outcomes and diligent operating expense management have allowed us to generate solid quarterly results.

Lastly, our post acquisition capital levels continue to put us in an enviable enviable position as we consider future growth opportunities.

With that we're happy to answer any questions. You may have at this time Michele.

Thank you anyone with a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Scott Kingsley: The company continues to experience remixing from its no interest and low interest checking and savings accounts into higher yielding money market and time deposit instruments. Our quarterly cost of total deposits increased to 118 basis points compared to 85 basis points in the link second quarter and total cost of funds increased 28 basis points from the prior quarter and included the impact of the acquired Salisbury deposits which did carry generally higher interest rates than the legacy NBT portfolios.

And our first question is going to come from the line of Alex <unk> with Piper Sandler. Your line is open. Please go ahead.

Good morning, Alex.

Thanks.

Yes first off wanted to start John you talked about the next phase of your organic expansion I know that you know the main market very well I believe you ran that for a little bit before taking the apparent role that you have now I'm. Just wondering if you can elaborate a little bit on sort of what you mean by that if that is going to require some further investment into next year.

Scott Kingsley: In addition, our total cost of deposits for the month of September was 131 basis points, which is 13 basis points above the reported quarterly level. We have also again included a summary of our deposit mixed by type which illustrates the diversification and deep granularity of our customer base. Page 8 looks at the detailed changes in our net interest income in margin. Third quarter net interest income was $6 million above the link second quarter results, primarily from the Salisbury acquisition as well as one additional calendar day in the third quarter.

Or if it's going to be sort of what you've been doing just maybe with a couple of additional people.

Thanks for that question and yes, I did spend time in Portland as you know.

I think the investment here is in people.

And the supporting systems, we need to deliver.

High quality products and services as you know we got.

Scott Kingsley: We believe our granular deposit funding profile remains a core strength. However, we do continue to expect funding pressures to persist for the next couple of quarters. The trends in non-interest income are summarized on the next page. Excluding security losses, our fee income was up $3.7 million from the link second quarter to $40.4 million and up 8.3% from the third quarter of 2022. Consistent with historical results, the third quarter of the year continues to be our most robust quarter of revenue generation for our fee-based businesses.

Got off to a really strong start and main focus primarily on CRE.

It's time now and it always has been our plan to diversify that approach in the market.

And we think Michael Riley and the team there.

Thinking about <unk>.

Spanning our small business offering our C&I offerings.

Putting the Treasury management platform, we have front and center.

On the deposit side.

Are all sort of basic blocking and tackling things that we are now ready to do in Maine, and New Hampshire.

Done that in Burlington in Northern Vermont, and I think we've demonstrated its possible and it.

Scott Kingsley: As such, we'd expect some seasonal declines in the fourth quarter. Third quarter revenues in our wealth management business included approximately $650,000 from Salisbury and our retirement plan administration business added $700,000 of revenues from the retirement direct acquisition completed on July 1st. The diversification of our revenue generation sources continues to be a core strength of the company. Turning to non-interest expense, our total operating expenses were $82.9 million for the quarter, which was 6.8% above the link second quarter, excluding merger-related expenses.

<unk> and that's where we're headed I don't see us investing in brick and mortar in the short run.

So it'll be people and systems.

Great. Thanks for that additional color.

And then.

Scott I'm just wondering if you can walk through sort of the funding strategies you have it I think you said cash flows from the securities gets you to roughly around 2% of your loan growth.

We can get you the first 2% loan growth based on the cash flows from securities that you disclosed in the presentation.

Scott Kingsley: Quarter-over-quarter increases in salaries and employee benefits, technology services, occupancy, advertising, and FDIC assessment costs also related to the half-quarter impact from Salisbury. On the next slide we provide an overview of key asset quality metrics. A walk forward of our loan loss reserve changes is also available in the appendix to the presentation. Net char jobs were 18 basis points of loans in the third quarter of 2023 compared to 17 basis points in the prior quarter.

Assuming that you do a little bit better than that which is kind of how you've been running how do you weigh the different options for funding that would you consider additional securities restructurings things like that.

Thanks, Alex and obviously, an important question for us going forward.

Youre right in your expectations relative to the investment portfolio I think we're expecting another $45 million in cash flows in the fourth quarter.

Somewhere between $180 million to $200 million going into next year. If you remember our investment portfolio is generally amortizing mortgage backed securities which of course have slowed down as prepayment speeds have virtually zero.

Scott Kingsley: The increase in quarter and loss reserves reflected in allowance for acquired sales very loans which included an 8.8 million dollar day one provision expense and the 5.8 million dollars of PCB allowance. We continue to believe that the path of charge off activity will return to more historical norms and along with expected balance sheet growth will likely be the drivers of future provisioning needs.

So our expectation of cash flows have been pulled down a little bit relative to that.

But still productive given that's the outcome of our investment portfolio Alex.

The ability to launch a.

Unknown Executive: As I wrap up prepared remarks some closing thoughts. The additional market volatility and uncertainty that arose in early March accelerated our funding cost pressures which has resulted in lower net interest margins. However well balanced organic loan growth constructive results from our recurring fee income lines stable credit quality outcomes and diligent operating expense management have allowed us to generate solid quarterly results. Lastly our post acquisition capital levels continue to put us in an enviable position as we consider future growth opportunities.

Some kind of a restructuring of our securities portfolio would require us to estimate interest rates beyond the one or one and a half year horizon and we're just not so sure that that's the appropriate thing to do today.

In the market.

Back to your point.

How do you fund mid single digit loan growth I think it's the organic strategies that we've proven we're pretty good at over time.

Do we expect some continued remixing into Cds and money market accounts from savings and checking noninterest checking or low interest checking for sure.

A piece of our customer portfolio started to get some repricing of their deposit instruments about a year ago, the fourth quarter of last year or even maybe into the early first quarter.

Unknown Executive: With that we're happy to answer any questions you may have at this time. Michelle. Thank you. Anyone with a question at this time can please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1-1 again. Please stand by. We'll be compiled the Q&A roster.

And remember that was at a time when the federal reserve was moving rates 50 to 75 basis points in buckets at each meeting. So I think it was a little more top of mind.

Have we seen some sort of leveling out of that here in the third quarter, a little bit does that mean, there is some customers that still think they deserve a better yield on their depository or their excess liquidity for sure. Those people are still out there.

John Watt: On our first question is going to come from the line of Alex Rodol with Piper Sandler. Your line is open please go ahead. Good morning. Thanks. Hey yeah first off I wanted to start John you talk about the next phase of your organic expansion you know I know that you know the main market very well I believe you ran that for a little bit before taking the current role that you have now.

I think the other thing I think we pointed this out a quarter ago or maybe two quarters ago. The generally the Salisbury cost of funds were higher than ours on a blended basis and so youre seeing those numbers in the third quarter and wherever you only got half of that in the third quarter. So youll see a little bit more of that in the fourth quarter.

John Watt: I'm just you know wondering if you can elaborate a little bit on sort of what you mean by that if that is going to require some further investment into next year or if it's going to be sort of what you've been doing just maybe with a couple of additional people. Thanks for that question and yes I did spend time in Portland as you know I think the investment here is in people and the supporting systems we need to deliver high quality products and services.

But generally Alex I think if if you're targeting now.

To come up with funding sources for a 300 or $350 million organic growth rate.

I think we're in good shape relative to figuring that out.

Okay. So first line of defense is cash flows from Securities second line of defense is the organic growth.

John Watt: As you know we got off to a really strong start and main focus primarily on CRE. It's time now and it always has been our plan to diversify that approach in the market and we think Michael Riley and the team there uh thinking about expanding our small business offering our C&I offerings putting the Treasury management platform we have front and center on the deposit side are all sort of basic block and tackling things that we are now ready to do in Maine and New Hampshire. We've done that in Burlington and Northern Vermont and I think we've demonstrated as possible and achievable and and and that's where we're headed.

We all hope for and then third tap some funding out here some borrowing options should they come arise, but the sale of securities is currently not one of the considerations.

It is not so youre spot on with that and I also think that in terms of what is the Salisbury transaction allow us allow us to expand our geography relative to thinking about other spots within our geography that we have never been represented.

Upper and lower Hudson Valley as an example, we've really never had significant exposure. There are there some additional spots between where the Salisbury franchise was in the Hudson Valley, and where we've been sort of in the southern Catskills and the capital district of Albany, Theres, probably some places in their rationally, we should link up.

Same thing in northwest, Connecticut, we have immediate plans for that no are we spending a lot of time trying to identify productive markets for that kind of expansion for sure.

John Watt: I don't see us investing in breaking mortar in the short run uh so it'll be people and system Great. Thanks for that additional color.

Got it.

And then just final question for me when I look at the quarterly loan yields on slide six and the new origination yields.

Scott Kingsley: And then, Scott, I'm just wondering if you can walk through sort of the funding strategies you have. I think you said cash flows from the securities gets you to roughly around 2% of your loan growth, or I guess would get you the first 2% of loan growth based on the cash flows from securities that you disclose in the presentation. You know, assuming that you do a little bit better than that, which is kind of how you've been running, you know, how do you weigh the different options for funding that?

Some of them seems still just a little bit light just given rates and what we're hearing from other people is that is that kind of indicative of where the pipeline is as well the new origination or is the pipeline a bit higher than than the new origination yields.

A couple of things there Alex I would say the pipeline is a little bit higher remembering that the third quarter. Also includes the months that were July August and September and here. We stand at the end of October So the pipeline is probably a little bit higher than that.

Scott Kingsley: Would you consider additional securities restructuring things like that? Thanks, Alex. You know, and obviously an important question for us going forward. You're right in your expectations relative to the investment portfolio. I think we're expecting the other 45 million cash flows in the fourth quarter, you know, somewhere between 180 to 200 million going into next year. You know, remember, our investment portfolio is generally amortizing mortgage-backed securities, which of course have slowed down as pre-payment speeds have virtually reached zero.

I think in terms of how those things are blending.

Residential loan production is obviously not at an all time high.

It's at a fairly fairly modest point and so the mix of residential loans that may be ending up in a lower duration portfolio of 15 years.

Or in a an adjustable rates or a product that has an adjustable rate attached to it that.

And that really explains why that number probably looks a little bit lower.

Scott Kingsley: So, you know, our expectation of cash flows have been pulled down a little bit relative to that, but still productive. Given that's the outcome of our investment portfolio, Alex, you know, the ability to, you know, launch a, and that, you know, some kind of a restructuring of our securities portfolio would require us to estimate interest rates beyond the one or one and a half year horizon, and we're just not so sure that that's the appropriate thing to do today, you know, in the market.

Your point is well taken.

Today, given where incremental funding costs are.

Do new new yield expectations need to be north of 750, or $7 75, or even eight they should be do you get to that path with every single one of your offerings not immediately but I think over time you make progress.

Perfect. Thanks for taking my questions.

Thank you Alex appreciate it.

Thank you and one moment.

Scott Kingsley: So, back to your point of, you know, details, how do you fund mid-single-digit loan growth? You know, I think it's the organic strategies that we've proven we're pretty good at over time. Do we expect some continued remixing into CDs and money market accounts from savings and checking, non-interest checking, or low-interest for sure? You know, a piece of our customer portfolio started to get some repricing of their deposit instruments about a year ago, you know, the fourth quarter of last year, or even maybe into the early first quarter.

Our next question.

Okay.

And our next question is going to come from the line of Steve Moss with Raymond James Your line is open. Please go ahead.

Good morning.

Good morning, Scott.

John Scott, maybe just following up on him.

The funding costs.

The margin mix here.

I see you guys in a pretty meaningful cash position at quarter end and obviously Salisbury.

Scott Kingsley: And remember, that was at a time when the Federal Reserve was moving rates in 50 to 75 basis-point buckets, you know, at each meeting. So, I think it was a little more top of mind. You know, have we seen some sort of leveling out of that, you know, here in the third quarter? A little bit. Does that mean there's some customers that still think they deserve a better yield on their depository or their access liquidity?

It makes it a little more difficult just curious as to how youre thinking about NII.

And in overall margin for the fourth quarter here now that everything is combined with funding.

Funding costs or 13 basis points higher for September.

Yes, Thanks, Steve.

So to your point.

Get the full impact in the fourth quarter of that.

Scott Kingsley: For sure, those people are still out there. I think the other thing, you know, I think we pointed this out a quarter ago, or maybe two quarters ago, you know, the generally the sales very cost of funds were higher than ours on a blended basis. And so, you're seeing those numbers in the third quarter. And remember, you only got half of that in the third quarter. So, you'll see a little bit more of that in the fourth quarter.

The hope is to tell people that the September cost of funds, where the high point of the quarter, which I think we've unfortunately gotten to say every quarter and this year.

The last month of the quarter was more expensive in the first month of the quarter. So expect that to continue and now thats more of a remix dynamic than it is.

Scott Kingsley: But generally, Alex, I think if you're targeting now, you know, how to come up with funding sources for, you know, a $300 or $350 million organic growth rate, I think we're in good shape relative to figuring that out. Okay, so, first line of defense is cash flows from security, second line of defense is the organic growth that, you know, we all hold for. And then third, you know, taps and funding out, or some borrowing options should they come arise.

Then theres any other product related change.

For us on a going forward basis, so I would kind of frame. It. This way that we kind of think of the fourth or third quarter's outcome is of $3 21.

Reported margin probably 316 core.

Meaning that five basis points of.

Mark accretion was also included in that.

That number stepped down a little bit into the fourth quarter I think so Steve on a core basis and we will continue to tell you how much that is moving forward in terms of what's influencing the GAAP reported number.

Scott Kingsley: But sale of security is currently not one of the considered. It is not your spot on with that. And I also think that in terms of what if the Salisbury transaction allows to expand our geography relative to thinking about other spots within our geography that we have never been represented in. We've been sort of in the southern cat skills and the capital district of Albany. There's probably some places in there, but rationally we should link up. Same thing in Northwest Connecticut. If we have immediate plans for that, no, are we spending a lot of time trying to identify productive markets for that kind of expansion for sure?

Scott Kingsley: Got it.

Your point on the balance sheet well observed we were in a fed fund sold position and still borrowing money at the end of the quarter.

We were very cautious before the closing of the Salisbury transaction that we did not want to put ourselves in any short term liquidity constrained position. So we kept some instruments on the balance sheet, including on the on the borrowing side into the fourth quarter I think the lion's share of that fed funds sold position will move itself off our.

Balance sheet in the fourth quarter and into the first quarter of next year.

And it's interesting that May result, in a little bit of compression net interest margin, but it actually creates a really modest piece of net interest income.

And again remember we spend net interest income and talk about net interest margin.

Scott Kingsley: And then just final question for me, when I look at the quarterly loan yields on slide six and the new origination yields. Some of them seem still just a little bit light, just given rates and what we're hearing from other people. Is that kind of indicative of where the pipeline is as well, the new origination or is the pipeline a bit higher than the new origination yields on slide six? Yeah, a couple of things there.

Right.

Okay.

That's helpful and just kind of as you're thinking about that.

The deposit environment here, you guys are still running at it.

Well low cost of interest on our spring deposits. So.

Scott Kingsley: I would say the pipeline is a little bit higher, remembering that the third quarter also includes months that were July, August and September. And here we stand at the end of October. So the pipeline is probably a little bit higher than that. I think in terms of how those things are blending residential loan production is obviously not at an all time high. It's at a fairly, fairly modest point. And so the mix of residential loans that may be ending up in a lower duration portfolio, 15 years or in an adjustable rates or a product that has an adjustable rate attached to it.

Kind of how are you thinking about through the cycle deposit beta if we are in are higher for longer environment.

Yeah.

Kind of what's your sense of the competitive environment. These days.

Yeah, so it stays competitive Steve and I think that the.

Some of the issues that the industry had to engage in following the bank failures in the first quarter is still top of mind, if you're if you're a banker.

That has not gone away.

And I think we've said before our regulatory reporting of net liquidity a net liquidity sources has continued to be a monthly apparatus.

Scott Kingsley: That really explains why that number probably looks a little bit lower. Your point is well taken. Today, given where incremental funding costs are, do new yield expectations need to be north of 750 or 775 or even 8? They should be. Do you get to that path with every single one of your offerings? Not immediately. But I think over time you make progress at that. Perfect.

That daily anymore, but monthly.

So I think that stands out there I think in terms of.

We share markets with larger banks and with smaller banks the smaller banks have a finite group of customers and communities that they can go to from a funding standpoint, so they'll tend to be a little bit more liberal or a little bit more assertive relative to retention and if rate is necessary to retain that's what we see the larger banks where <unk>.

Unknown Executive: Thanks for taking my questions. Thank you, Alex. Appreciate it. Thank you.

Unknown Executive: And one moment of zoom move next to our next question.

<unk> with across most of our footprint have kind of found a regional into a national strategy for their depository products and we line up very well against that we don't need to be overly assertive <unk>.

Steve Moss: Our next question is going to come from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

Scott Kingsley: Good morning. [inaudible] Right. Okay. That's helpful. And just kind of as you're thinking about the deposit environment here, you know, you guys are still running at a well, you know, a low cost of interest funds on spring deposits. So, you know, kind of how are you thinking about through the cycle deposit beta, you know, if we are in a higher for longer environment, you know, kind of what's your sense of the competitive environment these days?

To retain our customers.

We've made this comment before Steve we have a very very granular mix of customers from a depository standpoint.

So that ability to look at that granularity, where we have a large customer base that does not have today or does not enjoy huge amounts of excess liquidity that being said, our institutional commercial and larger small business customers do have excess liquidity and they are expecting a market yield. So I don't think that dynamic changes for the next.

A couple of quarters.

Okay.

Then in terms of just following up on loan yields here.

Quite the move over the past three to four months.

Just curious.

Are you starting to see.

An increasing number of deals that no longer makes sense could.

Could we see maybe a slowdown in loan growth from mid single digits.

If loans are headed towards the 8% plus type rate.

Alright, let me take that one.

We're right in the middle of the budget process right.

Top of mind every day is what's growth going to look like next year.

Right now, it's our view that.

Mid single digits, maybe slightly moderating down from that mid single digits.

Our jump off planning.

But looking at pipelines going into the end of the year the commercial banking pipeline is pretty strong.

The business banking pipeline very strong.

So.

Will there be moderating demand further into next year, we'll.

We will see but I don't think its unreasonable for us to be planning mid single digits.

Okay.

And then one last one from me just in terms of the fixed rate loans dynamic here that are repricing over the next 12 months just curious if you have those.

Expected.

Repricing, Scott, Yes, Steve So when we look at our.

Our loan portfolio today, we think of about $1 $7 billion of cash flow instruments coming off that and Thats, probably a lower number than we said a quarter or two or three ago, just given the slowdown in prepayment speeds and that slowdown in prepayment speeds as noticeable in residential mortgage products in solar loans.

Couple of other portfolios, but over time.

I still think that.

People buy a new car.

Over time people will move again.

But I think we used $1 $7 million of expected cash flows for the next 12 months.

Okay, great. Thank you very much Chris.

Appreciate it thanks for the questions.

Thanks, Steve.

Thank you and again if you have a question at this time. Please press star one on your telephone and wait for your name to be announced one moment for our next question.

Scott Kingsley: Yeah, so it's a competitive, Steve, you know, and I think that the, you know, some of the issues that the industry had to engage in, you know, following the bank failures in the first quarter, it's still top of mind if you're a banker that, you know, that has not gone away. And I think we've said before, you know, our regulatory reporting of net liquidity and net liquidity sources has continued to be a monthly apparatus.

Our next question is going to come from the line of Chris O'connell with <unk>. Your line is open. Please go ahead.

Hey, good morning.

Hey, good morning, Chris.

I was just hoping to just circle back to just the near term NIM discussion.

So I guess on a core base well first off just for the next full quarter given that close this quarter like what do you think that quarterly accretion number will shake out at roughly.

Scott Kingsley: Not daily anymore, but monthly. So, you know, I think that that stands out there. I think in terms of, you know, we share markets with larger banks and with smaller banks. The smaller banks have a finite group of customers and communities that they can go to from a funding standpoint. So they'll tend to be a little bit more liberal or a little bit more assertive relative to retention. And if rate is necessary to retain, that's what we see.

So I think this quarters.

One 6 million, it's a proxy.

You double that and that's what that will look like for the next few quarters, depending on prepayment speeds, but I think thats a good proxy.

Okay great.

Scott Kingsley: The larger banks we're competing with across most of our footprints, you know, have kind of found a regional and or a national strategy for their depository products. And we line up very well against that. You know, we don't need to be overtly assertive, you know, to retain our customers. We've made this comment before, Steve, you know, we have a very, very granular mix of customers from a depository standpoint. So that ability to look at that granularity where we have a large customer base that does not have today or does not enjoy huge amounts of excess liquidity. That being said, our institutional, commercial and larger, small business customers do have excess liquidity and they are expecting a market yield. So I don't think that dynamic changes for the next couple of quarters.

And just thinking about the core NIM.

Where do you guys have where that was for on a spot basis for September.

Do not have that in front of me, Chris but I.

I would probably tell you if that if the quarter's core was $3 16, I would guess somewhere between 310 and $3 12 for September month of.

Got it.

Okay, great and as we get past next quarter.

Hit the trajectory into next year.

I mean.

Is the pace of funding pressure going to depend.

More on the core customers that you have or how the mix shift tends to play out.

From this point and if you have what the organic noninterest bearing deposit.

Scott Kingsley: Okay. And then in terms of just, you know, following up on loan yields here, you know, quite the move over the past three to four months. You know, just curious, are you starting to see, you know, an increasing overview that no longer makes sense. And, you know, could we see maybe a slowdown and long growth from the mid single digits, you know, if loans are head towards an 8% plus type rate.

Growth or decline was for this quarter that'd be great yes.

Yes, so Chris that was probably where I would say, yes, the impact of our core customers is more of the determining outcome.

If you are today, and just officer, probably most banks, if youre truly recruiting large pools of incremental cash onto your balance sheet, you're expecting to pay a 5% yield for that it doesn't matter, whether it's a wholesale source or whether it's a large institutional source, that's the customer expectation on that but if youre down into the granular ads and.

Scott Kingsley: Let me take that one. You know, we're right in the middle of the budget process, right? And top of mind every day is, you know, what's growth going to look like next year. Right now it's our view that mid single digits, maybe slightly moderating down from that, but mid single digits is our jump off planning spot. Looking at pipelines going into the end of the year, you know, the commercial banking pipeline is pretty strong, the business banking pipeline, pretty strong. So, you know, will they be moderating demand further into next year? You know, we'll see, but I don't think it's unreasonable for us to be planning mid single digits.

Our ability to add incremental checking accounts really important attribute for us and it's something that we've historically been very good at.

But just in terms of circling the wagons on deposit balances.

Tend to be very effective accounts from us both on a.

Cost of funds as well as an activity participation.

So we're still focused on that.

In terms of how we think about that going into next year.

A portion of our core customers got some repricing on some of their deposits in the fourth quarter of last year and the first quarter of this year and they probably went into instruments that were not long in duration six to 10 to 13 months type CD durations.

Scott Kingsley: And the one last one for me, just in terms of the fixed rate loans dynamic here that are repricing over the next 12 months, just curious if you have those expected repricing Scott. Steve, so when we look at our loan portfolio today, we think of about $1.7 billion of cash flow instruments coming off that. And that's probably a lower number than we set a quarter or two or three ago, just given the slowdown of prepayment speeds.

So those people are going to be back in front of us for repricing and the question is what is their demand today, we assume it's a little higher than what we put them in at the end of last year, but I wouldn't think it's so much higher that thats going to be something that we couldnt offset with earning asset yields continuing to productively move forward now.

At the point, where we're declaring victory on that for the fourth quarter or even maybe the first quarter of next year, but expectation wise you can see that coming.

Scott Kingsley: And that slowdown of prepayment speeds is noticeable in residential mortgage products in solar loans in a couple other portfolios. But over time, I still think that people buy a new car and over time people will move again. But I think we use $1.7 million of expected cash flows for the next 12 months.

Great.

Okay, Great and then.

Do you guys have the dollar amount of the remaining cost saves are on.

I'll deal.

Chris probably not specifically to a dollar number remember we now have history with Salisbury as of September 30th of 49 days and we now have 25 more behind us here in the fourth quarter.

Steve Moss: Okay, great. Thank you very much. Appreciate it Steve. Thanks with questions. Thank you.

Unknown Executive: And again, if you have a question at this time, please press star 11 on your telephone and wait for your name to be announced one moment for our next question.

I think once we get through a full fourth quarter, we'll have a real sense of that in terms of dollar outcome.

And that helped me 30% of the base at Salisbury was $9 five or $10 million, that's correct right around $10 million.

Chris O'connell: Our next question is going to come from the line of Chris O'Connell with KBW. Your line is open. Please go ahead. Hey, good morning. Hey, good morning Chris. I was just hoping to circle back to just a near term name discussion. I guess on a core bay. Well, first off, just for the next, you know, full quarter given, you know, where the close was this quarter. Like, what do you think that just quarterly accretion number will shake out out roughly? So I think this quarter's 1.6 million is a proxy. You know, you double that and that's what that'll look like for the next few quarters, depending on prepayment speeds, but I think that's a good proxy.

Scott Kingsley: Okay, great. And just thinking about the core name, where do you guys have where that was for on a spot basis for September? Don't not have that in front of me, Chris, but I would probably tell you that if the quarters core was 316, I would guess somewhere between 310 and 312 for September, month of.

Thanks.

Okay great.

And then you did you do have.

The share repurchase plan outstanding it sounds like.

Growth.

Is solid but not.

Not overly concerning in terms of capital usage capital should be building at a fairly good pace going forward given the profitability you have.

Is it something that you will be exploring using on a go forward basis.

For sure Chris.

I think as we start to talk about that.

We like our positioning today, because it allows us to back to your point of understanding where our natural.

Credit and I'm, sorry, natural capital accumulation.

The positioning we have ourselves then we certainly ought to leave ourselves room to grow organically because we've been good at that over time.

As we pointed out in the Salisbury transaction, having a little bit of excess capital to be able to use for a really high value acquisition is a great opportunity for us. Similarly, we've raised our dividend now 11 straight years, we think the shareholders deserve more on a predictable annual basis and to your point, having an open.

Scott Kingsley: Okay, great. And as we get past next quarter and, you know, hit the trajectory in the next year. I mean, is the pace of funding pressure going to depend, you know, more on the core customers that you have or of, you know, how the mixed shifts tends to play out. You know, from this point, and if you have with the organic non interest bearing deposit growth or decline was for this quarter, that'd be great.

Authorization.

For share repurchases as an important feature I think its more important when you think your organic loan growth opportunities are probably a little bit slower and there make that may come into play in 2024, we may find that there are periods of 24, where demand is not as robust as we're enjoying today I think those are the periods where a buyer.

<unk> is actually productive.

Scott Kingsley: Yeah, so Chris, you know, that that was probably where I would say yes, you know, the impact of our core customers is more the determining outcome. If you're today, and just off to probably most things, if you're truly recruiting large pools of incremental cash onto your balance sheet, you're expecting to pay a 5% yield for that. Doesn't matter whether it's a wholesale source or whether it's a large institutional source, that's the customer expectation on that.

Ed.

We've always had the authorization out there to make sure that we could address share creep from some of our equity programs.

And.

What is the hurdle you got to get over with that today. It carries a 5% funding cost to do that.

To buy your own shares Youre being transparent you got to assume that youre going to use 5% money to do that the government sort of nicks us for a 1% toll tax when we buy that stuff, but again manageable and part of the long term capital allocation strategy of the company for sure.

Scott Kingsley: But if you're down into the granular ads and, you know, our ability to add incremental checking accounts, you know, really important attribute for us. And it's something we've historically been very good at. But it's just in terms of, you know, circling the wagons on deposit balances. You know, those tend to be very effective accounts for months, both on a, you know, cost of funds as well as an activity participation. So we're still focused on that in terms of, you know, how we think about that going into next year.

And if I can put a fine point on that too we review that at the board level every year just coincidentally this week Scott led the board through that same discussion.

We reaffirm thats the priority of allocation of capital as we go forward.

So.

We're at a place this week where.

There is consensus at the top of the house and at the board, but so we're going to proceed.

Scott Kingsley: Again, a portion of our core customers got some repricing on some of their deposits in the fourth quarter of last year and the first quarter of this year. And they probably went into instruments that were not long in duration, you know, 6 to 10 to 13 month type CD durations. So those people are going to be back in front of us for repricing and the question is, what is their demand today?

Sure.

Great. Thanks, John Scott I appreciate it.

Thanks, Chris appreciate the questions.

Thank you.

A reminder, if you would like to ask a question at this time. Please press star one on your Touchtone telephone.

One moment for our next question.

Our next question is going to come from the line of Matthew Breese with Stephens Inc. Your line is open. Please go ahead.

Scott Kingsley: We assume it's a little higher than what we put them in at the end of last year. But I wouldn't think it's so much higher that that's going to be something that we couldn't offset with earning asset yields continuing to productively move forward. Not at the point where we're declaring victory on that for the fourth quarter or even maybe the first quarter of next year.

Hey, good morning, everybody.

Good morning, Matt.

Just a couple of model related questions.

First on fee income Scott you had mentioned that seasonally this was the strongest quarter of the year.

With Salisbury, only being a partial quarter could you could you help us out in terms of when you expect to roll off but then also for the full quarter impact itself, where do you what are you expecting things to shake out in the fourth quarter.

Scott Kingsley: But expectation wise, you can see that coming, on me. Great.

Chris O'connell: Okay, great. And then, do you guys have the dollar amount of what the remaining cost-saves are on the SAL deal? You know, Chris, probably not specifically to a dollar number. Remember, we now have history with Salisbury as of September 30th of 49 days. And I think once we get through a full fourth quarter, we'll have a real sense of that in terms of dollar outcome. And that helped me 30% of the base at Salisbury was nine and a half or 10 million dollars. That's correct. Right around 10 million.

Yes, so great question, Matt and thanks for actually that so historically, we've had somewhere around <unk> <unk> per share or maybe a $1 million to a 1 million to reduction in core revenues in our fee based businesses fourth quarter versus third quarter. So if you think about that as a backdrop, we do some activity base.

Scott Kingsley: Yeah. Thank you. Thanks.

<unk> billings in our wealth management business in the third quarter, we have some actuarial.

Fees that are more more pronounced in the first and the third quarter of each year. So that's typically been our pattern for that your point is well taken.

We added about $650000 in a half a quarter in the wealth management Trust side from Salisbury, I think it's fair to assume that you get a full quarter of that in the fourth quarter and that kind of run rate expectations going.

Scott Kingsley: Okay, great. And then, you do have the, you know, reshary purchase plan out. Fanny, it sounds like, you know, growth, you know, is solid, but, you know, not, you know, not overly concerning in terms of capital usage. Capital should be building, you know, at a fairly good pace going forward, given the profitability you have. Is it something that you will be exploring using on a go-forward basis? For sure, Chris. You know, you know, I think as we start to talk about that, you know, we like our positioning today because it allows us to back your point of understanding where our natural credit and, I'm sorry, natural capital accumulation, you know, the positioning we have ourselves in.

Going forward the market sensitivity in retirement plan administration and in wealth, it's still meaningful for us, but that being said I think we have a more traditional base of customers in there.

So their utilization of both.

Fixed income as well as equity instruments.

More traditional based outcome.

That's not the 100% equity market influence group.

Clearly there is the yields in the fixed income market today. So would you expect some productive use of that so all in that I would say, we're looking at saying.

In the fourth quarter.

Scott Kingsley: We certainly also leave ourselves room to grow organically because we've been good at that over time. You know, as we pointed out in the Salisbury transaction, having a little bit of excess capital to be able to use for a really high value acquisition is a great opportunity for us. Similarly, we, you know, we've raised our dividend now 11 straight years. You know, we think the shareholders deserve more on a predictable annual basis.

Revenue is probably still down it probably isn't down as much as it would have been say from last year's third quarter to last year's fourth quarter because of the Salisbury impact, but we still think probably a little bit lower than what we had in the third quarter.

First and second quarter of next year as probably you have the outcome. That's similar to your fourth quarter with an expectation of organic growth, which we've achieved in all three lines of business.

Scott Kingsley: And to your point, having an open authorization for share repurchases is an important feature. I think it's more important when you think your organic loan growth opportunities are probably a little bit slower. And they're make, that may come into play in 2024. We may find that there are periods of 24 where demand is not as robust as we're enjoying today. I think those are the periods where a buyback is actually productive.

In 2023.

Expect that to continue opening new accounts, expanding our base and having an additional geography to expand those products to as all of the net positive.

I appreciate all the color there and then on the provision you had mentioned that going forward, maybe we could expect a more normalized provision certainly there are some moving parts this quarter.

Scott Kingsley: And, you know, we've always had the authorization out there to make sure that we could address share creep from some of our equity programs. And, you know, what's the hurdle you got to get over with that today? It carries a 5% funding cost to do that. You know, to buy your own shares, if you're being transparent, you got to assume that you're going to use 5% money to do that. The government sort of nicks us for a 1% toll tax when we buy that stuff.

How would you frame that.

15% to 20 bps of loans is that a reasonable starting point or said another way do you feel like the current reserve is probably a good place to keep.

For the <unk>.

Near term.

Yes, I think unless you get a meaningful change in some of the economic expectations.

Where we are currently from a coverage ratio on our current mix is probably a fair starting point.

Scott Kingsley: But, again, manageable and part of the long-term capital allocation strategy, the company for share. And if I could put a five point on that too, we review that at the board level every year. And just coincidentally, this week Scott led the board through that same discussion. And we reaffirmed that's the priority of allocation of capital as we go forward. So, you know, we're at a place this week where there is consensus at the top of the house and at the board.

I think for us and I'm sure we'll budget. This way, we'll budget that net charge offs again start to maybe look a little bit more like pre pandemic levels, but maybe not all the way back to 2019 net charge off levels. We always think that that provision wise, we cover those and then we cover whatever incremental loan growth we experienced in the quarter.

<unk> at that blended coverage ratio in the third quarter.

We had some things that actually were net positive for us that didn't force us into quite that that outcome, but maybe a center or two from that outcome. It wasn't like it was.

John Watt: That's how we're going to move, for a seat. Great. Thanks, Sean. Scott. Appreciate it. Thanks, Chris. Appreciate questions. Thank you.

Eight or nine cents off that outcome and it was a couple of cents.

Unknown Executive: And as a reminder, if you would like to ask a question at this time, please press star 1-1 on your touchtone telephone and one moment for our next question.

Okay.

And then John I had a few questions just based on recent events and then the upstate New York activity. It feels like every quarter you are now announcing another contract in another company.

Matthew Breese: Our next question is going to come from the line of Matthew Breese with Stephen's Inc. Your line is open. Please go ahead. Hey, good morning, everybody. Morning, Matt. Just a couple of model related questions. First, on fee income, Scott, you had mentioned that seasonally, this was the strongest quarter of the year.

This quarter you are talking about New York creates the opening complex I mean granted that central for workforce training.

Scott Kingsley: You know, with Sal's very only being there for partial quarter, could you, could you help us out in terms of what you expect to roll off, but then also for the full quarter impact with Sal, where do you, where do you expect to be, can you shake out in the fourth quarter? Yeah, so it's a great question, Matt. Thanks for actually that. So historically, we've had somewhere around two cents per share, or you know, maybe a million to a million to reduction in core revenues in our fee-based businesses, fourth quarter versus third quarter.

First of all what is the significance of that secondly.

Do you expect to see the region as a whole becoming more of a point of gravity much like Silicon Valley was for companies similar to micron similar to global foundries too.

Go to upstate New York, and just going to be a slow moving or.

We're growing snowball effect as more and more companies enter the area.

And could you remind everybody.

<unk>.

What's what's already existing up there.

So I appreciate the opportunity to have that discussion.

You know how important we believe it is at MPT for the economic transformation of our core markets in upstate New York.

Scott Kingsley: So if you think about that as a backdrop, you know, we do some activity-based billings in our wealth management business in the third quarter, we have some actuarial fees that are more pronounced in the first and the third quarter of each year. So that's typically been our pattern for that. Your point is well taken. We added about $650,000 and a half a quarter in the wealth management trust side from Sal's Berry.

On semi.

And global foundries.

All speed and now micron for a $100 billion in Central New York, which are the chip corridor lower Hudson Valley to Central New York are going to drive a transformation of our economy. Unlike one we have seen.

In many many years in upstate New York.

Scott Kingsley: I think it's fair to assume that you get a full quarter of that in the fourth quarter and that kind of run rate expectations going forward. You know, the market sensitivity in retirement plan administration and in wealth is still meaningful for us, but that being said, I think we have a more traditional base of customers in there, you know, so their utilization of both fixed income as well as equity instruments is probably a more traditional based outcome.

So.

It has been below the radar we believe at MPT that one of the things we can be doing is to raise visibility around it. Thus this discussion.

Am I going to go as far and say that.

<unk> County, and Central New York is going to be the new Silicon Valley, no im not going to say that but what I am going to suggest is we're going to use words like population growth.

Scott Kingsley: You know, that's not the 100% equity market influence group. And, you know, clearly, there's yields in the fixed income market today, so you expect some productive use of that. So, you know, all in Matt, I would say we're looking at saying, you know, in the fourth quarter revenue is probably still down. It probably isn't down as much as it would have been say from last year's third quarter to last year's fourth quarter, you know, because of the Sal's Berry impact, but we still think probably a little bit lower than what we had in the third quarter.

Like job growth like the increase in average salary.

And increase in the retention of students who graduate from all of the colleges and universities in upstate New York, because the job opportunities are going to be plentiful.

And that's the momentum that we have here.

<unk>.

Application filed by Micron to the Commerce Department in July.

Scott Kingsley: First and second quarter of next year's probably, you know, you have the outcome that similar to your fourth quarter with an expectation over organic growth, which we've achieved in all three lines of business, you know, in 2023, and expect that to continue, you know, opening new accounts, expanding our base, and having an additional geography to expand those products too is all in that positive. I appreciate all the color there.

For the allocation of the chips act is likely to be acted on by year end.

It has the support politically from Senator Schumer.

And there is a lot of optimism inside of Micron. We're aware of this that it will happen. There's a lot of work going on on the planning.

Scott Kingsley: And then on the provision, you had mentioned that going forward, maybe we could expect a kind of more normalized provision, certainly there's some moving parts in this quarter. How would you frame that, you know, 15 to 20 biffs of loans, is that a reasonable starting point, or said another way do you feel like the current reserve is probably a good place to keep, to keep it for the near-term? Yeah, I think unless you get a meaningful change in some of the economic expectations, you know, where we are currently from a coverage ratio on our current mix is probably a fair starting point.

Preliminary site work.

Side for Micron in Clay in New York, So the momentum there is positive.

Every quarter Youre, absolutely right there is a global semi.

Semiconductor company or supplier or related research company, who is being drawn into this corridor and into this market to support.

Micron will speed globalfoundries on semi and other.

Scott Kingsley: I think, you know, for us, and I'm sure we'll budget this way, we'll budget that net charge-offs again, start to maybe look a little bit more like pre-pandemic levels, but maybe not all the way back to 2019 net charge-off levels. We always think that provision wise, we cover those, and then we cover whatever incremental loan growth we experience in the quarter at that blended coverage ratio. In the third quarter, you know, we had some things that actually were net positive for us that didn't force us into quite that outcome, you know, but maybe a center to from that outcome. It wasn't like it was, you know, eight or nine cents off that outcome. It was a couple of cents. Okay.

Semiconductor initiatives in upstate New York.

And that.

I like your word snowball in upstate New York in this season good analogy.

That is likely to be a snowball that continues to roll downhill and grow.

And again the <unk>.

Boutique footprint sits directly on top of that.

And we have insight into what's going on in each one of those regions and we would expect in our retail businesses in our commercial lending business and our wealth business.

Insurance business that there is big opportunity. It has been demonstrated already in Central New York with.

John Watt: And then, John, I had a few questions just based on recent events, and then the update New York activity, you know, it feels like every quarter you're now announcing another contract, another company, you know, this quarter you're talking about New York creates the opening complex being granted at the Center for Workforce training. You know, first of all, what is the significance of that? Secondly, do you expect to see the region as a whole becoming more of a point of gravity, much like Silicon Valley was for companies similar to Micron similar to Global Foundry's to go to upstate New York?

The growth of I'm, sorry in the capital district with the growth of global foundries over the last 12 years.

Population growth and greater Saratoga.

The increase in business activity.

Have many customers who support that industry, who are enjoying additional contract bookings.

I'd expect more for many years as the expansion continues so I'll stop there.

John Watt: Is this going to be a slow moving or growing snowball effect as more and more companies enter the area? And could you remind everybody as, you know, what's already existing up there? So, I appreciate the opportunity to have that discussion. You know how important we believe it is at MBT for the economic transformation of our core markets in upstate New York, that on Sami and Global Foundry's and Wolf Speed and now Micron for $100 billion in Central New York, which are the chip corridor lower Hudson Valley to Central New York, are going to drive a transformation of our economy, unlike one we have seen in many, many years in upstate New York.

But I hope that you have a flavor of why we believe it's a key organic growth strategy for the long run and will transform the economy and drive significant growth at MPT.

Well I appreciate all that color.

John Watt: So, it has been below the radar, we believe at MBT that one of the things we can be doing is to raise visibility around it, thus this discussion. Am I going to go as far and say that Onodaga County in Central New York is going to be the new Silicon Valley? No, I'm not going to say that. But what I am going to suggest is we're going to use words like population growth, like job growth, like the increase in average salary and increase in the retention of students who graduate from all of the colleges and universities in upstate New York because the job opportunities are going to be plentiful.

Just moving on to a different topic more recently we've seen.

<unk> strategy of parting ways with fee income businesses insurance companies to be specific.

I think I know the answer to this but I just wanted your two cents on this strategy.

<unk> and whether or not we might see you follow suit or continue a path of building these lines of businesses.

Yes.

Matt you and I've had this discussion so we're about organically growing these businesses and to the extent that we get opportunistic periods of time, where we can bolt on small.

Revenue generation activities or small other firms in that same space, that's still our bias for sure.

It's difficult to sell stuff.

You ended up unwinding stuff that you've worked on for several years relative to cross selling opportunities.

I'll admit the last couple of that have been announced for these really large agencies revenues in the $100 million or $100 million level.

It's hard not to look at those multiple levels and say I understand why those institutions potentially talked about that I think for us kind of think about this strategy. If we can continue to organically grow the businesses that we're in.

We think we can create productive and profitable scale going forward. The beauty for US today is all we have scale in each of those businesses today. So it's just incumbent upon us to find.

John Watt: And that's the momentum that we have here. The application filed by Micron to the Commerce Department in July for the allocation of the CHIPS Act is likely to be acted on by year end. It has the support politically from Senator Schumer and there is a lot of optimism inside of Micron. We're aware of this that it will happen. There's a lot of work going on on the planning and preliminary site work side for Micron in New York.

The right folks and the right opportunities from a product standpoint to continue to organically grow because we really really like the cash flow that comes off those businesses and they are huge obviously generating capital for the rest of the institution. So our bias today has continued to improve and grow.

And our businesses are touch smaller than those big headline deals you've seen announced lately I'm not so sure the Arthur Gallagher's of the world and people in their sites are interested in what we have.

I appreciate that and then just a follow up from Mike I'd, just kind of events happen the knee jerk reaction is obviously.

John Watt: So the momentum there is positive. Every quarter you're absolutely right. There is a global semiconductor company or supplier or related research company who is being drawn into this corridor and into this market to support Mike Cron will speed global boundaries on semi and other semi conductor initiatives in upstate New York. And that I like your word snowball in upstate New York in this season, good analogy. That is likely to be a snowball that continues to roll downhill and grow.

One to look horizontally and figure out who else has these businesses do with some of the parts analysis.

Frankly from my years in the seat.

Rarely actually get a multiple on our fee income business with any sort of press release. So for the first time, we have an insurance multiple it feels like well, we don't have or multiples necessarily on wealth management or near case, the retirement plan ad business.

Not asking for a specific multiple on a recent deal but can you give us a flavor for what those types of businesses wealth and retirement plan admin what type of multiple those Gulf War.

Today's market or in a normal market.

Yes.

I'll give you some maybe some historical perspective on this as well.

But I think that.

Typically those businesses that have recurring cash flows and they are in more in the processing space.

John Watt: And again, the NBT footprint sits directly on top of that and we have insight into what's going on in each one of those regions and we would expect in our retail businesses, in our commercial lending business, in our wealth business, insurance business that there is big opportunity. It has been demonstrated already in Central New York with the growth of, I'm sorry, in the capital district with the growth of global boundaries over the last 12 years, population growth in greater Saratoga, a increase in business activity.

Have demanded.

Multiples of revenue that had been two two and a half or three times depending on their size.

Because again they are repetitive transactions I've always thought that there was from the private equity side or the hedge fund side that there was a fascination with the firms who accumulated assets because I think there was always this sense that you could be involved in the management or the.

The administrative activities of just those assets.

What we find in our businesses as we're good at processing and we're fine with that so in our retirement plan administration business where asset agnostic.

John Watt: We have many customers who support that industry who are enjoying additional contract bookings and it would expect more for many years as the expansion continues. So I'll stop there, but I hope that you have a flavor of why we believe it's a key organic growth strategy for the long run and will transform the economy and drive significant growth at NBT. Well, I appreciate all that color.

We are just the processing platform and we're good at it and we've taken the place of People's HR functions more than anything in that line of business.

Well for us is.

Is embedded into the core culture of the bank, we've always done that yes, it's embedded with us from a geography standpoint.

People in the field are servicing our not only our bank customers, but our other centers of influence in our communities that we're already participating in and I would say the same thing about insurance, we continue to strive to have a good cross sell with our customers on the insurance side Thats been very effective in the small business small commercial side more than anything else.

John Watt: Just moving on to a different topic, you know, more recently we've seen a bank strategy of parting ways with income businesses, insurance companies to be specific. I think I know the answer to this, but I would just want to do two cents on this strategy and whether or not we might see you follow suit or continue a path of building these lines of business. Yeah, Matt, you and I have had this discussion.

Finding a productive platform to do that more.

More repetitively on the consumer side is kind of the elusive thing, but we're working on it we're working on it and we're making some progress on that so I would kind of frame. It. This way unless we don't think we can organically grow those businesses are long term for our portfolio.

John Watt: So, you know, we're about organically growing these businesses and to the extent that we get opportunistic periods of time where we can bolt on small revenue generation activities or small other firms in that same space. You know, that's still our bias for sure. You know, it's difficult to sell stuff. You end up unwinding stuff that you've worked on for several years relative to cross selling opportunities. You know, I'll admit that the last couple that have been announced were these really large agencies, you know, revenues in the $100 million level.

Great I appreciate all the color I'll leave it there. Thank you.

Thanks, Matt Thanks, Matt.

Thank you and I'm showing no further questions and I would like to turn the call back over to John <unk> for his closing remarks.

Thank you Michele I appreciate everybody's time. This morning. Thank you for all of those are great questions about the momentum behind in BT as we close out this year and move into 2024.

Again have a great day appreciate your time thank you.

John Watt: It's hard not to look at those multiple levels and say, you know, I understand why those institutions potentially talked about that. I think for us to kind of think about this strategy, if we can continue to organically grow the businesses that we're in, you know, we think we can create productive and profitable scale going forward. The beauty for us today is all we have scale in each of those businesses today. So, it's just incumbent upon us to find, you know, the right folks and the right opportunities from a product standpoint to continue to organically grow.

Thank you Mr. Rob. This concludes our program you may disconnect have a great day.

Okay.

Okay.

Okay.

John Watt: Because we really, really like the cash flow that comes off those businesses and their huge obviously generating capital for the rest of the institution. So, our bias today is, you know, continue to improve and grow. And, you know, our businesses are a touch smaller than those big headline deals you've seen announced lately. I'm not so sure the Arthur Gallagher's of the world and people in their size are interested in what we have. I appreciate that.

Okay.

Okay.

Okay.

Yes.

Okay.

Yes.

Okay.

John Watt: And then just to follow up, you know, from my teeth, I just kind of events happen, the knee jerk reaction is obviously, you know, one to look horizontally and figure out who else has these businesses, do some of the parts analysis. Frankly, from my years in the seat, you very rarely actually get a multiple on a fiend come business with any sort of press release. So for the first time, we have an insurance multiple it feels like what we don't have or multiples necessarily on wealth management or in your case through retirement plan, admin business.

Okay.

Okay.

Yes.

Yes.

Okay.

Okay.

John Watt: I'm not asking for a specific multiple on a recent deal, but can you give us a flavor for what those types of businesses wealth and retirement plan admin? What type of multiple those go for in today's market or in a normal market? Yeah, well, I'm going to give you some historical perspective on this as well. But I think that, you know, typically those businesses that have recurring cash flows and they are in more in the processing space have demanded, you know, multiples of revenue that have been two to and a half or three times depending on their size.

<unk>.

Okay.

Okay.

Okay.

Okay.

Yes.

Okay.

Okay.

Okay.

Okay.

Okay.

John Watt: Because again, they're repetitive transactions. I've always thought that there was, you know, from the private equity side or the hedge fund side, that there was a fascination with the firms who accumulate assets. Because I think there was always this sense that you could be involved in the management or the, you know, the administrative activities of just those assets. I think what we find in our businesses is we're good at processing and we're fine with that.

Okay.

Okay.

Okay.

Okay.

John Watt: So in our retirement plan, administration, business, we're asset agnostic, you know, we are just the processing platform and we're good at it. And we've taken the place of people's HR functions more than anything in that line of business. Well, for us, you know, is embedded into the core culture of the bank. We've always done that. Yeah, it's embedded with us from a geography standpoint, you know, our people in the field are servicing not only our bank customers, you know, but our other centers of influence in our communities that we're already participating in.

John Watt: And I would say the same thing about insurance. We continue to strive to have a good cross-sell with our customers on the insurance side that's been very effective in the small business, small commercial side, more than anything else. Finding a productive platform to do that more, you know, more repetitively on the consumer side is kind of the elusive thing, but we're working on it. We're working on it and we're making some progress on that.

John Watt: So, you know, I would kind of frame it this way. Unless we don't think we can organically grow, those businesses are long term for our portfolio. Great. I appreciate all the color. I'll leave it there. Thank you. Thanks, Matt. Hey, thanks, Matt.

John Watt: Thank you, and I'm showing no further questions, and I would like to turn the call back over to John Watt for his closing remarks. Thank you, Michelle. Appreciate everybody's time this morning. Thank you for all those great questions about the momentum behind NBT as we close out this year and move into 2024. Again, have a great day. Appreciate your time. Thank you. Thank you, Mr. Watt.

Unknown Executive: This concludes our program. You may disconnect. Have a great day.

Unknown Executive: Matthew Breese, Alexander Twerdahl, Stephen Moss Matthew Breese, Alexander Twerdahl, Stephen Moss, Scott Kingsley, John Watt, Matthew Breese, Alexander Twerdahl, Stephen Moss, Scott Kingsley, John Watt, Matthew Breese, Alexander Twerdahl, Stephen Moss, Scott Kingsley, John Watt,[inaudible]